Company Reports

GrainCorp enjoys significant market shares in grain storage, handling, and port elevation services along the eastern seaboard of Australia. Earnings are heavily affected by seasonal conditions, but the diversification into oilseed crushing and refining reduces earnings volatility and provides growth opportunities. But we don't believe the firm has carved an economic moat, and forecast returns on invested capital to trail the firm's cost of capital over the long term.

Incitec Pivot aims to expand its business around its strong global market share in explosives. This provides an increasingly stable earnings stream relative to volatile earnings from its fertilizer business. Competitive advantages include a duopoly Australian explosives business and global explosives operations. Incitec Pivot is also a dominant player in the Australian domestic fertilizer market and enjoys a degree of domestic fertilizer pricing power from its dominant market share in eastern states, but it is too small to influence global prices. The fertilizer business does not possess an economic moat.

Deere offers customers an extensive portfolio of agriculture and construction products. We think it will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership.

AES has narrowed its geographic and business focus by selling businesses in markets where the company did not have a strong platform or competitive advantage. We think his strategy has been in the best interest of shareholders. The company now has operations in fewer countries, a stronger balance sheet, and a rapidly growing renewable energy business.

Over the past three years, KBC Group has been the most profitable bank in our coverage in the eurozone. Only the Scandinavian banks have been more profitable in Europe as a whole. We believe that KBC can consistently generate returns on tangible equity comfortably in excess of our cost of equity estimate of around 10%.

We award a wide economic moat rating to Coca-Cola and expect its impressive brand portfolio underpinning pricing power and close retailer relations, combined with scale benefits stemming from a massive global system, to reinforce its competitive position in the nonalcoholic beverage market and drive excess investment returns.

Agilent focuses on providing tools to analyze the structural properties of various chemicals, molecules, and cells. The company is one of the leading providers of chromatography and mass spectrometry tools, which have applications in a variety of end markets, including the healthcare, chemical, food, and environmental fields. While healthcare-related applications, including clinical diagnostics, remain Agilent’s largest end market, Agilent generates about half of its sales from nonhealthcare fields.

Atlas Copco is a sharply focused supplier of capital equipment, with a selective presence in attractive market niches for engineered equipment where the firm can optimally leverage its reputation for innovation and quality products. In doing so, Atlas Copco seeks out industrial and scientific equipment categories that are considered mission-critical by their users and where it possesses or can assume a market leadership position from a technology and brand visibility standpoint. At the same time, the firm shuns significantly commoditized capital equipment categories and market segments. Its air compressor and vacuum pump and equipment businesses—its two largest, account for approximately three quarters of group EBIT—are prime examples of the firm’s discerning approach where it sports industry-leading market shares in medium- to high-end market segments.

Rational’s multifunctional cooking appliances have a significant presence in restaurants and community catering. Its granular strategy is focused on two cooking appliances used by professional kitchens combined with significant reinvestment into product development, which should allow the group to maintain its dominant market share of 50% and earn high returns on invested capital through superior product differentiation. Having pioneered the technology that combined hot air and steam for mass catering purposes, Rational has constantly been working on product upgrades to improve cost-savings versus traditional cooking appliances and existing models. Its latest product innovation combining hot air, steam, and microwave was launched at the start of 2024.

We expect Aristocrat Leisure will continue to dominate the electronic gaming machine market. With a strong balance sheet and commanding market position, Aristocrat's research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology and consumer demands, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its narrow economic moat.

Grab is still in its growth phase as it continues to acquire more users in Southeast Asia of its mobility and delivery services, its core businesses. We expect Grab’s overall gross merchandise value, or GMV, to grow 41% year on year in 2023, and anticipate robust growth for 3-5 years as its core businesses have a dominant market position and a broad network of drivers and customers. However, profitability is a concern as we expect mobility to be the only profitable segment in 2023. The delivery service generates negative margins and Grab is incurring heavy losses from developing its financial services business that includes fintech payments and loans. Grab has also seen its advertising business grow into another revenue stream, which we believe will be a long-term catalyst.

Singapore Airlines, or SIA, is Singapore’s flagship carrier with a strong brand based on superior cabin service. However, the company’s dominance had been weakened in the prepandemic years by low-cost carriers, or LCCs, and the aggressive overseas expansion of the middle east's national carriers and Chinese airlines. While SIA has been building its discount brand Scoot, the proliferation of LCCs, however, made it difficult for SIA to maintain its market share and margins at the same time. However, we think the coronavirus disruption has given SIA a temporary advantage as SIA's financial strength and well planned staff resources enabled the carrier to bring out more flights to capture the rebound in travel demand.

Following the separation of the payment and merchandising technologies business as Crane NXT in April 2023, Crane’s portfolio consists of the aerospace and electronics, process flow technologies, and engineered materials segments. We think Crane owns a portfolio of moaty businesses that tend to be leaders in their niche markets, typically holding the number-one or number-two market share position. Crane manufactures highly engineered products that often perform a mission-critical function. Roughly 40% of its sales come from the aftermarket.

CSR is one of Australia’s leading building materials companies, producing bricks, plasterboard, insulation, fiber cement, aerated autoclaved concrete, and a variety of complementary building products. CSR manufactures and distributes recognized brands such as Gyprock plasterboard, PGH bricks, Monier roof tiles, Bradford insulation, and Hebel panels. It also holds a 25% effective interest in the Tomago aluminum smelter in a joint venture. Property development of surplus and excess land is also a key valuation driver, with a property portfolio valued at over AUD 1.5 billion.

We expect Recruit’s strategy to focus on expansion of its online marketplace for employment, Indeed, and to a lesser extent, expansion of its online review site for employers, Glassdoor.

We view Cisco Systems as the dominant force in enterprise networking and expect it to retain its strength in both legacy and future networks. Cisco holds leading market shares across switching, routing, and wireless access, with strong complementary positions in security and collaboration. We believe Cisco’s portfolio is appropriately positioned to benefit from trends toward hybrid work and hybrid cloud environments. It offers the most comprehensive suite of capabilities across converging networking and security markets, and we deem its intertwined products as sticky and worthy of a wide economic moat.

The Revolve Group has carved out an interesting competitive niche in the attainable luxury category, leaning heavily into the strengths of the e-commerce channel—breadth of selection, scalability, and ubiquity of access—to reach a mobile-first, millennial and Gen Z audience. With the firm cycling through 300,000 styles on its Revolve and FWRD (luxury) marketplaces during 2023, and with roughly 1,500 new styles launching weekly, the firm has positioned itself as an "online source for discovery and inspiration," capturing more than $400 in after-return spending among its base of 2.5 million active buyers at year-end 2023.

In 2022, AtkinsRealis (formerly SNC-Lavalin) reorganized its business into the following segments: engineering services, Linxon, nuclear, O&M, infrastructure LSTK projects, and capital. The first four are grouped together as SNCL Services.

We have a positive outlook on Dynatrace’s prospects in the observability space. The firm’s products benefit from secular tailwinds driving an accelerating increase in data for enterprises to monitor and analyze. In our opinion, the firm’s sticky product portfolio, broad swath of products that cover the entire IT stack, and increased penetration in its target market have enabled Dynatrace to form a narrow economic moat around its business.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.