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Holmes Osborne, CFA
Holmes Osborne, CFA
Articles (248)  | Author's Website |

A Second Look at Royce International Premier

Fund is full of high-quality companies with very little coverage in the US

This weekend, Barron’s published an article on Royce International Premier. What caught my attention was most of the fund’s holdings get very little coverage in the U.S. Over the past five years, the fund has averaged 8.7%, beating 95% of its peers. The fund is managed by David Nadel (Trades, Portfolio).

Upon looking at the top nine holdings (one didn’t have a stock that traded in the U.S., so I didn’t include it), I saw several similarities. The first is most of these stocks are pretty fairly valued with price-earnings ratios in the mid- to high teens. The second is sales and profit growth have been high. I suggest you take a look at some of these companies. They get almost no attention in the U.S., but have been extremely successful.

The first stock is Dutch company Intertrust NV (ITRUF). The company has a market cap of 1.53 billion euros ($1.36 billion), trades with a price-earnings ratio of 17.42 and a dividend yield of 3.65%. The company provides administrative services to hedge funds, law firms and escrow and settlement services. In the most recent quarter, earnings before interest, taxes, depreciation and amortization margins were 36.1% and revenues were 2.1%. Blackstone was a major holding through one of its private equity funds and just released several million shares to institutional investors. Intertrust is very profitable, but will only thrive as long as the global economies thrive.

Japan-based Meitec Corp. (MEITF) is the fund’s second-largest holding. The company has a market cap of 151 bilion yen ($1.23 billion). The price-earnings ratio is 16.2 and the dividend yield is 3.61%. I think I see a pattern here: reasonably priced stocks with nice dividend yields. Meitec is a staffing business that focuses on engineers. Sales grew from 82 billion yen in 2015 to 92.6 billion yen last year. Profit margins were 9.6% in the latest quarter. This is incredible, but again, Meitec provides engineers for research and development, which will do well as long as manufacturing does well in Japan and the rest of the world.

Partners Group Holdings AG (PGPHF) is a Swiss private equity firm with a market cap of 20.44 billion Swiss francs ($20.87 billion). Its stock traded over the counter was $125 at the beginning of 2010 and now trades for $762. Some of its investment portfolio includes: wind-farms in Germany and Australia, real estate in Paris and Nashville, Tennessee, IT companies, health care and retirement solutions. As assets under management has risen, so has Partner’s income and stock price.

Switzerland-based Kardex AG (KRDXF) has a market cap of 1.23 billion francs and a dividend yield of 2.5%. The company owns and manages warehouses, distributions centers and holds files for other companies. Earnings per share grew from 3.74 francs in 2014 to 5.74 frans last year. Kardex builds multi-story warehouses and operates lifting systems that can move boxes and other items to trucks to be taken to retailers and other points for final destinations. Cool company.

Japan-based Daifuku Co. Ltd. (DAIUF) is similar to Kardex in that it manages distribution centers. The company has a market cap of 852 billion yen. Sales growth has been phenomenal. Revenue grew from 267 billion yen in 2014 to 405 billion yen last year. Daifuku also builds cleanrooms for semiconductor and LCD factories. No doubt there has been a lot of growth in this business. I find Kardex and Daifuku very interesting and know very little about this type of distribution business. It seems that manufacturers want to outsource this and concentrate on making goods.

Danish company SimCorp (SICRF) (SICRY) provides software and solutions for financial managers such as Fannie Mae and insurance companies. The market cap is 26.33 billion kroner ($3.9 billion). Sales grew from 241 million euros in 2014 to 382 million euros last year. Ebitda margins are consistently over 25% and return on equity over 60%. Wow! Very profitable. Great company, but too dependent upon financial markets continuing to do well.

Spirax-Sarco Engineering PLC (SPXSF) (SPXSY) is a British manufacturer of electrical heating and temperature management systems, focusing on steam. The market cap is 6 billion pounds ($7.8 billion). Sales grew from 667 million pounds in 2015 to 1.153 billion pounds last year. Earnings kept up with this fantastic growth too. Spirax provides steam solutions for the chemical, foods, pharmaceutical and several other industries as well.

XP Power Ltd. (XPPLF) is a Singapore-based manufacturer of AC/DC power supplies. The market cap is 513 million pounds, the price to earnings ratio is 17.24 and the dividend yield is 3.21%. Sales grew from 101 million pounds in 2014 to 195 million pounds last year. Orders from the semiconductor industry have been down, so the stock has not done too well.

Odontoprev (ODPVY) (ODPVF) is a Brazilian dental plan insurer. The market cap is 8.88 billion reals ($2.5 billion). Net margins are 9.3% and Ebitda margins are 25.1%. Sales grew from 1.3 billion reals in 2014 to 1.72 billion reals last year. Remember, Odontoprev put up these numbers in the middle of a recession. Now that’s a defensive company! People’s teeth need to be cleaned in good and bad times. Morgan Stanley is bullish on the stock even though it trades at an all-time high. The report notes that, “ODPV's entry into a new, low-price, low-cost segment, that is still a high margin model.”

So many good stocks to get to know. You’ll have to do a lot of your own research because there’s not a lot of information out there. Odontoprev is my favorite because it’s already weathered a tough economy in Brazil and should be resilient in a global slowdown.

Disclosure: We own none of these stocks.

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About the author:

Holmes Osborne, CFA
Holmes Osborne is principal of Osborne Global Investors.

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