Company Reports

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

As China rebalances away from infrastructure and construction-led growth, Anglo American is likely better positioned than most diversified peers. The company has greater exposure to consumption-oriented commodities like platinum and diamonds, which should enjoy better demand growth than investment-oriented commodities like iron ore and copper that prospered most in the past decade.

We expect Kuaishou Technology to expand its daily active users to 400 million by the end of 2024 and its user growth to be the main barometer of success in the near- to medium term. There is a possibility for users to increase beyond this in the long term, but we do not expect the number to be as high as larger China social media platforms such as WeChat or Douyin, since Kuaishou appeals to and targets mostly rural users in lower-tier cities. Users will dictate advertising revenue growth—which will be the long-term direct revenue driver, and should be at a faster pace than China’s forecast gross domestic product growth of 4%-6% in the near term as we expect digital advertising in China to grow more than 8% per year to 2026.

Nvidia has a wide economic moat, thanks to its market leadership in graphics processing units, or GPUs, hardware and software tools needed to enable the exponentially growing market around artificial intelligence. In the long run, we expect tech titans to strive to find second-sources or in-house solutions to diversify away from Nvidia in AI, but most likely, these efforts will chip away at, but not supplant, Nvidia’s AI dominance.

In an environment where active fund managers are under assault for poor relative performance and high fees, we believe wide-moat T. Rowe Price is one of the best positioned US-based active asset managers we cover. The biggest differentiators for the firm are the size and scale of its operations, the strength of its brands, its consistent record of active fund outperformance, and reasonable fees. T. Rowe Price also has a stickier set of clients than its peers, with two thirds of its assets under management derived from retirement-based accounts.

We think CEO Sue Nabi has whipped Coty into better shape since taking office in 2020, as the beauty industry veteran sharpens the firm’s focus on innovation and reinvigorates its brand marketing while upholding cost discipline. Top-line growth and margins both rebounded from pandemic troughs as a result. That said, we are not yet convinced that Coty has carved out an economic moat, given its lack of brand strength and tight retailer relationships, in addition to a small revenue base relative to moaty global peers L’Oreal and Estee Lauder.

PayPal’s development of a network of both merchants and consumers early in the evolution of e-commerce allowed the company to build and maintain an enviable competitive position. Historically, PayPal’s growth had been driven by the ongoing shift toward electronic payments and the rise of e-commerce, which the coronavirus pandemic temporarily accelerated. However, the company is now seeing some headwinds in the near term as the positives from the pandemic reverse and new competition arises. Management has attempted to combat the pressure on top-line growth with a greater focus on cost control and product innovation. We see this evolution as the right move, but it will likely take some time to see results.

We believe no-moat Macy’s is struggling to stay relevant as consumers have many choices. The firm recently announced the closure of about 150 of its lower-performing stores over the next three years as part of its “A Bold New Chapter” plan. We think this move is long overdue as department stores have been losing market share to e-commerce and other retailers (outlets, branded stores, specialty stores, discounters) for at least 15 years. Other parts of the new strategy include investments in continuing stores, new smaller-format stores, cost reductions, supply chain investments, and luxury expansion. Even so, due to store closures and a lack of consistent organic growth, we forecast yearly sales and operating margins will stay well below historical highs for the foreseeable future. Specifically, we estimate long-term operating margins at 5%-6% on annual revenue growth below 1%.

A combination of rising interest rates, equity and credit market headwinds, and increased competition from private real estate investment vehicles offered by alternative asset managers and other traditional asset managers has had (and is likely to continue to have) an adverse effect on Cohen & Steers' level of managed assets. The firm closed out March 2024 with $81.2 billion in managed assets, up 1.7% year over year, but still down 22.0% from a peak of $106.6 billion at the end of December 2021.

Toll Brothers prides itself on controlling an ample supply of some of the best land in the industry. Premier land inventory, combined with luxurious, customizable designs, allows the company to charge industry-leading average selling prices (among public peers).

Analog Devices is one of the world's largest analog chipmakers, with an especially strong position in analog signal processing chips. We think it is well-positioned to profit from more advanced and higher-priced semiconductor content in automobiles, communications equipment, and industrial applications like medical devices and factory automation and testing equipment in the years ahead.

We forecast that Eagers Automotive to continue to capture market share in the highly fragmented auto retailing segment. We estimate Eagers now boasts a market share of about 11%. As the largest dealer in the market, Eagers can centralize back-office operations and fractionalize these fixed costs over a significantly larger volume and revenue base, affording a durable cost advantage over smaller peers. Accordingly, we estimate the company earns gross and net profit margins ahead of smaller competitors. We believe Eagers' extensive size and scale should allow it to deliver midcycle profit before tax margins of about 3%-4%.

Webjet’s largest operating unit is its B2B booking platform, WebBeds. The business contracts supply from independent hotels, chains and third-party providers, aggregates and supplies the inventory to travel retailers. The business allows smaller hotels to increase distribution channels. For travel intermediaries, WebBeds increases the available inventory for end customers.

AUB Group operates the second-largest general insurance broker network in Australia and New Zealand. AUB Group brokers derive revenue from commissions paid by insurers, based on gross written premiums. AUB Group owns or has equity stakes in each broking business within the network. Around half of group profit is delivered by the Australian and New Zealand broker network, around 30% from Tysers in the United Kingdom, and the remainder from underwriting agencies.

XPeng is a leading electric vehicle manufacturer in China, targeting the midrange to high-end segment and tech-savvy consumers. It is mass producing six pure electric models: the G3/G3i compact sport utility vehicle, or SUV; P7 midsize sedan; P5 compact sedan; G9 midsize SUV; G6 compact SUV, and X9 multipurpose vehicle. Retail prices of the current model portfolio range from CNY 150,000 to CNY 420,000 for popular trims, which offer a driving range of roughly 460-700 km. For its new model pipeline, XPeng plans to launch at least 10 new cars in the next three years.

Capcom is a Japanese game developer, and its most notable flagship series, Resident Evil and Monster Hunter, account for the majority of its sales and profits. In the 2010s, Capcom changed its strategy from relying on new releases, to focusing on selling remakes and expanding global sales of old titles through digital distribution. This paved the way for Capcom’s stable sales growth and high profits in the past 10 years.

ALS is a global provider of analytical testing and inspection services; it also has a small Australian-focused distribution business. While dominating the fragmented Australian market, and being a large global player in commodity and environmental testing, it is trumped by the majors, Bureau Veritas, SGS, and Intertek in nondestructive testing and inspection.

Amid a highly fragmented aftermarket auto parts industry, wide-moat AutoZone differentiates its retail operations by offering robust customer service to its do-it-yourself (70% of US sales) and commercial customers (30% of US sales) while maintaining ample parts availability across a wide range of vehicle makes and models. Given about 85% of AutoZone’s sales are composed of failure and maintenance related products that tend to be time sensitive and vital to the functioning of a vehicle (such as alternators, batteries, and spark plugs), AutoZone’s customer base typically values service quality and convenience over a lower price. As such, the retailer’s staff often assists customers with the diagnosis of a vehicle, ordering the necessary part for a specific vehicle’s make and model, and in some instances, even replacing and testing the functionality of parts. While online channels (such as Amazon and Carparts.com) and diversified retailers (such as Walmart) may offer ostensibly lower prices, we think AutoZone’s consistent comparable store sales growth and healthy gross margins (north of 50%) suggests its focus on customer service and the convenience provided by its more than 6,300 domestic brick-and-mortar stores is a winning formula in the category.

With pandemic-related changes in consumer behavior around travel in the rearview mirror, economic performance of Norwegian Cruise Line Holdings is on a path to the generation of excess economic rents. As consumers returned to cruising after the 15-month sailing halt that ended in July 2021, they regained their appetite for travel, bolstered by the value proposition the holiday provides, an interest that continues to persist. With ships fully deployed at historical occupancy levels, pricing surpassed prepandemic levels in 2023 and continues to show momentum in 2024. While Norwegian could intermittently see pricing competition in periods of macroeconomic distress, we believe its attractive itineraries, tactical revenue management, and data-driven marketing will keep elevating sales across the brands. On the cost side, while higher oil prices and unfavorable foreign exchange could elevate costs at times, we expect management will focus on extracting further efficiencies as the business continues to scale. Over time, we expect both pricing and costs to normalize at low-single-digit rates.

We think InterContinental holds one of the industry's strongest brand intangible assets—a source of its wide moat—and forecast it will expand its room share during the next decade. Renovated and newer brands focused on the attractive midscale and extended-stay segments as well as a loyalty program of 130 million members will aid this growth. Also, the company holds a strong presence in international markets, with non-Americas regions constituting 45% of total rooms in 2023. This positions the company well for the more than 1 billion middle-income class individuals expected to be added to the global population over the next decade. The company currently has a mid-single-digit percentage share of global hotel rooms and over 10% share of all industry rooms under construction. We see its total room growth averaging over 3% over the next decade, above the 1%-2% supply increase we estimate for the US industry.