Company Reports

Brickworks is a conglomerate consisting of building product manufacturing operations, property management, and a cross-shareholding in ASX-listed investment firm, Washington H. Soul Pattinson & Company, or Soul Patts.

Washington H. Soul Pattinson, or Soul Patts, is a value style-oriented investment house with approximately AUD 12 billion in net equity value. Its approach to growing shareholder value is somewhat distinct from many fund managers and capital allocators, benefitting from advantages in its corporate structure, investment-style, and from a relatively unconstrained investment mandate.

Southwest is the largest domestic carrier in the US by passenger volume. Southwest has stuck to its strategy of streamlining airline operations to maintain lower unit costs than its full service rivals, which it passes on to customers in the form of cheaper tickets and a low-frills experience.

We expect Star Entertainment to deliver strong earnings growth over the next decade, buoyed by the recovery from pandemic-induced lows, the ramp-up of the Queen's Wharf and Gold Coast growth projects, and solid performance from its Sydney property, despite increased competition. The Star casino in Sydney is the company's core asset and historically generated approximately most of group earnings as the city's only casino. However, Star's exclusivity in Sydney has come to an end with a second Sydney casino license issued to Crown Resorts, opening in August 2022. This is a major blow to Star, ending its long-standing monopoly in Sydney.

Wide-moat Campbell has orchestrated significant changes since CEO Mark Clouse took the helm in January 2019. For one, the portfolio mix has shifted quite dramatically, such that its core soup lineup now accounts for only around one quarter of total sales (down from more than 40% in fiscal 2017) while snacks make up around 50% (up from less than 30%). In addition, the firm has worked to drive efficiencies across its supply chain and manufacturing network to fuel spending behind its brands and capabilities to solidify its competitive edge. These efforts have manifested in 3% average annual organic sales growth over the past five years against mid- to high-teens adjusted operating margins.

TeamViewer offers secure remote connectivity software solutions to individuals, small and medium sized businesses and large enterprises globally. TeamViewer’s remote access and support software covers information technology devices such as computers, mobile phones, and tablets, as well as nonstandardized operation technology devices such as industrial equipment, robots, and medical devices, among others.

Flutter Entertainment has leveraged its leading technology and product offering into an advantaged global brand, the source of its narrow moat, which spreads across the US, the UK, Australia, and other international markets like Italy.

Before its 2017 merger with Swift Transportation, Knight Transportation was the 12th-largest full-truckload carrier in the United States, with a long history of exceptional execution, including average returns on invested capital in the low teens—an unusual accomplishment in trucking. Knight's long-standing focus on network efficiency has served it well; its legacy operating ratio (expenses/revenue, excluding fuel) averaged in the mid-80s before the Swift deal versus an industry average that traditionally exceeds 90%.

BorgWarner is well positioned to capitalize on auto sector industry trends arising from global clean air regulations, consumers' demand for fuel economy, and the popularity of sport utility and crossover vehicles around the world. The company benefits from its ability to continuously innovate, a global manufacturing footprint, highly integrated long-term customer ties, high customer switching costs, and moderate pricing power from new technologies. Acquisitions of vehicle electrification companies such as Remy, Delphi Technologies, Akasol, and Santroll as well as the completed spinoff of the fuel systems and aftermarket business lines as Phinia support our thesis.

Allianz is one of the best-performing multiline insurers in our European insurance coverage. The company combines a unique set of assets to generate returns that are better than most others. In its property and casualty division, the company has continued to invest in technology and data to improve customer experience, as well as its policy and claims processing. By increasing the speed of its first notice of loss, the company gets ahead of inflation and can manage repairs and claims more effectively. While the division has not earned economic returns, from an underwriting perspective it is one of the better-performing segments. The business still has work to do in the consistency of its commercial insurance.

Cintas is by far the dominant provider in the $20 billion US uniform rental/sales and related ancillary services industry. It enjoys an approximate 30% market share. It has a diversified customer base of more than 1 million large corporations and small and midsize businesses across North America, with no single customer making up more than 1% of total revenue. Despite its already impressive position, we expect Cintas to post healthy growth over the long run. The firm consistently launches new product lines, emphasizes cross-selling to existing customers, and invests in IT infrastructure to enhance customer retention and operational efficiency. With a market penetration rate of less than 20%, the remaining unvended market remains sizable.

Darden Restaurants' playbook strives to leverage its competitive advantages, with the restaurant operator leaning into its scale-driven cost edge, embracing datacentric decision-making, trying to attract and retain employees with compelling benefits and culture, and providing a differentiated dining experience, consistent with management's back-to-basics strategy. While we view this approach as strategically sound, we expect any success at Darden to come in spite of, rather than propelled by, aggregate industry results, with the full-service industry ceding market share as consumers increasingly favor off-premises options at the expense of dine-in meal occasions.

Brookfield Renewable holds a well-diversified global portfolio of clean energy technologies assets. It 12%-15% returns via a combination of organic growth and acquisitions. Brookfield takes a primarily contrarian approach to acquisitions.

With strong positions in multiple key therapeutic areas, Novartis is well positioned for steady long-term cash flows. Strong intellectual property supporting multibillion-dollar products, combined with an abundance of late-pipeline products, creates a wide economic moat. While patent losses on multiple sclerosis drug Gilenya and cancer drug Afinitor will weigh on near-term growth, a strong portfolio of drugs along with a robust pipeline should ensure a steady long-term outlook.

Brookfield Renewable holds a well-diversified global portfolio of clean energy technologies assets. The company targets 12%-15% returns via a combination of organic growth and acquisitions. Brookfield takes a primarily contrarian approach to acquisitions.

Equity Lifestyle Properties is a residential REIT that focuses on owning manufactured housing, residential vehicle communities, and marinas. The company currently has a portfolio of 452 properties across the U.S. with a higher concentration in the Sunbelt region with 38% of the company’s properties located in Florida, 12% in Arizona, and 8% in California. Equity Lifestyle targets owning properties in attractive retirement destinations with over 70% of the company’s properties either being age-restricted or having an average resident age over 55.

Interactive Brokers is a unique brokerage in our coverage. It serves a more niche client base. In addition to retail investors, the company caters to the trading of institutional clients like hedge and mutual funds, proprietary trading groups, introducing brokers, and financial advisors. The commission mix of retail and institutional clients is about 55%/45%. Most of Interactive Brokers' clients still choose to pay commissions, even though many other retail brokerages have switched to a zero-commission model for US stock trading. The clients of Interactive Brokers are more sophisticated than those of Charles Schwab and E-Trade. They trade more frequently, maintain higher cash balances to make opportunistic moves, and use more leverage. These trading-savvy customers are attracted by Interactive Brokers’ low margin rates, comprehensive trading platform, sophisticated trading execution capabilities, and high interest paid on idle cash.

Ameriprise Financial has transformed itself into an investment management powerhouse, with about $1.4 trillion in total assets under management and advisement and around 10,000 financial advisors at the end of June 2024. The firm shifted away from insurance and emphasized asset and wealth management operations more. Columbia Threadneedle Investments, the firm's global asset-management business, turned Ameriprise into a contender in the global asset-management industry with around $600 billion of assets under management, or AUM. About 80% of revenue comes from the company's wealth and asset management segments which should help the company generate operating margins consistently in the mid-20s compared with midteens to low-20s historically.

There is no escaping Pharmaceutical Benefits Scheme, or PBS, price reform, which is challenging industry profitability and leading to subpar returns for Sigma. We estimate about 50% of Sigma’s revenue is reliant on PBS. Although government PBS spending is notionally uncapped, the overall quantum typically barely grows due to ongoing PBS price reform and the Australian government having significant negotiating power in allowing new drugs onto the PBS schedule. As such, we forecast typical industry revenue growth in line with population growth of 1.5%.

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.