Company Reports

Akamai has done a fantastic job transitioning its business away from the legacy content delivery network, or CDN, upon which the firm was originally built. The CDN business lacks competitive advantages, in our view, and has been in long-term decline, as major media and hyperscale businesses have created their own networks and pushed pricing lower.

Omron uses its sensing and control-related technologies to cover a broad spectrum of fields, but we expect its profit drivers to be its industrial automation and healthcare businesses. The firm is one of the leading domestic players in the factory automation, or FA, control equipment market (which include programmable logic controllers, or PLCs, relays, sensors, and switches). As the main driver, we expect the industrial automation segment is well-positioned for secular growth, driven by an aging population in developed markets, increasing labor costs, and production safety. As trends related to the "Internet of Things" gain prominence, automation equipment such as PLCs will be required to connect to networks/databases in factories. Also, Omron’s recent acquisitions increased its product line, allowing the firm to provide tailored automation solutions to customers.

QBE Insurance is an international property and casualty insurance company with over USD 21 billion of annual gross written premiums. It writes about 25% of its annual premiums in its home region of Australia and New Zealand. Other key markets include North America, Europe, and Asia Pacific. QBE is predominantly focused on specialty insurance lines, but the offering is extremely wide-ranging across property, auto insurance, agriculture, public/product liability, professional indemnity, workers compensation, marine, energy and aviation, and accident and health. The size and diversity of insurance is built on the back of hundreds of acquisitions made over decades.

RB Global provides auction and marketplace services for used heavy equipment. The company’s strong auction liquidity attracts both buyers and sellers to its network. We believe RB Global will continue to be the top player in the industrial asset disposition market. The network effects present in its business have consistently delivered higher average selling prices for consignors (or sellers) and provided buyers a wide range of equipment to choose from. For both parties, RB Global drives significant amount of value, which has allowed it to monetize its network effects and develop a strong competitive positioning.

Given its higher financial leverage and high dividend payout ratio, SoftBank is the most leveraged way for investors to invest in the Japanese telecom market. If the Japanese mobile market can return to the cozy, stable oligopoly status that it has enjoyed for much of its history, SoftBank would likely provide investors with the highest returns of the large listed telecom companies. However, we have saw several bouts of telecom price competition over 2020 and 2021 where SoftBank’s financial leverage has worked to lower its profits more quickly than the other operators. We can't rule out further pricing pressure in the core telecom market but Rakuten's financial position might make it difficult for the company to start any more price wars.

Atlas Arteria is a global toll-road group. By far its most valuable asset is a 31% stake in Autoroutes Paris-Rhin-Rhone. Despite APRR's dominant motorway network in eastern France, the short concession life, high base capital expenditure requirements and subdued organic growth make it less attractive than some motorways. Longer-term distribution growth is likely to be held back by higher interest rates and, from the mid-2020s, the need to pay off all debt at APRR before handing the motorway concession back to the government in 2035. After the APRR concession ends, we estimate Atlas Arteria’s distributions will fall by two thirds to a level supported by the smaller Dulles Greenway and Chicago Skyway.

GPT Group was listed in 1971, and internalized its management in 2005, severing ties with former manager and founder Lendlease. Its long history helped GPT Group to build a property portfolio that includes many well-known assets. For example, its retail portfolio includes Melbourne Central, one of Australia’s most productive retail assets. Its office portfolio includes stakes in Sydney’s Australia Square, Brisbane’s One One One Eagle St, and numerous properties in and around Collins St in Melbourne’s CBD. GPT Group’s retail and office portfolios each contribute about one-third of funds from operations. Another fifth comes from industrial property and a growing balance from funds and property management.

Goodman Group is one of the world’s premier developers and managers of industrial property projects and investments. The group was co-founded in Australia by Gregory Goodman who remains CEO, and now has projects and customers in Asia, Europe, and the Americas.

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.