Company Reports

Ameren is a regulated utility that operates in Illinois and Missouri, two historically challenging regulatory environments. Improving regulation in Missouri has created significant investment opportunities. However, Illinois has continued to be difficult, though management has proven to be adept at managing through regulatory challenges.

ChampionX is a diversified oilfield-services firm providing specialty chemicals solutions and artificial lift services for oil and gas development and production. It also manufactures polycrystalline diamond cutter inserts for drilling and mining rigs. About two thirds of ChampionX’s overall business involves specialty chemicals. The firm is one of the largest specialty chemicals providers in oilfield services: ChampionX and Baker Hughes together control roughly half of the global market.

Vistra Energy is entering its second phase of life since splitting off as a stand-alone entity in 2016, following the Energy Future Holdings bankruptcy.

Broadcom is an amalgamation of high-value chip and software businesses that on the whole are differentiated and moaty, in our view. Broadcom is a terrific aggregator of firms, big and small. Its ability to acquire and streamline generates strong profits and cash flow, and fuels its robust dividend. We laud the firm for its execution and operating efficiency, which build upon its large organic investment and help it to outperform its end markets organically.

Magna International is one of the largest and most diversified auto parts suppliers in the world but that size is no guarantee of economic profit. While breadth in product and services can be advantageous regarding cross-selling—commercial activities that bolster content per vehicle and market penetration—we don’t see margins getting high enough to merit moat worthy return on invested capital due to numerous competitors in Magna’s largest segments. The company enjoys customer switching costs, which are common to auto suppliers with moats, but its financial performance does not quite merit one.

Hawaiian Electric Industries derives approximately 75% of consolidated earnings from an electric utility and the remaining from Hawaii-based American Savings Bank, a business mix unique among its utility peers.

National Bank of Canada is the sixth-largest Canadian bank, and this group of six banks collectively holds almost 90% of the nation's banking deposits. National Bank of Canada is the most Canadian-focused of the Big Six, with roughly 85% of its revenue derived from Canada. National Bank of Canada also has the most concentrated branch network in Canada among the Big Six, primarily located in Quebec. The bank has made a point of gradually shifting more of its business outside Quebec over time and in 2023 had roughly 49% of its revenue coming from outside Quebec.

After the acquisition of Sinclair Oil, HollyFrontier, now HF Sinclair, is a fully integrated independent company composed of refining, marketing, renewables, specialty lubricants, and midstream businesses.

After the sale of Epsilon in 2019 and spinoff of LoyaltyOne in 2021, Bread Financial is now solely a consumer credit company, with its private-label credit cards and buy now/pay later businesses its only two product lines. However, Bread’s retail credit card business is under pressure as it continues to lose major partners, losing Wayfair and Meijer to Citi in 2020 and BJ's Wholesale Club to Capital One at the start of 2022. We see retail partner loss as an ongoing threat to Bread as the firm does not have a competitive advantage that would give it an edge in retaining partnerships during contract renewal negotiations.

Xylem is one of the leading water technology companies in the world. Its extensive portfolio spans a wide range of equipment and solutions for the water industry, including the transport, treatment, testing, and efficient use of water for public utilities as well as industrial, commercial, and residential customers. Xylem operates four business segments: water infrastructure, applied water, measurement and control solutions, and water solutions and services.

After untangling its operations, Kellanova has centered its strategic playbook almost exclusively on its global snacking portfolio. But we don't think it will abandon its focus on increasing investments in its capabilities and brands while extracting inefficiencies. We think it will continue to judiciously tailor its mix to expand pack size options to extend its distribution at home and abroad. However, management's motivation for the split from the cereal business lacked substance, in our view. The primary driver appeared to be unlocking a higher multiple for the faster-growing snack business now that it's unencumbered by the mature North American cereal brands.

Steris is a leading provider of sterilization products and services to healthcare organizations, biopharma producers, and device manufacturers. The company also has a strong presence across operating rooms and endoscopy centers. Over the past few years, Steris has closed several acquisitions to enhance its healthcare offerings. With more procedures shifting to an outpatient setting, we think Steris’ expanded product portfolio positions itself as a “one-stop shop” that supplies mission-critical sterilization equipment and services. The burgeoning ambulatory surgery centers and physicians’ offices should benefit the most when sourcing from Steris, as they don’t necessarily have the capacity to deal with multiple vendors.

CooperCompanies is one of the largest eyecare companies in the US. It operates in two segments: CooperVision and CooperSurgical.

National Grid owns and operates energy networks in the United States and the United Kingdom.

Meridian Energy is a vertically integrated renewable energy company involved in the generation and retailing of electricity. Nearly 90% of its electricity is generated from low-cost hydro power plants, with wind making up the rest. While the significant hydro capacity is a source of competitive advantage and high returns for Meridian, it also increases the firm's risk during dry conditions when rainfall or snow melt is below average, resulting in substantially lower hydro production.

Mapletree Pan Asia Commercial Trust was established following the merger between Mapletree Commercial Trust and Mapletree North Asia Commercial Trust in July 2022. The combined trust invests in a diversified portfolio of income-producing properties used for office and retail activities in Asia.

Hang Lung Properties, or HLP, is a property developer that develops and holds a portfolio of investment properties for rental income in Mainland China and Hong Kong. Beginning in the late 1990s, the company pursued a strategy of pivoting from Hong Kong residential development to Chinese commercial properties. So thorough was the pivot that the company has not made any land acquisitions in Hong Kong for nearly 20 years, until late 2020.

Manhattan Associates is the clear leader in the warehouse management systems, or WMS, software niche, in our view. Supply chains are complex and any disruption to warehouse operations could have a significant ripple effect among all nodes in the chain, which is captured in sticky customer relationships. When normalized for covid, we view the company as capable of driving low double digit revenue growth annually over the next five years, with earnings growth of approximately 18% during that time. In 2020, Manhattan Associates began transitioning its flagship warehouse management solution. As a result, we see a years-long mix shift from on-premises to cloud adoption and a path to both strong growth and returns.

We think the success of its Australian KFC network will prove crucial for Collins Foods. Despite KFC expansion into Europe and the nascent roll out of Taco Bell stores in Australia, we expect Collins' Australian KFC network will continue to drive the vast majority of operating earnings over the next decade. Collins is the largest KFC franchisee in Australia with over 270 restaurants out of a total of around 730 stores in the country. Its long-term earnings growth is mainly dependent on increasing sales, by increasing same store sales and adding to its store network. Collins grows its network through both new builds and acquisitions of existing restaurants from other franchisees. Similar drivers underpin growth of the smaller European business, although we forecast new builds to play a more important role.

Lendlease kicked off a major shift in strategy in 2024, with plans to exit its international development and construction businesses, and focus on Australia. The group is a diversified property developer, landlord, property manager, fund manager, and builder on a range of development projects, funds, and completed properties around the world. However, within a few years, its offshore interests will mainly be limited to owning and managing mature investment assets, not development or construction projects. This will involve completing work-in-progress, selling its Asian, European, and United States development projects that haven't already started, selling its offshore construction capabilities, and its retirement and US military housing businesses, and Australian communities development.