The Royce International Premier Fund (Trades, Portfolio) has revealed its portfolio for the second quarter, which ended on June 30. The largest trade during the quarter came from a new position that was established in Enghouse Systems Ltd. (TSX:ENGH, Financial). Other notable trades include selling out of Iress Ltd. (ASX:IRE, Financial), additions to the fund’s GVS SpA (MIL:GVS, Financial) and DiaSorin SpA (MIL:DIA, Financial) holdings and a reduction in its Carl Zeiss Meditec AG (XTER:AFX, Financial) position.
The fund focuses on a limited number of “premier” small-cap companies outside of the U.S. with discernible competitive advantages, high returns on invested capital and sustainable, moat-like franchises. The fund’s manager, Mark Rayner, seeks to identify companies with notable strengths in industry structure, competitive positioning, operational efficiency, financial track record and corporate governance.
Portfolio overview
At the end of the quarter, the fund’s portfolio contained 61 stocks, with the one new holding in Enghouse Systems. It was valued at $1.23 billion and has seen a turnover rate of 6%. Top holdings include IPH Ltd. (ASX:IPH, Financial), Hansen Technologies Ltd. (ASX:HSN, Financial), TKC Corp. (TSE:9746, Financial), Bravura Solutions Ltd. (ASX:BVS, Financial) and Victrex PLC (LSE:VCT, Financial).
The top represented sectors are industrials (35.06%), technology (26.97%) and basic materials (12.51%).
Enghouse Systems
The fund opened a new position in Enghouse Systems (TSX:ENGH, Financial) during the quarter with the purchase of 336,800 shares. The shares traded at an average price of 55.09 Canadian dollars ($43.19) during the quarter and GuruFocus estimates the holding has gained 0.40% since it was acquired. Overall, the purchase had a 1.22% impact on the portfolio.
Enghouse Systems is a Canada-based provider of software and services to a variety of end markets. The firm's operations are organized in two segments namely, the Interactive Management Group and the Asset Management Group. The firm has operations in Canada, the United States, the United Kingdom, France, Germany, Sweden, Israel, Croatia, Denmark, Norway, India, Japan, Hong Kong, Singapore and Australia.
On July 19, the stock was trading at CA$55.91 per share with a market cap of CA$3.1 billion. According to the GF Value Line, the shares are trading at a fair value rating.
GuruFocus gives the company a financial strength rating of 8 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 4 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The company’s strong operating and net margins beat at least 88% of software industry competitors and have expanded to 10-year highs.
Iress
Iress (ASX:IRE, Financial) was sold out from the fund’s portfolio during the second quarter. The remaining 1.62 million shares were sold at an average price of $10.69 per share after reductions two quarters in a row. The sale had a -1.04% impact on the equity portfolio and GuruFocus estimates the fund lost 6.87% on the holding.
Iress is an Australian financial software provider that specializes in the financial markets and wealth management sectors. Its mature financial markets business comprises around 25% of group Ebitda and has dominated the Australian market for around 20 years because of its leading order management platform. The wealth management software business comprises around a third of group Ebitda, and is the main contributor of group earnings growth, with superannuation and enterprise lending software comprising the remainder.
As of July 19, the stock was trading at $12.75 per share with a market cap of $2.46 billion. The shares are fairly valued based up on the GF Value Line.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 6 out of 10. There are currently two severe warning signs issued for assets growing faster than revenue and a declining operating margin. The company’s cash-to-debt ratio of 0.23 ranks poorly compared to software industry competitors as debt levels have increased significantly since 2013.
GVS SpA
The purchase of 414,935 shares grew the fund’s GVS SpA (MIL:GVS, Financial) holding by 71.11%. The shares were purchased at an average price of 14.04 euros per share ($16.56) during the quarter. Overall, the portfolio saw a 0.55% impact and GuruFocus estimates the fund has lost 8.38% since the holding was purchased in the second quarter of 2020.
GVS is a manufacturer of filter solutions for applications in the Healthcare & Life Sciences, Energy & Mobility and Health & Safety sectors. Its products include healthcare liquid; healthcare air & gas; microfiltration; microbiology; environmental monitoring; disc and sheet membranes; molecular biology; technical documentation; fuel and diesel injector filters; ABS / ESP - braking filters; steering and transmission filters; fuel tank filters; ventilation membrane; throttle body and SCR technology.
The stock was trading at 12.66 euros per share with a market cap of 2.17 billion euros on July 19. According to the Peter Lynch Chart, the shares appear to be trading just above intrinsic value.
GuruFocus gives the company a financial strength of 7 out of 10 and a profitability rank of 5 out of 10. There is currently one severe warning sign issued for days inventory building up. Profitability has been ramping up for the company with the weighted average cost of capital easily supported by the return on invested capital.
DiaSorin
The fund grew its DiaSorin (MIL:DIA, Financial) holding for the second quarter in a row with the purchase of 34,563 shares. The purchase boosted the holding by 65.21% and the shares traded at an average price of 145.88 euros. The portfolio grew by 0.55% with the purchase and GuruFocus estimates the fund has gained 55.90% throughout the lifetime of the holding.
DiaSorin, headquartered in Italy, is a global provider of in vitro diagnostics. The company produces and markets testing reagent kits for immunodiagnostics (62% of sales) and molecular diagnostics (29%) with a total installed base of about 9,000 diagnostic systems. Instruments and other revenue contribute the remaining 9% of total sales.
On July 19, the stock was trading at 163.05 euros per share with a market cap of 8.90 billion euros. The GF Value Line shows the shares trading at fair value after share prices recently increased.
GuruFocus gives the company a financial strength rating of 8 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 2 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. Consistent increases in revenue and net income have increased consistently, leading to an Altman Z-Score of 21.74 that places the company well into the safe zone.
Carl Zeiss Meditec
Rounding out the fund’s top five trades was a reduction in its Carl Zeiss Meditec (XTER:AFX, Financial) holding. With the sale of 36,500 shares, the position shrunk by 46.44% as share prices rose to an average of 146.82 euros. GuruFocus estimates the fund has gained 114.15% on the holding and the sale had a -0.51% impact on the equity portfolio overall.
Carl Zeiss Meditec is a Jena, Germany-based manufacturer of ophthalmic devices, such as intraocular lenses, diagnostic equipment and refractive laser systems. The company also manufactures optical equipment for microsurgical applications such as neurosurgery. The company now reports in two primary segments, ophthalmic devices (74% of fiscal 2020 revenue) and microsurgery (26%). From a geographic perspective, the company has a balanced mix of global sales, with 30% derived from Europe, the Middle East and Africa, 32% from the Americas and 38% from Asia-Pacific.
As of July 19, the stock was trading at 172.50 euros per share with a market cap of 15.12 billion euros. According to the GF Value Line, the shares are trading at a significantly overvalued price.
GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 1 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. Cash flows took a fall for the company in 2020 after seeing several years of growth, but were still easily able to support dividend payouts.
