Why investors look for stocks that have wide geographical reach?


Diversification in terms of investing means spreading your risks across different assets or asset classes or across geographies while values can be achieved from different zones. If you are an equity investor, one strategy to invest is to look beyond equities that target business in just one country. There are stocks that are either listed in other countries too or have business points in multiple countries which merit some attention. But before adding assets in another currency to your portfolio, think through the pros and cons.

Benefits of investing in international assets, and adding international assets can be done in the form of stocks or you could buy bonds of overseas companies, currencies or even property. While liquidity surplus globally has insured some linkages between financial markets in different economies, the return trend in assets from different countries is still varied. Historical data shows that while Indian equities tend to outperform in an uptrend; when there is bearish sentiment, they almost always fall much more than Europe- and US-based equity indices. By having exposure to the latter, you can smoothen out some volatility in returns. Then there have been years like 2013 when global indices like the MSCI Europe and the S&P 500 were up roughly 25-30% and BSE Sensex fell around 2%.

Another proposition is to look at having exposure to stocks that have fangs in multiple geographies in terms of businesses for benefitting from varied environments in the respective geographies. This on the fall-side, can have some risks as well. Further, the risks at domestic level get mitigated when you look for stocks with a global exposure. In such a scenario, markets like Europe and Asia look a bit cheaper while US provides decent earnings growth. However, individual markets may have their own risks. Thus, investors try to grab stocks that have a balanced domestic and global exposure to benefit from respective cycles and broad-based experience.

Blue-chip with diverse reach: RHC

One health care stock of the above category is Ramsay Health Care Ltd (ASX: RHC), which was seen trading at $61.310 as at opening session on May 29, 2018, and has a market cap of $12.39 billion. Ramsay operates about 235 hospitals, treatment facilities, rehabilitation and psychiatric units and nursing college across six countries. The group is Australia’s largest private hospital operator and has its reach in the United Kingdom, France, Indonesia, and Malaysia. Ramsay is expected to benefit through support from governments towards private health insurance and geographical spread that can help achieve economies of scale. Lately, the company inked an agreement on setting a joint venture with Ascension, which is the largest private, tax-exempt, non-governmental health organisation in the United States to develop a new global supply chain. Meanwhile, its 1H 2018 result entailed a 7.5% rise in Core net profit after tax to $288.0 million while revenue grew 3.0% to $4.4 billion and group EBIT was up 1.5% to $470.4 million in 1H 2018.


Long-term Strategy (Source: Company Reports)

Thus, we see that Ramsay’s Australian and Asian businesses have achieved good revenue and earnings growth while European businesses have been a challenge. Ramsay’s Malaysian and Indonesian facilities now continue to perform well even in challenging circumstances thanks to a focus on cost control. Thus, the group aims to manage its profile through multiple levers with a disciplined approach towards their business. Further, expansion across geographies is expected to add to the growth trajectory going forward.

 A speculative domestic play trying to expand its reach: PFP

Propel Funeral Partners Ltd (ASX: PFP) which is at a market price of $3.01, as at May 29, 2018 and market capitalization of $294.49 million, demonstrated its 1HFY18 revenue growth of 84% to $38.9 million against 1H FY17 figure of $21.2 million. Funeral volumes are up 85% to 5,053 from 2,729 in 1H FY17. Operating EBITDA and NPAT are up 79% and 90% to $11.0 million and $6.3 million, from $6.1 million and $3.3 million. Also, its operating cash flow increased by 73% to $11.0 million from $6.4 million in 1H FY17.


PFP’s growth trajectory (Source: Company Reports)

The group has lately focused on entering WA via some fruitful acquisitions, expansion in NSW/VIC (Brindley Group), launching a takeover offer for Norwood Park, and delivering on the investment strategy. Given that death volume in Australia grew by 0.9% per annum between 1990 and 2016, and is expected to increase by 1.4% pa from 2016 to 2025 and 2.2% from 2025 to 2050, PFP has some opportunities lined up at domestic front. PFP completed its successful initial public offering in November 2017, raising $131.2 million. Its 1H FY18 operating full year EBITDA of $21.1 million, was up 15% on the prospectus forecast. The company intends to pay dividend payout ratio in the range of 75% to 85% of pro-forma distributable earnings after completion of the year. The group is now using its acquisition strategy to help expand its footprint in other geographical areas.


PFP’s geographical presence (Source: Company Reports)

Overall, the firms that go beyond the extent of being recognized as local to a geographically dispersed level might add value, though subject to efforts at group level and macro factors.


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