Company Reports

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.

Corteva is an agriculture pure play that was formed in 2019 when it was spun out of DowDuPont. The company is a global leader in seeds and crop protection products. Seeds generated around 60% of profits in 2023, with the remaining 40% coming from crop protection. Corteva develops its pipeline through the investment of around 8% of sales in research and development, which should allow sales and profits to grow from new products even as patents expire and generic products come to market.

DuPont de Nemours is a world-renowned specialty chemicals company with a history spanning over 200 years and an ever-evolving portfolio. In the current iteration, DuPont is the specialty chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

We believe Dada Nexus should see steady growth in the medium term on the back of its relationships with Walmart and JD.com, which should eventually provide it a pipeline of steady orders and allow the firm to maintain stability in a competitive industry. Dada competes in a very saturated industry that doesn’t have much differentiation among competitors, which means that consumers are likely to base their preferences on cost. Currently, it still incurs operating losses, but we believe that its relationships with Walmart and JD.com should provide Dada with steady growth and a positive operating margin, given the larger merchants’ reach across China. Sales and marketing expenses and incentives remain about 40% of sales, which highlights Dada’s high operating leverage and underscores how the firm should eventually expand its operating margin as it scales. Dada Nexus is optimistic that it can reach its long-term forecast target of 10%-15% operating margin as orders grow. However, the main concern is that growth could be an issue, given the abundance of other options if not for its partners. It trails its larger competitors in volume and revenue terms, which suggests that Dada’s laggard position within the industry is unlikely to change in the short term for its delivery business. This is unless it incurs heavy spending on incentives to get consumers to use its delivery business.

Resona’s lack of large overseas operations is a double-edged sword—unlike the megabanks, it cannot greatly expand lending abroad to compensate for the poor returns available in Japanese commercial banking; but on the other hand, with its domestic focus, Resona effectively escapes increasingly stringent Basel III rules on risk weightings, allowing it to act as a potential consolidator of regional banks even if doing so expands its balance sheet and lowers its capital ratios. Resona’s acquisition of Kansai Urban Banking and Kobe-based Minato Bank in 2017 expanded its assets and revenue by about 20%, and we expect efficiency gains will continue to be achieved as these two units are further integrated with Resona’s Kinki Osaka Bank under the Kansai Mirai Financial Group holding company.

We are encouraged that Iqiyi has been successful at turning around its business to generate high-single-digit operating margins, which are a significant improvement from a 30% operating loss margin since its IPO in 2018. We expect Iqiyi to maintain profitability in the near term because of expectations of lower content costs that are 50%-60% of sales, rather than the 70%-80% level prior to 2022. However, we forecast that subscription prices and memberships will grow at only low-single-digit levels, given our view that Iqiyi will have challenges in retaining customers on a consistent basis and is vulnerable to switching costs and churn.

Since its 1982 inception, Copart has grown into the largest online salvage vehicle auction operator in the United States, connecting buyers and sellers around the world. The company has grown its top line nearly five-fold since 2009 due to a combination of significant land expansion and robust service quality to drive higher salvage vehicle volume. Copart receives the majority of its vehicle volume through contracts with large auto insurers and sells them on consignment for high margins. The company prioritizes maintaining amicable insurance relationships which are fostered by having adequate storage capacity (even after storms) and providing flexible service. All auctions have been online since 2003.

Applied Materials is the largest supplier in the world of wafer fabrication equipment for semiconductors. It holds the broadest portfolio, in our view, which we think should enable it to maintain its leading market share. In our view, Applied Materials' breadth in chip manufacturing gives it stickier inroads to customers by selling integrated solutions across technologies. We expect Applied Materials to grow at a mid-single-digit pace over the course of market cycles as it benefits from trends toward more-complex chips into the long term, including gate all-around transistors, advanced packaging, and artificial intelligence.

Wide-moat Walmart’s unrivaled scale relative to its brick-and-mortar retail peers provides the firm with the rare ability to formidably adapt to a dynamic retail landscape. Walmart benefits from an expansive physical footprint and entrenched position in the communities it serves, putting the retailer in close proximity to the vast majority of US consumers. The firm’s unique promise of a wide assortment of goods at low prices has allowed Walmart to retain its status as the nation’s preeminent retailer for over 30 years.

Cromwell Property Group is an Australian property company that currently generates most of its income from rent on properties it owns, and a lesser amount from property funds management. The latter includes property management services, investment management, and property acquisitions and development, in collaboration with customers. The group tends to own co-investment stakes in funds or properties that it manages for clients, particularly in its wholesale business. This provides a degree of alignment with clients, as well as providing another indirect source of rental income. Cromwell is growing its funds management business, and is exploring options to dispose of property assets, and instead act as fund manager of those assets, and build new funds management ventures. Directly held property investments account for more than half of group revenue, nearly all of this being offices. The office portfolio has significant exposure to less supply constrained areas such as fringe central business districts, or CBDs, or suburban sites in Sydney, or less built-up capital cities such as Canberra. Relative to its largest rivals, this makes Cromwell more exposed to economic and property market conditions. Increasing CBD supply and cautious businesses could particularly hurt tenant demand in suburban and fringe locations. Reassuringly, Cromwell has solid tenants in many sites, with government accounting for circa half of Australian rent, and a decade-long lease to Qantas another big chunk. A minority of earnings is from funds management activities, but this segment is likely to grow as Cromwell sells property assets and increases its focus on funds management. This segment generates a high return on equity because while it relinquishes rental income, it frees up capital for use elsewhere, while still generating management fees. A portion of revenue comes from indirect property holdings, mostly Cromwell’s stake in the Cromwell European REIT, listed in Singapore.

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.