Company Reports

LY Corp is Japan’s largest internet conglomerate, with the Yahoo Japan portal site, Line messenger, PayPay mobile payment, and Zozo fashion e-commerce site under its umbrella, each with the largest number of active users in Japan. LY Corp’s business portfolio was built through the aggressive mergers and acquisitions strategy implemented by former co-CEO Kentaro Kawabe. Yahoo Japan, which has a relatively older user base; Line, which has a younger user base; and Zozo, which has many young female users, have little overlap in user base, and thus we expect significant synergies in the future.

Power Corporation of Canada is a holding company and derives most of its underlying value from its ownership stakes in no-moat Great-West Life and narrow-moat IGM Financial. We estimate that Power Corporation's stake in two publicly listed companies accounts for approximately 85% of its overall value. The company has stated that rather than diversifying across industries, Power Corp. will focus on the financial services sector. The company simplified its ownership structure and reduced corporate costs after it acquired all the shares of Power Financial in a restructuring effort in 2020.

Papa John's International sits in an interesting niche in the $93 billion global pizza quick-service restaurant market (Euromonitor), with its "better ingredients, better pizza" mantra reflecting a commitment to simpler products that are purportedly higher quality than those of its largest category peers, Domino's and Pizza Hut. The firm's premium positioning limits its ability to lean on discounting during periods of intense competitive pressure but also permits it to compete for more affluent clientele, somewhat blunting its cyclicality. Pizza's categorical position as the cheapest option to feed a family also benefits the subindustry during periods of pressure.

Consumers' hunger for confectionery and snacking fare has yet to be fulfilled, as evidenced by Hershey's outsize organic sales growth the past few years. But from where we sit, this isn't merely a byproduct of a favorable demand environment. Rather, we applaud the strategic focus CEO Michele Buck has brought to bear over the past seven years--ramping up investments in its core domestic brands while pulling back in its international arm (high-single-digit percentage of total sales, where we surmise its competitive position lags its global peers).

EPAM Systems is a moaty IT services firm, in our view, that has ample runway for solid growth and moderate margin expansion ahead. The firm sets itself apart from companies like Accenture or Tata Consultancy Services with its deep concentration in engineering services, which pertains to the creation of custom enterprise software or code. The demand for engineering services has accelerated since the COVID-19 pandemic, which shed light on the need for an agile and flexible information technology landscape – enabled by custom software. Yet, we think demand for such services is here to stay, as digital transformation projects require hefty software engineering to lift systems to the cloud and finetuning thereafter is inevitable. Altogether, EPAM’s bread and butter of engineering services is a more discretionary type of IT enterprise spending, which means its mix has proved extremely favorable in good macroeconomic times but compounded vulnerability in weaker macroeconomic times. While near-term revenue growth has been challenged, we think the long-term trajectory is solid, and we are pleased to see a focus on increasing consulting revenues which can further drive demand in EPAM’s engineering services.

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.

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.

Expro’s product portfolio spans the well cycle, from exploration and appraisal through abandonment. Product lines include well flow management, well intervention and integrity, subsea well access, and well construction. Expro is a leader in well testing, a small but crucial component of well construction, and holds a strong reputation in niche subsea equipment and services markets.

Favorable regulation and large infrastructure investments have driven strong earnings growth and steady dividend increases for Atmos Energy.

While concerns abound around consumers' financial health and ultimately their willingness to pay up for the essential goods in Colgate-Palmolive's portfolio, we think the firm is navigating the uncertain landscape astutely. Under the leadership of CEO Noel Wallace, the firm's strategic focus has centered on elevating research, development, and marketing spending (on its core mix, in adjacent categories, and throughout the digital realm) and responding to evolving consumer preferences more expeditiously, bringing products to market in just six to 12 months in some cases, down from 18-36 months historically. The prudence of this course is evident, as Colgate has chalked up 21 consecutive quarters at or above its 3%-5% long-term organic sales growth target. We attribute these results to a renewed focus on consumer-valued innovation, even that which comes with a higher price, as well as elevated brand spending; the company has spent almost 12% of sales on marketing on average the past four years, 120 basis points above the level directed in 2017-19.

Nutrien, the world’s largest crop nutrient company by capacity, was formed in early 2018 as a result of the merger between Potash Corp. of Saskatchewan and Agrium.

Warner Bros. Discovery faces significant uncertainty surrounding its evolution in a media landscape defined by cord-cutting and many streaming choices. Ultimately, we think Warner’s scale, distribution channels, production studios, and content portfolio will make it one of the survivors.

Roblox operates an online video game platform that lets gamers create, develop, and monetize games for other players. The firm offers developers a hybrid of a game engine, publishing platform, online hosting and services, marketplace with payment processing, and social network. There is no entry cost to try out Roblox or the vast majority of user-developed games. Thus, to drive booking growth and keep the Roblox model churning along, the new user must purchase and spend Robux, the platform’s tender.

Envestnet was founded in 1999 to offer independent advisors access to a comprehensive wealth-management platform. The firm’s founder, the late Jud Bergman, sought to capitalize on the move to independent RIAs from wirehouse firms and the move to a fee-based advice from a commission-based model.

Under the leadership of CEO Stuart Bradie, who took the helm in 2014, KBR has focused on shifting its portfolio toward differentiated government solutions. The portfolio rebalancing, which included the acquisitions of Wyle and HTSI in 2016, SGT in 2018, and Centauri in 2020, has already started to bear fruit and led to improved results in recent quarters. In 2020, KBR restructured its portfolio into two segments: government solutions and sustainable technology solutions.

Kinetik Holdings is a midstream operator providing pipeline and gathering and processing services to E&P companies in the Permian Basin. In 2024, the volumes handled by its pipeline activities will evenly split between gas and natural gas liquids (NGLs) with less than 10% from crude oil. Its gathering and processing services collect and process natural gas and NGLs in order to feed them into its own pipelines for sale at the local Waha hub. Alternatively, the molecules will be transferred to larger transit pipelines to access the larger and more lucrative international export demand for liquefied natural gas (LNG) and from China for natural gas liquids.

Uni-President China is the second-largest producer of instant noodles and ready-to-drink, or RTD, tea in China. The company underwent a period of fast revenue growth in the early 2010s and has transitioned to a more stable state in recent years. According to Euromonitor, its market share in instant noodles and RTD tea rank second after Tingyi, at around low-teens and midteens, respectively. However, new entrants emerging in ready meals and RTD drinks could gain share in the company's traditional categories.

Originally an original equipment manufacturer for advanced wound-care products, Advanced Medical Solutions has built on its technical expertise and expanded into adjacent markets. Though AMS remains significantly smaller than Smith & Nephew, Molnlycke, and ConvaTec, we like how it has shifted its focus toward higher-margin branded surgical products and believe this strategy should enhance its already attractive returns on invested capital.

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.