Each week, a professional investor tells us where he’d put his money. This week: Jamie Ross of the Henderson EuroTrust highlights three favourites.
The approach of EuroTrust is a simple one. We invest in European companies of a very high quality and likely to stay that way, or in businesses we believe are undergoing a material improvement in quality. We call the former “compounders” and the latter “improvers”. I will highlight two of our most compelling compounders and one of our most interesting improvers.
Novo Nordisk: Denmark’s diabetes expert
Novo Nordisk (Copenhagen: NOVO-B) is a Danish pharmaceutical company and a business we regard as a compounder. Since its foundation in 1923, the company has maintained a strict focus on one therapeutic area: diabetes care. For many years, Novo Nordisk was the world’s leading insulin producer. Recently the group has moved into a newer category of diabetes drug called GLP-1.
Novo Nordisk continues to lead its market. Long-term success has come through a strict therapeutic focus, the pricing power that comes from being a leading innovator and from sensible capital allocation.
We think the firm is well placed to benefit from the medium-term uptake of its new GLP-1 drug, which is administered in pill form. In the longer term it should profit from applying its knowledge and competence to the field of obesity.
SIG Combibloc: Cashing in on cartons
SIG Combibloc (Zurich: SIGN) is a Swiss company, another compounder. SIG produces and sells the machines used to place liquid food (such as soups) and drinks into aseptic cartons. The beauty of the business model is not so much in the sale of these machines, but more in the sale of the cartons. Customers tend to sign up to multi-year volume-purchase agreements, which provides SIG with a stable and predictable profit stream.
SIG’s products are crucial in developing-world countries that lack refrigerated supply chains. They are also recyclable, which suits changing consumer preferences in the developed world. We see a strong outlook for long-term growth at SIG driven by urbanisation and the growth of the middle class in developing markets, and by steady growth in other regions.
DSM: tackling cows’ carbon emissions
DSM (Amsterdam: DSM) is a Dutch ingredients company that we regard as an improver. It was established in 1902 as a coal miner. In recent decades the focus of the business has shifted towards polymer plastics and then again towards ingredients for both animal and human food.
The changing mix of the business is tilting it far more towards defensive markets with structural growth, and has seen the company spearhead innovation in some niche and lucrative product areas.
DSM is currently investing in several exciting longer-term projects, one of which they refer to as “Clean Cow”. Clean Cow is all about finding the right mix of food ingredients to reduce significantly methane emissions from cows.
With the world currently focused on carbon emissions resulting from air-travel, the carbon footprint of the humble cow is often underestimated. Year by year, DSM is becoming a stronger, more innovation-led company with growing pricing power. We see significant scope for the further improvement in the quality of this business.