Company Reports

M&T Bank is a midsize regional bank with operations throughout the Northeastern United States. The bank has a valuable commercial real estate franchise, with much of the rest of its business comprising other commercial-focused (as opposed to retail-focused) operations, although the bank does have retail operations. M&T has a history of good management, good underwriting, and deep on-the-ground relationships. The bank is a solid regional operator.

Fifth Third is a midsize regional bank, primarily concentrated in the Midwest. The bank has a mix of commercial and retail banking offerings, as well as a healthy mix of corporate banking/capital markets, wealth, and payments fees.

Gallagher is somewhat of a tollbooth business. The company enjoys sticky customer relationships and its revenue is driven by insurance transactions, which are stable as most insurance purchases are non-discretionary. Since its fees are often set as a percentage of premium levels, it does have some exposure to the insurance pricing cycle, but revenue for the business is still fairly steady. The company’s cost structure is flexible, and capital needs are minimal. The net result is relatively healthy and stable free cash flow.

FactSet has built an attractive subscription-based business providing data and analytics to the financial-services industry. FactSet is best known for its research solutions, which include its core desktop offering geared toward buy-side asset managers and sell-side investment bankers. Research is the largest component of the firm’s annual subscription value but is FactSet’s slowest-growing segment due to its maturity and pressures on asset managers. In addition, as acquisition deal volume has decreased, this has pressured the investment banking side of FactSet’s research business.

TC Energy faces many of the same challenges as Canadian pipeline peer Enbridge but also offers important contrasts. Both firms offer a 5%-7% growth profile and a utilitylike 95%-98% of earnings that are highly regulated or contracted, with several years of project backlog. Enbridge largely focuses on oil assets, while TC’s focus is natural gas.

Humana remains a top-tier medical insurer and pays US caregivers to provide services through an integrated and value-based approach while also making the insurance experience easy to navigate for end users. Perhaps not surprisingly, given its founding as a nursing home in the 1960s, Humana places a special focus on serving elderly people, especially in its top-tier position in Medicare Advantage plans. Given US demographic trends and the increasing penetration of Medicare Advantage plans in the eligible population, Humana remains at the forefront of one of the fastest-growing areas in US medical insurance.

Bouygues is a conglomerate with disparate businesses. In its construction segment, it develops big infrastructure projects such as motorways, rails, power plants, and tunnels. Despite having small margins, the construction business is usually more resilient to the cycle as infrastructure spending tends to be less affected by recessions than residential construction. Bouygues’ cost structure is highly variable, so when difficult times come, the group can adjust its cost base rapidly, although this also prevents it from benefiting from operating leverage in times of high demand. Both Bouygues Construction and Immobilier (residential construction) have high exposure to France, as a significant portion of business comes from there. Through Equans, acquired in 2022, Bouygues gained exposure to attractive end markets like solar energy, nuclear energy, and data centers.

GEA Group is a leading supplier of highly engineered capital equipment and solutions to the food processing and pharmaceutical manufacturing industries. GEA’s reputation for innovation and safety positions the company to win equipment orders—particularly from customers who are sensitive to reputational risk from incidences of food contamination and those who wish to differentiate their product offerings.

GPT’s strategy is to operate a diversified portfolio of high-quality property assets in Australia’s largest cities and to reshape exposure by taking advantage of structural tailwinds such as rising e-commerce and population growth. This is executed by divesting low-yielding assets, actively developing logistics sites, and replenishing landbanks. Today, the retail and office segments, including contributions from their respective funds management, each account for around 40% of the group’s funds from operations. Logistics contributes less than a quarter. In 2010, the retail/office/logistics split was about 60%/30%/10%. The gross lettable area of logistics sites has roughly doubled over the past decade, mostly on the eastern seaboard of Australia.

About two thirds of Ingenia Communities’ midcycle EBITDA is from land-lease property sales and rent. Ingenia collects rent on about 16,000 property sites, across 100 land-lease, rental, and holiday park communities on Australia’s east coast. The firm’s strategy is to build higher-end communities primarily in Australia’s coastal and outer metropolitan areas. Following significant land acquisitions over the past few years, Ingenia has a pipeline of about 5,000 new dwellings, and more than a dozen sites currently in development or planning. All are targeting over-55s and leveraged to the thematics of aging population and the rising cost of housing.

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 often to dismantlers. 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.

Lifestyle’s earnings comprise land lease property sales and rent collection. It collects rent on about 3,000 land lease sites across over 20 land lease communities in Victoria, Australia. Its strategy is to build communities in Victoria’s coastal and outer metropolitan areas. Following significant land acquisitions over the past few years, Lifestyle has a pipeline of about 2,500 new dwellings and 18 sites currently in development or planning. All target the over-50s population and leverage the positive theme of an aging population and the rising cost of housing.

LPL Financial provides an advisory and brokerage platform for advisors, broker/dealer services for financial institutions, and resources for practice management. At the end of 2023, advisors on LPL's platform served over $1.3 trillion of wealth management assets in the United States. LPL aims to offer services to all advisors regardless of business model. For example, advisors can be licensed with LPL Financial, giving LPL responsibility for managing risk and compliance, or they can operate as a hybrid Registered Investment Advisor using LPL Financial for custody, trading, and administrative support. LPL has also launched a new employee model that allows advisors to fully outsource practice management.

Paychex's offering appeals to businesses wishing to outsource mission-critical functions, manage and attract employees, and remain compliant with increasingly complex and evolving regulations. We expect more regulatory complexity, tight labor markets, and a growing adoption of hybrid work will underpin strong demand for Paychex's suite of offerings, supporting wallet share and market share gains. This includes greater penetration of the outsourced payroll and human resources model in the small-business market. While we factor in market share gains, we expect increasing competition to limit Paychex's pricing power and force the company to maintain elevated spending on software development and innovation to remain competitive.

With over $47 trillion in assets under custody or administration, Bank of New York Mellon is the largest custodian in the world. While core custody can be an undifferentiated offering, scale and the stickiness of clients have helped the firm generate double-digit returns on tangible equity.

Northern Trust consists of two moaty segments: wealth management and a custody business known asset servicing (previously corporate and institutional services or C&IS). Both segments are supported by the firm’s asset-management capabilities.

In our view, Illinois Tool Works is a consultative manufacturing firm that invents long-term solutions for its customers’ most painful problems. It explicitly operates in markets where it can differentiate itself and where customers prioritize product performance over price.

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.

Narrow-moat-rated Repligen is a leading provider of bioprocessing solutions for companies that manufacture biologic drugs. Its business lines include advanced filtration and fluid management systems for both upstream and downstream processes, prepacked chromatography columns, proteins used in chromatography resins, and process analytic systems. Although Repligen is a relatively small player, we believe it is at the forefront of the innovation frontier. In the past 10 years, it has transformed from a company mostly known for its protein A ligands to one with a track record of launching new products with limited or no direct competition.

Carrefour provides exposure to global food retail with a high European weighting, mostly in the mature and competitive western part of the continent: France, Spain, Italy, and Belgium. However, it is highly exposed to the large hypermarket format, which is in structural decline in mature markets. This is because of consumer behaviour shifts and demographic trends (less waste, lower family formation rates, smaller families), which have contributed to the structural growth of convenience over one-stop shops, with shoppers preferring more frequent shopping trips and smaller baskets.