Company Reports

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.

Siemens Energy's products and solutions helps generate one-sixth of the world's electricity. However, the group has failed to produce net income since its spinout from Siemens AG in 2020. Intense competition in several of its businesses have been compounded by quality issues with some of its wind turbines, resulting in large losses. Restoring profitability depends on the turnaround efforts at Siemens Gamesa and the magnitude of unforeseen losses to fix faulty wind turbines.

Louisiana-Pacific manufactures oriented strand board and engineered wood siding. It has over 7 billion square feet of production capacity across the United States, Canada, and South America. Homebuilding, repair and remodel, and construction are the main uses of OSB and siding products in North America. Louisiana-Pacific is closely tied to the North American market, which accounts for over 90% of sales (73% in the US and 20% in Canada).

The transformation of UniCredit in two years from a perennial underperformer to one of the most profitable banks in Europe has been astounding. While the new management team has made good strategic decisions, the return to positive interest rates after a decade of zero or negative interest rates played a significant role in its transformation.

In January 2022, Henkel announced the decision to combine its beauty care and laundry and home care business units into one consumer unit in an attempt to achieve more synergies in its customer and channel execution after years of subpar performance, especially in North America. While we believe that operating an overall larger portfolio is important in driving customer management, we see limited upside in terms of growth as there is little marketing and innovation expertise to be shared between the units. Moreover, large competitors in the space are moving in the opposite direction, with Unilever for instance recently announcing that it would move from three divisions to five business groups, with each responsible for end-to-end strategy and execution.

As of December 2023, Estun Automation is the largest domestic industrial robot manufacturer and ranks second by shipment in China, a market that used to be dominated by foreign companies. As a late mover, Estun benefited from the exponential growth of emerging industries such as the photovoltaic and lithium-ion battery industries. It is one of the largest industrial robot suppliers to the photovoltaic industry, with a leading market share in photovoltaic typesetting. In addition, its robots have landed in the factories of top lithium-ion battery companies such as BYD and CATL. However, both industries are currently facing heavy overcapacity. This will weigh on Estun's shipment growth in the near term.

Intense metasearch competition blocks Tripadvisor from holding a network advantage over the next decade, despite the continued rise in industry online penetration and the company's ongoing investment in experiences (Viator) and dining (TheFork), brand in the portfolio that we think exhibit network moat characteristics.

In our view, Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic. Despite near-term headwinds, we believe the firm is poised for several years of positive organic growth. Its total addressable automation market, both served and unserved, totals over $200 billion, of which approximately 59% is in hardware and services, 32% in control product software, and 9% stand-alone software. Even as Emerson holds either first or second share in a variety of product categories, established firms' share remains somewhat fragmented (depending on the category, Emerson holds roughly midteens market share), suggesting a large runway for growth.

Kinross Gold is a senior gold miner with production split roughly 70% in the Americas and 30% in West Africa. Its Paracatu mine in Brazil and Tasiast mine in Mauritania accounted for about 55% of the roughly 2.2 million gold equivalent ounces produced by Kinross in 2023. Both mines are also in the bottom half of the gold cost curve, but we don’t consider them moatworthy due to remaining mine lives of about a decade. They are more than offset by Kinross’ remaining higher-cost mines. The company’s average all-in sustaining cost of roughly USD 1,300 per gold equivalent ounce in 2023 places Kinross at around the middle of the gold cost curve. Kinross had about a decade of gold reserves at the end of 2023.

Emera has transitioned to a predominantly U.S. utility that generates a majority of its earnings and growth from its Florida operations. While Emera's Canadian utilities have historically operated under a constructive regulatory framework, Emera's U.S. utilities offer more growth opportunities and higher allowed returns.

Shoals has crafted a market-leading position in the solar electrical balance of system market. EBOS is a lesser-known segment of solar and comprises components transferring electrical current from solar modules to an inverter. The main EBOS customers are engineering, procurement, and construction firms building solar projects.

Electronic Arts is one of the world's largest video game publishers and owns some of the most well-known video game franchises, including Sports FC (formerly FIFA), Madden, and Battlefield. We expect the firm will continue developing compelling new versions of its existing franchises, generating cash flow that provides the ability to invest in new titles and acquire established ones.

Dr. Reddy’s is one of the largest generic drug manufacturers in the world. Global generics make up over 85% of the firm's sales, and along with other generics manufacturers, it continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and the majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, we expect Dr. Reddy’s future pipeline to focus on complex generics—drugs that have complex formulations, dosage forms, or are injected or have more complex administration. Complex generics are more difficult to manufacture which by nature limits competition. And since price, volume, and margin are highly dependent on the competitiveness of a drug, complex generics pave an opportunistic road for Dr. Reddy’s. A fourth of its North American sales comes from complex injectables and we expect this number to increase as the company prioritizes these offerings. But other players in the industry are employing a similar strategy so success in this area relies on the company’s ability to seek out profitable drugs and efficiently launching them to market.

McKesson is one of three leading domestic wholesalers of branded, generic, and specialty pharmaceutical products. With roughly $280 billion in sales from its US pharmaceutical segment in fiscal 2024, the company supplies roughly one third of the domestic drug distribution market. Its two close competitors are Cencora and Cardinal Health. Together, the three operate as a pharmaceutical wholesale and distribution oligopoly, supplying over 90% of the US market.

GlobalFoundries is vying for third place among contract semiconductor manufacturers, or foundries. It focuses on specialty products that perform narrower sets of tasks compared with the most advanced processors. These tasks range from storing small bits of data for very long periods to regulating electricity flows. GF has relinquished development of cutting-edge chips like smartphone and data center processors owing to financial, scale, and personnel constraints. Many of GF’s offerings are commoditized as they are fabricated on process technologies first debuted over a decade ago. Customers can obtain close substitutes at other chipmakers barring major shortages, which limits GF’s pricing power.

Arcadium Lithium is a pure-play lithium producer created in the Livent-Allkem merger in early 2024. The company is a top five lithium producer globally by capacity on a lithium carbonate equivalent basis. Arcadium's two lithium carbonate production resources in Argentina are among the world's lowest-cost lithium sources on an all-in sustaining cost basis.

We view Qualys as a strong cybersecurity vendor focused on providing cloud-based security and compliance solutions to its clients. The firm’s primary solutions revolve around vulnerability management, or VM, and are designed to help clients identify and mitigate vulnerabilities in their IT infrastructure. We view VM as a space poised for high-single-digit growth over the next few years, thereby providing Qualys with an additional uplift as demand for its products is expected to remain robust. We believe the company has built a narrow economic moat by developing a sticky product portfolio.

Seven Group Holdings' industrial equipment businesses, WesTrac Australia and Coates Hire, provide solid revenue and cash flow via exposure to the local government, civil construction, and mining sectors. A more recent 73% stake acquired in building products and construction materials business Boral adds to the infrastructure thematic. Demand for mining services equipment is a major determinant of earnings. This is an advantage given government predilection for stimulus via infrastructure investment.

We expect Domain’s near-term challenges to center on navigating significant volatility in the Australian housing market. After the onset of the covid-19 pandemic, Domain received a substantial boost to revenue and profit margins from the booming housing market. We estimate that residential transactions were around a third above trend levels during fiscal 2021 and 2022 and we expect that Domain, as the second-largest real estate listings platform, benefited disproportionately from this event. With the normalization of interest rates, we have seen Domain's residential listings reduce materially, declining 14% in fiscal 2023.

Leonardo has a well-diversified portfolio across geographies and platforms, with 83% of its revenue from defense and 17% from civil. Escalating global security concerns are driving higher growth in the defense market, which will be uninterrupted for at least several years, as many countries in Europe have underspent since the end of the Cold War. The company is strategically well positioned to benefit given its significant stakes in a broad array of major international defense projects.