February continued the trend of previous months, extending the December/January rally. Understandably, February’s increases are largely attributable to better-than-expected corporate earnings publications. It is worth noting the poor performance of sectors like telecom, investment properties, and basic materials, none of which we hold in our portfolio.
Over the course of the month, we learned the 2023 year-end results of virtually all the portfolio companies. Generally speaking, these results met or exceeded expectations, while guidelines suggest 2024 will eclipse consensus estimates. Our own estimates for the current year see aggregate profit growth in excess of 11%, based on the early guidances provided by the companies themselves and our forecasts.
It is worth highlighting the outstanding performance in February of Icon, Novo Nordisk, and CRH, which appreciated roughly +20%.
In the case of Icon, the clinical research company posted results that beat forecasts, owing to a significant improvement in margins. The Q4 output margin reported compares favourably with consensus figures for FY 2024, lending confidence to the company’s medium-term targets. In light of these results, we would anticipate an upward revision in the consensus’ EPS estimates, including the new share buyback plan announced by the company (1.9% of its capitalisation).
Once again, Novo Nordisk published excellent results for Q4 2023, outperforming the consensus by 4% in sales and 5% in profits, and releasing 2024 guidances that also exceed expectations. In 2023, sales grew +36% in constant currency. This growth, which continues to be driven by strong demand for its GLP-1 for diabetes and obesity, far surpasses estimates from the initial guidances released by the company a year ago and subsequently revised upward three times. Net profit grew +51%. Novo Nordisk’s share price appreciated +50% in 2023 and has accumulated a further +20% already in 2024, a rise fully justified by sharp upward revisions in profit estimates.
Also noteworthy is the February increase of the construction materials company, CRH (+19.6%), which appreciated more than 75% last year. In addition to the publication of its 2023 results, which slightly beat expectations, CRH provided profit guidances for 2024 that are much higher than consensus assumptions. Moreover, the company continues its shareholder remuneration policy by expanding its share buyback plan. CRH will remain a beneficiary of the public infrastructure investment plans in the US, while awaiting inclusion on the country’s main stock market indices.
At the moment, we are in the process of rebalancing the portfolio, shifting away from the “quality and high growth” segment, where valuations are slightly more demanding, toward the growing “quality and stability” segment, which is more resilient and lags behind somewhat. We also continue to search for companies in the “potential expansion” of multiples segment, especially among industrial or cyclical growth companies.
We remain confident that, over the long term, share prices are driven by profit growth. Our 5-year annualised growth estimate for the whole portfolio is over +12% with multiples at reasonable levels, consistent with their historical average. As such, we believe that a vehicle like EDM Strategy offers participants the possibility of obtaining attractive returns with an acceptable degree of risk.
EDM Strategy obtained a return of +4.5% in February, widening the spread against its benchmark index, which gained +1.9%. In YTD terms, the fund has gained +7.9%, outperforming the +3.6% earned by the index.
Beatriz López and José Francisco Ruiz,
partners and managers of EDM Strategy
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