Where these investors see global investment opportunity: 10 company examples

Investment specialists from across the Pinnacle stable of funds recently provided their broad insights on global markets, including multiple industries and 10 diverse company examples.

Hyperion Asset Management's Jolon Knight explained the investment process underlying its global portfolio (ASX: HYGG), which currently holds some 22 companies. These span more than 50 diverse businesses, with most companies operating separate brands across multiple industries.

As Knight explains, the team looks for companies with “superior economics…that are going to drive the double-digit earnings per share growth we’re trying to achieve.”

Some of the attributes of these firms include strong sustainable competitive advantages, large addressable markets, and innovative culture.

Two of the fundamental metrics they watch are the projected 10-year terminal valuation for the business and the 10-year internal rate of return required to achieve this.

Knight emphasises it follows a repeatable process and aims to hold each company in the portfolio for seven years or more. “We don’t trade often but when we do, we’re generally contrarian in nature,” he says.

“If we are correct and our companies execute as we expect them to, you could have a very large earnings upgrade cycle, which generally leads to share prices rocketing higher.”

Managed Fund

Hyperion Global Growth Companies Fund (Managed Fund)

Global Shares

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Antipodes Partners: Cylical, macro and structural themes

Antipodes portfolio manager Vihari Ross highlights an understanding of change as a crucial part of her team’s investment process, grouping these across the following themes:

• Cyclical,
• Socio and macroeconomic, and
• Structural.

A great value cyclical play

In the first of these, Ross spoke about what she regards as a recovery story in Brazil, which is part of the global portfolio’s 18% exposure to emerging markets.

“It has been a volatile economy and has gone through many cyclical ups and downs…the consumer was crunched,” Ross says.

“We’re now on the other side of that – interest rates are coming down, consumer confidence is rising, unemployment is declining. There’s a real consumer recovery taking place and that’s a cyclical change we want to be part of.”

Ross believes grocery store Sendas Distribuidora (BVMF: ASAI3) has “exciting growth ahead,” management rapidly rolling out new stores, tripling sales and generating strong cash flow growth – adding up to an outlook of 20% profit growth per annum.

With a price-to-earnings multiple of just 8.5 times, Ross regards this as compelling value given a similar developed-market business, Costco in the US, trades on a P/E multiple of around 40 times.

Artificial Intelligence and cloud computing

Within the structural segment, Ross believes providers of back-office data and infrastructure services are an under-the-radar part of the multi-decade cloud and AI transition.

“Much of the shift has been on the consumer-facing side…but that shift is yet to take place in the less exciting side. As that takes place, we’ll continue to have 15-20% growth from this cloud transition,” Ross says.

“This will come from organic growth in the usage of cloud, new migration, and new products. AI will augment this growth over time”.

Antipodes is investing in this growth through Oracle (NYSE: ORCL), “a business that was written off by the market about 10 years ago.”

A slow mover on cloud, its infrastructure business is now growing at around 50% a year, but the company overall is trading at a PE of just 20 times – while growing at 10% to 15% per annum.

“It’s a pragmatic, value way to play this structural trend and trajectory,” says Ross.

The energy transition

Within the socio- and macro-economic space, Ross refers to a “confluence of circumstances” creating the shift toward renewable energy, across social acceptance, government policy, and technology improvement. Though much of the focus has been on power producers, far less focus has been placed on companies involved in boosting energy efficiency.

A market leader, Saint Gobain (EPA: SGO), a French multinational building materials company, has re-engineered itself as a sustainability leader. This includes multiple acquisitions over the last decade and the rollout of new products, with around 75% of these now sustainability-focused.

In this regard, demand has been boosted by policy shifts in Europe, where around 90% of existing commercial buildings require retrofitting to comply with new efficiency standards. This has seen Saint Gobain increase its dividends and buy back stocks – all while trading on a single-digit multiple, despite better forward-looking estimates.

“The market is missing the point when it comes to the future of this business…we’re able to participate in a shift that the market is well aware of, but in a pragmatic, value way,” Ross says.

Managed Fund

Antipodes Global Fund

Global Shares

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Plato: “The very best of value, growth and quality”

Within the long-short space, Plato Investment Management’s Dr David Allen acknowledges the difficulty of investing through the challenging macro environment currently, including unpredictable geopolitics. This is why his team relies on a bottom-up, company-focused approach to sift the more than 10,000 global companies within its stock universe.

“What we’re looking for is the very best of value, growth and quality out of a broad universe,” Allen says, referring to his team's 150-50 strategy.

“A second pillar of everything we do at Plato is the red flags, with over 100 codified red flags we look at before we make any investment on the long side.”

Any company that has eight or more red flags from Plato’s list is expected to underperform the market by around 20% in the following 12 months. Some prominent recent examples of companies it has avoided for this reason are Liontown (ASX: LTR) and Brainchip Holdings (ASX: BRN).

Automotive giant at a “knockdown price”

“Every now and then you find a great quality company at a fair price. Even rarer, you come across an outstanding company at a knockdown price,” Allen says. Following is one example from the long side of the Plato portfolio.

He cites European automotive brand BMW AG (ETR: BMW) as one example currently, trading on a P/E multiple of just five times earnings.

The company’s growth is driven also by its electric vehicle segment, its product range in this segment growing at 100% annually: “They sell more EVs than Rivian, GM and Ford combined.”

“It’s a growth story but it’s at incredible value for this storied automaker,” Allen says.

“What’s going to be the next Ozempic?”

As a growth stock example, Allen refers to the strong sentiment around the Ozempic drugmaker Novo Nordisk (NYSE: NVO), which Plato had owned for two years before the more recent breakout.

Allen names Vertex Pharma (NYSE: VRTX) , a US drugmaker that generates $4 billion a year in free cash flow. Its cystic fibrosis treatment has extended the life cycle for sufferers from 27 years to more than 50 years.

Vertex is currently awaiting US FDA approval for a new pain treatment medication that could go some way toward solving the US opioid crisis.

Managed Fund

Plato Global Alpha Fund

Global Shares

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Spheria Asset Management: Global small caps primed for a re-rating

Within small-cap stocks, Spheria’s Global Opportunities Fund selects investments from a potential universe of around 8,000 global companies.

On the question of “why now?” portfolio manager and co-founder Marcus Burns notes that small caps have materially underperformed in recent years.

“Large caps have done very well, and people have deserted small caps because of economic uncertainty,” Burns says, noting a relative return that is around 18% lower,” he says.
“But we know that over time, that closes. And currently, small caps are incredibly cheap.”

One company he cites as an example is Ferguson Enterprises (NYSE: FERG), a plumbing supplies business that holds a market-leading position within the US. Burns draws a comparison with Australian plumbing products company Reece Holdings, which trades on almost 30 times EBIT, versus Ferguson’s 14 times valuation multiple.

Two other companies that Burns and co-portfolio manager Dan Peters name are:

• Napco Securities Technology (NYSE: NSSC), which sells alarms, locks, and connectivity solutions for back-to-base monitoring, primarily for commercial applications within shopping centres, office buildings and schools/universities.
• Accelleron (SWX: ACLN), a Swiss manufacturer of large-scale turbochargers for diesel engines, mainly within the maritime sector. Around three-quarters of its revenue comes from its ongoing maintenance contracts, which are spread across its 100 global service centres.

Managed Fund

Spheria Global Opportunities Fund

Global Shares

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Resolution Capital: Investing in listed infrastructure for 'tomorrow'

Looking outside the equities universe, Resolution Capital invests in global infrastructure assets – where portfolio Sarah Lau and her teams sees a US$3 billion funding shortfall. Resolution Capital invests in “monopolistic assets” across water utilities, airports, and mobile network towers, which Lau describes as “assets with high barriers to energy and strong pricing power.”

These operate across three broad areas of decarbonisation, mobility, and digitisation. The first of these comprises around 58% of the total portfolio.

Mobility, capturing companies involved in the movement of people and goods, this comprises around 25% of the portfolio.

Digitisation, including mobile network towers and fibre optic networks, accounts for around 11% of the total portfolio.

Ferrovial SE (BME: FR) is a Spain-listed company Lau singles out, a 27 billion Euro toll road operator whose flagship asset is a motorway in Toronto, Canada. The company is benefiting from an “inflation catchup” as toll roads have reopened post-COVID, as well as Toronto’s 2% annual population growth.

With other high-quality transportation assets in North America, Lau says the firm has “a very sustainable, long-term growth profile” which are currently not reflected in its share price.

Within the decarbonisation space, Lau discusses Dominion Energy (NYSE: D), a US$37 billion electric utility that holds a monopoly position as a provider of energy services to data centres. She sees 7% compound annual growth for the company in the years ahead.

Managed Fund

Resolution Capital Global Listed Infrastructure Fund

Global Shares

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