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High Five

Stephen Mitchell, Head of Strategy, Global Equities explains why Cheung Kong Infrastructure, Pernod Ricard, Merlin Entertainments, ADP and Pfizer can currently be found in his portfolio.

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Cheung Kong Infrastructure
An astute buyer of quality infrastructure assets in developed markets

Pernod Ricard
A drinks company with a global stable of brands, and the power to innovate

Merlin Entertainments
A theme park operator with global vision

ADP _ A US provider of payroll services benefiting from a resilient US economy

A nimble drugs giant at the forefront of the latest medical breakthroughs

Cheung Kong Infrastructure

Cheung Kong Infrastructure (CKI) may be Hong Kong listed but it’s the company’s investments outside Asia that have delivered the performance and profits which merit its inclusion in our portfolio. Over the years, CKI has shown itself to be an astute buyer of quality assets at the right price, focusing on making investments in countries with a good legal regime and a stable regulatory framework such as the UK, Australia and New Zealand. Its expertise though goes much further as CKI has proven it is also a very capable operator of the infrastructure assets in which it is involved, whether it is a British water and sewer business like Northumbria Water, a power company like Portugal Renewable Energy or Australia’s electricity provider SA Power Networks. The company also operates in a sector where it is difficult for new entrants to gain a foothold, where barriers to entry are high and operational competence is a valuable commodity. Looking ahead, the after-effects of the global financial crisis may still see some distressed firms forced to dispose of quality infrastructure assets to shore up their books. There is also talk of further privatisation in Australia of power and transportation companies. CKI, with its healthy balance sheet, should be in a prime position to take advantage of these opportunities.

Pernod Ricard

China’s anti-corruption drive has offered us the opportunity to get a toe-hold in this drinks company, with its famous portfolio of premium brands including Absolut Vodka, Jameson Whisky and Martell Cognac. Pernod Ricard, like other premium brand companies, has seen its share price fall on concern some of its most prestigious and expensive products would see a drop-off in sales as a result of the Chinese clampdown. The pullback has given us the chance to buy into what we believe is a high quality company, which is currently trading at a discount to its peer group. While we may not been seeing quite so many £6,000 bottles of brandy being gifted to party officials as in the past, middle class are increasingly buying expensive brandy to enjoy at home and young entrepreneurs are celebrating their successes with Martell XO cognac for example. It’s a market that looks set to continue to grow. It’s also important to remember that Pernod Ricard has a stable of global brands, which should allow it to offset the slowdown in emerging markets by continuing to do well elsewhere. In the US, for instance, Absolut Vodka is one of the leading vodka brands in the country. Finally, Pernod Ricard has the critical mass to allow it to innovate on a global scale. With Cuba opening up, the firm is looking to buy a domestic Havana rum name – a heritage brand they will put into their global network and market as new and interesting, but with longevity. Africa is a potential source of growth.

Merlin Entertainments

Merlin is a theme park operator with a global vision, running some 110 attractions in 23 countries across four continents. In the UK alone, they own and operate Legoland, Thorpe Park, UK Seaworld and Alton Towers. Growing their customer base is key, and Merlin has a list of 27 global cities they are targeting as future locations for their theme parks. With few parks in Asia, the continent is obviously a major focus, with Legoland theme parks planned for Nagoya in Japan and Shanghai in China. Elsewhere, plans are afoot for a Legoland park in Dubai to take advantage of the increasing number of tourists visiting the city state. The shadow of the terrible accident at Alton Towers has weighed on the company’s share price, but there is enough resilience in our view for the firm to continue delivering sustainable long-term cash flows that has the potential to benefit the portfolio. Business growth in China is showing great resilience as their target market of 146m middle class Chinese discover the delights of quality theme parks.


ADP is a play on the ongoing strength of the US economy. They offer services for companies: payroll, HR, pensions and insurance. ADP is one of the biggest companies in this market in the US and they are continually adding new services. The cost of keeping pace and investing in the technology to deliver these services creates a sizeable barrier for smaller companies to challenge it on its own turf. The company also enjoys a growing customer base, helped by a US culture of entrepreneurship providing steady growth in small and medium-sized companies reliant on its services. The complexity of managing human resources and new technology play greatly to ADP’s strengths as one of the industry leaders. They are the leading global company in outsourced payroll. We believe ADP is a sustainable business with great cash flow.


Pfizer is at the forefront of the latest wave of drugs coming through on the back of the breakthrough in gene sequencing. Some thirteen years after the first genome was sequenced, DNA is now being processed in a matter of hours, speeding up the process in the discovery of treatments for a range of diseases. The advances made through gene sequencing are being matched by considerable innovation in anti-cancer treatments, an area where we see Pfizer as a leader. The pharmaceutical giant can also benefit from two long term trends: an ageing population in the West means increasing amounts of money will be spent on medicine; second, a growing middle class in emerging markets should raise demand for drugs in these countries. The pharmaceutical industry can only stand to gain. Pfizer, in particular, with its history of creating value for shareholders, looks likely in our view to continue to lead the sector. They have done an excellent job of streamlining their portfolio, by spinning off or disposing of non-core businesses. They also have a good track record of growing through M&A, and we are quite sure this will continue with their recent proposed acquisition of Allergan – finding the synergies between two businesses and driving down costs is their speciality.

Stephen Mitchell , March 2016

Article also available in : English EN | français FR

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