Company Reports

Ferguson primarily serves three major end markets: repair and remodel (Ferguson refers to this market as repair, maintenance, and improvement), new construction, and civil infrastructure. Ferguson's exposure to the US RMI market (as a percentage of sales) increased from 31% in 2008 to 60% in 2023, while US new construction revenue exposure decreased from 58% to 40% over the same time period.

Overnight delivery pioneer FedEx is one of three large national carriers that dominate the for-hire small-parcel delivery landscape—FedEx and UPS are the major US incumbents, while DHL Express leads Europe. FedEx is also the largest US less-than-truckload carrier, which helps forge sticky relationships with retail and industrial shippers on the package side. Rival UPS has been around much longer in the US ground market, forging a density advantage and higher margins, but FedEx has gradually enhanced its ground positioning over the past decade, with help from its slight speed advantage over UPS and capacity investment.

CEO Mark Clouse’s tenure has been fraught with change since joining Campbell Soup in January 2019. The company parted ways with its fresh business and the bulk of its international operations while working to steady its core meals, beverages, and snacking arms. While the global pandemic and inflation have had an impact, we don’t think recent performance (organic sales up low- to mid-single-digits on a two-year stacked basis) is a byproduct of stepped-up consumer stockups of essential fare and recent price hikes to dull inflation's sting. Rather, we think Campbell’s strategic focus has set it on a sound course, leveraging technology, data insights, and artificial intelligence to bring consumer-valued products to market in a timely fashion while reducing complexity, investing in automation, and optimizing its supply chain and manufacturing network. In addition, we expect Campbell will continue to pursue inoragnic opportunities within its core strengths to unlock fresh consumer insights and complement its mix.

Toyota's vision includes making compact cars a priority for emerging markets with attractive design but lower costs, having designers and engineers as equal partners, and increasing scale from the Toyota New Global Architecture, which develops vehicles using common parts, something critical for Toyota to keep pace with large automakers and Tesla. We think giving local designers more control is letting Toyota make more exciting vehicles.

Aurora Cannabis cultivates and sells cannabis predominantly in Canada but also exports to the global medical market. It considers itself a medical cannabis company first, as adult use accounts for roughly 17% of fiscal 2024 net revenue, much less than peers. We expect its medical cannabis revenue to grow in the high single digits over the next 10 years, with robust international growth offsetting slower Canadian growth. We forecast Aurora's adult-use growth in the midsingle digits, driven by the conversion of illicit-market consumers into the legal market and new cannabis consumers. Still, we expect medical to constitute most of sales by 2033.

SolarEdge is one of the largest global solar inverter manufacturers, based on revenue. The inverter is often referred to as the brains of a solar system, with its purpose being to convert direct current produced by solar panels into alternating current used by households/grid and optimize energy production.

Since spinning off from its holding company Fortune Brands in 2011, Fortune Brands Innovations has achieved solid top-line growth and improved profitability. Its improved financial performance has been the result of a successful operating strategy overlaying a backdrop of strengthening new home construction and repair and remodel, or R&R, spending.

We think Masco’s financial performance over the past decade has been as much of a self-help story as a story of improving end markets. Masco almost entirely refreshed its senior executive management team in 2014. Since then, it has taken significant measures to build a stronger and more consistent business model. The firm divested its most cyclical and least profitable businesses (it spun off its installation business, now named TopBuild, to shareholders in 2015 and sold its windows and cabinetry businesses in 2019 and 2020, respectively). Management also executed significant cost-reduction initiatives and shored up the firm's balance sheet.

Dollar Tree’s namesake banner boasts an impressive track record of strong top-line growth and steady margins despite operating in densely populated suburban markets where plentiful shopping alternatives exist nearby. The banner’s wide assortment of products priced at $1.25 or less has seemingly resonated with consumers due to its treasure hunt experience and price points that conform to shoppers operating on a tight budget.

Nice provides cloud and on-premises software solutions that primarily serve the customer engagement market as well as the financial crime and compliance, or FC&C, market. The majority of revenue is generated in the US, but international expansion has become a bigger priority.

Danske has been through a tumultuous decade, which saw it settle a USD 2 billion lawsuit with the U.S. Department of Justice, left the Baltic countries, refocused on the Nordics, and reduced its exposure to oil and gas borrowers. Now, the bank is finding its footing again supported by a clear strategic focus. As a result, profitability has increased, despite inflated costs due to higher expenses related to improved anti-money-laundering processes.

Nongfu Spring upholds its market leadership in the packaged water market in China through scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink, or RTD, beverages such as tea, functional and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. Notably, the company has expanded its tea segment in recent years led by sugar-free products.

We see Volkswagen as successfully executing a global automotive strategy with one of the most aggressive plans in the industry to switch to battery electric vehicles from internal combustion powertrains. A broad array of brands, serving multiple segments, reduces reliance on any one vehicle category. As one of the world's leading volume producers, Volkswagen's economies of scale from common platforms across a number of models enable cost savings unattainable by smaller competitors.

While IGM Financial has historically generated solid operating margins and held a leading share in the Canadian mutual fund market, we've been less than impressed by its ability to generate positive flows. Both its asset-management (Mackenzie Investments) and wealth-management (IG Wealth Management) arms have consistently struggled to generate organic growth in assets under management, which has only been modestly positive the past five years for the combined subsidiaries despite meaningful price cuts aimed at making their funds more competitive. To us, this is a sign of the weaker competitive position IGM has relative to the Big Six banks and life insurers in the Canadian market, with poor investment performance, higher fees, and a reliance on a closed advisor network leaving the firm more exposed to the industry's secular headwinds.

Our constructive view on Coast Entertainment's fundamentals is moderated by the wider macroeconomic factors that affect its theme park operations and the current restructuring efforts to restore earnings after the recent upheavals.

Ageas is an improving business. However, it would do well to take a leaf out of other mid-sized European multi-line books and concentrate on core markets. Ageas has clear strength in its domestic market Belgium, evolving to be the market leader and is a dominant force in long-term savings. Its strategy in this line is to continue with the ongoing shift to unit-linked products that are capital-light despite lower margins. This is probably one of the reasons behind the company’s gradual but upward improvement in ROEs. Investments have played a decent part in improving customer service and protection offerings that can be sold into savings products, and this creates a sticker set of products and customers. These investments have oriented around improving standards of underwriting, and despite raising expenses the net effect in nonlife insurance have been positive. Ageas has a leading health insurance business with expenditure on health in Belgium being one of the highest in Europe. The firm targets price stability and ambulatory care services.

Chipotle's business strategy rests on five pillars: running successful restaurants, attracting and retaining diverse talent, making the brand visible, relevant, and loved, investing heavily in restaurant tech and innovation, and improving access and convenience for customers. In our view, the company has carved out an enduring niche in the US restaurant landscape, with competitive menu prices, extreme convenience, and "food with integrity" allowing it to lure away customers from both casual dining and traditional fast-food competitors.

We think chairman and CEO Marc Puig has done a commendable job sharpening Puig’s premium focus and expanding its brand collection through acquisitions, thus positioning the small beauty product maker well to benefit from premiumization trends globally. That said, we’re not convinced Puig has carved out an economic moat, given its lack of brand intangibles and small scale relative to moaty peers L’Oreal and Estee Lauder.

We think L’Occitane’s growth over the next five years will largely depend on the performance of Elemis and Sol De Janeiro. Elemis, a premium skincare brand acquired in March 2019, is predominantly sold in the UK and US, with few sales elsewhere. Whether Elemis can repeat its success in other markets, especially China, will make a big difference in L’Occitane’s fortunes, given the steep price L’Occitane paid for the acquisition.

Mirvac trades as a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of earnings come from a passive commercial property portfolio housed within Mirvac Property Trust. Earnings from the rent-collecting business are relatively stable and predictable, while most of the remainder comes from a residential development business that can be lucrative but volatile. Mirvac’s REIT status results in low company tax because trusts pass income and tax liabilities through to the end investor. Mirvac pays slightly more tax than some passive real estate investment trusts, because of the development business within the Mirvac corporation.