Company Reports

With pandemic-related changes in consumer behavior around travel in the rearview mirror, economic performance of Norwegian Cruise Line Holdings is on a path to the generation of excess economic rents. As consumers returned to cruising after the 15-month sailing halt that ended in July 2021, they regained their appetite for travel, bolstered by the value proposition the holiday provides, an interest that continues to persist. With ships fully deployed at historical occupancy levels, pricing surpassed prepandemic levels in 2023 and continues to show momentum in 2024. While Norwegian could intermittently see pricing competition in periods of macroeconomic distress, we believe its attractive itineraries, tactical revenue management, and data-driven marketing will keep elevating sales across the brands. On the cost side, while higher oil prices and unfavorable foreign exchange could elevate costs at times, we expect management will focus on extracting further efficiencies as the business continues to scale. Over time, we expect both pricing and costs to normalize at low-single-digit rates.

We think InterContinental holds one of the industry's strongest brand intangible assets—a source of its wide moat—and forecast it will expand its room share during the next decade. Renovated and newer brands focused on the attractive midscale and extended-stay segments as well as a loyalty program of 130 million members will aid this growth. Also, the company holds a strong presence in international markets, with non-Americas regions constituting 45% of total rooms in 2023. This positions the company well for the more than 1 billion middle-income class individuals expected to be added to the global population over the next decade. The company currently has a mid-single-digit percentage share of global hotel rooms and over 10% share of all industry rooms under construction. We see its total room growth averaging over 3% over the next decade, above the 1%-2% supply increase we estimate for the US industry.

Nordson is a leading manufacturer of equipment used for dispensing adhesives, coatings, sealants, and other materials. The company enjoys strong market share across its business lines, and its products are often used in niche applications where competition is limited. Nordson differentiates itself by offering highly engineered and customizable solutions that perform a mission-critical role in a customer’s manufacturing process.

We view Under Armour as lacking a moat, given its failure to build a competitive advantage over other athletic apparel firms. Between 2008 and 2016, the firm’s North American sales increased to $4 billion from $700 million and it passed narrow-moat Adidas as the region’s second-largest athletic apparel brand (after wide-moat Nike). However, Under Armour’s North America sales are little changed over the past seven years as it has been challenged by established competitors and new entrants. In March 2024, controlling shareholder Kevin Plank returned to the CEO position with the intention of returning the firm to its glory years, but he warned that sales in North America are likely to get worse before they get better.

SLB, formerly known as Schlumberger, is the largest oilfield services provider in the world, with a product portfolio that addresses nearly every end market in the industry. The firm has developed an impressive reputation as one of the leading innovators in oilfield services. Roughly 20% of its annual revenue comes from new technology, and the efficiency gains well operators realize through SLB’s services have earned the firm dominant market share in several categories, including wireline services, production testing, and logging-while-drilling.

While the coronavirus had a material impact on Choice's 2020 demand, the company's US leisure-based portfolio (which represents around 70% of nights) saw a full return to 2019 revenue per available room levels in 2021. We expect the narrow-moat company to gradually expand room share in the hotel industry in the next decade, with its keys increasing 2% on average annually, above the 1%-2% supply lift we estimate for the US industry during that time. This growth is supported by a rejuvenated Comfort brand (27% of 2023 total domestic rooms), newer Cambria, Ascend, and Everhome concepts (7% combined), its extended-stay brand WoodSpring (6%), the acquisition of the Radisson brand in 2022, and a solid loyalty program with 65 million members as of March 31, 2024, up 9% from a year ago. Overall, Choice holds around 2% global hotel revenue share, ranking it sixth in the industry.

Casio Computer is a consumer electronic company that is focused on differentiating itself by selling niche devices at an affordable price. Casio established its identity by launching Casio Mini, known as the first personal calculator, in 1972; it replicated this success in 1995 with QV-10, the world’s first digital camera with an LCD display, and in 2002 with EX-S1, the first digital camera to achieve business-card size. Casio is also known for producing tough and functional wristwatches under the G-Shock brand name, which arrived in 1983.

Mizuho Financial Group is one of Japan’s three largest banking groups, with a 6.7% share of domestic loans and 8.5% share of deposits as of March 2023. Mizuho lacks the large consumer finance, credit card, and leasing operations of its two rivals, leaving it dependent on banking, securities and asset management for future returns. Its securities business has been performing well, in our view, including overseas. However, the dependence on banking means the need for expense reductions is even more important for Mizuho’s future profitability than it is for its two megabank rivals.

James Hardie's growth strategy includes marketing directly to homeowners, market share growth, and category expansion. We view this as rational and achievable, given past success. We estimate Hardie has about 90% market share in the fiber cement category in its main geography of North America, which contributes about 80% of group operating income. About two-thirds of North American EBIT is from repair and renovation, or R&R, and the remainder is from new house construction. We view the R&R market as less cyclical, with homes needing to be resided approximately every 40 years. According to the US Census Bureau, about half of all houses are 40 years or older. As such, we expect a steady pipeline of homes requiring siding replacement or repairs through the next decade.

With the divestment of peripheral operations and geographies, Aviva has tilted its portfolio to a regional focus and more balance across product lines. International growth took the company increasingly away from general insurance. This is back to levels of contribution seen historically. Aviva is still a life and savings business predominantly, generating close to three quarters of its earnings from protection and health, equity release, annuities, and long-term savings. Health insurance is increasingly important, serving 4.5 million retail customers and around 3.3 million customers who get health insurance through their employment. With elevated national health service waitlists, there is increasing demand for health insurance. In protection, the company’s products are split equally between individual and group insurance. Using individual protection as a benchmark, 10% of sales are direct, 10% are sold without advice but intermediated, and protection sales are heavily intermediated. Aviva is looking to make individual protection increasingly automated. Health and protection make up around 10% of operating profit from UK and Ireland life and savings.

Medibank is Australia's largest private health insurer, operating under the Medibank and Ahm brands. The dual-brand strategy has allowed the group to offer differentiated pricing and messaging to increase members and profits.

Narrow-moat Trip.com competes in China’s crowded online travel agent, or OTA, industry by leveraging the largest selection of both domestic and international hotels in China on its platform and relying on user stickiness as a one-stop shop for travel ticketing, accommodations, and packaged tours. The platform is now also generating revenue from advertisement in which it hopes to take 3%-5% of the ad market, but nearly all its revenue streams are travel-related, and coronavirus lockdowns in China has cratered demand due to the inability to travel or unwillingness to quarantine.

Sonic Healthcare’s “medical leadership” model recognizes the importance of the referring doctor as the company seeks to differentiate itself on service levels. Success in the model is evidenced by organic growth consistently tracking ahead of the market, suggesting market share gains. In an industry where absolute volume is an important component in achieving greater cost advantage, organic growth supplemented by appropriate acquisitions continues to add value for shareholders.

We expect Technology One’s strategic focus to revolve around increasing the number of products used by its local government and education customers in Australia and New Zealand. To a lesser extent, we expect Technology One to focus on vertical expansion and geographic expansion into the UK education market.

Mitsubishi UFJ Financial Group, known as MUFG, is Japan’s largest banking group, with 8.1% share of domestic loans and 11.7% of deposits as of March 2023. It was also the most global among Japanese banks in terms of the contribution of overseas operations to profits and balance sheet, but following its sale of Union Bank of California in 2022, its overseas contribution is similar to Sumitomo Mitsui Financial Group's and slightly higher than Mizuho's, excluding the profit contribution of equity-method affiliate Morgan Stanley. After including Morgan Stanley, which has contributed more than 25% of MUFG's total earnings in each of the past five years, MUFG is still the Japanese bank with the largest exposure to operations outside Japan. In Southeast Asia, Krungsri (the third-largest bank in Thailand, 77% owned by MUFG) contributes around 10% of total profit, while MUFG also owns Indonesia’s Bank Danamon and roughly 20% stakes in banks in the Philippines and Vietnam.

We view Palo Alto Networks as a leader in multiple cybersecurity end markets, including network security, cloud security, and security operations. We believe the firm stands to materially benefit from secular tailwinds across its three key verticals as cloud migrations, shift to zero-trust security, and increased automation in cybersecurity increases Palo Alto’s value proposition to its clients. In our view, the firm’s sticky platforms, combined with a broad range of cybersecurity applications have helped Palo Alto build a wide economic moat around its business.

Zoom Video Communications’ mission is "to make video communications frictionless," which it accomplishes with a unified, video-first communications platform that incorporates video, voice, chat, and content sharing. More recently, Zoom introduced a phone system and a contact center solution. The company offers a differentiated peer-to-peer technology, complete with proprietary routing technology. Zoom is a recognized market leader in meeting software and is disrupting and expanding the $100 billion market for collaboration software with its ease of use and superior user experience. We think the pandemic lockdowns demonstrated the strength of the solutions, which combined with an expanding portfolio help establish a narrow moat.

Li Auto is a leading new energy vehicle, or NEV, manufacturer in China, producing plug-in hybrid electric sport utility vehicles, or SUVs, for family car use. Li Auto put a lot of effort into its range-extension powertrain, which has become a key selling point for its value-for-money vehicles. As it uses less battery, plug-in hybrid electric vehicles, or PHEVs, offer significant price advantages compared with battery electric vehicles, or BEVs.

The Cooper Companies is one of the largest eye care companies in the U.S. It operates in two segments: CooperVision and CooperSurgical.

Fidelity National Information Services' acquisition of Worldpay in 2019 was one of three similar transformational deals that took place in short order. But FIS has more recently decided to undo the Worldpay deal as it struggled with operational issues within the Worldpay business.