The Royce International Premier Fund (Trades, Portfolio) disclosed seven new positions in its first-quarter portfolio, which was released earlier this week.
Following the departure of David Nadel last November, the fund, which is part of Chuck Royce (Trades, Portfolio)’s New York-based firm, is now solely managed by Mark Rayner. The fund focuses on investing in a limited number of foreign small-cap companies with distinct competitive advantages, high returns on invested capital and products that have a sustainable moat.
Sticking to these criteria, the fund’s top five new buys for the quarter were Chr. Hansen Holding AS (OCSE:CHR, Financial), Marel HF (XAMS:MAREL, Financial), Iress Ltd. (ASX:IRE, Financial), Ossur HF (OCSE:OSSR, Financial) and Aveva Group PLC (LSE:AVV, Financial).
Chr. Hansen
The fund invested in 72,600 shares of Chr. Hansen, allocating 0.87% of the equity portfolio to the holding. The stock traded for an average price of 503.65 Danish krone ($72.91) per share during the quarter.
Based in Denmark, the bioscience company, which develops natural solutions for the food, beverage, nutritional, pharmaceutical and agricultural industries, has a market cap of 77.27 billion krone; its shares closed at 586.8 krone on Wednesday with a price-earnings ratio of 41.38, a price-book ratio of 13.15 and a price-sales ratio of 8.8.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 1 out of 10 also supports this assessment.
GuruFocus rated Chr. Hansen’s financial strength 5 out of 10. Although the company has issued approximately 767.9 million euros ($829.3 million) in new long-term debt over the past three years, it is still at a manageable level due to having comfortable interest coverage. It also has a robust Altman Z-Scorer of 6.32, which indicates it is in good financial standing.
The company’s profitability fared even better, scoring a 9 out of 10 rating. The rating was driven by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 5, which implies business conditions are stable. Although Chr. Hansen has recorded a slowdown in revenue per share growth over the past 12 months, it still has a business predictability rank of 3.5 out of five stars. According to GuruFocus, companies with this rank return approximately 9.3% per annum over a 10-year period.
The Wasatch International Growth (Trades, Portfolio) Fund is the company’s largest guru shareholder with 0.15% of outstanding shares.
Marel
The International Premier Fund picked up 1.4 million shares of Marel, dedicating 0.87% of the equity portfolio to the stake. During the quarter, shares traded for an average price of 4.06 euros ($4.38) each.
The food processing company, which is headquartered in Iceland, has a market cap of 2.9 billion euros; its shares closed at 3.82 euros on Wednesday with a price-earnings ratio of 30.12, a price-book ratio of 3.19 and a price-sales ratio of 2.19.
According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 1 out of 10 also leans toward overvaluation as the share price and price-sales ratio are near 10-year highs.
Marel’s financial strength was rated 6 out of 10 by GuruFocus on the back of adequate interest coverage. It also has a low cash-debt ratio of 0.89, which underperforms over half of the companies in the industrial products industry.
The company’s profitability scored an 8 out of 10 rating as its operating margin is expanding. Marel is also being supported by strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 4. Since the company has recorded a decline in revenue per share over the past year and its assets are building at a faster rate than revenue is growing, the 2.5-star business predictability rank is on watch. GuruFocus says companies with this rank typically return an average of 7.3% per year.
Royce holds 0.19% of the company’s outstanding shares.
Iress
The fund established a 678,200-share position in Iress, giving it 0.71% space in the equity portfolio. During the quarter, the stock traded for an average per-share price of 12.41 Australian dollars ($7.94).
The Australian software company, which serves the financial services industry, has an AU$1.72 billion market cap; its shares closed at AU$9.64 on Wednesday with a price-earnings ratio of 25.63 and a price-sales ratio of 3.89.
Ossur
Royce’s International Premier Fund purchased 626,200 shares of Ossur, impacting the equity portfolio by 0.59%. The stock traded for an average price of 46.72 Danish krone per share during the quarter.
The Icelandic company, which develops and manufactures non-invasive orthopedic equipment, has a market cap of 18.13 billion krone; its shares closed at 43 krone on Wednesday with a price-earnings ratio of 41.74, a price-book ratio of 5.46 and a price-sales ratio of 3.99.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated Ossur’s financial strength 6 out of 10. Although the company has issued approximately $310.25 million in new long-term debt over the past three years, it is still manageable due to a sufficient level of interest coverage. It also has a high Altman Z-Score of 4.93 even though its assets are building up at a faster rate than its revenue is growing.
The company’s profitability scored an 8 out of 10 rating. Even though the operating margin is in decline, it still outperforms a majority of its competitors. Ossur also has strong returns, consistent earnings and revenue growth and a moderate Piotroski F-Score of 4. The three-star business predictability rank indicates it returns an average of 8.2% per year.
The fund holds 0.15% of the company’s outstanding shares.
Aveva Group
Having previously sold out of a position in Aveva in the third quarter of 2017, the fund entered a new 83,760-share holding. The trade had an impact of 0.58% on the equity portfolio. Shares traded for an average price of 44.74 pounds ($55.42) during the quarter.
The U.K.-based information technology company has a market cap of 5.61 billion pounds; its shares closed at 34.72 pounds on Wednesday with a price-earnings ratio of 96.44, a price-book ratio of 2.94 and a price-sales ratio of 7.33.
The Peter Lynch chart suggests the stock is overvalued. Even though the price-book and price-sales ratios are at one-year lows, the GuruFocus valuation rank of 1 out of 10 also supports this assessment.
Aveva’s financial strength was rated 8 out of 10 by GuruFocus on the back of a comfortable level of interest coverage and high Altman Z-Score of 7.36. The company may not be very capital efficient, however, since its return on invested capital is below its weighted average cost of capital. Its assets are also building up at a faster rate than revenue is growing, which is another sign of declining efficiency.
The company’s profitability scored a 9 out of 10 rating even though its margins are in decline. Regardless, they still outperform over half of industry peers. Aveva also has mediocre returns, a moderate Piotroski F-Score of 6 and a one-star business predictability rank. According to GuruFocus, companies with this rank typically return an average of 1.1% per year.
The fund holds 0.05% of Aveva’s outstanding shares.
Additional trades and portfolio performance
During the quarter, the fund also established positions in German software company Nemetschek SE (XTER:NEM) and Diploma PLC (LSE:DPLM), a British supplier of technical products and services.
Over half of International Premier Fund’s $624 million equity portfolio, which is composed of 57 stocks, is invested in the industrials and technology sectors.
According to Royce Investment Partners’ website, the fund posted a return of 34.49% for 2019, outperforming the MSCI ACWI Ex. U.S. Small Cap Index’s 22.42% return.
Disclosure: No positions.
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