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BlackRock: Purchase of Preqin Boosts Private Market Capabilities; No Change to FVE
We were not too surprised to see wide-moat BlackRock announce it is acquiring Preqin, one of the largest providers of private-market data. However, we don't anticipate the deal having much of an impact on our $850 per share fair value estimate.
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Company Report
Freshpet Is Well Positioned for More Growth and Margin Expansion, but Market Expectations Are Lofty
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.
Company Report
Beef Headwinds Are Lingering but Should Eventually Fade and Lift Tyson's Earnings
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.
Company Report
Double-Digit Operating Margin Remains on Track Despite Expected Revenue Decline in Fiscal 2024
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.
Company Report
H&M's Profitability Improvement Is Solid but Sales Trends Remain Patchy
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.
Company Report
Fletcher Building Change of Analyst Coverage
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.
Company Report
Restructuring Program to Help Protect Sandvik's Profitability Against Short-Term Revenue Weakness
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.
Company Report
New Channels to Fuel Top-Line Growth for Blue Moon, but Expenses to Stay Elevated
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.
Company Report
Upgrading Murata Manufacturing to a Wide Moat Based on Expanding Advantage in MLCCs
Murata Manufacturing is a top supplier of passive components, such as the multilayer ceramic capacitor, or MLCC (40% global share), and surface acoustic wave, or SAW, filters (40%-45% global share). While we acknowledge that shipments of digital devices are slowing down, we believe progress in telecommunications technology will be the driver to increase content per device.
Company Report
ADP Is a Payroll Powerhouse With a Wide Economic Moat
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.
Company Report
Squarespace to Go Private Following Takeover Offer From Permira
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.
Company Report
Changing NatWest's Capital Allocation Rating to Standard
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.
Company Report
Cronos Is Unlikely to Generate Positive Adjusted EBITDA for the Foreseeable Future
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.
Company Report
Paylocity Continues to Build Top-Line Despite Macro Pressures
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.
Company Report
Economic Risks for Banco de Chile Are Decreasing as Inflation Falls and Credit Costs Remain Modest
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.
Company Report
D.R. Horton's Affordable Price Points Are Attracting More Buyers
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.
Company Report
Paycor Continues To Build Out Sales Coverage to Support Growth and Win Sticky Customers
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.
Company Report
US Deals Help Unlock Some Value but Doesn't Help Canopy Growth's Lagging Canadian Operations
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.
Company Report
Walgreens' Recovery Looks Uncertain as Retail Continues to Suffer and More Store Closures Underway
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.
Company Report
The Market Is Recognizing Schneider's Impressive Growth Prospects; Raising Our Fair Value Estimate
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.
Company Report
Look Past Short-Term Weakness in Digital Industries; Structural Growth Remains for Siemens
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.