Company Reports

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Ferguson primarily serves three major end markets: repair and remodel (Ferguson refers to this market as repair, maintenance, and improvement), new construction, and civil infrastructure. Ferguson's exposure to the US RMI market (as a percentage of sales) increased from 31% in 2008 to 60% in 2023, while US new construction revenue exposure decreased from 58% to 40% over the same time period.

Celanese is the world's largest producer of acetic acid and its chemical derivatives, including vinyl acetate monomer and emulsions. These products are used in the company’s specialized end products or sold externally. Celanese produces these commodity chemicals in its acetyl chain segment (roughly 53% of 2023 operating EBITDA), which primarily serves the automotive, cigarette, coatings, building and construction, and medical end markets. Celanese's Clear Lake, Texas, plant benefits from a cost advantaged feedstock from low-cost US natural gas. The company has expanded its acetic acid production capacity at Clear Lake in recent years to take advantage of the low-cost US natural gas-based feedstock. This should benefit segment margins as we expect US natural gas prices to remain well below natural gas prices in Europe, Asia, and Brent oil-based feedstock.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. In its current form, Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

The top healthcare real estate stands to disproportionately benefit from the Affordable Care Act. There is an increased focus on higher-quality care in lower-cost settings. The best owners and operators in the industry, which can provide better outcomes while driving greater efficiencies, should see demand funneled to them from the best healthcare systems. Additionally, the baby boomer generation is starting to enter its senior years, and the 80-and-older population, which spends more than 4 times on healthcare per capita than the national average, should almost double over the next 10 years. Long term, the best healthcare companies are well positioned to take advantage of these industry tailwinds.

Viatris is one of the largest generic drug manufacturers in the world. Generic drugs make up about 40% of the firm's sales and, along with other generics manufacturers, they continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, we expect Viatris’ future pipeline to focus more on complex generics—drugs that have complex formulations, dosage forms, or are injected or have more complex administration.

Makita’s business model emphasizes servicing professionals like carpenters by setting numerous sales and service branches near local specialty hardware stores that sell the company’s power tools and other equipment mainly to tradespeople. As a result, the company can quickly repair and deliver the equipment back to the tradespeople, who demand reliability in both products and service. In the power tools market, we expect Makita to maintain its dominant share of about 60% in Japan while competing for the leading position in Europe with Robert Bosch, where we estimate both have about 20% share. We expect Makita to continue generating about 17% of revenue in Japan and about half of revenue in Europe (including all products) as it leverages its well-recognized brand and service network.

Data center and AI demand is coming into focus for Energy Transfer. Several years ago, the partnership began to focus on connecting its assets to power plants located within 10 miles of its intra-state pipelines. Now, Energy Transfer believes it is connected to about 55%-60% of the power plants in Texas, either directly or indirectly. As a result, management believes it is well positioned to benefit from perhaps 8 billion cubic feet per day of new data center demand, likely by 2030, particularly as Dallas is emerging as a key data center hub.

Intellia Therapeutics is a gene editing company focused on the development of Crispr/Cas9-based therapeutics. Intellia's technology platform specializes in Clustered Regularly Interspaced Short Palindromic Repeats (Crispr)/Cas9, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases. Crispr/Cas9 has created a new class of medicines, which are well suited for targeting rare diseases or other disorders that are caused by genetic mutations.

SolarEdge is one of the largest global solar inverter manufacturers, based on revenue. The inverter is often referred to as the brains of a solar system, with its purpose being to convert direct current produced by solar panels into alternating current used by households/grid and optimize energy production.

Despite near-term financing costs and long-term corporate travel demand uncertainty, we expect Sabre to maintain its position in global distribution systems over the next 10 years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre's 30%-plus GDS air transaction share is the second largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control about 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

Kao has laid out a long-term plan to guide its growth through 2030, aimed at heightening its global presence and achieving JPY 2.5 trillion in sales with a 16% profit margin. The top-line target, implying 6.1% CAGR through 2030, looks challenging. Prospects of the newly established precision healthcare business look uncertain, given no precedent of product/service offerings to predict success. In contrast, the margin goal seems viable, given room to boost profitability of cosmetics and restore growth trajectory as well as margins of the baby diaper business. Its innovation endeavors and growth outlook of China and precision healthcare will play crucial roles in accelerating group growth, in our view.

Judo Capital began as a nonbank lender in 2016, using seed capital and debt facilities to establish itself as a lender to Australian small and midsize businesses. Judo received a banking deposit license in 2019. Among its competitors are the big four Australian banks, which collectively have around 70% share of total business loans. Judo has less than 1% share of the total Australian business loan market but we estimate closer to 2% of the SMB market.

Sino Biopharmaceutical was initially anchored in hepatitis medicines with its flagship drug Tianqing Ganmei, which was approved in 2005 in China. Since the introduction of China’s volume-based procurement policy in 2018, Sino Biopharm has increased its research and development spending for a more innovative pipeline. VBP purchases pharmaceutical products in bulk from drugmakers at a lower price for national public hospitals using national public healthcare funds. Generic or biosimilar drugs have the most severe price cuts in VBP. In 2023, generics and biosimilars contributed around 70% of Sino Biopharm’s total revenue. Hence, we believe the company’s transformation strategy makes sense, as it will increase Sino Biopharm’s competitive advantage while helping to mitigate the impact of VBP.

Orica has expanded its mining services business around a leading global market share in explosives. Earnings are leveraged to mining volume and commodity prices. The Australian explosives duopoly affords relatively high margins and returns; however, these are coming under pressure as Orica's more lucrative three- to four-year contracts mature and are replaced with longer-duration and lower-margin contracts. Orica benefits from resources development activity in Latin America, South Africa, and Russia. Non-Australian explosives usage also depends on construction demand, which is somewhat less cyclical.

Transurban is a major toll road investor with concessions to operate 14 Australian and three North American motorways. Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The core Australian roads are integral parts of the motorway networks in Australia's three largest cities: Melbourne, Sydney, and Brisbane. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.

We are cautious on the upside potential of Cleanaway’s strategy, which seeks to enhance shareholder value through strategic infrastructure investments, increased customer service, and operational excellence. Cleanaway is Australia’s largest waste management business with leading positions in municipal waste, commercial and industrial waste, liquid waste (nonhazardous and hazardous), and medical waste. Unfortunately, Cleanaway was a late mover in developing and acquiring post-collection infrastructure (landfills, transfer stations, recycling facilities, waste processing plants, incinerators, and energy from waste facilities) with global players waste management competitors, such as Veolia and Suez, possessing at strategically located post-collections assets which offer cost advantages. Cleanaway can't replicate competitors' post collections footprint without significant investment. Even then, Cleanaway’s position on the of waste processing cost curve is unlikely to match competitors who have developed their infrastructure at lower capital cost.

Credit Corp is a major purchased debt ledger, or PDL, acquirer in Australia, with long-term share of around a third of the market. It is also a minor debt collector in the US market with an estimated share of around 6% in fiscal 2024. PDLs are mainly acquired from banks and financial institutions, and are mostly unsecured credit card debt that are at least six months in arrears and already been through a collection process. Other forms of debt purchases include outstanding telephone or utility bills.

Equinix is well positioned to benefit from three trends that we expect to continue increasing: creation and use of data, which is only exacerbated by artificial intelligence; the need for that data to be connected; and reliance on cloud providers. Data center providers can flourish under these circumstances, and none is positioned better than Equinix.

Autohome is China’s largest automobile online media platform in terms of user traffic. The firm started providing media services in 2008 with a focus on new car content and building an active online forum to gain user traffic. According to QuestMobile, its mobile daily active users, or DAUs, reached 69.4 million in March 2024, demonstrating its leadership among automotive platforms.