GrowthSpotting: The Art of Global Investing
This series cuts through market noise to explore what we believe are the most relevant and inevitable global trends for investors seeking growth.
In it, we take a closer look at what we think is a valuable framework for understanding growth drivers worldwide—our “MANTRA®” (Mass Affluence, New Technology, Restructuring and Aging).
One of the key parts of my job is visiting companies and their facilities. Such fact-finding trips are always stimulating but one aspect of them is wearing: foraging. It’s really hard trying to wedge a decent meal into a schedule filled with meetings, not to mention the planes, trains and automobiles I have to take to get to those meetings. A few days on the road and I’m reminded of a little-appreciated fact about New York: it is the fast food capital of the Western world.
Look down any side street in Manhattan and the odds are you’ll see a delicatessen. Go inside, and you’ll find salads, sandwiches, hot soups, pizzas, pastas – the list goes on – made to order and to go, bagged, charged and handed to you with a speed I have not seen matched in any city anywhere in the world. The sheer efficiency of the average delicatessen in New York is a thing of beauty. And behind it lies another efficient structure: that of the distributor providing the bags, cups, lids, clamshells, napkins, and so on with which the food and drink is served.
One of the market leaders in North America in this business is Bunzl, a British company that we have held in the International Growth portfolio for several years. Bunzl’s business model is simple: as an early emergent consolidator in this segment of business supply and service, the company adds a few distribution territories each year. It uses its growing purchasing power and supply chain efficiency to support pricing that is just tight enough to make the business profitable for Bunzl, with many stops on a single distribution route, but closer to break-even or loss-making for smaller competitors. This is a low margin business with a fragmented base of suppliers and customers that lends itself to scale and dominance. Bunzl is what I call a “justifiable middleman.” As their customers focus on the high cost components of their operations, such as lease costs, labor and food, Bunzl quietly supplies a rising number of them with the low cost but mission-critical incidentals they need to run their business. Not posh, but certainly profitable.
Over the past seven years Bunzl’s EBITDA margins have been at or near 7%.1 The firm returned over 11% on invested capital in each of those years as well,2 right through the recession. Bunzl’s recent announcement of its 2012 earnings has drawn attention – some of it in the form of the business media’s perennially breathless coverage – and driven the stock to new highs.3 A, dare I say it, tasty result for investors.
The mention of a specific company does not constitute a recommendation by any Oppenheimer fund or by OppenheimerFunds, Inc. As of March 5, 2013 Oppenheimer International Growth Fund had 1.71% of its assets invested in Bunzl’s.
Foreign investments may be volatile and involve additional expenses and special risks including currency fluctuations, foreign taxes and political and economic uncertainties. Emerging and developing market investments may be especially volatile. Investments in securities of growth companies may be especially volatile. Small- and mid-sized company stock is typically more volatile than that of larger, more established businesses, as these stocks tend to be more sensitive to changes in earnings expectations and tend to have lower trading volumes than large-cap securities, creating potential for more erratic price movements. It may take a substantial period of time to realize a gain on an investment in a small- or mid-sized company, if any gain is realized at all. Diversification does not guarantee profit or protect against loss.