Company Reports

ADP has invested heavily over the past decade to develop public cloud native solutions and consolidate its portfolio of disparate platforms. ADP had successfully migrated most of its small and midsize clients to its strategic platforms as of fiscal 2021 and will be migrating enterprise clients to its new human capital management platform over the coming decade, as well as rolling out its new underlying payroll and tax engines. While we expect platform migrations to ultimately result in higher retention and profitability, the forced migrations will likely create a catalyst for enterprise clients to reassess providers, temporarily hindering both metrics.

Squarespace offers subscription-based drag-and-drop website-building software that caters to various use cases, including e-commerce, blogging, and portfolio websites as well as stand-alone software for social media content design, hospitality management, and scheduling.

Once the biggest bank in the world, NatWest Group is now a much smaller and mostly U.K.-focused bank with a good retail and commercial banking franchise. The bank also stands on a more solid footing than it has ever had during the last decade. The largest litigation and conduct issues—such as the residential mortgage-backed securities case in the U.S. and the redress for mis-sold payment protection insurance, which had been significant headwinds to performance over the recent past—have come to a close.

Cronos Group cultivates and sells cannabis predominantly in Canada and Israel. With 2023 net sales below CAD 100 million, it is the smallest Canadian licensed producer we cover by far. This hurts its ability to reach scale on overhead expenses, leading us to forecast the company will not reach breakeven adjusted EBITDA profitability within our 10-year forecast.

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.

Banco de Chile’s reputation and long history in Chile have allowed it to attract a large pool of noninterest-bearing deposits, giving it a lower cost of funds than most of its rivals. This funding advantage has contributed to the bank’s impressive profitability, historically delivering returns on equity in the mid to high teens.

D.R. Horton is the largest US homebuilder with an extensive geographic footprint, wide product breadth, and affordable price point. Management is focused on expanding the business while generating steady returns on invested capital and positive cash flows throughout the housing cycle.

Paycor HCM is well positioned to take share in the expansive and highly fragmented small- and midsize-business payroll and human capital management market through industry consolidation and rising demand for sophisticated HCM solutions. At present, most of the small-business market is serviced by regional providers or do-it-yourself solutions such as Intuit QuickBooks or Microsoft Excel, creating meaningful scope for greater penetration by functionality-rich providers like Paycor.

Canopy Growth grows and sells cannabis products primarily in Canada, which accounts for roughly 50% of sales. Unfortunately, the Canadian market is overloaded with too many licensed producers, leading to tough price competition and a stubbornly robust illicit market, so Canopy has yet to reach profitability. We forecast mid-single-digit growth over the next decade for the Canadian market, driven by the conversion of illicit consumers into the legal market. We expect competition to ease as continued industry losses drive consolidation.

Walgreens Boots Alliance is one of the largest retail pharmacy chains in the United States, with over 8,500 locations. Nearly three fourths of Americans live within five miles of a Walgreens location. The company operates in three segments: US retail pharmacy, international, and US healthcare.

Schneider Electric is well positioned for the ongoing convergence of electrical hardware and software markets. Its portfolio of electrical power and industrial automation products exhibits high barriers to entry and will benefit from the secular trends of digitalization, the energy transition and reshoring production, supporting long-term structural growth. Several acquisitions have expanded Schneider’s digital capabilities, leveraging its leading market share in electrical products to further integrate itself with end users’ operations and create more meaningful relationships with customers. The shift away from purely transactional sales toward stickier digital revenue and its continuous focus on productivity improvements has lowered the cyclicality of operating performance.

Siemens is a disparate portfolio of high-quality businesses in different sectors. The spinoff of its cyclical energy and wind turbine divisions has enhanced the group’s return profile and provides more durable returns than in the past. Further deconsolidation appears unlikely. All its businesses have strong product portfolios to compete in long-term attractive end markets that benefit from the secular growth trends of digitalization and the energy transition. In addition, its installed base of long-life industrial equipment requires a constant stream of aftermarket upgrades and maintenance, underpinning its high-single-digit earnings growth ambition.

In the UK, Barclays operates what we believe to be a strong retail franchise underpinned by a market-leading share in credit cards. The international segment is dominated by a bulge-bracket investment bank, one of the last full-service global investment banks headquartered in Europe. It also includes a credit card and current account business in the US and a global wholesale banking operation. Both segments contribute about equally to income.

Berkeley Group Holdings’ focus on large-scale, capital-intensive brownfield redevelopment projects distinguishes its strategy from its UK homebuilding peers. Brownfield projects involve the redevelopment of land previously used for commercial or industrial purposes. Berkeley is the only UK residential developer that regenerates large, complex brownfield sites at scale and is vertically integrated through the land development, construction, and sales and marketing segments of the residential property development value chain. Operating in this niche, Berkeley typically deploys capital into regeneration sites in built-up areas, with a particular focus on the housing markets of London, Birmingham, and the south of England.

Suncorp is a well-capitalized financial services business with a dominant market position in the Australian and New Zealand general insurance industry. In addition to offering insurance under the parent name, key brands in Australia include AAMI, GIO, Bingle, Apia, Shannons, and Terri Scheer. In New Zealand, key brands include Vero, AA Insurance, and Asteron Life. The insurer carries concentrated weather and earthquake risk in Australia and New Zealand and in particular Queensland, which makes up around 25% of gross written premiums in Australia.

As the leading player in the $19 billion global spices and herbs market—with nearly 20% share, 4 times the next-largest operator, according to Euromonitor—McCormick is a valuable partner for retailers. However, competitive and macro headwinds abound. For one, McCormick continues to face cost pressure (related to select raw materials, transportation, and labor) that have ensnarled firms of all stripes. Further, we think consumers (particularly those with lower incomes and/or on a fixed budget) have tightened their spending, given stepped up prices at the grocery store as well as elevated interest rates and gas prices, which could serve to constrain its results if consumers trade down or out of the category.

We think GoDaddy’s position as the world’s leading domain registrar creates a unique opportunity to capture demand from newly formed businesses and upsell complementary products beyond domain registration. We expect the one-stop-shop model will appeal to micro- and small businesses looking to establish and manage a ubiquitous online identity with integrated commerce solutions. The initial domain registration process is typically a customer's first interaction with GoDaddy, and acts as an onramp for additional products. For example, an entrepreneur seeking an online presence for their idea may approach GoDaddy for a domain registration initially, and as a natural extension purchase a subscription to a domain linked email account, website building tools and commerce solutions.

Kerry Group has evolved from its humble roots as an Irish dairy co-operative into a global flavor and nutrition powerhouse serving the food, beverage, and food-service sectors. Our wide economic moat rating is supported by intangible assets and switching costs stemming from the company's wide range of ingredient solutions and strong service component, which contributes to partnershiplike client relationships.

We think Essity faces obstacles to amassing brand power in its portfolio. Competition from both branded and private-label offerings in the global personal care and hygiene category, plus low barriers to entry and a lack of switching costs, hampers Essity's ability to form the entrenched retail relationships needed to secure a competitive edge. We assign Essity a no-moat rating.

We think Barry Callebaut's dominant position in the global chocolate industry affords the business significant cost advantages, making it one of the lowest-priced manufacturers and an important outsourcing partner for its customers. Outsourcing is a long-term trend, and it will likely continue to be a primary driver of above-average organic growth for the company in the years to come. We see a clear path to increased profitability through an improved customer and geographic mix over time.