Company Reports

Agco is a pure-play agricultural equipment company that has traditionally been focused on tractors. We believe it will continue to be a top-three player in the ag industry. The company has been successful in emerging markets, where customers typically look for reasonably priced equipment. In developed markets, it faces competition from industry leaders Deere and CNH, which provide customers high-quality and strong-performing products, making it difficult for Agco to gain ground. The company’s peers help customers reduce the total cost of ownership through improved fuel efficiency, limited machine downtime, and consistent parts availability.

Along with S&P Ratings, Moody’s is a market leader in providing credit ratings on fixed-income securities. Given the embedded nature of credit ratings among capital markets participants, regulators, and index providers, Moody’s enjoys a strong competitive position and strong operating margin.

MercadoLibre has positioned itself as a one-stop solution for Latin American commerce. It has developed a comprehensive ecosystem of mutually reinforcing services, with a core marketplace supported by a payments and lending arm (Mercado Pago and Mercado Credito), a best-in-breed shipping solution (Mercado Envios), and an increasingly robust advertising platform (Mercado Ads). With effectively all the firm's platform gross merchandise volume funneled through proprietary payment rails and shipped through Envios, the marketplace operator has effectively addressed two of the biggest pain points in e-commerce.

We take a postive view of eBay's strategic framework. After divesting a number of noncore segments, its marketplace looks similar to the vibrant platform of the early 2000s, with the firm leaning into its core competency of price discovery for non-new, in-season wares. After unsuccessful forays into fulfillment services and low-value customer segments, the company has prioritized its bread and butter "focus categories," with expansion into authentication services, tuck-in acquisitions, and vertical investments driving healthy growth for eBay's most distinct inventory. Those categories now represent 30% of gross merchandise volume, or GMV, and disproportionately cater to the 16 million high-value "enthusiast" buyers who funnel more than $3,000 in annual spending toward the commerce platform.

Tongwei positions itself as the global leader in polysilicon production, making about 27% of domestic supplies in 2023. Tongwei benefitted from the shortage in supplies in 2021 and 2022, but this has now led to excess capacity in the industry. Despite the overcapacity, Tongwei is pressing on with its capacity expansion plan to defend its market share. We think Tongwei will remain profitable given its cost advantage, but returns on investment and profit margins will be dampened.

China Petroleum & Chemical, better known as Sinopec, is the listed arm of one of China's two integrated oil majors and one of Asia's largest refiners and chemical companies in terms of revenue. Owing in part to historical legacy, Sinopec’s revenue and assets are more heavily weighted toward its downstream activities, and the company relies on external sources of oil to meet its refining and processing needs. As a result, Sinopec’s earnings are generally less sensitive to oil prices swings than peer PetroChina's, and so it benefits less in a rising oil price environment but is also more stable when prices fall.

LONGi Green Energy Technology is one of world's largest integrated solar company, growing from its origins as a solar wafer manufacturer. The company is largely self-sufficient, with its solar wafers and cells produced internally. While this has helped it smooth out pricing cycles along the solar supply chain, it does not exempt LONGi when the whole industry is shattered by overcapacity.

As a result of the acquisition of the legacy Caesars business by Eldorado (closed July 2020) and its leading omnichannel presence, we estimate Caesars holds around 10% revenue share of the $66 billion domestic commercial casino gaming market. The acquisition roughly doubled the company’s US portfolio to about 50 properties while lifting its loyalty membership to over 60 million from 55 million. Caesars has realized over $1 billion in combined sales and cost synergies from its merger with Eldorado, representing around a 30% increase to pro forma 2019 EBITDAR. Before this recent combination, legacy Eldorado successfully integrated the Isle and Tropicana acquisitions in 2017 and 2018, respectively, with both deals driving about a 30% return on investment, based on our calculation.

We expect Marriott's global share to increase further over the next several years, due to its strong intangible asset, source of its wide moat, which is endeared by both hotel owners and travelers. In the past few years, Marriott has renovated a meaningful percentage of core Marriott and Courtyard hotels, and since 2019, has added several new brands, which support our constructive stance along with a favorable next-generation traveler position. In fact, recent brands StudioRes, City Express, and Four Points, not only extend Marriott's reach into the midscale and extended-stay segments but could also add several hundred hotels each over the next several years. Also, we see Marriott as having an industry-leading loyalty program, with 203 million members (as of March 31, 2024), which incentivizes third-party hotel owners to join the company's brands. Additionally, we believe the acquisition of Starwood (closed in September 2016) and partnership with MGM's Vegas portfolio (signed in June 2023) has strengthened Marriott's long-term brand advantage, as Starwood's global luxury portfolio and MGM's leading presence in the gaming mecca complement Marriott's dominant upper-scale position in North America.

We think Gildan Activewear lacks a moat. Although the firm has leading share in the US printwear channel, this is a market characterized by limited branding and product differentiation, no switching costs, and low prices. In its smaller hosiery and underwear segment, the company has had a private-label men’s underwear contract with wide-moat Walmart since 2019 and rolled out some new offerings in 2023. However, we believe this product has largely replaced Gildan’s branded basics. We think narrow-moat Hanesbrands and Fruit of the Loom have stronger innerwear brands, allowing them to hold significant shelf space at Walmart, no-moat Target, and other key retailers for these products. Gildan acknowledges market share losses to private-label brands, especially in socks, and its hosiery and underwear sales were only 16.5% of its total sales in 2023, down from 25.7% in 2017.

Although it's outperforming many peers in a difficult environment, we believe Urban Outfitters lacks a brand intangible asset that would provide an economic moat and pricing power. While we think its three major apparel brands—Anthropologie, Free People, and Urban Outfitters—remain enticing to their primary demographic of women 18-45 years old, we also think competition has taken a toll. Urban Outfitters grew to be one of the larger specialty apparel retailers in the United States on the strength of its distinctive styles. However, it has a history of inconsistent same-store sales growth and profit margins, and its namesake banner is struggling. While this is partly due to shifting fashion trends, we think fragmentation in apparel retail is the primary factor. Urban Outfitters, like many others, has had to resort to markdowns and promotions to compete with wide-moat Amazon and other e-commerce, outlet stores, discount stores, and key vendors’ direct-to-consumer efforts.

Intesa Sanpaolo is the best-run bank in Italy, and with the benefit of higher interest rates, it is now one of the most profitable European banks we cover. Retail deposits make up the bulk of Intesa's funding. Retail, and especially sight deposits, tend not to track market interest rates. Zero or negative interest rates have obscured the benefit to Intesa of having a vast source of cheap funding for more than a decade. Rather than being a highly profitable product, deposit-taking became a loss-making activity.

Westpac Bank is the second-largest of Australia’s four major banks. The bank provides a range of banking and financial services to retail and business customers, including mortgages, consumer finance, credit cards, business loans, and term deposits. Most nonbanking units have been divested, including general, life, and mortgage insurance.

GrainCorp enjoys significant market shares in grain storage, handling, and port elevation services along the eastern seaboard of Australia. Earnings are heavily affected by seasonal conditions, but the diversification into oilseed crushing and refining reduces earnings volatility and provides growth opportunities. However, we don't believe the firm has carved an economic moat, and forecast returns on invested capital to trail the firm's cost of capital over the long term.

Networks account for more than half of Naturgy's EBIT. Around 60% of networks' EBIT comes from Spain where the group is the leader in gas distribution. As it has consistently achieved high profitability and returns in the past in this business, the regulator imposed a sharp remuneration cut in 2021. Networks' returns are higher in Latin America and indexed to inflation.

Spark New Zealand generates steady cash flow, has a strong position in the New Zealand telecommunications industry, and has the infrastructure to offer a diverse range of products. Although competition is intense in the New Zealand market, we believe Spark's scale provides a competitive advantage. Furthermore, private equity ownership of Vodafone New Zealand has heralded in a new age of rational competitive behavior in mobile. Construction of an ultrafast broadband network will lower barriers to entry in fixed-line and broadband, and represents a risk to Spark's broadband business. Successful execution of product bundling that leverages the mobile network could help defend broadband market share, as will continuing growth in fixed wireless broadband.

7-Eleven is the market leader in convenience stores in Taiwan, with roughly half of the market share by store count. The second-largest player, Taiwan Family Mart, trails by roughly 20 percentage points in share. As the second largest merchandise sales channel in Taiwan, and the largest in 2020 due to covid-19-related restrictions, 7-Eleven remains a crucial retail outlet for packaged food and beverage. We think President Chain Store Corporation has utilized its competitive advantages well to combat rising threats from peers and competing channels.

Belgium-based Syensqo was spun out of Solvay in 2022 as a new specialty chemicals leader and is focused on high-performance polymers, composite materials, and specialty surfactants. The separation was finalized in December 2023, marking the beginning of Syensqo's growth strategy for 2024-28. During this period, the company should see strong demand on the back of megatrends such as "lightweighting," electrification, advanced connectivity, and sustainable sourcing. Syensqo aims to deliver organic sales growth of 5%-7% on average, a mid-20s EBITDA margin, and midteen returns on capital employed, while maintaining a healthy balance sheet. The company prioritizes customer partnerships, value-based pricing, and cost reductions, including site optimization and manufacturing efficiency enhancements.

East Japan Railway Company, or JR East, is Japan’s largest railway network operator. It runs both long distance bullet trains, known as Shinkansen, and shorter municipal train routes around and from Tokyo. More than 40% of revenue is from conventional train services within the Greater Tokyo Area, where it served about 17 million passengers per day prior to the pandemic. About 20% of revenue is from Shinkansen connecting Tokyo with regional cities and popular tourist destinations, and most of the balance is from retail operations and real estate investments.

Brambles is focused on the supply of pallets for consumer staples, which accounts for about 85% of revenue. Its market is primarily fast-moving consumer goods, or FMCG, including packaged food, beverages, fresh food, and personal healthcare.