Company Reports

Hormel Foods has long been on US shelves, with strong meat-centric brands like Jennie-O, Spam, Dinty Moore, and various Hormel-branded goods. These brands tend to hold number one or two share in their categories. To keep pace with evolving trends, Hormel has expanded its focus through acquisitions of non-meat protein brands like Skippy and Planters and branded meat products like Applegate. It has also entered ethnic and emerging food with Wholly Guacamole, Herdez, and Happy Little Plants. Concurrently, Hormel has reduced its commoditized farming footprint, increasingly relying on third-party farmers. Taken together, we think these moves stabilize its competitive standing and improve profitability in the competitive packaged food arena.

While holding a modest 1% global market share in the competitive sportswear and equipment industry, Amer Spots has carved out a strategic niche such as outdoor apparel, hiking footwear, and tennis. Following its acquisition by Anta Sports in 2019, Amer underwent a strategic shift, pivoting away from growth primarily driven by acquisitions and wholesale operations. Instead, the company is now prioritizing the expansion of its product range and a direct-to-consumer approach. This strategic realignment is evident in Amer's increased investment in three core brands: Arc’teryx, Salomon, and Wilson.

Anhui Gujing is one of the eight national well-known baijiu brands. Thanks to its strong brand heritage and deep-rooted distribution network in the regional market, Gujing has become Anhui’s largest distiller by sales since 2012 and has led the province’s premiumization via sales growth of its flagship premium Gujing Year Puree series, which allows the company to enjoy decent profitability and returns.

BT Group owns the best and most far-reaching wholesale fixed-line network (Openreach) in the UK. Years of regulatory discussions and tensions caused BT to severely underinvest as it sought a regulatory framework that ensured acceptable returns on capital. The approval of the Equinox plan, which sets wholesale pricing for communication providers in Openreach’s network for the next 10 years, seems satisfactory for BT and has caused fiber-to-the-home investments to soar. BT will deploy more than 4 million FTTH lines per year until 2026, covering around 90% of the UK, up from less than 10% in 2019. Network duplication is however increasing in the UK as alternative networks like Cityfibre have stolen market share from Openreach stealing 450,000 lines in 2023. Virgin Media aims to cover 80% of the UK by 2026, up from 60% five years ago.

Tele2 aims to maintain its position as Sweden’s second-largest player in both the mobile and broadband markets. Although Sweden’s consumer market is relatively stable, we expect Telia, and not Tele2, to be the main target of any pressures coming from Telenor or HiG3. Telia is by far Sweden’s most expensive telecom provider, with prices 15% to 30% higher than peers in both mobile and broadband. Tele2 executes moderate price increases every year which customers seem to accept, but the pricing gap with Telia is still large. We therefore expect Tele2 will maintain or slightly grow its subscriber numbers steadily, while it moderately increases prices.

Ryman is New Zealand’s largest retirement village operator, controlling about a fifth of a fragmented market. It combines retirement and aged care facilities, so residents can transition from independent to supported living. In addition to a reputation for quality, we believe the integrated model is a benefit that many competitors would struggle to replicate, due to the costs of retrofitting existing nonintegrated facilities. We believe Ryman Healthcare remains positioned to achieve earnings growth over the next 10 years, driven by favorable demographics, and Ryman's brand. Ryman has expansion plans, particularly in Australia, though it has moderated its growth ambitions. Its expansion has been so far focused exclusively on the state of Victoria, mostly around Melbourne. Feedback from Australian customers has been positive. Though no sites have been acquired outside Victoria yet, we expect Ryman to continue to gain traction in Australia, and we assume it will eventually expand elsewhere in Australia. Ryman’s earnings are exposed to residential property prices on several fronts. Ryman’s residents typically fund their entry into a village by selling their primary residence, so residential property prices influence the proceeds residents have available, and therefore, Ryman’s development margins. Residents might choose to defer or even cancel their plans to move into a retirement village should they struggle to sell their property at a desired price, which could slow Ryman’s sales cycle, or undermine occupancy, which has typically been high. That could be detrimental for margins and returns, given the level of operating leverage in the business. Ryman sells occupancy rights to residents, but retains the exposure to capital gains (or losses) on its units, further adding to its house price exposure. Retirement unit management fees are also linked to sale prices of its units. A prolonged stagnation or fall in house prices and transaction volumes could have adverse effects on Ryman’s earnings.

Centuria Capital Group’s vision is to be a leading Australasian fund manager, an appropriate goal given its expertise in the business. Growth areas include alternative sectors such as agriculture, healthcare, and real estate credit, versus its history in core property sectors such as office and industrial. Even in its core property investments, Centuria has focused on smaller properties, or those outside the Sydney and Melbourne CBDs. Centuria Office REIT, one of its largest investment vehicles, holds much more suburban office, compared with office heavyweights Dexus, GPT, and Charter Hall which focus on CBDs. The focus outside CBDs should help the group as it diversifies into alternative property sectors, because the Centuria should be well versed in evaluating the more esoteric risk and return profiles of assets in healthcare, agriculture, and other varying sectors.

BlueScope’s business strategy targets earnings growth and maintainable returns by optimizing its cost structure and pursuing capacity expansion and bolt on acquisitions. Management’s focus includes financial discipline, cost control, efficiency, and disciplined capital allocation in capacity and technology given the firm lacks any ability to influence the direction and magnitude of the steel spreads.

Unibail-Rodamco-Westfield was formed in 1968, acquiring several large malls through to 1995 and offices thereafter. In 2000 it launched a conventions and exhibitions business and is now a European leader in the sector. In 2007 Unibail merged with Rodamco, becoming the largest retail REIT in continental Europe.

As technologies and consumer preferences change rapidly, it is generally difficult for consumer electronics companies to build an economic moat. The replacement cycle for digital appliances is usually four to six years, but as most products are commoditized, it is difficult for manufacturers to build an ecosystem that prevents customers from switching to other brands. As a result, Sony’s profitability on electronics had been unstable in the past, while its music, movies, and financial services businesses have generated solid results.

CureVac was founded in 2000, and its focus is on developing vaccines and therapies using messenger ribonucleic acid, or mRNA. mRNA offers several advantages, including cell-free, rapid, large-scale manufacturing and the ability to substitute new genetic sequences to create novel vaccines. Vaccines are typically composed of weakened viruses or proteins (antigens) that they express. In mRNA vaccines, the genetic code for an antigen is administered to patients who then manufacture the antigen themselves, which triggers an immune response.

Zhenjiu Lidu, or ZJLD, has differentiated itself from other China baijiu distillers by operating three distilleries under four different brands, with aromas ranging across Jiang, Rich, and Mixed flavors. It acquired the distilleries of Xiang Jiao, Li Du, and Zhen Jiu during 2003-08. Through heavy investment, ZJLD successfully built Zhen Jiu, Li Du, Xiang Jiao, and Kai Kou Xiao into leading national and regional brands, providing the group with pricing power. Expanding distribution penetration and continuing investment in marketing and branding, have also fortressed its competitiveness.

Private-label manufacturers can offer customers lower prices by minimizing the marketing and product spending that most packaged-food companies rely on to create strong brands. Secular trends create tailwinds for growth, but preferences for private label differ greatly by category. Since Steve Oakland took over as CEO in 2018, TreeHouse has slimmed its portfolio. We think this strategy makes sense, as TreeHouse is now more focused on categories where growth and private-label penetration are higher, including snacking, beverages and drink mixes, and aseptic goods. This is reflected in our mid-single-digit top-line growth forecast that exceeds most CPG companies we cover, but we think low operating margins are unlikely to surpass those same companies, given the lack of a moat.

We expect Altium’s strategy to focus on continuing to take market share with its core design software suite and to expand usage of its online marketplace for electronic components, Octopart, as the industry digitizes.

We expect Technology One’s strategic focus to revolve around increasing the number of products used by its local government and education customers in Australia and New Zealand. To a lesser extent, we expect Technology One to focus on vertical expansion and geographic expansion into the UK education market.

WiseTech’s long-term strategy centers on becoming the operating system for the logistics industry as the industry digitizes.

We expect Xero’s near- and medium-term strategic focus to revolve around rationalizing its areas of investment, especially against a backdrop of normalizing demand for business software.

We expect Hansen’s strategy to focus on pursuing inorganic growth opportunities, either through geographic expansion of existing functions or expansion into new functional adjacencies.

We expect Objective’s strategy to focus on investing heavily to continue expanding its product portfolio, both organically and inorganically. Over the past decade, Objective invested heavily to adapt its core enterprise content management software suite to evolving customer needs, especially around the transition to the cloud and remote working. We view these trends as maturing and we don’t see other trends requiring a similar magnitude of investment on the horizon. As such, we believe Objective will increasingly have capacity to deploy capital into more industry-specific applications of ECM, such as for assessing building development applications and compiling new regulations. We view the expansion into planning and building most favorably, with Objective’s products already commanding dominant market shares in Australia and New Zealand, both of which have outsize construction sectors.

We expect SiteMinder’s strategy to be wide-ranging, including a focus on attracting new customers, increasing penetration of its current product suite, and developing and launching new products. We view SiteMinder’s strategy as appropriate, despite its wide-ranging nature, as all three focus areas provide large and highly winnable opportunities.