September, 2023
Equity markets worldwide retreated in the third quarter of 2023, as investors were forced to reset their expectations for the global interest rate outlook. News of the US Federal Reserve’s (‘the Fed’) “hawkish pause” overshadowed an unexpectedly dovish interest rate-policy environment in the rest of the world. In the eurozone, the European Central Bank lifted interest rates for the 10th consecutive time in September 2023 with a 25 -basis point hike but hinted that rates had reached their peak amid signs that the economic outlook for the common currency bloc was dimming. The Bank of England surprised markets by holding interest rates steady during the month, though left the door open for further hikes.
The Lazard Global Equity Franchise Fund (Hedged) returned -3.88% (net of fees) during the quarter ending 31 September 2023, underperforming the MSCI World Index which returned -2.82%.
Despite no specific company news during the quarter, the Strategy’s top performer was the world’s largest tax agent, H&R Block (HRB). This followed the release of its Q4 results in August 2023 which beat consensus estimates by 10% and lifted its annual dividend by 10%. HRB generates all its annual profit in the six weeks of the US tax return season, which ends 30 June, consequently its earnings are highly seasonal and Q4 sets both the quarterly and annual result for the company. HRB restated its goal to return 100% of free cash flow, estimated to be greater than US$700m, to shareholders through dividends and share buybacks. At the current share price this represents a free cash flow yield of around 15%.
Notwithstanding the strong share price performance as at 30 September 2023, HRB still only traded on 10x FY24 EPS. Leading geostationary satellite owner and operator SES, performed strongly on the back of reporting a solid 1H2023 result, with both major verticals Video and Connectivity exceeding market expectations; and EBITDA beating consensus estimates by 5%. UKTV has expanded its long-standing partnership with the company in a multi-year video (Pay-TV) agreement.
Additionally, SES announced a deal with Starlink to jointly offer the cruise industry's first integrated MEO-LEO service. For the first time, cruise operators can now rely on a single managed solution to reap the benefits of low -latency, highthroughput satellite connectivity services enabled by integrating Starlink's low-earth orbit (LEO) and SES's medium earth orbit (MEO) services. The joint offering – SES Cruise mPOWERED + Starlink – seamlessly integrated, sold, and delivered by SES – will combine the best of both MEO and LEO orbits to provide high-speed and secure connectivity 24/7 to cruise ships and their guests, regardless of their route and location. As of 30 September 2023, SES traded at less than 6x EBITDA and is within a month of receiving US$3 billion in pre-tax compensation relating to C-band US spectrum assets; the equivalent of €5.40 per share or around 90% of the market share price as of 30 September 2023.
IT outsourcer Cognizant reported solid results and maintained guidance for the year, unlike several of its IT outsourcing peers. New CEO Ravi Kumar has been working to articulate a plan to return the company to growth and appears to be gaining some early traction with clients from those efforts.
Tapestry shares fell after the luxury retailer announced the acquisition of Capri Holdings, the parent to Michael Kors, Versace and Jimmy Choo. This deal came as a surprise given the retailer’s momentum with their current strategy. We believe there may be challenges in terms of the debt burden and integration. There are also considerable execution risks in this acquisition, given that consumers in developed markets and China are facing significant pressure.
Europe’s largest merchant acquirer, card issuer and payment processing business Nexi continued to slide as consumer spending data remained weak, particularly in Europe. We believe the crux of the investment thesis for the company lies in the continued increase in electronic payment penetration and the realization of synergies related to consolidation within Italy and the acquisition of Nets in the Nordic countries.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/LazardGlobalEquityFranchiseFundHedged_FactSheet_2023-09.pdfAugust, 2023
Global equity markets finished lower in August as investors continued to deal with global inflation and high interest rates. Core inflation, despite a meaningful decline, remained well above central bank targets. The ability of the central banks, notably the US Federal Reserve, to avoid a recession and engineer a soft landing remains a critical question heading into the fourth quarter of 2023.
The Lazard Global Equity Franchise Fund (Hedged) returned -1.98% (net of fees) during the month ending 31 August 2023, underperforming the MSCI World Index which returned -1.83%.
One of the top performers for the month was the world’s largest tax agent, H&R Block (HRB), following the release of its Q4 results. HRB generates all its annual profit in the six weeks of the US tax return season, which ends 30 June, consequently its earnings are highly seasonal and Q4 sets both the quarterly and annual result for the company. Its earnings beat consensus estimates by 10% and the company lifted its annual dividend by 10%. HRB reiterated its goal to return 100% of free cash flow, estimated to be greater than US$700m, to shareholders through dividends and share buybacks. At the current share price this represents a free cash flow yield of more than 16%. In spite of the strong share price performance as at 31 August 2023, HRB still only traded on 9x FY24 EPS.
Leading geostationary satellite owner and operator SES, performed strongly on the back of reporting a solid 1H2023 result, with both major verticals Video and Connectivity exceeding market expectations; and EBITDA beating consensus estimates by 5%. There is US$3 billion of pre-tax compensation relating to C-band US spectrum assets proceeds that are set to be paid by the end of 2023; the equivalent of €5.40 per share or around 80% of the market capitalization as at 31 August 2023. In anticipation of this windfall gain, the company has launched a €150 million share buyback program. Its Middle Earth Orbit satellite constellation, O3b mPOWER, is set to be commercialised from the end of 2023, which should see an acceleration in revenue and earnings growth. Finally, the guidance for 2023 was reconfirmed. As at 31 August 2023, SES traded on less than 6x EBITDA.
IT outsourcer Cognizant reported solid results during the month, and maintained guidance for the year, unlike several of its IT outsourcing peers. New CEO Ravi Kumar has been working hard to articulate a plan to return the company to growth, and appears to be gaining some early traction with clients from those efforts.
Tapestry shares fell after the luxury retailer announced the acquisition of Capri Holdings, the parent to Michael Kors, Versace and Jimmy Choo. This deal came as a surprise given the retailer’s momentum with their current strategy. We believe there may be challenges in terms of the debt burden and integration.
Shares in Nexi, Europe’s largest merchant acquirer, card issuer and payment processing business, fell despite a strong set of 1H results that saw margins improve as the cost reduction program linked to the integration of SIA and Nets is starting to feed through. The group decommissioned 5 of 25 IT systems, and are expecting to decommission another 5 by the end of the year. The company also announced that its rationalisation exercise would extend beyond the 2025 strategic plan.
US healthcare company CVS Health shares fell as one of its PBM clients, Blue Shield, decided to leave part of its contract and move across to an Amazon-led consortium, claiming US$500m in potential savings. We note that CVS retains the higher margin specialty drug contracts. While the shares may be impacted by news flow on PBM legislation, we believe they will likely benefit from the ongoing execution of the strategic plan to anchor the group as an integrated healthcare provider.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/LazardGlobalEquityFranchiseFundHedged_FactSheet_2023-05-3.pdfJuly, 2023
The global equity markets’ 2023 rally continued in July. With the start of a new corporate earnings season and inflationary pressures continuing to exert themselves, the focus during the month was squarely on the two levers that set stock prices—interest rates and company profits. In the US, the Federal Reserve, as expected, resumed its rate -hiking campaign in July. In Europe, where economic uncertainty has gripped the eurozone, the European Central Bank (ECB) lifted interest rates for a ninth consecutive time. While the ECB reported progress in its efforts to rein in price growth, it also acknowledged that inflation in the common currency bloc was expected to remain “too high for too long.”
The Lazard Global Equity Franchise Fund (Hedged) returned 1.89% (net of fees) during the month ending 31 July 2023, underperforming the MSCI World Index which returned 2.84%.
Dialysis provider Fresenius contributed during July in the lead up to reporting a better-than-expected 2Q23 set of results, with margin growth in Care Delivery as the key driver.
US healthcare company CVS Health shares rose after the company posted strong earnings and revenue for the second quarter. We believe CVS offers compelling value today, however we are cautious around their capital allocation strategy.
Leading satellite firm SES rose during July on little company news. SES is due to receive around US$3bn (pre -tax) of Phase 2 cash from the FCC in December 2023 as part of its C-band clearing process and part of the proceeds may be returned to shareholders. The company also confirmed that discussions regarding a possible combination with Intelsat have ceased and this supports the case for additional shareholder returns. Whilst there could still be small inorganic or organic growth opportunities, if the value of the post-tax proceeds were returned to shareholders, we expect it would be around €5 per share. As at 31 July SES shares traded at €5.89.
Nexi, Europe’s largest merchant acquirer, card issuer and payment processing business, performed well as the expectations for 1H results continued to bottom out. The benefits of synergies have resulted in improvement in margins resulting in higher cash generation which we believe is important to reduce leverage and leave room for returns to shareholders.
Omnicom, the world’s second largest advertising and marketing services company, fell after reporting second quarter earnings, despite reporting organic growth of 3.4%, EPS growth of 8% and a very solid 15.3% operating margin. The market appeared to be disappointed in the organic growth, which while lower than recent history, was only 50 bps shy of consensus forecasts. Management made no changes to their 2023 outlook other than raising the lower end of their organic growth guidance range.
Shares in advanced braking systems manufacturer Knorr Bremse suffered in July as the new CEO presented an update to the group strategy. Given the strong share price performance year to date, this update, albeit solid, failed to convince the market. The company’s targets of €8-9 bn in 2026 revenues and 14% operating margins are meaningfully above the numbers incorporated into our valuation.
After performing strongly in Q2, global medical device company Smith & Nephew detracted in July on little news. Some brokers note a positive read-through from orthopedic peers that have already reported whilst others remain skeptical going into Q2 results. We remain constructive of management’s 12-Point Plan, most of which aims to fix the underperforming Orthopedics division. The remaining 60% of the business comprising of Sports Medicine and Wound Management continues to perform well, matching or outperforming market growth since COVID-19.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/LazardGlobalEquityFranchiseFundHedged_FactSheet_2023-05-2.pdfJune, 2023
Global equity markets rallied in June 2023, which pulled the second quarter into positive territory. While the overall news on global inflation showed slowing across the globe, the absolute level remained high, despite lower energy prices and slowing economic growth. US markets gained as corporate earnings declined for a second straight quarter but much less than initially feared. European markets rallied as inflation continued to recede and the job market remained strong, though affected somewhat by weak consumer spending.
The Lazard Global Equity Franchise Fund (Hedged) returned 4.83% (net of fees) during the quarter ending 30 June 2023, underperforming the MSCI World Index which returned 6.92%.
The world’s largest operator of lottery concessions and leading gaming machine operator International Game Technology (IGT) performed well during the quarter. In early May 2023, IGT released its Q1 result which underscored several key investment themes, namely resilience in lottery sales, tailwinds from Lotto recovery and ongoing operating momentum in gaming machines. In June 2023, the company announced that it is exploring strategic alternatives for its Global Gaming and PlayDigital segments to unlock the full value of its portfolio. Management noted its belief that the intrinsic value of the company's market-leading businesses and diversified cash-flow profile are not currently reflected in the stock price and that the timing is right to assess opportunities that may enhance value for IGT's shareholders. We have noted the discrepancy between the value of IGT and its lottery and gaming peers for some time now and this was part of our investment thesis for IGT. Despite its strong performance, we believe IGT still trades on multiples below its peers.
Dialysis provider Fresenius contributed to performance after some recommendation upgrades from various sell -side analysts in the aftermath of the analyst day in May 2023. Helen Giza, the new CEO (ex CFO) highlighted the lack of profitability for the new Care Enablement division, which manufactures equipment and consumables used in dialysis. The issue was replication of corporate functions across different geographies, and hidden loss making through poor accounting practise. Going forward the company plans to exit loss making businesses, centralise corporate functions and directly procure; with an expectation of return to historic margins for Care Enablement in 2025. In our view the plan to restore margins is credible, the stock remains cheap, and we have been increasing our holdings.
IT service provider Alphabet shares were underpinned by the AI-frenzy that spread through the market this quarter. The market expects AI will help the company improve its advertising yield, cementing market share and growth going forward. US healthcare company CVS Health shares continued to be weak, as the company is yet to demonstrate that its shift towards a more acquisitive expansion is delivering the expected benefits in terms of affordable care and greater long -term growth prospects. In addition, the uncertainty on the legislative reform for pharmacy benefit management (PBM) companies being discussed in Congress was not helpful. We continue to believe that PBM companies are beneficial to the healthcare sector to mitigate the pricing power of huge pharmaceutical companies.
World leading tax agent H&R Block (HRB) fell during the quarter following a press release in May from the IRS discussing a government proposal to let individuals file taxes directly with the government for free. In relation to the announcement from the IRS, HRB do not believe it is a material threat to their business in the near term. The proposal is for the simplest of filers, who already file for free with more than 30 choices that already exist today, including one offered by HRB. Further the IRS already offers ‘The Free File program’ for federal taxes which is not widely used by consumers, serving just 3% of the 100 million taxpayers last year. We believe the key business for HRD is not impacted by this potential proposal from the IRS. The core assisted cohort of HRB clients pay around US$300 to lodge their respective tax returns and receive, on average, tax returns of around US$8,000, representing around 10% of their household income. We have increased our position in HRB across the Strategy during late-May. In June HRB was one of the Strategy’s strongest performers, yet HRB still trades on around 8x earnings and has no net debt.
The world’s largest brewer Anheuser-Busch (ABI) detracted from performance despite producing a strong Q1 result. The organic volume and sales trends of ABI versus its key peer Heineken were strong for the first time in six quarters. ABI’s sales growth also beat Heineken’s 8.9% in Q1, and its 0.9% volume growth was ahead of Heineken’s which fell 3%. The US business continued to lose volume share but experiencing top-line growth from ongoing premiumization trends. Management has chosen to leave FY23 guidance unchanged (4-8% organic EBITDA growth). As of 30 June 2023, we believe ABI is trading on some of the lowest multiples seen in a decade.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/LazardGlobalEquityFranchiseFundHedged_FactSheet_2023-05-1.pdfMay, 2023
The global equity markets gave back some of their recent gains in May, with the MSCI World declining by 0.1% and 1.1% in local currency and AUD terms. The broader market was weak, with lower share prices in May for two -thirds of stocks in the MSCI World Index. However, the market was underpinned by very strong performance from large IT companies (including NVIDIA, Google, Microsoft, Amazon and Apple), which more than compensated for the weak performance by the broader market.
During May several concerns weighed on the market, including: (1) significant anxiety over raising the US government debt ceiling in order to prevent a government debt default (the bill was only passed by the House of Representatives after - market on 31 May and by the Senate on 1 June); (2) an increase in US bond yields driven by expectations of further rate hikes by the Fed; and (3) weaker economic data including the Chinese PMI which was reported below expectations at 48.8, causing weaker commodity and oil prices. While inflationary pressures persist in the US, inflation showed signs of receding in several European economies, including Germany, France, and Spain.
The Lazard Global Equity Franchise Fund (Hedged) returned -3.73% (net of fees) during the month ending 31 May 2023, underperforming the MSCI World 100% Hedged to AUD Index which returned -0.27%.
Alphabet shares were underpinned by the AI-frenzy that spread through the market this month. Alphabet has now embedded DeepMind into its Google search and YouTube products, with this business no longer classified as a “bet”. We note that there are now very high expectations that Artificial Intelligence will prove transformational, but little emphasis on regulatory scrutiny, nor the reliability of AI-generated content.
IT outsourcer Cognizant contributed to performance in May 2023 after reporting Q1 2023 results that modestly beat market expectations. New CEO Ravi Kumar (ex Infosys) outlined clear strategies focused on large customers and cost containment. We believe that the stock remains cheap, particularly relative to peers.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/LazardGlobalEquityFranchiseFundHedged_FactSheet_2023-05.pdfApril, 2023
Global equity markets recorded a modest gain in April, as investors adopted a cautious approach amid growing uncertainty
about the global economic outlook. In the US, economic news continued to be mixed as corporate earnings remained
above already low expectations halfway through the reporting season. Economic growth eased but inflation, particularly
wage pressures, remained stubbornly high as US unemployment claims declined in April. Meanwhile, high inflation led to
stagnant consumer spending in the eurozone economy. The European Central Bank matched the rate increases of the US
Federal Reserve and investors expect it will raise rates for the seventh consecutive time in May.
The Lazard Global Equity Franchise Fund (Hedged) returned 2.92% (net of fees) during the month ending 30 April 2023,
outperforming the MSCI World Index which returned 1.61%.
Dialysis provider Fresenius contributed to performance in April 2023 after outlining improved 2025 margin targets at their
Capital Markets Day and the likelihood of beating budget for 1Q23 results to be reported early May.
Global medical device company Smith & Nephew performed strongly in the month on the back of the recovery of its core
orthopedic business. The company reported Q1 results in April 2023 where they re -affirmed full year organic growth and
trading margin guidance. Management also notes good progress made on their 12 -Point Plan, most of which aims to fix the
underperforming Orthopedics division.
Medtronic, the largest medical devices manufacturer in the world, rose after the FDA approved its MiniMed 780G diabetes
product, an important milestone for the company’s Diabetes segment, which has lost market share in recent years.
Subsequently, the FDA also lifted the warning letter it had issued in December 2021 for the company’s diabetes
manufacturing facilities.
Tapestry detracted from performance, as the company, and peers in the mid-range luxury sector, suffered from concerns
surrounding consumer spending. This is in sharp contrast to the higher-end luxury groups that are driven largely by the
recovery in the Chinese market. However, we believe that the commercial and operating performance of Tapestry may
continue to be above peers, has an attractive valuation and high cash flow generation.
The world’s leading tax agent H&R Block (HRB) fell modestly in the month in spite of better-than-expected quarterly
results the prior month. Revenue grew 5% as HRB had a strong ending to the 2022 tax season. Management reaffirmed
FY23 outlook and continue to expect topline growth, EBITDA that outpaces revenue, and EPS that grows even faster. In
addition, HRB remains confident of achieving adjusted EPS growing double digits annually through fiscal year 2025. HRB
continue to be excellent stewards of capital having repurchased US$130M of shares in the quarter, reducing shares
outstanding by another 2%; and announced a US$0.29 quarterly dividend continuing the 60 years of continuously paid
quarterly dividends. Since 2016, HRB have grown the dividend per share over 45% and have returned US$3B to
shareholders through dividends and share repurchases.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity
than the market, that are trading at reasonable valuations. Our portfolio is now trading at a sizeable discount to intrinsic
value as well as the broader MSCI World Index on a number of valuation measures. We believe the economic franchise
characteristics we seek for all our investments will continue to serve our investors well over the long run.
March, 2023
In a quarter marred by bank failures and a state-backed bank merger, optimism still won out. Fueling the optimism, many investors believed that central banks would pivot from their hard line, anti-inflation stance. Easing inflationary pressures, especially in Europe, and the sudden fragility in the banking sector after the second largest US bank failure (Silicon Valley Bank) and the merger of Credit Suisse and UBS supported the expectations of a central bank pivot.
The Lazard Global Equity Franchise Fund (Hedged) returned 7.15% (net of fees) during the quarter ending 31 March 2023, outperforming the MSCI World Index which returned 7.07%.
Dialysis provider Fresenius Medical Care (FMC) was a contributor to performance after announcing better than expected 4Q22 earnings, with slightly better growth and margin, and an easing of COVID-19 related excess mortality. Guidance for 2023 was lowered as staffing cost pressures are expected to continue, but they also guided towards increasing margins in 2025 as wage cost pressures ease, reimbursement picks up and cost reductions kick in. Fresenius SE, which owns 32% of FMC also announced it would deconsolidate FMC but would not be selling stock given that would be ‘value destructive’ at current prices.
Luxury brand company Tapestry and advanced braking systems manufacturer Knorr Bremse added to performance during the quarter, as both companies are expected to benefit from the reopening of the Chinese economy. Tapestry and Knorr Bremse’s exposure to China is approximately 20% and 30% respectively. Knorr Bremse, in particular, continued to perform as incoming CEO Marc Llistosella presented the company’s results for the 2022 fiscal year and his initial views on the business. This reassured the market as he placed emphasis on the improvement of the operating performance of the existing business, rather than external growth. In addition, he stressed that all options were on the table for poorly performing units, including disposals.
Leading global advertising firm, Omnicom, rose after reporting strong FY22 results. Organic revenue growth was 9.4% for the year, following on from 10% in 2021, and the company reported record high operating margins. Management expects solid organic growth to continue in 2023, albeit at a slower pace than last year.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/LazardGlobalEquityFranchiseFundHedged_FactSheet_2023-03.pdfFebruary, 2023
Global equity markets retreated in February, as investors were forced to re -set their expectations for the current global rate-hiking cycle. The optimism that fueled last month’s market rally evaporated and was replaced by concerns that persistent inflationary pressures and a resilient global economy would force central banks to press on with their monetary tightening campaigns. The European Central Bank lifted interest rates by 50 bps and vowed that there would be no let -up in its aggressive efforts to wring high inflation out of the eurozone. The Bank of England also increased interest rates by 5 0 bps as inflation in the UK slowed for a third consecutive month in January, though it remained in double digits. Investors cheered the US Federal Reserve’s announcement that it was raising its benchmark interest rate by 25 bps, its smallest increase since March 2022, and that it was seeing improvements in inflation.
The Lazard Global Equity Franchise (Hedged) Fund returned -1.12% (net of fees) during the month, outperforming the MSCI World 100% Hedged to AUD Index which returned -1.65%.
Omnicom shares rose after reporting strong FY22 results. Organic revenue growth was 9.4% for the year, following on from 10% in 2021, and the company recorded record high operating margins. Management expects solid organic growth to continue in 2023, albeit at a slower pace than last year.
Dialysis provider Fresenius Medical Care (FMC) was a contributor to performance after announcing better than expected 4Q22 earnings, with slightly better growth and margin, and an easing of COVID-19 related excess mortality. Guidance for 2023 was lowered as staffing cost pressures are expected to continue, but they also guided towards increasing margins in 2025 as wage cost pressures ease, reimbursement picks up and cost reductions kick in. Fresenius SE, which owns 32% of FMC also announced it would deconsolidate FMC but would not be selling stock given that would be ‘value destructive’ at current prices.
Fiserv, one of the world’s leading payment processors, rose after reporting strong fourth quarter and FY22 results. Revenues grew 12% organically, while operating margins rose 1.2%. Importantly, there was little sign of any impact from new entrants in the payments space, with Clover, Fiserv’s new payment offering for smaller businesses, growing 23% in the fourth quarter and already a larger business than competitor Square in this category.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/LazardGlobalEquityFranchiseFundHedged_FactSheet_2023-02.pdfJanuary, 2023
Global equity markets began 2023 with a sharp rally. We believe there have been positive signs of moderating inflation along with better-than-expected corporate earnings and GDP numbers alleviated investor concerns over a deep and prolonged recession. European markets outperformed as the milder winter alleviated energy shortage concerns and inflation numbers showed real signs of abatement.
The Lazard Global Equity Franchise (Hedged) Fund returned 9.02% (net of fees) during the month, outperforming the MSCI World 100% Hedged to AUD Index which returned 6.24%. Tapestry and Knorr-Bremse performed strongly in January 2023, as both companies are expected to benefit from the reopening of the Chinese economy. Tapestry and Knorr-Bremse’s exposure to China is approximately 20% and 30% respectively.
World’s largest lottery concession and gaming business, International Game Technology (IGT), performed well during the month. September quarter revenue growth of 14% (Lottery +4%, Gaming +34%, Digital +34%) highlighted not only the resilience of its business segments, but also IGT’s market-leading position. We believe these factors continue to make IGT one of the more attractive stocks within our Global Franchise universe. With leverage no longer an issue having reduced to just above 3x Net Debt:EBITDA and mostly fixed-rate debt, and IGT’s free equity cash flow easily covering the dividend (US$0.80 annual), management are judiciously buying back shares with 6% of its float repurchased since November 2021 and US$156m of the current repurchase plan remaining. As at 31 January 2023, IGT shares traded at 7x EBITDA, approximately half the valuation of its global lottery comparables.
IT outsourcer Cognizant contributed to performance during the month after it announced that Ravi Kumar, ex -president of competitor Infosys, will be the new CEO. Like a lot of outsourcers, Cognizant has experienced high staff turnover and increasing costs, but has set itself apart by passing those costs onto customers to maintain margins and profitability. This has somewhat mitigated growth and resulted in some negative guidance on results, however the CEO announcement has been taken as a sign that these issues are potentially on the way to resolution.
eBay contributed during the month on little news, presumably on a market view that the macro situation may not be as dire as previously expected. eBay is undergoing a successful refocusing towards categories where it has significant strength, such as automotive parts, trading cards and used goods and clothing, as well as value -adding services such as payments and authentication, that are seeing a decline in revenues but an increase in margin. Confounding this is a bleak near-term macroeconomic forecast, resulting in a volatile trading situation. On conservative macro assumptions, we believe the stock remains inexpensive.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/LazardGlobalEquityFranchiseFundHedged_FactSheet_2023-01.pdfDecember, 2022
Global stocks finished December lower as the broad themes of 2022—inflation, rising interest rates, war in Ukraine, and slowing corporate profits—continued to dominate investor fears during the quarter. Inflation showed signs of abating but remained well above central bank targets causing the US Federal Reserve to maintain its hawkish tone. European inflation appears to have peaked in October but remains well above the European Central Bank’s targets. While the eurozone remains in a recession, optimism that the recession will not be as deep as initially feared surfaced in December.
The Lazard Global Equity Franchise (Hedged) Fund returned 10.3% (net of fees) during the December quarter, outperforming the MSCI World 100% Hedged to AUD Index which returned 7.2%.
One of the key contributors during the quarter was International Gaming Technology (IGT), the world’s lottery concession and gaming operator, which reported 3Q 22 results above market expectations, again. IGT’s 3Q 22 revenue growth of +14% (Lottery +4%, Gaming +34%, Digital +34%) highlighted not only the resilience of its business segments, but also IGT’s market-leading position. IGT reiterated its 2022 revenue outlook and noted it expects to come in at the high end of the range for revenue, operating earnings and free cash flow. IGT’s net leverage is now 3.1x Net Debt to EBITDA, the lowest level in company history, with most of its debt in long-term fixed rate bonds, shielding the company from interest rate increases. Through to October 2022, IGT has returned US$224m in capital through cash dividends and share repurchases. IGT trades on around 6x forward EBITDA; around half that of its international lottery and gaming peers.
Tapestry shares were strong as the company was able to largely offset the continued disruptions in the Chinese market and make continuous progress on the execution of its performance improvement plan. This includes a more nimble value chain, and greater use of data analytics to understand consumer demand. The reversal of lock -down policies in China could potentially see the market returning to normal.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/LazardGlobalEquityFranchiseFundHedged_FactSheet_2022-12.pdfNovember, 2022
Global equity markets rose as inflation showed definite signs of easing globally, increasing the potential for a slowing in the Federal Reserve’s (Fed) interest rate hikes. European markets led the developed markets in November, with employment figures showing strong gains; the United States lagged largely due to the weaker dollar. While US equity markets moved higher, the US yield curve continued to invert, raising fears of a recession. The potential for less hawkish Fed policy caused the US dollar to fall sharply against most major currencies including the euro, UK pound, and yen.
The Lazard Global Equity Franchise Fund returned 2.29% (net of fees) during the month ending 30 November 2022, slightly outperforming the MSCI World Index which returned 2.12%. International Gaming Technology (IGT), the world’s largest lottery concession and gaming operator, rose after again reporting Q3 results above market expectations. IGT’s Q3 revenue growth of 14% highlighted not only the resilience of its business segments, but also IGT’s market-leading position. IGT reiterated its 2022 revenue outlook and noted it expects to come in at the high-end of the range for revenue, operating earnings and free cash flow. IGT’s net leverage is currently at the lowest level in company history, with the vast majority of its debt in long -term fixed rate bonds, shielding the company from interest rate increases.
Through October, IGT has returned $224m in capital returns by cash dividends and share repurchases YTD in 2022. IGT trades on around 7x EBITDA, around half that of its international lottery and gaming peers. Luxury fashion holding company, Tapestry, gained ground as the company was able to largely offset the continued disruptions in the Chinese market and made further progress on the execution of its performance improvement plan. This strategy includes a more nimble value chain and greater use of data analytics to understand consumer demand. German braking systems manufacturer Knorr-Bremse added to performance after reassuring the market of its ability to absorb inflationary pressures through cost containment and price increases.
The company’s market share in China remains strong despite the standstill due to continued COVID-19 restrictions. We believe the company is putting its balance sheet to good use by securing inventories to continue its deliveries reliably. Lastly, the appointment of a new CEO is bringing hope of strategic clarity after several years of management uncertainty. US e-commerce company eBay contributed in November after reporting better than expected Q3 22 figures. The difficult macro environment has been partially countered by Focus categories, and advertising and payments continue to improve. eBay’s strategic pivot away from fixed price listings, logistics and first party inventory towards what is arguably its core competency; price-discovery in non-transparent value-based markets, is working well. Pediatrix Medical Group provides specialist physician services to hospitals, intensive care units, and other medical units.
The company detracted from performance after reporting a poor Q3 2022 result due to lower births, negative payor mix fluctuations, and the poorly managed transition of their internal revenue collection department to an outsourced provider. The company has taken advantage of its lower share price, buying back 5% of its outstanding shares over Q2 and Q3 of 2022. In Q3, the company used the balance of its free cashflow to make a small acquisition and lower overall debt levels. The company has been challenged by ongoing declines in birth numbers, however we believe it remains significantly undervalued.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/193268242.pdfSeptember, 2022
This year’s decline in the global equity markets accelerated in the September 2022 quarter, with the markets falling more than 9.5% to finish with a quarterly loss of 6.7% (in USD terms). Sentiment turned increasingly pessimistic in September as central bankers, with certain exceptions, reaffirmed that their commitment to fighting inflation was their highest priority irrespective of the implications for capital markets. Inflation remained stubbornly entrenched, with every new reading typically well above consensus expectations.
The Lazard Global Equity Franchise Fund fell 2.7% (net of fees) during the quarter ending 30 September 2022, underperforming the MSCI World Index which rose 0.3%.
Nielsen, the monopoly provider of TV ratings in the US, rose after it was announced that major shareholder Windacre had reached agreement with the private equity bidders for the company at the existing offer of US$28 per share. Windacre had previously opposed the deal. Instead, they have agreed to sell some of their shares into the deal while rolling the remainder into the private equity consortium acquiring the company. The deal has subsequently been approved by shareholders and is expected to close in October 2022.
The world’s leading tax services firm, H&R Block (HRB), was one of the key contributors in the quarter after reporting better than expected Q4FY22 results. HRB reported EPS of US$1.43 versus consensus of $1.24. The beat came from better revenue and stronger margins. The company guided FY22 revenues of $3,535 -3,585m (consensus was at US$3,499m), EBITDA of $915-950m (consensus was $900m) and EPS of $3.70-3.95 (consensus was US$3.68). Management announced a new share repurchase authorization of $1.25bn. Longer term, HRB expects to grow the top line by 3 -6% per year; our value is based on much more conservative forecasts. HRB still offers reasonable value trading on 12x forward EPS.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/191694400.pdfAugust, 2022
Volatility in global equities continued in August as hopes that inflation had crested and central banks would modify their hawkish stance were all but dashed. Escalating inflation in Europe and tight labour conditions in the United States began to erode optimism over any slowdown in tightening. US Federal Reserve Chair Jerome Powell’s statement that the Fed “must keep at it until the job is done” erased any ambiguity over a softening in the Fed’s position. This clear priority for fighting inflation over supporting global economic growth triggered a sharp sell-off in the last days of the month. This theme was reinforced by the European Central Bank as officials reaffirmed their anti-inflation priority.
The Lazard Global Equity Franchise Fund fell 1.50% (net of fees) during the month ending 31 August 2022, outperforming the MSCI World Index which fell 2.47%.
Nielsen, the monopoly provider of TV ratings in the US, rose in August after it was announced that major shareholder Windacre had reached agreement with the private equity bidders for the company at the existing offer of US$28 per share. Windacre had previously opposed the deal. Instead, they have agreed to sell some of their shares into the deal while rolling the remainder into the private equity consortium acquiring the company. The deal has subsequently been approved by shareholders and is expected to close in October 2022.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/190873799.pdfJuly, 2022
Optimism that inflation had crested and recessionary pressures would cause central banks to retreat from planned rate hikes sustained the markets in July 2022. This held even in the face of another 75 -basis-point increase by the US Federal Reserve and hawkish rhetoric from other major central banks. With about half of corporations reporting, earnings surprised to the upside; a majority exceeded estimates, although at a lower percentage than in the past few quarters. Recessionary fears weighed on oil prices, which retreated close to pre-Russia-Ukraine conflict levels. The Lazard Global Equity Franchise Fund rose 3.1% (net of fees) during the month ending 31 July 2022, underperforming the MSCI World Index which rose 6.4%.
Leading payment processor Fiserv rose after posting strong second quarter results and increasing guidance for FY 22. Fiserv’s Acceptance segment, which processes payments for merchants, grew 17% in the quarter ended 30 June 2022, while the overall business grew 12% organically.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/190038863.pdfJune, 2022
After May’s brief relief rally, global equity markets resumed their plunge, falling another 8.5% (in USD terms) in June ending the quarter in negative territory. Inflation levels have continued to surprise to the upside, fuelled by ever higher oil and commodity prices, labour shortages, and ongoing supply chain disruptions. Central banks have broadly acted in a coordinated fashion to fight inflation, with 45 banks raising rates thus far in 2022. The Peoples Bank of China and Bank of Japan are two notable exceptions. The US Federal Reserve has remained a focal point as it has maintained an increasingly hawkish tone in the face of stubbornly high inflation numbers. The European Central Bank warned that the era of low interest rates and low inflation has ended, aggravated by the conflict in Ukraine and global COVID -19 pandemic, and forecasted a larger interest rate hike in September following a 25-basis-point (bp) increase in July. Consumer confidence continued to wane, and recessionary fears in Europe and the United States were a primary concern.
The Lazard Global Equity Franchise Fund fell 3.5% (net of fees) during the quarter ending 30 June 2022, outperforming the MSCI World Index which fell 8.5%. Although there was no significant company news flow during the June 2022 quarter, leading tax agent H&R Block (HRB) rose strongly, continuing the performance in March following the Company’s Investor Day. HRB set a medium -term target goal of up to 6% revenue growth based on consumer tax return volumes of 1%, pricing of 1% to 3%, franchise acquisitions of 1% and other activities including payment system Wave of 1%. We can only speculate that the market is growing in confidence that HRB can deliver on these expectations. Our value is based on much lower sustainable revenue growth.
Atlantia shares were strong over the quarter as various regulatory hurdles to the takeover offer were overcome. We expect the transaction to complete late Q3, early Q4 2022. Nevertheless, with only a small differential between the bid and market prices we exited our position in Atlantia.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/189001010.pdfMay, 2022
Volatility remained elevated in global equity markets in May 2022. Central bank policies continued to dominate investor sentiment as the banks attempted to control inflationary pressures through tighter monetary policies. The US Federal Reserve has remained a focal point as the US economy has been healthy and appears capable of withstanding higher interest rates without falling into a recession while ongoing supply chain issues continued to hinder global growth. The war in Ukraine continued to drag on, with neither side showing any meaningful progress. Russia was increasingly ostracised as Finland and Sweden both submitted applications to join NATO, and several countries, including the United Kingdom, looked for ways to cease buying Russian oil and gas.The Lazard Global Equity Franchise Fund rose 1.03% (net of fees) during the month ending 31 May 2022, outperforming the MSCI World Index which fell 0.86%.
World leading tax agent, H&R Block (HRB) rose strongly after resetting full-year guidance following a solid pre-tax season period. Third quarter 2022 revenue was US$2.1 billion, an increase of 4% over the prior year. This was unexpected, given 2021 had many one-time tax filers. Importantly, the Assisted return numbers are now expected to be flat on pre COVID -19 levels, bucking the multi-year decline trend. HRB are confident the downward trend in Assisted is behind them. Although we remain more cautious than management, we do acknowledge the recent numbers provide a new starting level and modest upgrade to our value. We took advantage of the strong price rise to trim our position, but we still regard HRB as attractively priced, trading on around 10x PE
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/187900252.pdfApril, 2022
The global equity markets rebounded in March 2022 but nevertheless finished their worst quarter since the onset of the COV ID-19 pandemic. The conflict in Eastern Europe raged into its second-month w ith no sign of resolution. Russia faced nearly world ide condemnation, its stocks were removed from the major indices, and the country enacted capital controls to rescue the ruble. Inflation continued to be a major worry as it escalated globally. The Federal Reserve raised its discount rate by 25 basis points in March and assumed a hawkish stance, telegraphing six more hikes for 2022. Europe also experienced the highest inflation in more than 40 years as higher energy prices and natural gas rationing took hold. The European Central Bank is also expected to raise rates this year. The Lazard Global Equity Franchise Fund returned 2.01% (net of fees) during the quarter to 31 March 2022, outperforming the MSCI World Index which fell 8.17%.
Nielsen shares rose in late March 2022 after agreeing to be acquired by a private equity consortium, at a price representing a 60% premium to the share price prior to the initial offer. The offer clearly reflects confidence from the investor consortium that Nielsen w ill retain its position as the dominant cross-media measurement currency going f orw ard, a view that w e share despite the company’s volatile share price performance over the past tw o years. We have used this volatility to acquire more shares at low er prices and reduce our average cost to w ell below the current offer. While the price is not. unattractive assuming Nielsen does lose some share to new competitors, it is low er than the value implied by management’s ow n medium-term revenue and earnings targets.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/185996835-2.pdfMarch, 2022
The global equity markets rebounded in March 2022 but nevertheless, finished their worst quarter since the onset of the COV ID-19 pandemic. The conflict in Eastern Europe raged into its second month with no sign of resolution. Russia faced nearly world wide condemnation, its stocks were removed from the major indices, and the country enacted capital controls to rescue the ruble. Inflation continued to be a major worry as it escalated globally. The Federal Reserve raised its discount rate by 25 basis points in March and assumed a hawkish stance, telegraphing six more hikes for 2022. Europe also experienced the highest inflation in more than 40 years as higher energy prices and natural gas rationing took hold. The European Central Bank is also expected to raise rates this year. The Lazard Global Equity Franchise Fund returned 2.01% (net of fees) during the quarter to 31 March 2022, outperforming the MSCI World Index which fell 8.17%.
Nielsen shares rose in late March 2022 after agreeing to be acquired by a private equity consortium, at a price representing a 60% premium to the share price prior to the initial offer. The offer clearly reflects confidence from the investor consortium that Nielsen will retain its position as the dominant cross-media measurement currency going forward, a view that we share despite the company’s volatile share price performance over the past two years. We have used this volatility to acquire more shares at low er prices and reduce our average cost to w ell below the current offer. While the price is not unattractive assuming Nielsen does lose some share to new competitors, it is lower than the value implied by management’s own medium-term revenue and earnings target
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/185996835.pdfFebruary, 2022
The sell-off in the global equity markets continued in February 2022, driven in large part by Russia’s invasion of Ukraine. The Russian invasion beginning on 24 February 2022 and the increasingly aggressive actions and rhetoric from President Vladimir Putin, including placing Russian deterrent nuclear forces on high alert, drew a loud chorus of condemnation and reprisals from around the world. The markets had become increasingly apprehensive over the possibility of an invasion, and the actual outbreak did send volatility measures higher, but they remain well below levels seen during the COVID -19 outbreak and Global Financial Crisis.
The Lazard Global Equity Franchise Fund fell 0.4% (net of fees) during the month of February 2022, outperforming the MSCI World Index which fell 5.4%.
World-leading lottery and gaming business IGT performed strongly in February 2022 after a number of lottery concession extensions including Rhode Island (U.S.) for 20-years, a five-year central systems contract extension with Manitoba Liquor and Lotteries Corporation, and a three-year contract extension with long-time partner, the Missouri Lottery which will expand Lottery's retailer base with 175 cashless GameTouch 28 machines and support its launch of the highly successful Cash Pop game. In addition, later in the month, IGT announced the sale of its payments business, LISPAY S.p.A., to PostePay S.p.A., for €700m, or ~USD780m. DISPLAY is a payment technology platform that allows consumers to pay bills such as utilities, buy prepaid phone sim cards, and pay taxes, among other services, through 54,000 points of sale locations. The transaction represents a ~16x EBITDA multiple, compared to IGT which based on consensus CY22 forecasts trades on 7.5x EBITDA, highlighting yet another area of valuation upside.
Omnicom, the second-largest global advertising and marketing services business, performed strongly in February 2022 upon publishing its Q4 2021 result. The result was strong, with Q4 organic revenue growth of 10.2% (calendar year growth was 9.5%). In 2022, Omnicom generated its highest operating margin since 2000. While organic revenue growth was very strong, we note that it reflects a catch-up in demand following some weaker revenues during the pandemic. The company guided revenue growth of 5-6% in 2022, and an even higher operating profit margin (15.4%). This business is currently trading on approximately 13x P/E and 8x EBITDA.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/185154584-1.pdfJanuary, 2022
Amid heightened volatility, world stocks prices slid in January 2022 as markets reset in nervous anticipation of changes in the global monetary landscape. U.S. Federal Reserve officials pointed to a path of steady interest rate increases in 2022 and the increasingly hawkish tone unnerved investors. High inflation and a tight labour market continue to be focal points for the Fed as it tries to achieve a balance between moderate economic growth and lower inflation. Increasing tensions over the potential for Russia to invade Ukraine and an escalation in infections from the ‘Omicron’ variant of COVID -19 also contributed to a difficult month. Investors took little solace in January 2022 earnings reports even as 70% of the corporations that reported exceeded consensus expectations. The Lazard Global Equity Franchise Fund returned 1.25% (net of fees) during the month of January 2022, outperforming the MSCI World Index which fell 2.27%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/183275833.pdfDecember, 2021
In a volatile period, global equity markets advanced in the fourth quarter ended 31 December 2021, with risk appetites waxing and waning as investors digested the implications of several developments. Although ‘Omicron’, the COVID -19 variant that surfaced in November 2021, proved to be more infectious than the ‘Delta’ strain, investors took consolation that it also appeared to be far less virulent. A further signal of the improving U.S. economy came from the Federal Reserve, which announced that it would reduce its bond purchases sooner than expected in 2022 and forecast three interest rate increases in 2022. Both the Bank of England and European Central Bank followed with similar monetary tightening moves. These all helped to alleviate concerns over inflation and an overheating of the global economy. The Lazard Global Equity Franchise Fund returned 5.40% (net of fees) during the fourth quarter of 2021, underperforming the MSCI World Index which returned 7.07%.
Discount variety store owner Dollar Tree performed strongly over Q4 2021, following a report in the Wall Street Journal that activist fund Mantle Ridge had taken a large stake in Dollar Tree (5.7% of shares directly and call options for 4.2% of outstanding shares). In our view, Dollar Tree’s strong share price performance has already factored in the benefits from a successful turnaround, whilst all of the execution is yet to occur. As a result, we have exited our position in the stock. McKesson's share price rose on the back of a bullish investor day in December 2021, where they outlined a plan to achieve 6-8% p.a. operating profit growth medium-term. Drivers of the plan include increased contribution from oncology, speciality pharmaceuticals, biosimilars and BioPharma Services.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/182423470.pdfNovember, 2021
Global equity markets retreated in November 2021 as the emergence of a new COVID-19 variant, ‘Omicron’, and hawkish comments from U.S. Federal Reserve Chair Jerome Powell offset a very strong corporate earnings season. Volatility surged with the uncertainty over the severity and transmissibility of the mutated virus and the efficacy of current vaccines. Inflationary pressures continued, as did labor shortages, supply chain disruptions, and commodity price increases, sending interest rates higher.
The Lazard Global Equity Franchise Fund returned 2.45% (net of fees) during the month of November 2021, underperforming the MSCI World Index which returned 3.61%.
Discount variety store owner Dollar Tree performed strongly in November 2021 following a report in the Wall Street Journal (WSJ) that activist fund Mantle Ridge had taken a large stake in Dollar Tree (5.7% of shares directly and call option s for 4.2% of outstanding shares). The WSJ reported that Mantle Ridge is recommending Rick Dreiling (who was previously the CEO of rival company Dollar General) to lead Dollar Tree, in order to speed up the turnaround of Family Dollarbannered stores.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/181285121.pdfSeptember, 2021
A broad-based decline in September 2021 left the global equity markets relatively flat for the quarter ended 30 September 2021. The U.S. Federal Reserve’s stimulus policy path was a focal point as they announced preparations to slow the monthly purchase of government backed bonds, but also to raise interest rates in 2022. In Europe, the European Central Bank (ECB) and the Bank of England (BoE) also signalled they were prepared to retreat from their accommodative monetary policy stances. Broad-based supply chain disruptions continue to hamper the global recovery, creating inflationary pressures on everything from agricultural produce to electronics to medical supplies. The Lazard Global Equity Franchise Fund returned 2.43% (net of fees) during the quarter to September 2021, underperforming the MSCI World Index which returned 3.92%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/179817459.pdfJuly, 2021
The global equity markets notched their sixth consecutive monthly gain in July 2021, boosted by strong corporate earnings and record low interest rates. COVID-19 vaccination rates continued to improve in the developed markets despite the spread of the new Delta variant, which slowed re-openings in some countries. Central banks maintained their accommodative policies to foster economic growth, and interest rates declined to levels only slightly above the pandemic lows of a year ago.
The Lazard Global Equity Franchise Fund returned 1.90% (net of fees) during the month of July 2021, underperforming the MSCI World Index which returned 3.97%. Drug distributor McKesson (MCK) contributed during the month after announcing the partial divestiture of their European businesses and an intention to fully exit Europe going forward. Financial terms weren't disclosed, but the market appears to be viewing this favourably as it will reduce earnings volatility and provide renewed focus on the growing strength of U.S. oncology.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/175737017.pdfJune, 2021
World equity markets rose sharply in the second quarter on investor confidence that the global economic recovery would continue uninterrupted despite the emergence of inflation risk. While COVID-19 risk remained a concern as intensifying outbreaks emerged in many parts of the world, the risk of inflation was front and centre in the minds of investors during the period amid supply-chain bottlenecks, a surge in commodity prices, and sharp increases in China’s factory-gate prices in April and May 2021. Investors were increasingly worried that pandemic-driven stimulus measures would result in a significant rise in global inflation, which, in turn, could force key central banks to retreat from their ultra-accommodative monetary policy stances before an economic recovery is fully realized. The current low interest rate environment has also bolstered stock markets by driving investors chasing higher returns toward risk assets.The Lazard Global Equity Franchise Fund returned 9.24% (net of fees) during the quarter, broadly in line with the MSCI World Index which returned 9.31%.
World leading lottery and gaming business, International Gaming Technology (IGT) was our best performer during the quarter. IGT’s 1Q21 revenues of USD1,015m (+25% YoY) came in 16% ahead of consensus, while adjusted EBITDA of USD450m (+72% YoY) was 46% ahead of consensus. Results were primarily driven by Lottery outperformance, which achieved record same-store-sales levels during the quarter, and cost savings measures. The sale of the lowest financially productive business within IGT, Italian B2C Gaming, was concluded for €950m, post-sale IGT will have Net Debt to EBITDA approaching 4x. Management expects to return to 2019 levels for key financial metrics this year, well ahead of our expectations. Assuming this level of accelerated earnings growth implies as at 31 May 2021, IGT is trading on less than 12x PE and 8x EBITDA.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/174254987.pdfMay, 2021
Global equity markets posted a positive return for the fourth straight month in May 2021. Progress on vaccinations, particularly in Europe, has been reopening the global economy, which, in turn, has boosted the shares of economically sensitive cyclical companies. Inflation fears surfaced in the month of May 2021, with labour shortages beginning to appear in many service industries and commodity prices showing hefty year-over-year increases. The Lazard Global Equity Franchise Fund returned 5.23% (net of fees) during the month of May 2021, outperforming the MSCI World Index which returned 1.23%.
World leading lottery and gaming business, International Gaming Technology (IGT) was our best performer in May 2021 rising 40% for the month. IGT’s 1Q21 revenues of US$1,015m (+25%YoY) came in 16% ahead of consensus, while adjusted EBITDA of US$450m (+72% YoY) was 46% ahead of consensus. Results were primarily driven by Lottery outperformance, which achieved record same-store-sales levels during the quarter, and cost savings measures. The sale of lowest financially productive business within IGT, Italian B2C Gaming, was concluded for €950m, post-sale IGT will have Net Debt to EBITDA approaching 4x. Management expects to return to 2019 levels for key financial metrics this year, well ahead of our expectations. Assuming this level of accelerated earnings growth implies as at 31 May 2021, IGT is trading on less than 12x PE and 8x EBITDA.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/172926971.pdfApril, 2021
Global equity markets continued their year-long rally into April 2021, rising over 3% in the month. Surging corporate profits, meaningful vaccine progress, and a continuation of the accommodative policies from the US Federal Reserve and European Central Bank provided ample support to sustain the rally. The United States led the major markets in the month, driven in part by a significant increase in company reported earnings in the quarter, which was well ahead of expectations. European markets were also comparatively strong as industrial figures showed a strong pick -up in new orders, overcoming another recession (as the eurozone reported two consecutive quarters of negative GDP growth). The Lazard Global Equity Franchise Fund returned 3.34% (net of fees) during the month, outperforming the MSCI World Index which returned 3.19%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/171638332.pdfMarch, 2021
The global equity markets posted another gain in March 2021 rallying 6.3%. The accelerating global rollout of the COVID -19 vaccines and passage of US$1.9 trillion stimulus bill in the United States provided hope that the global recovery would pick-up speed despite weaker-than-expected employment growth. The vaccination process, while gaining in efficiency, continues to be uneven with significant inoculation differences across markets causing country lockdowns and surges in certain areas.
The Lazard Global Equity Franchise Fund returned 9.1% (net of fees) during the quarter, outperforming the MSCI World Index, which returned 6.3% during the same period.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/169670905.pdfFebruary, 2021
Global equity markets continued their rally in February 2021, with many indices reaching all-time highs in the month. Global equities are now trading more than 25% above their March 2020 low. The global rollout of more than half a dozen COVID-19 vaccines has appeared to stem the virus surge despite the ongoing emergence of newer variants. This coupled with a commitment of most of the central banks to ongoing stimulative measures continues to provide support to global equity markets. Interest rates pushed higher at the end of the month as investors began to worry about inflationary pressures.
The Lazard Global Equity Franchise Fund returned 0.72% (net of fees) during the month, underperforming the MSCI World Index, which returned 1.64% during the same period.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/168012537.pdfJanuary, 2021
Global equity markets began January 2021 with the same momentum that characterised the final months of 2020, only to see it dissipate in the final week pushing the broad developed market indices to a small loss for the month. COVID-19 news continued to dominate investor behaviour as a slow rollout of the new vaccines coupled with the emergence of several new, more infectious strains added to anxiety and locked down the United Kingdom. The United States saw a transition in Presidency, but only after a riot and a second impeachment of former President Trump highlighted the sharp divide in the country.
The Lazard Global Equity Franchise Fund returned 0.23% (net of fees) during the month, outperforming the MSCI World Index which returned -0.43% during the same period. Intel shares rose in January 2021 after better-than-expected data on PC volumes was released for the month of December 2020. The company also released more information about its upcoming product launches at the annual CES conference, which indicated a strong line up to compete with emerging rival AMD. Finally, the company announced that Pat Gelsinger would become CEO from February 2021. Given Intel’s problems with leading edge process node development and Gelsinger’s status as Intel’s former CTO, the market took this is a positive sign that these issues could be resolved over time.
After being a key detractor for the December 2020 quarter, the world’s leading tax agent H&R Block Inc.(HRB) bounced back in terms of stock price performance in January 2021 and added significantly to performance. As we noted last month, we were perplexed by the poor performance given HRB reported strong revenue growth in the second quarter but reported a wider loss compared to a year ago. The wider loss was due to a smaller income -tax benefit compared with a year earlier, hurting its year-over-year comparison on its bottom line. However, as we noted the core business demonstrated excellent performance with revenue rose just under 10% pcp, to US$176.6 million, ahead of expectations of US$163.7 million, with the EBITDA for the quarter approximately US$30 million better than consensus. HRB continued to repurchase stock, retiring 9.5 million shares at an aggregate price of US$150 million during the quarter; and paid its 26cps quarterly dividend, which represents a better than 6% annualized dividend yield as at 31 January 2021. . Nielsen continued its strong share price performance in January. While no new financial information was released, a number of announcements reinforced the company’s updated strategy and guidance which was presented at their investor day in December 2020. These included the renewal of a multi-year agreement for TV ratings and insights with local TV network Tegna; the release of a new product called Gracenote Sports Data, enabling dynamic insertion of statistics and results into live sports programs and a new Theatrical Video On -Demand measurement service which measures viewing of new movies watched at home via streaming rather than in theatres. The share price performance may also reflect investors’ recognition of the underlying value in Nielsen’s shares, given it still trades at a valuation discount of over 50% compared to other listed information services companies.
Ferrovial’s roller–coaster share price ride of the past three months continued in January 2021. As we noted in October 2020, given our interpretation of the strength of the Ferrovial September 2020 quarter result we were perplexed by its share price decline. In November 2020, the market must have reinterpreted the numbers, where revenue, earnings and cash flow generation all beat expectations, and drew the same conclusion of the strength of its key toll road assets, as the stock rose more than 25% in the month. In mid -December 2020, the stock fell after Heathrow Airport (25% owned by Ferrovial) updated its 2020/21 earnings and 2020-26 traffic forecast with a weaker rebound from the COVID-19 pandemic than previously anticipated. This is irrelevant to our value of Ferrovial as we place no value on its interest in Heathrow, and were pleased to see Ferrovial did not participate in the recent refinancing. Heathrow continues to push for a £2.7bn COVID-19 related earnings compensation from the CAA (UK's Civil Aviation Authority) to be included in the Regulated Asset Base in 2021. We exclude this compensation, as we are of the view it is unlikely to be granted. On the flipside, Ferrovial continues to use its surplus cash balance well, buying back stock at what we consider to be very attractive prices and it announced an agreement to acquire an additional 15% minority stake in its toll road asset I-77 Mobility Partners for US$80.4 million, taking its ownership from 50.1% to 65.1%. Although a relatively small transaction, the deal was undertaken below our intrinsic value for I-77 and thus is value accretive to Ferrovial. The US and Canadian based toll roads make up more than 80% of our value of Ferrovial.
EssilorLuxottica’s shares were held back by both continued restrictions in France, and the uncertainty surrounding the future of the GrandVision acquisition. Over the last few months, a bitter relationship has developed with the management of GrandVision, and we think that EssilorLuxottica would be well advised to seek a substantial reduction in the acquisition price by pulling out of the transaction. We view the current terms as highly value destructive, but believe that clarity will provide a path for the shares to perform.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/164899976.pdfDecember, 2020
Global equity markets finished 2020 with gains in the quarter, capping a volatile year where global markets fell more than 30% in USD terms from 1 January 2020 to the late-March 2020 lows but finished the year up over 13%. The introduction of two more vaccines to inoculate against COVID-19 provided increasing hope that the end of the global pandemic was in sight, despite the challenges in administration and a sharp increase in worldwide cases. The United Kingdom and European Union arrived at a last minute Brexit agreement, sending the pound higher.
The Lazard Global Equity Franchise Fund returned 13.08% (net of fees) during the quarter, outperforming the MSCI World which returned 5.85%. Although annual performance for the fund has been disappointing we are pleased to note the outperformance in recent months.
Tapestry continued to contribute to the portfolio performance, as the market is gaining confidence that the company emerging from the COVID-19 crisis will be stronger than the one entering it, both in terms of brand positioning and value chain, and operational management. We believe that this will lead to higher, more sustainable margins going forward. The prospect of a vaccine leads to hope that store disruptions will come to an end in the foreseeable future.
Nielsen shares rose during the quarter after a number of announcements. Firstly, in November 2020 the company disclosed the sale of the Connect division to Advent International, a private equity company, for US$2.7 billion in cash plus warrants. The sale is expected to close during the second quarter of 2021 and proceeds will be used to reduce debt. In addition, the sale should focus investors' attention on Nielsen's Media business, which holds a dominant position in US TV and video audience measurement. In December 2020, the company held an investor day where management provided details of their plans for the next few years and announced the launch of Nielsen One, the company's new cross-media measurement product. Importantly, management released medium term revenue and earnings guidance which implies there will not be revenue dilution from audiences' increasing move to streaming from linear TV, which had been one of the market's biggest concerns. Given 80% of the core audience measurement product is fully contracted over 3-5 years, their projections seem credible. In our view, achieving even the low end of management guidance would justify a share price substantially above current levels.
Leading satellite operator, SESs' Q3 2020 results were a little better than expected and aligned with the company's expectations and supported the group's unchanged guidance for CY20. The US C-band asset disposal (net of tax) of more than €2.7bn to be received over end-2021 and end-2023 will be used to reduce group's financial leverage, award shareholders via special dividends and/or share buybacks and finance new developments. Our thesis has been reinforced by the solid Q3 2020 results, the 2020 management objectives and anticipated payment of the C-band asset disposal that should improve the group's risk profile. A recent agreement with Canal+ across three orbital positions which added over €200m in secured backlog provides further evidence of modest growth in core business.
The key detractor for the quarter was the world's leading tax agent H&R Block Inc.(HRB) who reported a larger quarterly loss compared to a year ago. This was due to a smaller income-tax benefit compared with a year earlier. We still believe the core business demonstrated excellent performance with revenue rising to just under 10% pcp, to US$176.6 million, above analysts' expectations of US$163.7 million, with the EBITDA for the quarter some US$30 million better than consensus. HRB continued to repurchase stock retiring 9.5 million shares at an aggregate price of US$150 million during the quarter and paid its 26cps quarterly dividend, which represents a better than 6.5% annualized dividend yield as at 31 December 2020.
Intel shares fell after releasing third quarter results in October 2020. The market was concerned by a fall in gross margin, however this is likely to be temporary, caused by a combination of greater than expected ramp up of the company's 10 nm products; a mix/shift away from sales to enterprise and government customers (after a spike in the second quarter) as well as increased sales of lower margin PC's driven by work and learn from home demand due to COVID-19. Importantly, management do not believe the margin impact was due to increased competition or market share losses relative to what they had expected, nor have their product release plans for the next three years changed, which are expected to drive solid earnings growth. Year to date, revenues and operating profit for Intel are up 12% and 17% respectively.
The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market and that are trading at reasonable valuations. Our portfolio is now trading at a modest discount to intrinsic value and at a sizable discount to the broader MSCI world Index on a number of measures, most notably EBIT multiple where the portfolio trades on a 40% discount. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/163322011.pdfNovember, 2020
Global equity markets had a strong month, returning 7.49% in November 2020. The announcement of highly successful vaccine tests from both Pfizer and Moderna on succeeding Mondays brought hope that the end of the global pandemic was finally within reach. The announcements bore a marked contrast to the sharp increase in global COVID-19 cases. The US election was also largely decided, settling a significant amount of political uncertainty. The global equity markets were also helped by a weaker US dollar. On a country performance basis, leadership also reversed as EU-periphery nations Italy and Spain, performed well during the month, but remain laggards for the year.
The Lazard Global Equity Franchise Fund returned 12.62% (net of fees) during the month, outperforming the MSCI World Index which returned 7.49% during the same period. Omnicom shares rose in November 2020 on no company specific news. However, Pfizer and BioNTech’s announcement that their vaccine for COVID-19 had proven more than 90% effective in trials has likely raised expectations for a quicker economic recovery in 2021, and an associated pick up in advertising and marketing expenditures. Given its position as the second largest marketing services agency in the world, as well as the substantial cost reductions it has achieved during the COVID-19 pandemic, Omnicom is well placed to benefit from such an improvement in demand.
Tapestry continued to contribute to the portfolio performance, as the market is gaining confidence that the company emerging from the COVID-19 crisis will be stronger than the one entering it, both in terms of brand positioning and value chain, and operational management. We believe that this will lead to higher, more sustainable margins going forward. The prospect of a vaccine leads to hope that store disruptions will come to an end in the foreseeable future.
Mednax performed strongly in November 2020, following the publication of its Q3 2020 result. The result improved visibility into the underlying profitability of its core business (prenatal, neonatal and pediatrics), its ongoing cash generation, and the significant financial deleveraging occurring; Net Debt:EBITDA should drop to around 2x in 2021 after the divestment of the Radiology business. The better visibility was partly due to Mednax reclassifying its Radiology business into discontinued operations. In Q3 2020, revenues for the core business were just 3.5% lower, on a same-unit basis, compared to Q3 2019, after adjusting for the receipt of CARES Act relief funds. The result also showed improvements in employee productivity, reductions in overhead, and a drop in consulting and restructuring spend. The CEO provided guidance that 2021 EBITDA would be around US$270m, ex-Radiology and assuming no major COVID-19 impact. We believe that all of these factors contributed to the market’s recognition of greater value in this asset.
National Grid detracted from performance as the market awaits the release of the UK energy regulator’s final determination for National Grid transmission businesses for the 2021 -2026 period. We view this decision, expected on December 8, 2020 as a catalyst to give the company much needed visibility likely to be fertile ground for rerating.
There were no other material detractors during the month. The Global Equity Franchise portfolio currently holds high-quality franchise companies with higher financial productivity than the market and that are trading at reasonable valuations. Our portfolio is now trading at a modest discount to intrinsic value and at a sizable discount to the broader MSCI world Index on a number of measures, most notably EBIT multiple where the portfolio trades on a 50% discount. We believe the economic franchise characteristics we seek for all our investments will continue to serve our investors well over the long run.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/162267862.pdfOctober, 2020
Global equity markets retreated in October 2020 as volatility escalated with increased anxiety over US elections and a resurgence of COVID-19. The feared second wave of the COVID-19 virus has washed over Europe and the United States, with infection rates approaching and exceeding previous high levels in many areas. European markets bore the brunt of the decline as the imposition of new restrictions weighed on their economic outlook which was already lagging the rest of the world's recovery since March 2020.
The Lazard Global Equity Franchise Fund returned 0.86% (net of fees) during the month, outperforming the MSCI World Index which returned -1.07% during the same period.
Tapestry's share price rebounded sharply in October 2020, as the market started to gain confidence in the group's ability to generate substantial improvement in free cash flow generation that would be sustainable in the long-run. The confirmation of interim CEO Joanne Crevoiserat as permanent CEO brings stability to the group, and credibility to the performance improvement plan. While we acknowledge the business's continuous exposure to retail store opening restrictions, we think that the changes taking place are likely to cement the franchise of the Coach brand. We continue to see the shares as some of the most attractively valued in our universe.
Leading satellite company SES rose strongly in October. SES announced it had extended its multi -decade relationship with Canal+, the French premium television channel, for at least another decade. SES and Canal+ announced a deal whereby Canal+ has extended its contracts to use three of SES's key European satellites until 2030. Mix effects mean that the average price per transponder will fall relative to the existing deal. We believe from our previous conversation with SES management that the annual value of the new contract is probably in the range of 0 to 3% lower than the existing contract terms. This is consistent with market expectations and indeed SES's own expectation that its Video business is likely to remain in modest annual revenue decline but highly cash generative in the next two years. However, with significantly lower launch costs and satellite life extension programs, the post-tax IRRs on deals, such as Canal+, are believed to remain north of SES 10% hurdle rate. We believe the market took some comfort in seeing a big Video customer renew for such a long time period at similar terms.
Shares in leading global tax agency HEtR Block (HRB) rallied modestly in October 2020 as some investors believe that the company would benefit from a Biden Administration, the likelihood of which had been supported in polling data. Joe Biden has promised significant changes to taxation, and potentially other areas that impact the tax code such as healthcare, and in turn introducing new elements of uncertainty and complexity for both individuals and small businesses. The view was that this would prompt them to seek assistance in tax preparation.
During October 2020, Henry Schein (HSIC), the world's largest wholesaler of dental and medical products to office-based practitioners, and The Dentists Supply Company (TDSC) announced that HSIC would acquire a majority of TDSC. TDSC.com was launched as an e-commerce site offering direct access to negotiated savings on dental supplies and small equipment for members of organized dentistry. We view the deal as a positive for HSI C, but do not expect it to have a material impact to our forecast, with TDSC 2019 sales of -US$20mn less than 1% of HSIC sales, but we understand sales were doubling every six months. We believe this is a smart de -risking move by HSIC, with potential upside on driving the higher end HSIC "brands" in the value segment. While we view the online model from TDSC to be attractive, we believe that this deal is also a defensive move by HSIC reinforcing its moat and should help HSIC prevent some of that market share shift and also help to counter the potential threat from Amazon and others.
Leading end to end gaming company, and operator of lotteries in more than 100 countries around the world, International Gaming Technology (IGT) fell on little news in October 2020. However this did follow a strong September 2020, where the rapid share price rise allowed us to halve our portfolio weight in IGT.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/1601581942.pdfticker: LAZ0025AU
commentary_block: Array
factsheet_url:
Factsheet
release_schedule: Monthly
fund_features:
Lazard Global Equity Franchise Fund is an actively managed portfolio of between 25 to 50 securities that seeks long-term, defensive returns by investing globally in a range of franchise companies. The Fund’s objective is to achieve total returns (including income and capital appreciation and before the deduction of fees and taxes) in excess of the MSCI World Index with lower risk over the long term.
- Invests in listed companies which we consider have an “economic franchise”.
- The number of securities will generally range from 25 to 50 companies.
- The Fund has excluded from its investment universe, all companies engaged in manufacturing tobacco related products as identified in the GICS industry sector.
- Asset allocation range: global equity and equity like securities and securities convertible into equity securities (90% – 100%), Cash (0% – 10%).
- Risk level : high
manager_contact_details: Array
asset_class: Foreign Equity
asset_category: Large Blend - Fundamental
peer_benchmark: Foreign Equity - Large Fundamental Index
broad_market_index: Developed -World Index
structure: Managed Fund