30 October 2017
A cornerstone of our investment process is company management meetings and site visits. These meetings serve several purposes, including providing an insight into management—how they think and run their business—and whether management priorities align with ours as investors. Our Company Quality Grading process involves explicitly ranking company management, so first-hand contact is vital.
The 4D investable stock universe is dispersed broadly around the globe. This necessitates our team travelling widely to call on companies, meet management and conduct site visits. This invariably provides a great insight into not only the specifics of the company being visited, but also a real perspective on what is happening more broadly in the relevant sector, economy and society. We prepare detailed notes after those meetings which capture and relay the key issues and themes of the day.
This is the first in our series of ‘Trip Insights’, where we plan to share those experiences. It follows a trip in June 2017 when Sarah Shaw, 4D’s Global Portfolio Manager and Chief Investment Officer, completed an extensive company engagement and calling program beginning in Asia and continuing across Europe.
Following is an overview of the trip and companies visited. For more detailed insights, click here.
In Thailand, the military has done a commendable job governing the country and now wishes to (again) relinquish power. Unfortunately, there are currently no strong local candidates to step up to leadership roles. Economic growth in Thailand remains stable. A longstanding weakness in Thai infrastructure is the level of government ownership, yet operators continue to pursue growth options such as airport capex.
European politics and economics
The European summer generally found the Continent with a very positive outlook although concerns about the modern-day scourge of terrorism were never far away. Optimism abounded in France with the election of new President Emmanuel Macron, although some of that gloss may have dissipated a little since. Economic growth across Europe has generally been strong—welcome after a long post-GFC hangover. The tide of populist/extreme political movements, which looked threatening in the first half of 2017, seems to have abated somewhat in Europe—which is good news for equity markets. Centralist political party victories in the UK, France and the Netherlands confirm this. However, Angela Merkel’s weaker than expected showing in the recent German elections, and the rise of the far right, suggest populism is not dead. Despite his publicity and profile, President Trump was somewhat surprisingly not a major point of discussion in Europe.
Brexit looks unlikely to deliver a good outcome for either the UK or the EU, with little apparent progress in discussions. There are four broad areas of negotiation: (1) the legal status of EU residents in the UK post-Brexit; (2) Irish borders; (3) a mooted ~40b euro EU exit fee for the UK; and (4) the post-Brexit trade relationships between the EU and the UK, including the level of ‘quality standards’ for goods, services and skills. EU negotiators want to start with (1), while the UK wants to start at (4). Clearly this process has a way to go, and its trials and tribulations will hang over equity markets. Theresa May is now proposing an interim agreement (two years) where all existing rules and regulations are maintained to allow exit negotiations to run their natural course.
Traffic (pax) growth in European airports has been very strong this year, and all airport operators are well ahead of their full year pax guidance. A key limitation to ongoing pax growth is airport capacity constraints across Europe. This will be the biggest driver of airport capex for the foreseeable future. Airport balance sheets remain generally strong, if not underutilised, and acquisitions remain firmly on the agenda.
European infrastructure owners (ex airports)
European infrastructure (ex airports) owners continue to use an asset rotation strategy to fund further transactions. Balance sheets remain solid but under-levered in terms of efficiency. Most companies are seeking to maintain existing credit ratings. Acquisitions remain the priority over capital management.
Sector consolidation remains a key theme in the European Towers sector, where all four listed operators want to be party to a consolidation process. Growth remains sluggish in the Satellite sector.
Bangkok, Thailand – Airports of Thailand PCL, Glow Energy PCL, Bangkok Expressway & Metro, Bangkok Airport site visit
London, UK – National Grid PLC, Inmarsat PLC, Eurotunnel site visit, Heathrow Airport site visit, OFGEM, Groupe Eurotunnel SE, Severn Trent
Paris, France – RBC, Eiffage, Groupe Eurotunnel SE, Eutelstat Communications, Vinci SA, Aeroports de Paris (ADP), Paris Airport site visit
Frankfurt, Germany – Frankfurt Airport site visit & tour, Fraport AG Frankfurt Airport
Zurich, Switzerland – Zurich Airport site visit & tour, Flughafen Zuerich (Zurich Airport)
Milan, Italy – EI Towers SpA, ItalGas, Snam SPA
Rome, Italy – Enel SPA, Infra. Wireless Italiane SpA (Inwit), Terna SPA, Atlantia SpA, Rome Airport site visit
Vienna, Austria – Vienna Airport site visit, Flughafen Wien AG (Vienna Airport)
Copenhagen, Denmark – Dong Energy
Madrid, Spain – Madrid Airport site visit & tour, Red Electrica Corp SA, Albertis Infraestructuras SA, Aena SA, Iberdrola SA, Endesa SA, Ferrovial SA, Enagas SA