Company Reports

Rational’s multifunctional cooking appliances have a significant presence in restaurants and community catering. Its granular strategy is focused on two cooking appliances used by professional kitchens combined with significant reinvestment into product development, which should allow the group to maintain its dominant market share of 50% and earn high returns on invested capital through superior product differentiation. Having pioneered the technology that combined hot air and steam for mass catering purposes, Rational has constantly been working on product upgrades to improve cost-savings versus traditional cooking appliances and existing models. Its latest product innovation combining hot air, steam, and microwave was launched at the start of 2024.

We expect Aristocrat Leisure will continue to dominate the electronic gaming machine market. With a strong balance sheet and commanding market position, Aristocrat's research and development expenditure is unmatched by peers. This investment is the lifeblood of any electronic gaming manufacturer, especially given rapidly changing technology and consumer demands, and allows Aristocrat to maintain game quality, differentiate products from lower-end competitors, and defend its narrow economic moat.

Grab is still in its growth phase as it continues to acquire more users in Southeast Asia of its mobility and delivery services, its core businesses. We expect Grab’s overall gross merchandise value, or GMV, to grow 41% year on year in 2023, and anticipate robust growth for 3-5 years as its core businesses have a dominant market position and a broad network of drivers and customers. However, profitability is a concern as we expect mobility to be the only profitable segment in 2023. The delivery service generates negative margins and Grab is incurring heavy losses from developing its financial services business that includes fintech payments and loans. Grab has also seen its advertising business grow into another revenue stream, which we believe will be a long-term catalyst.

Singapore Airlines, or SIA, is Singapore’s flagship carrier with a strong brand based on superior cabin service. However, the company’s dominance had been weakened in the prepandemic years by low-cost carriers, or LCCs, and the aggressive overseas expansion of the middle east's national carriers and Chinese airlines. While SIA has been building its discount brand Scoot, the proliferation of LCCs, however, made it difficult for SIA to maintain its market share and margins at the same time. However, we think the coronavirus disruption has given SIA a temporary advantage as SIA's financial strength and well planned staff resources enabled the carrier to bring out more flights to capture the rebound in travel demand.

Following the separation of the payment and merchandising technologies business as Crane NXT in April 2023, Crane’s portfolio consists of the aerospace and electronics, process flow technologies, and engineered materials segments. We think Crane owns a portfolio of moaty businesses that tend to be leaders in their niche markets, typically holding the number-one or number-two market share position. Crane manufactures highly engineered products that often perform a mission-critical function. Roughly 40% of its sales come from the aftermarket.

CSR is one of Australia’s leading building materials companies, producing bricks, plasterboard, insulation, fiber cement, aerated autoclaved concrete, and a variety of complementary building products. CSR manufactures and distributes recognized brands such as Gyprock plasterboard, PGH bricks, Monier roof tiles, Bradford insulation, and Hebel panels. It also holds a 25% effective interest in the Tomago aluminum smelter in a joint venture. Property development of surplus and excess land is also a key valuation driver, with a property portfolio valued at over AUD 1.5 billion.

We expect Recruit’s strategy to focus on expansion of its online marketplace for employment, Indeed, and to a lesser extent, expansion of its online review site for employers, Glassdoor.

We view Cisco Systems as the dominant force in enterprise networking and expect it to retain its strength in both legacy and future networks. Cisco holds leading market shares across switching, routing, and wireless access, with strong complementary positions in security and collaboration. We believe Cisco’s portfolio is appropriately positioned to benefit from trends toward hybrid work and hybrid cloud environments. It offers the most comprehensive suite of capabilities across converging networking and security markets, and we deem its intertwined products as sticky and worthy of a wide economic moat.

The Revolve Group has carved out an interesting competitive niche in the attainable luxury category, leaning heavily into the strengths of the e-commerce channel—breadth of selection, scalability, and ubiquity of access—to reach a mobile-first, millennial and Gen Z audience. With the firm cycling through 300,000 styles on its Revolve and FWRD (luxury) marketplaces during 2023, and with roughly 1,500 new styles launching weekly, the firm has positioned itself as an "online source for discovery and inspiration," capturing more than $400 in after-return spending among its base of 2.5 million active buyers at year-end 2023.

In 2022, AtkinsRealis (formerly SNC-Lavalin) reorganized its business into the following segments: engineering services, Linxon, nuclear, O&M, infrastructure LSTK projects, and capital. The first four are grouped together as SNCL Services.

We have a positive outlook on Dynatrace’s prospects in the observability space. The firm’s products benefit from secular tailwinds driving an accelerating increase in data for enterprises to monitor and analyze. In our opinion, the firm’s sticky product portfolio, broad swath of products that cover the entire IT stack, and increased penetration in its target market have enabled Dynatrace to form a narrow economic moat around its business.

Spirax-Sarco Engineering has managed to embed its products and highly qualified engineers, who act as its salesforce, into customers’ industrial and commercial processes. Approximately 50% of the group’s sales are from recurring maintenance, with an average invoice value of GBP 1,200, and a further 35% from small improvement projects with short payback periods. The recurring nature of Spirax-Sarco's sales has allowed the group to enjoy greater resilience through the economic cycle compared with the more cyclical swings in customers’ capital-expenditure budgets, which are dependent on uncontrollable macroeconomic factors.

Along with Equifax and TransUnion, Experian is one of the Big Three credit bureaus. Experian's US core credit bureau business is relatively mature and, as a result, the company has been expanding through adjacent products and in emerging markets.

Monday is a leading provider of work management software. The emerging niche within software as a service, or SaaS, aims to improve the efficiency and productivity of project and process management by displacing widely deployed but suboptimal incumbent tools of email and spreadsheets. Monday’s solution allows customers to digitize business processes and to plan, capture, manage, automate, templatize, and report on custom workflows around a single source of truth. We believe work management tools offer superior functionality relative to incumbent solutions including centralized dashboards providing real time visibility, accountability, and consistency across complex, cross-functional projects, automating workflows, and dynamically assigning tasks.

While CI Financial's aggressive pursuit of wealth management operations in both the US and Canada the past few years has provided the company with a way to offset the shifting balance of power in the Canadian fund market, the company funded most of this acquisition-driven growth with debt. This was the brainchild of CEO Kurt MacAlpine, who was hired in 2019 to take CI Financial in a new direction after years of pressure on its core fund manufacturing business from the growth of lower-cost investment products. Although revenue and adjusted earnings per share have risen the past several years, the high degree of leverage on the balance sheet has weighed on the company's share price (and even led a ratings agency to declare their debt junk in early May 2023).

Prestige Consumer Healthcare is one of the largest pure-play over-the-counter healthcare providers in the US. We expect the firm to grow through product innovations, increasing household penetration, and expanding its e-commerce presence. One way Prestige has tackled product innovations is through broadening its brands’ end markets; for example, Dramamine for a long time only played in the motion sickness space, but Prestige has spent the last number of years expanding its indication to the nausea market. While these outbreaks of categories can certainly expose Prestige to new competition, we believe it also affords the firm a new set of customers that it can win over. And given Prestige’s focus in small and niche categories, we don’t expect the company to try and compete with blockbuster brands from consumer packaged goods, or CPG, giants. Rather, we believe it will seek out adjacent categories that might be underpenetrated or composed of minor brands to displace with its recognizable brands.

Research and development in probiotics has laid the foundation for Yakult’s business, primarily comprising beverage products and pharmaceuticals. The flagship products are probiotics drinks marketed under the namesake brand in 40 countries across four continents, making up an estimated 80% of group sales and 90% of profits. Expanding the international footprint and enhancing domestic profitability through premiumization are the two pillars of Yakult’s growth strategy. Domestic growth lifted by the premium Yakult 1000/ Y1000 success has taken up the baton from overseas volume expansion, becoming a key profit driver.

While many of its peers are diverting investment to renewables to achieve long-term carbon-intensity reduction targets, ExxonMobil remains committed to oil and gas. It has responded to calls to bring in more outside voices to its board and announced emission-reduction targets. It's also investing in low-carbon technologies, but these efforts are measured and keep oil and gas production at the core. While this strategy is unlikely to win praise from environmentally oriented investors, we think it's more likely to be more successful and probably holds less risk.

Rakuten, the earliest and largest business-to-business-to-customer e-commerce platform, has benefited from the structural shift from offline to online shopping in Japan.

Alibaba is losing market share to PDD Holdings, or PDD, and Douyin in the China e-commerce business, and we don't see a quick fix in the near term. Alibaba's number of annual active consumers in the China retail marketplace was surpassed by PDD in the fiscal year ended March 2021. Meanwhile, Douyin has gained share from Alibaba especially in the beauty and apparel categories in recent years, and entered the traditional search-based e-commerce space, competing directly with Alibaba. The number of annual active consumers at Alibaba is close to the ceiling in China. Alibaba's gross merchandise volume to China's online retail sales of goods ratio was 62% in the year ended March 2023 at Alibaba, down from 72% in the year-ago period. We believe Alibaba's marketplace monetization rates will decline in the long run, due to mix-shift toward Taobao which has lower take rate compared with Tmall, and more competition.