Company Reports

We expect Australian Securities Exchange's near- and medium-term strategic focus to be on protecting its economic moat in cash equity clearing and settlement. ASX has long been protected from competition through various exclusive licences to clearing and settlement, which we consider a source of its economic moat, based on intangibles. However, over the past decade, ASX has faced increasing calls from the federal government, regulators, and industry bodies for more competition. In response to these calls, ASX attempted to deliver a world-leading new clearing system, based on blockchain. However, after several years of delays and cost overruns, this project has been shelved, which has renewed discussion on opening up the clearing and settlement market to more competition. ASX, we believe, will therefore focus on trying to demonstrate to the federal government, regulators, and industry bodies that it is capable of maintaining smooth operations of Australia’s financial infrastructure, including by increasing spending on its various systems. Regardless of the potential regulatory outcome, cash equity clearing and settlement make up only around 15% of ASX’s revenue. Moreover, we believe that even if cash equity clearing and settlement would be opened up to competition that ASX’s business would remain well protected due to network effects inherent in ASX’s clearing business. We therefore do not expect significant changes to ASX’s cash equity clearing and settlement market share or margins in the foreseeable future.

Broadcom is an amalgamation of high-value chip and software businesses that on the whole are differentiated and moaty, in our view. Broadcom is a terrific aggregator of firms, big and small. Its ability to acquire and streamline generates strong profits and cash flow, and fuels its robust dividend. We laud the firm for its execution and operating efficiency, which build upon its large organic investment and help it to outperform its end markets organically.

Conglomerate CK Hutchison Holdings is expected to continue focusing on acquisitions, spinoffs, and cost-containment to raise its profit. We think efforts to improve customer retention at its drugstore chain Watsons and the tweaks in its telecom activities will help drive profit. The steps toward recovery from the coronavirus pandemic in China and Hong Kong should help short-term growth, but this may be offset by rising inflation.

Sweden-based medical device and sterilization company Getinge has struggled through roughly a decade of operational and reputational challenges. The firm remains focused on improving operating efficiency, addressing product quality, and building back trust with customers and regulators. As part of this turnaround, Getinge has committed nearly SEK 2 billion to remediation and restructuring related to the 2015 consent decree imposed by the U.S. Food and Drug Administration and about SEK 1.8 billion in provisions for surgical mesh liability costs. The firm also sold its entire extended-care business in 2017. Regulatory challenges remain a risk, and in 2023 we estimate it spent approximately SEK 800 million in quality spending related to its cardiopulmonary and cardio assist businesses. Nonetheless, we think Getinge could maintain a strong position in key markets (such as life science sterilization, advanced ventilators, and surgical capital equipment) and gradually improve margin with a focus on U.S. market expansion and cost restructuring.

Over the past decade, Teleflex has transformed from a diverse industrial, commercial, and healthcare company to one focused on single-use medical devices for surgical and minimally invasive procedures. It has relied heavily on acquisitions and divestitures and is likely to remain acquisitive in future. It generally targets companies with revenue in the $50 million-$300 million range to expand its portfolio and footprint. The firm prioritizes the development and acquisition of relatively inexpensive devices—generally under $1,000—that are unlikely to be targeted by healthcare device intermediaries for cost-savings. As an example, one night's stay in a hospital can lead to billed expenses of over $10,000, with Teleflex’s products accounting for around $500, or 5% of the total hospital cost.

Even as the second-largest poultry producer in the US (58% of 2023 sales), the UK and Europe (30%), and Mexico (12%), we think Pilgrim’s Pride has failed to create a competitive advantage. Pilgrim’s Pride primarily sells fresh chicken and pork (only in Europe), with just 27% of Pilgrim’s Pride's sales coming from prepared products, though this includes private-label offerings. Because meat is a commodity and carries little to no brand or pricing power, it is exposed to volatility in both input costs and selling prices. We don’t think the diversification afforded through acquisitions into pork and Europe necessarily reduces that risk, given the limited synergies we see across proteins and regions.

Evergy formed in June 2018 when Great Plains Energy and Westar Energy merged after two years spent working through the regulatory approval process in Kansas and Missouri. With the integration complete and a new management team in place, Evergy is working to improve historically challenging regulation and invest in clean energy.

EQT is primarily a natural gas producer located in the Appalachian basin, with operations straddling Pennsylvania, Ohio, and West Virginia. Unlike other operators in that region, EQT’s production is over 90% dry natural gas instead of higher-value products such as oil or natural gas liquids that are prevalent in other areas of the patch. By focusing on natural gas, EQT is far more vulnerable to the price volatility of natural gas, which oil producers are willing to throw away, either by selling at a loss or burning, when it gets more expensive to move.

Foodservice distribution is highly fragmented, with Sysco holding just 17% share as the leader of the roughly $370 billion US market. However, we think its dominance is far stronger than share alone may imply. Restaurants demand timely and consistent delivery to serve the freshest food. Sysco allows restaurants to buy the bulk of its needs from a single source rather than dozens of producers, simplifying logistics and saving time. While the goods it sells are commodities, Sysco can differentiate on selection, quality, and freshness while also offering services like menu planning and kitchen setup advice. Indeed, we believe this has driven top-line growth that has outpaced industry growth, which should persist, leading to our 4.3% average annual sales growth forecast.

Consolidated Edison's core rate-regulated electric and natural gas distribution utilities in New York and New Jersey have produced stable earnings and dividend growth despite regulatory challenges historically. Now we think regulation is becoming more constructive as all stakeholders in the region pursue aggressive clean energy goals.

After a multiyear battle with the courts and concerned stakeholders that had effectively blocked the Mountain Valley Pipeline, the Biden administration finally stepped in to save it. With legislation declaring the pipeline in the national interest and ordering the relevant agencies to issue the required permits by late June 2023, Equitrans now expects the pipeline to be in service in the second quarter of 2024. Equitrans expects to own 49% of the pipeline via a subsidiary as part of a joint venture and will be the operator once it is in service. With the pipeline derisked, EQT has stepped in to acquire Equitrans in an all-stock transaction due to close in the fourth quarter of 2024.

Aptar is a global leader in dispensing technologies and operates under three business segments, Aptar Pharma, Aptar Beauty, and Aptar Closures. The company specializes in various drug dispensing solutions including nasal spray inhalers and elastomer components for injectable drugs, high-end fragrance pumps, and food dispensing closures. While Aptar’s portfolio includes lower-margin products such as shampoo and soap pumps and caps for sauce bottles, it has intentionally focused on growing the higher-margin healthcare business over the past decade, which now accounts for about two thirds of operating profits.

Luxembourg-based Eurofins is one of the world’s largest testing, inspection, and certification, or TIC companies, with a focus on sample-based bioanalytical tests. Eurofins has global leadership positions in food and feed, environmental, and pharmaceutical testing. By investing in internal expansion as well as external acquisitions, it builds out decentralized “hub-and-spoke” lab networks that offer comprehensive testing solutions and short turnaround times. Customer relationships are often long-lasting, especially with large multinational customers who require a lab partner with a strong reputation and track record, broad testing capabilities that are accredited across many territories, and innovative testing solutions.

FMC is a pure-play crop chemical producer. It is one of the five largest patented crop protection companies globally. FMC acquired Cheminova in 2015, increasing exposure to Europe and expanding its portfolio of crop chemicals. In late 2017, FMC acquired DuPont's crop chemical portfolio, which included the blockbuster diamide insecticides. At the same time, it divested its nonagriculture businesses.

We think Amphenol is a differentiated connector supplier, an excellent operator, and an exceptional steward of shareholder capital. Amphenol competes against myriad competitors in the fragmented electrical component industry, but its broad array of end markets allows it to expand the top line even amid an individual market downturn. We also think the firm’s singular ability to effect cost controls gives it the highest operating margins of its peer group, and allows it to quickly bring its numerous acquisitions up to firmwide profitability.

Epiroc has managed to enjoy superior operating metrics and greater resilience than competitors within the mining supply chain through its track record of innovative mining solutions and recurring aftermarket revenue. By specializing in niche equipment, which has high aftermarket requirements, Epiroc is less dependent on uncontrollable and cyclical factors such as commodity prices to drive demand. Differentiation in drilling equipment and underground trucks has been achieved through specialized knowledge via investment into research and development, or R&D, and strong customer relationships. One third of its orders are to copper mines, a key metal to help decarbonize several industries.

Contemporary Amperex Technology, commonly known as CATL, is the largest producer of lithium-ion rechargeable batteries for electric vehicles in China and globally. According to SNE Research, CATL is ranked first in the global EV battery market with a market share of 37% as measured by installed capacity in 2023 and 43% share in China. CATL’s major customers include most of the leading automakers such as Tesla, Nio, Geely, SAIC, and Volkswagen.

We view CyberArk as a strong cybersecurity player, focusing on the identity slice of the overall security pie. The firm’s solutions, ranging from privileged access management to machine identity, are set up to secure identities across a client organization. With identity security emerging as a core piece of a broader shift to zero-trust security, we believe CyberArk has a long runway of growth ahead of it.

Oracle is a best-in-breed provider of on-premises relational database technologies and enterprise resource planning software and is one of the most profitable companies in the software industry. However, growth has been lacking as more customers shift their workloads to the cloud, bypassing Oracle’s solutions. Despite Oracle’s cloud migration efforts, cloud competition will likely provide headwinds for Oracle. In turn, our moat rating for Oracle is narrow, coupled with a negative moat trend rating.

Margin expansion through growth in value-added health foods and an enlarged overseas sales scale will serve as a key driving force behind Meiji’s midterm growth. In the near term, restoring margins squeezed by rapid Japanese yen depreciation and cost inflation and minimizing China losses is a priority. Meanwhile, restructuring efforts to enhance pharmaceutical profitability have borne fruit. Pharma profit growth, lifted by new vaccines and overseas expansion, will hold equal importance as food to the fairly challenging growth target of more than 11% CAGR in operating profits for the three-year plan ending March 2027.