Research Trip - US & UK 2017

Ned Bell
Chief Investment Officer & Portfolio Manager
June 2017
Ned Bell
Chief Investment Officer & Portfolio Manager


Research Coverage

Primary: Materials & Telecommunications 
Secondary: Healthcare, Industrials

Research Trip - US & UK 2017

June 2017

Throughout the course of May and June, three members of the BAM Investment team embarked on an extensive research trip through the US and UK. Between them Ned Bell, Joel Connell and Nicole Mardell met with over 170 companies across a range of different industries. They consisted of 1x1 meetings with company management and attending a handful of conferences. We met with companies in London, New York, Chicago, San Francisco, San Diego, Minneapolis, Chicago, Boston, Philadelphia and Los Angeles.



What was the purpose of the trip?

As fundamental global equity investors, we had several key objectives behind the trip:

1. Discovery research, i.e. looking for new names

2. Testing current investment theses’ on names in some of our portfolios and on our watch list

3. Looking for trends from a corporate perspective - secular and economic

In totality, we were looking to build up our watch list of investment ideas that we can deploy now and in the future when valuations become more interesting.


Who did we visit?

Between the three of us, we met with over 170 companies across a range of different industries. The bulk of the companies we met were in the Consumer Discretionary, Health Care, Industrials and IT sector. While we met with 40 companies that we currently own or have owned in the past, the bulk of our meetings were with companies that we had identified as being potential investment targets in the future.


What were the main takeaways from the trip?

Coming from the perspective of being bottom-up stock pickers, there were several key takeaways that directly relate to our current positioning in many of our portfolios:


  • Opportunities in Small and Mid Cap companies: with the benefit of having reflected on our collective meetings, it has become clear that we have found far more attractive opportunities in SMID cap companies. While we may need to be patient from a valuation perspective, we generally found the quality and longevity of the corporate franchises to be better in the SMID universe. Further where growth in sales and earnings are a scarce commodity, it is becoming increasingly important to have the ability to assess investment opportunities within the SMID cap space. 


  • Stretched valuations: unfortunately, many of the companies which we have identified as being top priorities on the basis of fundamental strength are also trading on relatively punchy valuations. Given our investment style as being Quality at a Reasonable Price, we are prepared to be patient and wait for attractive buying opportunities.


  • Crowding in U.S. Large Cap IT Stocks: We are seeing a huge number of active and passive investors buying large cap IT stocks. While we already knew crowding was an issue with some of the larger US tech names, it became all the more apparent from being on the ground talking with companies, brokers and other investors. The reality is that too many investors are simply afraid of not having exposure to stocks that are ‘working’, as opposed to companies that represent good value.


  • Franchise damage: while corporate disruption in the US. has had no shortage of airplay in the last 12 months, what has become more apparent is that disruption is spreading and is affecting companies whose franchises have until now been considered to be rock solid. Our meeting with Procter and Gamble was an interesting case in point. They made the point that they recently had to take a 12% price cut across their range of Gillette products, mainly due to a heightened competition from the likes of Dollar Shave Club (founded 6 years ago and acquired by Unilever in 2016 for $1billion). The speed and magnitude of the pricing damage caused by a relatively new business model should cause a number of corporates to sit up and take notice.


  • Technology Disruption: has become a really important issue for all businesses to consider. It’s hard to think of too many businesses we met with that weren’t being in some way affected by technology disruption. The main takeaway for us on this point is that you cannot simply assume that companies will be able maintain their competitive advantages.


  • Corporate read on business conditions: while we are fundamental investors, we are always interested to hear what corporate leaders have to say about broader economic conditions. In an overall sense, we remain optimistic about the economic outlook in the U.S. and Europe; however, throughout the trip, there were a couple of very pertinent observations made by the companies that we met with:

U.S. Economy and Paychex: as a leader in payroll services, Paychex have their fingers on the pulse of the U.S. economy and particularly small business. They made the point that while the economic backdrop remains sound in the U.S., they have recently seen a diversion between small business confidence (strong) and new business formations (weakening). We felt this observation was particularly interesting as it highlights the fact that there is a degree of uncertainty appearing amongst small business in America. While it’s difficult to attribute these trends with precision, we would argue that the toxic political environment is negatively impacting business confidence.

U.K. Economy, Brexit and Real Estate: several UK real estate companies painted a fairly sombre economic picture for the coming 12 months. While the overall property market has held-up quite well post-brexit, it seems that the weak sterling has had the effect of attracting a number of foreign real estate buyers. This has had the effect of temporarily holding up the property market, until now. By all accounts, the foreign buying is now drying up and a demand imbalance is becoming clear. We feel the UK property market is an important proxy for the economy as a whole. After also considering the ramifications of the recent election and the ongoing uncertainty surrounding Brexit, we find it difficult to get overly excited about the UK equity market. The only exceptions being the larger exporters such as BAE Systems that will benefit from a weaker currency.


  • Disconnect between Conditions and Expectations: one clear message that came through loud and clear was that U.S. corporate leaders have become increasingly cautious about the likelihood of the Trump agenda becoming legislation any time soon. The recent performance of the US. equity market is seemingly pricing in a more robust economic environment than what may realistically unfold in the coming months.


What are the implications of these takeaways for our portfolios?

We feel as though all of our portfolios are already very well positioned in regard to the major findings:

  • As the market has pushed higher we have prudently reduced exposure to stocks that have become expensive, and we maintain an underweight to the most expensive parts of the market as a whole.
  • We maintain a big underweight to what we would call the ‘mega-cap’ US names, many of which appear crowded to us.
  • We have continued to rotate more of the portfolios into high quality SMID cap stocks
  • We have resisted the temptation to chase stocks that have run up on the back of the ‘Trump Trade’.

On a going forward basis, we will continue to make adjustments within these broader parameters as opportunities present themselves.



Examples of existing holdings you met with?

Ambu – Healthcare

Ambu is a small cap global medical products company listed in Denmark. Our meeting with Ambu’s CEO, Lars Marcher, in New York reinforced the very positive outlook for the company. We first met with Ambu on our travels through Denmark in September 2016 and subsequent to that meeting we initiated a position in December 2016 (stock is up 40%+ from our entry price). We forecast that Ambu’s earnings will more than triple from 2016 to 2020 as the company benefits from exceptionally strong growth in one of its key products called the aScope. This is a single use fibre-optic endoscope that has major benefits over existing re-usable scopes from the perspective of lowering the risk of contamination/infection while also helping to lower overall costs for hospitals.

Henry Schein – Healthcare

Henry Schein is a leading global distributor of healthcare products, primarily to dental, medical and veterinary clinics. We met with Henry Schein’s CEO and CFO in New York and the meeting further strengthened my confidence that the company remains on track to continue delivering consistent double-digit EPS growth into the future. This consistency is evidenced by the fact that Henry Schein has grown sales and earnings every year except one since 1994, including the past seven years at a double-digit pace.


Any interesting new stock ideas to come out of your trip?

UnitedHealth – Healthcare

UnitedHealth is the largest health insurer in the US and is also a leading provider of wellness solutions, technology and pharmaceutical benefits. While we have followed UnitedHealth for a number of years, our meeting with management at their head office in Minneapolis further highlighted the key competitive advantages that come with UNH’s scale, integrated health benefits and services business model and the importance of ‘big data’ in managing healthcare. Since 1999, UNH has delivered a +14% revenue CAGR and +19% EPS CAGR and we believe the company remains in a strong position to continue delivering superior operating performance moving forward. Trading at just over 17x forward P/E multiple you are only paying a slight premium to the market for this high-quality company.

Broadridge Financial – Financials

Broadridge Financial provides a range of technology based outsourcing solutions to the financial services industry. All of the top 10 global banks are clients and the company has a 98% client revenue retention rate given their proven ability to lower costs and improve efficiencies for clients. The pipeline of new business remains strong and should help the company to continue delivering 8-12% EPS growth moving forward. Four of our team members have met with the company over the past couple of years and we all agree this is an impressive company. We continue to build out our investment thesis and monitor the name for an attractive entry point.

Ulta Beauty - Consumer Discretionary

Ulta Beauty (the largest beauty retailer in the U.S.) is a company with a management team at the helm that are great students of what has and has not worked well in the retail world. This, together with their unique strategy and shopping experience, is a key differentiator and affords them the ability to compete effectively and continue to outpace overall category growth rates. Ulta is extremely profitable and has consistently been able to generate returns on capital in excess of 20%.


What changes would you expect to make to the portfolios as a result of the trip?

In many ways, the research trip reiterated our conviction behind the bulk of our portfolio biases, and confirmed our view that many of the best investment opportunities at the moment are in SMID companies. We uncovered a number of hidden gems in a sector that is not well covered by analysts. Many of these companies are in the sweet spot of the business cycle, that is, once companies have moved past the start-up phase they enter the SMID cap stage where their business model has been improving and they are on their way to build a strong franchise with improving balance sheet and cash flows, yet still plenty of growth opportunities to exploit.  

We feel we have bolstered our ‘artillery’ of investment ideas that are ready to be deployed subject to valuations becoming more attractive. In light of some of the disconnects we have seen in the market, we feel it is only a matter of time before we see volatility start to pick up again, at which point we expect to see some great buying opportunities.




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