Company Reports

Yidu Tech provides AI solutions to hospitals, policymakers, and life sciences companies using its algorithm, Yiducore, which works by aggregating and converting raw data sets that lie within the IT systems of hospitals in China into structured and standardized data. Its algorithm is embedded in 2.6 billion full-cycle medical records covering 600 million patients from hospitals and provides models from real-world evidence. As more hospitals and disease registries partner with Yidu, Yiducore can process AI solutions more efficiently and accurately as it adds incremental data to its algorithm. As a result, hospitals can use real world-based evidence from the records to determine the best course of action for treatment and drugs for their patients. We think that the rich amount of data from medical records is a barrier entry, and Yidu has built a client base comprising 88 of the top 150 hospitals. We also believe that it is gaining traction commercially with life sciences companies but this has not yet translated to 40%-50% year-on-year revenue growth as previously forecast. Life sciences companies can use the medical database, insights, and disease models to increase chances of clinical trial success while shortening the cost and time. There are switching costs as life sciences companies are unlikely to switch solution provider mid-clinical trial, and should a trial be successful through all four phases, the recurring life span of a contract could potentially last nine years.

Since its initial public offering in late 1995, MSC Industrial has increased its top line at an impressive 11% compound annual rate. Over the past 25 years, MSC has become one of the largest industrial distributors in United States and is especially well known in the metalworking industry, where we estimate it enjoys approximately 10% market share. MSC has historically been a conservatively capitalized company, but it is not afraid to flex its balance sheet when the right opportunity presents itself. The company spent $900 million to acquire J&L Industrial Supply in 2006 and Barnes' North America distribution business in 2013, which bolstered its metalworking and inventory-management products and services.

Universal Music should be a primary beneficiary of the ongoing growth we expect throughout the music industry. Universal is the largest of the major record companies and currently has an impressive roster of both older and more modern artists. We believe the record companies will remain integral to maximizing recording artists’ earnings, and the moats the major record companies have should enable them to maintain relationships with current stars and continually sign the next generation of talent while also maintaining control of legacy songs and recordings for many years. With Universal’s scale, resources, and current roster, we think it is better positioned than any peer.

Warner Music is the third-largest of the three major record companies, and it should be a primary beneficiary of the ongoing growth we expect throughout the music industry. We believe record labels will remain integral to maximizing recording artists’ earnings, and the moats the major record companies have should enable them to maintain relationships with current stars and continually sign the next generation of talent while also maintaining control of legacy songs and recordings for many years.

Five9 is squarely positioned to benefit from industry tailwinds including the transition of contact center operations to the cloud, and a shift toward digital first customer engagement and automation. While we forecast Five9 will continue to take market share, the firm faces intensifying competition from contact center as a service, or CCaaS, peers, and communication industry titans competing for a slice of the massive contact center cloud transition pie. In this environment, we expect Five9 will need to continue to invest heavily in go-to-market efforts and product innovation to attract and retain new clients, weighing on profitability upside.

Along with Equifax and TransUnion, Experian is one of the Big Three credit bureaus. Experian's US core credit bureau business is relatively mature and, as a result, the company has been expanding through adjacent products and in emerging markets.

Banco Santander Chile is the largest bank by assets in the Chilean market. This scale has afforded the bank the second-cheapest deposit base in the country, significantly contributing to Santander Chile’s impressive returns on equity, which are typically in the upper teens. The bank has benefited from the introduction of the "Superdigital" and "Santander Life" accounts that are part of a larger trend toward increased adoption of digital banking in Chile. The bank’s digital offerings are tailored to reach an estimated population of 4.5 million unbanked Chilean citizens and have allowed the firm to trim down the size of its branch network.

Philips is a one-stop shop for imaging-related devices with an established footprint in many hospitals, which positions it to benefit from long-term healthcare trends like the transition to noninvasive or minimally invasive procedures and increased hospital demand for efficiencies. Through several divestitures and acquisitions, Philips has transformed itself from an industrial medical conglomerate into a healthcare company and primary supplier across hospitals, which facilitates the introduction of new products and the displacement of smaller suppliers with more depth in a single product line but lack of breadth. In many of its underlying markets, the company operates in an oligopoly where significant market share is controlled by a few players. Several of Philips' products require proprietary software or service; this provides stability to cash flows and helps to lock in customers. In addition, the company has carried out several divestments and acquisitions, which we believe has reinforced its positioning.

Tesla is one of the largest battery electric vehicle automakers in the world. In less than a decade, the company went from a startup to a globally recognized luxury automaker with its Model S and Model X vehicles. The company competes in the entry-level luxury car and midsize crossover sport utility vehicle markets with its Model 3 and Model Y vehicles. Tesla also sells a light truck—the Cybertruck, and a semi truck. The company plans to launch an affordable SUV and luxury sports car in the future.

Paylocity's unified platform appeals to clients who prefer an all-in-one payroll and human capital management, or HCM, solution. Clients can customize through add-on modules, including talent management and benefits administration, alongside core payroll functionality, and integrate with over 400 third-party providers, including referral partners such as benefit brokers. A unique feature of Paylocity's platform is the complementary inclusion of communication and engagement tools, including social collaboration platform Community, and video, survey, and learning management tools. These features aim to drive higher employee engagement and satisfaction, benefiting the client as well as Paylocity by entrenching the software into the business.

While Rakuten is most notable for its e-commerce platform, Rakuten Ichiba, we believe the company’s success in Japan lies in its first-mover advantage in establishing a comprehensive ecosystem composed of e-commerce, fintech, and mobile network services. Over the years, Rakuten accumulated over 40 million monthly active users, and close to 80% of users use more than two Rakuten services. We identify the convenience of accessing multiple services with one Rakuten ID and Rakuten’s point reward system as the main contributors for user stickiness.

We view Nike as the leader of the athletic apparel market and believe it will recover from current challenges, such as a lack of recent innovation and soft demand for sportswear in key markets. Our wide moat rating is based on its intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in most markets, dominates areas like running and basketball with popular shoe styles. While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.

As the largest retailer in Canada, Loblaw boasts well-recognized grocery and pharmacy banners and a sizable loyalty program that drives strong consumer engagement. However, we think the firm has not carved out an economic moat based on either intangible assets or cost advantage, given its sales concentration in commoditized food retail, where low prices reign as the major point of differentiation.

With its fresh products, Freshpet is well positioned to capitalize on continued growing pet ownership along with humanization trends by expanding its store footprint and growing its sales-per-store. It primarily focuses on the $37 billion US dog food market (2023 estimate according to Euromonitor) through company-owned and -maintained refrigerators in 27,100 grocery, mass and club, pet specialty, and natural stores. The company estimates a market opportunity of at least 30,000 stores, though we forecast at least 35,000 by the end of our 10-year forecast period given the 46,000 supermarkets in the US alone, not including pet specialty stores.

Tyson primarily sells raw beef, pork, and chicken, although it has increased its exposure to prepared foods. Despite the scale it has amassed (with a sales base that exceeds $53 billion), meat is a commodity and carries little to no brand or pricing power, exposing sellers to volatility in both costs and revenue. Tyson’s strategy to sell three meats is intended to offer diversification. But diversification has its costs, and the headwinds of any one meat have weighed on companywide results at times. Additionally, we think there’s limited revenue or cost synergies across different proteins.

Saint-Gobain manufactures and distributes a wide range of building materials, many of which are not entirely synergistic. We cannot fault its strategy of streamlining the company and divesting from businesses where it has not achieved the required scale geographically to compete profitably. Many of the group’s wide range of products don't tend to travel long distances, which tend to make markets very regional and provide minimal benefits to being a global player. The group’s strategy of being a one-stop shop for customers by selling a wide range of construction products is a common theme across the industry and is unlikely to provide a durable competitive advantage.

Although we still believe that Hennes & Mauritz, or H&M, (the world’s second-largest fashion company in terms of revenue) benefits from scale advantages and brand recognition, we think these are no longer sufficient to guarantee medium- to long-term economic profits in an increasingly competitive environment, hence our no-moat rating for the company.

Fletcher Building is a New Zealand building supplies company. We estimate about 65% of its revenue is tied to residential construction, 25% commercial, and about 10% infrastructure.

The short-cycle nature of demand for Sandvik’s metal-cutting tools and mining equipment exposes the group to cyclical swings in industrial manufacturing and commodity prices. A combination of divestments and continuous focus on ways to improve operational efficiency has successfully created a more resilient and profitable business. However, restructuring programs are frequently required to protect profitability once macroeconomic conditions change.

As one of the major players in the home care sector in China, Blue Moon has been an early mover in terms of product innovation and channel penetration, which has driven above-industry sales growth in recent years. The majority of Blue Moon’s sales come from laundry detergent, where the market has grown at a CAGR of midsingle digits in the past decade. Consumption premiumization coupled with rising per capita income have led to a market transition from powder detergent to liquid detergent. Blue Moon was one of the early movers in the latter category and has been the market leader in terms of value share for the past 10 years consecutively. Likewise, the company’s early entrance in the liquid soap market with competitive offerings has helped secured its number one position during the same period, despite the advent of international peers such as Procter & Gamble and Reckitt Benckiser. These investments in products that could cater for shifting consumer preferences have conferred satisfactory returns for Blue Moon.