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What’s an industry trend that’s helping a key holding?
A recent industry trend that has helped a key holding perhaps would be the fact that institutional investment in real estate has broadened considerably over the last number of years. Here you can think of a simple example of the sovereign wealth fund now in a structured product investing in U.S. multi-family real estate. Today, we have what we’re referring to as the institutionalization of real estate, and this increased demand towards alternative investments in global real estate. We think that is a secular trend.
In Premier we have a holding by the name of Kennedy Wilson (KW, Financial). Kennedy Wilson is an exclusive asset manager focused on real estate that we think is going to benefit from this shift. Importantly, Kennedy Wilson’s history is actually in property development and ownership and has a 30-plus year history investing globally with some remarkable returns. With that position of strength, it’s not all that surprising that Kennedy Wilson has identified large, liquid global players that have alternative mandates in real estate and is beginning to build a very powerful investment management business that we think is underappreciated.
What’s a technology trend that can benefit your companies?
When you think of technology, we’re all aware of the fact that the miniaturization of semiconductors and specifically that Moore’s law is becoming stale. There’s a limitation that’s at play, which is to say specifically that the doubling of transistors on a chip every two years has hit a wall. What is new is the fact that in addressing that limitation, the industry is increasingly moving towards what’s referred to as advanced packaging. What is becoming critical is actually what we do with the chips on the back-end, which is how do we actually layer and package them?
So within Premier, we have MKS Instruments (MKSI, Financial), who recently has made a rather material acquisition in material sciences that will allow them to specifically address this technology trend. In addition to that, we’ve made an important investment in Form Factor. And they are the dominant provider of test and measurement for semiconductor wafer equipment. So, with Form Factor (FORM, Financial), you have the fact that the complexity of the chips is always increasing, which drives the test intensity, in addition to the complexity of the chip also driving the customization of that test. And customization importantly not only resides at the customer level but all the way down to the individual chip level.
And so, Form Factor, dominant provider, capital light model, highly customized solution, long sale cycle, very sticky model and we’re addressing a secular growing industry, and importantly we’re addressing a customer complexity issue.
What’s another industry shift that’s helping a key holding?
We’re always hyper focused on industry dynamics, and specifically competition. As we all well know, profit pools are dynamic. So, when we can identify a protected business with Premier attributes that is going through a new growth strategy that we think has legs, and the competitive landscape that they serve is structurally altering to their benefit, we think that’s a powerful combination.
A name that comes to mind is a regional bank processor by the name of Computer Services (CSVI, Financial). Now Computer Services is a Premier business model. They have a differentiated sales model, a 95% plus recurring revenue model, a very loyal customer base. And more recently, they’ve actually taken the strategic step of no longer being 100% midwestern focused in their sales footprint and rather going to market nationally.
On top of that, you have the competitive landscape, and the intensity has declined materially because their large competitive bank processors have entered into large mergers because broadly they’re all strategically shifting towards payments. And that all inures to the benefit of Computer Services who remain laser focused on their customer target. You have favorable industry competitive dynamic structurally altering. You have an enhanced growth strategy, geographical expansion. We think that’s a powerful combination for Computer Services.
The thoughts and opinions expressed in the video are solely those of the persons speaking as of November 2, 2021 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.
The performance data and trends outlined in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.
