Celsius is burst of energy for Tyndall’s US fund
Amid a market dominated by just seven huge tech names, Tyndall Asset Management’s Felix Wintle prefers to avoid the status quo and look to lesser-known stocks for organic returns.
Therefore, his VT Tyndall North American fund – which has an active share of more than 86% – has some below-the-radar names in its list of top 10 holdings. The largest of which, at a 6% weighting, is energy drink manufacturer Celsius.
“Celsius started off in the gym channels and was previously labelled as a pre-workout, isotonic drink,” Wintle explained. “But it has since broadened its market, having entered the supermarket channels, and has taken off as a popular drink. The company signed a distribution deal with Pepsi 12 months ago, which has really changed its whole growth algorithm.”
The fund manager pointed out that Celsius is already the third-biggest player in the US energy drinks space, being pipped to the post only by familiar names Red Bull and Monster, and already has a 10% market share.
He added that it has a greater market share on Amazon than Monster and has grown its revenues by 100% over the past several quarters.
“It has just launched in the UK and is embarking on its global strategy, which is essentially marketing to English-speaking countries that are into fitness – that is its DNA. So, the UK, Canada and Australia.”
In response to concerns that the energy drinks market could be seen as “faddish”, Wintle pointed out that Monster – a company he describes as a “one-trick pony” – has been “phenomenally successful” in terms of its long-term stockmarket performance.
See also: Beneath the bonnet: The case for XPS Pensions, TechnoPro and Avidity
According to data from S&P Global, Monster is in fact the single best-performing constituent of the S&P 500 index over the past 25 years, having achieved a total return of 268,782% during this time frame. This dwarfs gains made by Apple and Amazon over the same period, which amount to 129,986% and 33,361%, respectively.
“This is why we take this sector quite seriously,” Wintle reasoned. “We are excited by the growth already seen in America, which is hopefully continuing.
Its springboard will be Europe. If you compare Celsius with where Monster was at this stage, sales have actually grown at a faster rate.”
When asked about the increasing focus on health and rocketing popularity of anti-obesity drugs, the manager said Celsius will likely thrive in such an environment. In fact, anti-obesity drug leaders Elli Lily and Novo Nordisk also feature heavily in the fund, at 4% weightings each, with weight loss and health awareness featuring as a key theme in the portfolio.
“[Celsius] has fewer nasty ingredients compared with Monster and Red Bull. Much less taurine, for example. It also has a cleaner taste,” he said. “This means that, interestingly, amid all the worry about GLP-1 anti-obesity drugs and what this means for the snacking and soft drink sectors, Celsius should still do well because it is perceived as being healthier. I think it is really going to take the market by storm.”
Danieli boasts ‘strong as steel’ business model
Italian steelmaker Danieli is perhaps an unlikely holding within a sustainable fund, but according to River Global Investors’ William Lough, it is a strong contender to help the steel production industry on the path towards decarbonisation.
“Steel production accounts for 8% of global emissions, it is very energy intensive. But the need for steel as a construction material is unlikely to go away. It is massively useful and, as urbanisation increases, its usage is only going to go up.
“Do we just ignore the steel sector because of its emissions, or do we try to think about ways in which that sector can become a more sustainable industry? This is where Danieli comes into play.”
The lead manager of the R&M Global Sustainable Opportunities strategy pointed out that steel’s recycling rate is very high and stands at levels the plastic industry has committed to reach by 2050.
Danieli itself, he explained, has two parts to its business. One is its steelmaking arm, which he described as “reasonably valuable”, and the other is its plant-making arm, whereby it produces equipment used at a steel plant.
See also: Beneath the bonnet: The case for Rollins, JOHCM and Gym Group
“There are two ways of making steel. One is in a blast furnace, which is the more traditional method and uses coal,” said Lough. “The other is an electric arc furnace (EAF), which uses electricity to generate the heat. Emissions created from the latter are around two-thirds lower than the former.”
The manager said EAF is quickly gaining market share, which is positive for Danieli because the provision of equipment into electrical furnaces is “broadly a two-player market and it is the market leader”.
“The real performance kicker is something called direct reduced iron, or DRI, plus EAF. This is essentially the route to zero-carbon steel because manufacturers can use renewables to generate electricity for their furnaces and green hydrogen for DRI,” he explained. “Initially, people will use gas, which already has lower emissions than coal. Then, eventually hydrogen will take more share as an energy source.”
While there is another player in the space – private US company Midrex – Lough said Danieli is better placed to increase market share. “At Midrex, you have to commit to using gas or hydrogen. But with Danieli’s technology, that is not the case.”
Danieli has been a holding for Lough since the launch of the strategy two and-a-half years ago. The fund held the company throughout a sharp sell-off recently, caused by the Russia/Ukraine conflict.
“Ukraine and Russia had a significant orderbook, prior to the war. It was testament to the demand side [of the business] that it was able to simply cut those orders out and fill them within just a couple of months. They have a huge queue of firms wanting to workwith them,” Lough said.
Elsewhere in the portfolio the manager holds Japanese IT systems integrator DTS.
“It has very attractive economics, because it is essentially hiring out experts and IT consultants, so there is no capital involved. This means margins and return on capital are quite attractive.”
He added that IT services spending in Japan has long been at historical lows relative to its GDP, despite being the world’s fourth-largest economy.
“The issue is that, in Japan, IT investment has been seen as a cost line, rather than as an investment. That’s really changing now. By 2025, some 60% of Japanese software systems will be over 20 years old so the government is now subsidising companies to invest in IT services. This is having a big effect on companies like DTS.”
Why Muji is a good fit for Fidelity trust
As the Japanese market enjoys a year in vogue, Nicholas Price, manager of the Fidelity Japan Trust, has put his faith in the simple but timeless fashion of clothing brand Muji.
In 2020, Price added Ryohin Keikaku to his portfolio, parent company of Muji, a now-worldwide brand selling clothes, home goods and furniture.
Price has long been familiar with the stock, which he covered more than 20 years ago as a retail analyst at Fidelity in Tokyo. At that time, the company was growing in Japan and had expanded to London and Hong Kong. Japan was entering a time of deflation, where consumers were shifting from luxury to more price-conscious alternatives.
“Muji was a bridge between the department stores where there were expensive brands and then cheaper ones,” said Price. “It has this nice middle zone, which was what attracted me originally. I thought this brand could be an affordable luxury kind of thing.”
When Price purchased the holding for the Fidelity Japan Trust, he was attracted by the company’s valuation and growth opportunities, especially compared with competitors such as Uniqlo. In the past five years, Uniqlo’s share price has grown by near 85%, sitting at Y40,890 (£ 205.14) at time of publication.
See also: Beneath the bonnet: The case for L’Oréal, Salesforce and LVMH
“Uniqlo is very loved and is a great company. But Muji was selling at about half the valuation, and has really expanded its reach. It is not just popular in Japan but is also very big in China,” Price said. “It is expanding its store base into India and southeast Asia as well. It has good brand loyalty and is a business that can become a global brand.”
Ryohin Keikaku is currently trading at Y2,461, growing by 21% in the past five years. It hasn’t been all smooth sailing for the retailer, especially outside of the Asian market. In 2020, the US arm of Muji filed for bankruptcy and in March of this year, the European arm announced the intent to enter administration.
But Price sees changes happening within the brand. In 2021, Muji announced Nobuo Domae as its next CEO, an former executive for Uniqlo parent company Fast Retailing. The brand has made efforts to connect with community, including opening a library in one of its stores in November 2023 and hosting community markets at various shop locations in Japan. It also opened healthcare centres at three stores in November, further integrating itself into the community.
“It has been very successful in cities, but the long-term ethos of the brand is not to try to be high-end fashion. It’s to be everyday and good value, with simple packaging but some differentiation point compared with just a boring product,” Price said.
“In Japan, it has been opening stores more in the suburbs, often next to a supermarket. It wants to become more of an almost daily destination, rather than once or twice a year.”
This article first appeared in the June issue of Portfolio Adviser magazine
