Exceeding customers expectations

This started as an overview of Nu Holdings, an emerging quality company currently operating in South America. Whilst doing the analysis, it became clear that there are numerous similarities between this business and our own homegrown quality stalwart, Capitec Holdings. Operating on different continents, the similarities are striking:

• Both are financial services platforms that utilises the billions of data points…..

Warren Buffett once wrote that "the key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”

Understanding the DNA or culture of a business helps define how wide the moat is of a business.  In essence, the DNA of a company is comprised in how much they delight their customers/clients and what incentivises management to perform.

“The trick, it seems to us, if one is to be a successful long-term investor, is to recognize the sources of enduring business success, get in early and own enough to make a difference. Which raises two questions: what are the sources of success and second, if these are so readily recognised up front why are they not discounted in prices already?” - Nick Sleep

We continuously look for companies with corporate character that are pursuing strategies designed to create sustainable value.  To form a view on corporate character requires in depth research, comparisons to what best in class companies do, and a significant amount of judgement.  I share some ways to think about it. 

Kinsale Capital Group, Inc. (KNSL) is a specialty insurance company, focused exclusively on the excess and surplus (E&S) insurance lines in the United States. 

The company was founded in 2009 and listed on 28 July 2016.  Since the listing, the company has returned 47.47% compounded annual growth (CAGR) to shareholders.  This is a quality business that fits neatly into our portfolio as an emerging quality company that is owner operated.

Capital allocation is the most important job of management. A company that is using its capital efficiently will generate growing free cash flow and higher returns for investors in the future. This will reflect in its share price over time.

The best measure of capital allocation, for non-financial sector companies, is Return on Invested Capital.

Our featured, quality company is Dino Polska SA, a Polish grocery retailer, with a unique business model that enables it to re-invest all its free cash flow in growing the business.

At December 2023, the group comprises 2,406 stores, opening on average of 247 stores per annum over the preceding 5 calendar years. Their operational execution, exceptional logistics, modern IT systems and track record of successfully opening stores, are some of their key strengths.

It is estimated by the WHO that approximately 1 in 10 people worldwide suffer from some form of diabetes and 1 in 8 can be classified as obese. It is estimated that by 2045, 1 in 8 people will suffer from diabetes. Novo Nordisk (NVO) has been manufacturing insulin and related treatments for more than 100 years.

Quality Companies, at reasonable prices, is a sound cornerstone for every portfolio.

The US stock markets is at historic highs, with the S&P 500 hitting all-time highs in April 2024 with 23% of stocks in the S&P 500 trading at price earnings multiples of over 30 times. Where do you find investments for the long term, that will provide satisfactory returns given current valuation levels?

Investors in equities have numerous options to invest. The increasing popularity of exchange traded funds (ETF’s) have segmented market exposure into two main categories, wide market exposure through ETF’s and narrow market exposure to specific companies.

VOO is the ticker for the Vanguard S&P 500 ETF, one of the most actively traded ETF’s. VOO is rebalanced daily to reflect the respective market capitalisations of all underlying shares that comprise the S&P 500 index.