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SAP is a best-in-breed enterprise resource planning provider and holds dominant market share in global ERP software. However, SAP is phasing out its support of its on-premises ERP software such that by 2040 all of its ERP customers will need to shift to a cloud solution. We think that this vulnerability is a significant threat to SAP’s switching costs, as competitors like Workday offer compelling cloud ERP solutions, while forced migration opens up opportunity to question a company’s best fit for ERP needs. In turn, we believe SAP’s narrow moat, derived from its switching costs, is trending negative. However, it is still early in SAP's transition of on-premises users to the cloud, which leads us to believe its negative trend could be prolonged.

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GPT Group was listed in 1971, and internalized its management in 2005, severing ties with former manager and founder Lendlease. Its long history helped GPT Group build a property portfolio that includes many well-known assets. For example, its retail portfolio includes Melbourne Central, one of Australia’s most productive retail assets. Its office portfolio includes stakes in Sydney’s Australia Square, Brisbane’s One One One Eagle St, and numerous properties in and around Collins St in Melbourne’s CBD. GPT Group’s retail and office portfolios each contribute about one-third of funds from operations. Another fifth comes from industrial property and a growing balance from funds and property management.
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SAP is a best-in-breed enterprise resource planning provider and holds dominant market share in global ERP software. However, SAP is phasing out its support of its on-premises ERP software such that by 2040 all of its ERP customers will need to shift to a cloud solution. We think that this vulnerability is a significant threat to SAP’s switching costs, as competitors like Workday offer compelling cloud ERP solutions, while forced migration opens up opportunity to question a company’s best fit for ERP needs. In turn, we believe SAP’s narrow moat, derived from its switching costs, is trending negative. However, it is still early in SAP's transition of on-premises users to the cloud, which leads us to believe its negative trend could be prolonged.
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IQVIA (formerly QuintilesIMS) is the result of the merger of Quintiles, a leading late-stage contract research organization, and IMS Health, a dominant player in life sciences data and analytics. The combined company has become a leader among CROs and in the life sciences data and analytics industry. Further, as a result of the merger, the company leads in real-world evidence, in which data from sources such as patient records or medical claims can be used to create clinical evidence for regulatory approval.
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Comerica is predominantly a commercial-focused middle-market bank, with over 90% of loans related to commercial lending and the majority of these related to its middle-market business. While the bank started in Michigan and remains a key player in this market, it has gradually expanded into California and Texas, which offer more growth potential. This has been a multiyear project and included moving the headquarters to Dallas from Michigan in 2007 and greatly expanding operations in Texas by acquiring Sterling Bancshares in 2011. Expansion in California has happened gradually for years, and the market has become Comerica's largest, with roughly one third of the bank’s loans now based there.
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Verizon Communications is primarily focused on the wireless business, where it has taken steps to ensure it remains well positioned, building fiber deeper into major metro areas and acquiring wireless spectrum to increase network capacity and performance. While we expect growth will be very modest, we expect Verizon and its two primary wireless rivals will compete rationally, allowing each to generate consistent financial results in the coming years.
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Sweden-based medical device and sterilization company Getinge has struggled through roughly a decade of operational and reputational challenges. The firm remains focused on improving operating efficiency, addressing product quality, and building back trust with customers and regulators. As part of this turnaround, Getinge has committed nearly SEK 2 billion to remediation and restructuring related to the 2015 consent decree imposed by the U.S. Food and Drug Administration and about SEK 1.8 billion in provisions for surgical mesh liability costs. The firm also sold its entire extended-care business in 2017. Regulatory challenges remain a risk, and in 2023 we estimate it spent approximately SEK 800 million in quality spending related to its cardiopulmonary and cardio assist businesses. Nonetheless, we think Getinge could maintain a strong position in key markets (such as life science sterilization, advanced ventilators, and surgical capital equipment) and gradually improve margin with a focus on U.S. market expansion and cost restructuring.
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Goldman Sachs is refocusing the initiatives it’s been working on the previous several years. At its 2023 investor day, it emphasized three priorities. In its investment banking and trading business, it wants to maximize client wallet share and grow its financing business. In asset and wealth management, it wants to grow its management fees, including in wealth management and raising third-party capital for its alternatives business. In its new platforms business, it wants to scale and achieve profitability.
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State Street provides a range of asset servicing and ancillary servicing, including maintaining custody of assets, fund administration, record-keeping, securities lending, foreign-exchange trading services, and data services to institutional asset owners and asset managers. Although State Street is a market leader, its asset manager and asset owner clients are sophisticated on the pricing of its custody and ancillary services. In addition, as asset managers consolidate and face industrywide fee pressure, they are increasingly seeking operating expense savings. State Street saw pricing compression of 4% in 2018 and 2019, though it did moderate to about a 2% headwind in 2020-23. The rapid rise in interest rates during 2022 helped the custody banks expand their net interest income but the benefit has largely dissipated. While net interest income may only make up about 20%-25% of State Street's revenue, there is little incremental operating cost to this revenue and thus net interest income is an important profitability driver.
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UCB emerged as a major biopharmaceutical player in the 1990s with the development of blockbuster drugs Zyrtec and Keppra. Throughout the 1990s and early 2000s, UCB transformed from a hybrid pharma/chemical firm into a pure-play biopharmaceutical company by shedding its packaging, film, and chemical businesses. Acquisitions of Celltech (2004) and Schwarz Pharma (2006) strengthened the biopharmaceutical pipeline, bringing in late-stage assets that would eventually be approved as Cimzia (immunology), Vimpat (epilepsy), and Neupro (Parkinson's disease). These key products helped offset the impact of Zyrtec and Keppra's patent losses, and the company has continued to shape its expertise in immunology and central nervous system disorders.
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The Credit Suisse integration is UBS' main focus for the foreseeable future. After the 2008 global financial crisis, UBS was in a similar position to Credit Suisse before its collapse. UBS' capital allocation was utterly lopsided, with 70% of its capital allocated to volatile, unprofitable investment banking activities. Over the next 15 years, UBS reduced the capital allocated to investment banking to 30% and shut down investment banking operations that did not support its core wealth management business. UBS halved its asset base and lopped 30% of its cost base while growing revenue. The consequent capital adequacy and profitability improvement allowed it to buy back 20% of its shares over the past five years. Now UBS will have to do this all over again.
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Iberdrola is the second-biggest integrated utility in Europe after Enel. Besides its domestic Spanish market, Iberdrola has strong exposure to the United Kingdom since the acquisition of Scottish Power in 2007. It is the European utility with the largest exposure to the United States thanks to its wind development and the acquisition of UIL in 2015. Its US assets are grouped in 81.5%-owned Avangrid. In May 2024, Avangrid's board of directors accepted an all-cash takeover bid from Iberdrola at $35.75 per share involving $2.6 billion of cash outlays. The transaction is expected to close by the end of 2024. We calculate that it will be EPS-accretive by 2%.
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South32 is a diversified midtier global mining company spun out from BHP in 2015. South32 has commodity diversification and its operations are generally in the bottom half of their industry cost curves. However, they generally lack maintainable competitive advantage given relatively high capital intensity, a lack of barriers to entry, and in some cases, relatively short reserve life.
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WH Group operates a vertically integrated value chain in the hog industry across China, the US, and Europe. Through its subsidiaries Shuanghui in China and Smithfield in the US, the company engages in hog production, slaughtering, and packaged meat processing and distribution. Shuanghui is a clear market leader in the packaged-meat industry in China, commanding around one third of value share. WH Group derives close to 90% of its operating profit from packaged meat across China and the US, although Smithfield has a lower market share in processed meat versus Hormel, Tyson, and Pilgrim’s Pride. Profitability of this segment tended to be more stable versus the company’s upstream business.
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As Australia's premier oil player, Woodside Petroleum's operations encompass liquid natural gas, natural gas, condensate and crude oil. However, LNG interests in the North West Shelf Joint Venture, or NWS/JV, and Pluto offshore Western Australia are the mainstay, and the low-cost advantage of these assets form the foundation for Woodside. Future LNG development, particularly relating to the Pluto project, encompasses a large percentage of this company's intrinsic value.
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Liberty Energy has provided hydraulic fracturing services since 2011, expanding from one active fleet to over 40 over the past decade. Most of its management team has been involved in technological innovation for fracking since the 1990s. Current tech solutions include statistical analysis to optimize frac design and dual-fuel fleets. The 2020 acquisition of OneStim from Schlumberger, previously the leader in North American pressure pumping, doubled Liberty's capacity while adding a slew of previously unpenetrated customers and shale basins.
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Sartorius AG is a leading provider of single-use biopharmaceutical fermentation and fluid management solutions. It offers products and services for life science labs and bioprocessing. For bioprocessing, Sartorius performs consultations and custom installations of biomanufacturing systems for its drugmaker clients, which include bioreactors, filtration and purification systems, and cell analysis systems. This equipment has high disposable consumable requirements, including single-use bioreactor bags, filters, tubes, and containers. The company’s proven expertise in single-use technology, or SUT, and the regulation-validated nature of biomanufacturing gives Sartorius an attractive razor-and-blades model and supports a wide economic moat.
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Sartorius Stedim Biotech, the bioprocess subsidiary of Sartorius AG, is a leading provider of single-use biopharmaceutical fermentation and fluid management solutions. Sartorius performs consultations and custom installations of biomanufacturing systems for its drugmaker clients, which include bioreactors, filtration and purification systems, and cell analysis systems. This equipment has high disposable consumable requirements, including single-use bioreactor bags, filters, tubes, and containers. The company’s proven expertise in single-use technology, or SUT, and the regulation-validated nature of biomanufacturing gives Sartorius an attractive razor-and-blades model and supports a wide economic moat.
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Conagra’s business has evolved over the years, from a conglomerate, reinforced by its 2012 acquisition of Ralcorp that bolstered its private-label exposure (later divested at half the purchase price), to its present focus on growing through building brands (rather than just boosting volume). However, food is competitive, and we don’t think it has a portfolio of leading brands and entrenched retailer relationships to warrant pricing power, a handicap relative to branded peers. In addition, it spends notably less in product development and marketing, and we're skeptical better efficiency closes the gap. A subscale portfolio lacking strong brands combined with continued underspending is likely to leave it an industry laggard, in our view.
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PPG Industries is a globally diversified producer of paints and coatings. The company is the world's largest producer of coatings after the purchase of selected Akzo Nobel assets. PPG's products are sold to a wide variety of end users, including the automotive, aerospace, construction, and industrial markets. The company has a footprint in many regions around the globe, with less than half of sales coming from North America in recent years. PPG is focused on growing its coatings and specialty product offerings and expanding into emerging regions, as exemplified by the Comex acquisition.
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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.

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