The Oakmark International Fund, managed by David Herro (Trades, Portfolio) and Michael Manelli, has revealed its portfolio for the second quarter of 2021. Major trades include additions to the fund’s Danone SA (XPAR:BN, Financial) and Naspers Ltd. (JSE:NPN, Financial) holdings, reductions in its Glencore PLC (LSE:GLEN, Financial) and Lloyds Banking Group PLC (LSE:LLOY, Financial) positions and selling out of its holding in Ashtead Group PLC (LSE:AHT, Financial).
Herro invests in companies expected to grow shareholder value over time and buys businesses that are trading at a significant discount to his estimate of the company's intrinsic value. He seeks out companies with management teams that understand the dynamics of per-share value growth and are focused on achieving such growth. Stock ownership and incentives that align managements' interests with those of shareholders are key components of this analysis.
Portfolio overview
At the end of the quarter, the fund’s portfolio contained 63 stocks with one new buy in Fresenius SE & Co. KGaA (XTER:FRE, Financial). It was valued at $27.60 billion and has seen a turnover rate of 6%. Top holdings include Lloyds Banking Group, Intesa Sanpaolo (MIL:ISP, Financial), Bayer AG (XTER:BAYN, Financial), Bayerische Motoren Werke AG (XTER:BMW, Financial) and Daimler AG (XTER:DAI, Financial).
The top represented sectors are financial services (25.81%), consumer cyclical (24.57%) and industrials (10.84%).
Danone
The fund’s Danone (XPAR:BN, Financial) grew by 467.49% with the purchase of 3.72 million shares. The shares traded at an average price of 58.75 euros ($69.31) per share during the quarter. Overall, the sale had a 0.95% impact on the equity portfolio and GuruFocus estimates the fund has gained 37.85% on the holding over the last decade.
Following the acquisition of WhiteWave, Danone restructured the firm into three broad segments: essential dairy and plant-based products, which represents just over half of group revenue, specialized nutrition and bottled water. The firm's portfolio includes well-known brands such as Danone/Dannon dairy products, Nutrilon and Cow & Gate infant nutrition, and Evian and Volvic bottled water. Danone derives about 60% of its annual sales outside Western Europe, up from about just one-third in 2001.
On Aug. 30, the stock was trading at 62.16 euros per share with a market cap of 40.45 billion euros. The Peter Lynch chart shows the stock trading above its intrinsic value.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 4 out of 10. There is currently one severe warning sign issued for declining revenue per share. The company saw revenue decline through 2020 as its net income started to regain its footing.
Alongside the fund, the Causeway International Value (Trades, Portfolio) Fund maintains a position in Danone (XPAR:BN, Financial).
Glencore
As share prices continued to rise to an average of 3.09 pounds sterling ($4.25) during the quarter, the fund pulled back its Glencore (LSE:GLEN, Financial) position. Herro and Manelli sold 50.75 million shares for a 18.29% reduction in the position. GuruFocus estimates the total gain of the position at 25.16% and the sale had an impact of -0.75% on the equity portfolio overall.
Glencore is one of the world's largest commodities traders. It is active in markets for metals and minerals, energy products and agricultural goods. The firm's marketing business provides sourcing, logistics, transportation, storage and financing services to commodity producers and consumers around the globe. The 2013 merger with diversified miner Xstrata propelled the company to become one of the world's largest commodity producers. Core exposures are in the production of thermal coal, coking coal, copper, zinc, nickel and ferroalloys.
As of Aug. 30, the stock was trading at 3.33 pounds sterling per share with a market cap of 44.28 billion pounds sterling. According to the GF Value Line, the stock is trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 5 out of 10 and a valuation rank of 4 out of 10. There are currently four severe warning signs issued for building inventory, new long-term debt, declining revenue per share and an Altman Z-Score placing the company in the distress column. The company’s cash-to-debt ratio of 0.07 ranks it lower than 93.51% of competitors as its cash continues to shrink.
Other top guru shareholders include Steven Romick (Trades, Portfolio), azValor Internacional FI, the iShares MSCI ACWI ex U.S. ETF (Trades, Portfolio) and azValor Blue Chips FI.
Ashtead Group
Ashtead Group (LSE:AHT, Financial) was sold out from the portfolio after two years of consistent reductions. The 3.12 million shares that were sold traded at an average price of 49.03 pounds sterling. The sale had a -0.70% impact on the equity portfolio and GuruFocus estimates the total gain of the holding at 76.32%.
Ashtead is an equipment rental business with operations in the U.S., Canada and United Kingdom. Earnings are mostly derived from the U.S. where the company’s Sunbelt brand enjoys a number-two market position with a 10% market share in a highly fragmented market consisting of national, regional and independent competitors. Ashtead rents a range of construction, industrial and general equipment such as aerial lifts, hand-held tools and forklifts across its 1,105 rental stores worldwide.
The stock was trading at 56.14 pounds sterling per share with a market cap of 25.12 billion pounds sterling. The GF Value Line shows the stock trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 1 out of 10. There is currently one severe warning sign issued for a declining operating margin. Despite the warning sign, the company’s operating margin ranks it better than 94.08% of the business services industry alongside a net margin that beats 84.57% of competitors.
Ashtead (LSE:AHT, Financial) counts Bestinfond (Trades, Portfolio) and the Invesco European Growth Fund (Trades, Portfolio) as guru shareholders.
Naspers
The fund boosted its holding in Naspers (JSE:NPN, Financial) by 32.47% with the purchase of 869,439 shares. The shares traded at an average price of 3,204.05 South African rands ($218.74) during the quarter. The purchase had a 0.66% impact on the equity portfolio and GuruFocus estimates the holding has lost 14.73% since it was purchased in 2018.
Naspers is a global internet and entertainment group and technology investor that operates in more than 120 countries and markets with long-term growth potential. It seeks to build companies that empower people and enrich communities. Naspers has invested in, acquired or built brands including Avito, Brainly, BYJU'S, Codecademy, Honor, Delivery Hero, eMAG, ibibo, iFood, letgo, Media24, Movile, MultiChoice, OLX, PayU, Showmax, SimilarWeb, Swiggy, Twiggle, Takealot and Udemy.
On Aug. 30, the stock was trading at 2,402.28 rands per share with a market cap of 989.81 billion rands. It is trading at a significantly undervalued rating according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 4 out of 10, a profitability rank of 5 out of 10 and a valuation rank of 3 out of 10. There are currently three severe warning signs issued for new long-term debt, a declining gross margin and declining revenue per share. The company has increasingly struggled to balance its weighted average cost of capital and return on invested capital, indicating poor capital efficiency.
Herro is joined by Steven Romick (Trades, Portfolio) as a guru shareholder in Naspers (JSE:NPN, Financial).
Lloyds Banking Group
Rounding out the fund’s top five trades was a reduction in its Lloyds Banking Group (LSE:LLOY, Financial) holding. The sale of 280.36 million shares cut the holding by 13.06%. The shares sold at an average price of 0.46 pounds sterling throughout the quarter, landing the fund at an estimated loss of 0.43% on the holding. Overall, the sale had a -0.64% impact on the equity portfolio.
Lloyds is a retail and commercial bank headquartered in the United Kingdom. The bank operates via three business segments: retail, commercial banking and insurance and wealth. In retail, Lloyds offers primarily mortgages (66% of loan portfolio), credit cards and current accounts to its customers. Its commercial banking operation provides lending, transaction banking, working capital management and debt capital market services to large corporates and financial institutions in the U.K. Insurance and wealth rounds out the product lineup with life and property insurance as well as pension solutions and high-net-worth asset management services.
As of Aug. 30, the stock was trading at 0.44 pounds sterling per share with a market cap of 31.29 billion pounds sterling. The GF Value Line shows the stock trading at a fair value rating.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 4 out of 10. There are currently two severe warning signs issued for declining revenue per share and poor financial strength. The company’s cash flows have been inconsistent throughout the last decade, but were more than enough to support dividend payouts in 2020.
Herro and the Oakmark International Fund is the top guru shareholder with 2.63% of shares outstanding.
