Company Reports

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.

Generac is in the midst of a transition to an energy technology solutions company.

Morgan Stanley has built a more stable business model, and its shift to wealth management from investment banking will continue to be a main part of the company’s story over the long term. Investment banking is capital intensive, and many banks, especially the European investment banks, have had trouble earning adequate returns in that business and have purposely shrunk that business line. Morgan Stanley has remained dedicated to investment banking and has gained market share. The company had a strong return on equity in its institutional securities business of about 16% in 2020 and 20% in 2021 but has only averaged about 11% over the previous decade.

Home Depot is the world's largest home improvement retailer, delivering $153 billion in revenue in 2023. The firm's wide economic moat rating is based on its economies of scale and brand equity. While Home Depot has realized strong historical returns as a result of its scale, operational excellence and concise merchandising, all of which remain key tenets underlying our modest margin expansion forecast. Its flexible distribution network should help elevate the firm's brand intangible asset, with faster time to delivery improving the do-it-yourself (DIY) experience and market delivery centers catering to the pro business. The success of ongoing initiatives should allow for modest operating margin expansion above prepandemic levels in the longer term, despite near-term inflationary pressures and economic turbulence.

We see Hyatt’s brand intangible asset—the source of its narrow moat—strengthening over the long term. Hyatt's growing brand advantage is evident in its managed and franchised unit growth that has averaged more than 10% annually over the past 10 years (2014-23), well above the long-term US industry supply increase of 2%, according to STR data. We expect Hyatt to expand room and revenue share in the hotel industry over the next decade, buoyed by newer brands like House, Place, Apple Leisure Group, and Studios, supporting its intangible brand advantage. We see the company’s room growth averaging 4%-5% annually over the next decade, above the 1%-2% supply increase we estimate for the US industry during this time. We are favorable on Hyatt's long-term competitive advantages and think the firm's high luxury, upper upscale, and upscale exposures across the globe position it to outperform industry demand in 2024, as improving overseas and group travel augments resilient leisure trips.

Manawa is New Zealand's fifth-largest generator behind Contact Energy, Mercury NZ, Meridian, and Genesis. Like Meridian and Mercury, Manawa generates close to 100% of electricity from renewable resources. It owns 26 relatively small hydroelectric schemes in New Zealand, producing about 1,940 gigawatt hours of electricity in an average rainfall year. The firm's wind farms and retail business were divested.

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.

Sumitomo Mitsui Financial Group, with a 7.1% share of domestic loans and 8.9% of deposits as of March 2023, is one of Japan’s Big Three banking groups. Compared with its two megabank rivals, SMFG has a greater focus on retail customers and small and medium-size enterprises rather than large corporate clients. This has given it a higher average asset yield in Japan but we don't think it has necessarily meant higher credit costs in the core banking business. SMFG has strengths in consumer finance, where it owns 100% of the Promise business, and in credit cards. Like the other two Japanese megabanks, SMFG has expanded its overseas business significantly since 2010, with overseas loans constituting 40% of total loans as of March 2023, compared with 15% in March 2011. SMFG also owns Indonesian bank BTPN, Fullerton India Credit, around 20% of Hong Kong-based Bank of East Asia, 20% of Rizal Commercial Banking in the Philippines, 18% of Cambodian lender Acleda, and 49% of Vietnamese nonbank lender VPBank SMBC Finance.

Daikin is one of the world’s largest heating, ventilation, and air conditioning companies. The air conditioning segment constantly contributes to over 90% of the company's revenue, and the division’s revenue mix is well-diversified geographically, with the Americas—mostly the United States, China, Japan, and Europe each contributing to over 10% of revenue. Over the years, Daikin has seen decent earnings growth mainly thanks to sales channel expansion in the US and Southeast Asia, robust global demand for high-end products, and the Japanese yen’s depreciation. Meanwhile, the company maintained healthy operating margins thanks to cost rationalization and efficiency improvements.

Fletcher Building operates across six segments: building products; distribution; concrete; Australia; residential and development and construction. Fletcher's earnings are tied to construction activity in Australia and New Zealand. In fiscal 2023, EBIT was approximately split: 25% building products; 17% residential and development; 16% distribution; 18% concrete; 21% Australia; and 3% construction.

As the largest beauty product maker globally, L’Oreal has built an impressive collection of top-selling beauty brands balanced across core categories (skin care, makeup, hair care, and fragrance) that straddle the premium and mass segments. We believe its strong brand differentiation based on innovation, marketing, and consumer experience, coupled with scale-based cost advantages, should support a durable competitive edge, enabling the firm to deliver excess returns for more than 20 years. As such, we award L’Oreal a wide economic moat rating.

Avangrid is majority-owned by European utility Iberdrola. Avangrid investors must be comfortable with regulated operations across the Northeast and the outlook for the U.S. onshore and offshore renewable energy growth.

Take-Two is one of the larger video game publishers and owns one of the most well-known video game franchises in Grand Theft Auto. With the acquisition of Zynga, the company is also one of the largest mobile game publishers, with mobile games currently accounting for about half of sales. Like several of its peers, Take-Two is trimming the number of games in development to focus resources where financial returns are likely to be strongest, which we think will play to the firm's competitive advantages. While all eyes are now on the release of GTA 6, currently planned for the fall of 2025, we believe patience is warranted, given this title will likely serve as a sales platform far into the future.