As a diligent asset manager with a highly concentrated portfolio of only 10 to 15 of the world’s best companies, Claremont Global must always commit to a comprehensive and exhaustive research process prior to including any company in the portfolio. When the team made the decision to invest in Agilent Technologies Inc (NYSE: A) back in 2020, this meticulous approach was really put to the test.
Among other investment opportunities within the sector, Agilent Technologies, a prominent player in life science tools, diagnostics and applied markets emerged as a compelling choice due to its robust fundamentals. With a market capitalisation of approximately $US43 billion ($A66 billion), the business boasts a balanced geographical presence split 38 per cent in the Americas, 37 per cent in Asia Pacific and 25 per cent in Europe.
The life sciences firm offers a diverse suite of instruments, consumables and services that assist over 265,000 labs across the world conduct anything from early-stage research through to late-stage quality control and assurance.
Acknowledging the competitive landscape emerging in the life sciences and diagnostics sector, we remain confident in Agilent’s ability to maintain its competitive edge through an ongoing focus on product innovation, high-end services and helping connect workflows throughout the lab. Despite the sector’s susceptibility to capital budget cycles within the pharmaceutical sector, the replacement cycle nature of the business where customers cannot delay purchases for too long, instils further confidence in its resilience through the cycle.
With around 20 per cent of its revenue generated in China – in 2011, it became the first country outside the US to generate more than $US1 billion in annual revenue for Agilent – concerns have been raised about that country’s slowing economy and the associated lack of stimulus flowing into the life sciences sector.
From our perspective, we still expect high-single-digit growth in China, as well as being reassured by the company’s 30-year history in the region where they have over 2,000 local service employees and an expanded manufacturing footprint in Shanghai.
Beyond financial metrics, Claremont Global’s investment decision was also formed on the basis of a range of qualitative factors. The calibre of its management and the inclusive workplace culture that is embedded across the organisation were telling factors.
President and CEO, Mike McMullen, who took the reins in March 2015 will step down on 30 April, after driving tangible cultural change through the company’s One Agilent while also pivoting the company into faster growing, higher margin verticals. Under his tenure, the business grew organic revenues at close to 7%, operating margins rose over 700 basis points, with the market cap more than trebling, leading to significant gains for shareholders.
The executive stepping into his shoes is Padraig McDonnell, previously President of Agilent’s service organisation or CrossLab Group. Like McMullen, who spent nearly 40 years with Agilent and its predecessor HP Inc (NYSE: HPQ), McDonnell, who will only be Agilent’s fourth CEO, comes to the role with a long and successful career in the analytical instruments industry since starting at Hewlett-Packard in 1998. It is both the common commercial knowledge shared between these two senior leaders as well as having a successor who is steeped in the corporate culture that is very reassuring to an investor.
None of this is to argue it will be smooth sailing for Agilent. The capex budget pressures seen across the pharmaceutical industry over the last 12-18 months is evidence of this. However, Agilent’s proven and growing footprint in life sciences, diagnostics and applied markets, reinforced by a strategic focus on innovation and a committed management team, should ensure it continues to deliver to value for its shareholders.
For further information on the Claremont Global Funds please refer to each Fund’s PDS and Target Market Determination which is available at www.claremontglobal.com.au.
