Global Equities

CF Industries (CF US)

CF Industries is the largest North American producer of nitrogen fertiliser, manufacturing ammonia, urea and UAN solutions sold into agricultural markets across North America and internationally. The business sits in a structurally important part of the global food supply chain. Crop yields depend on nitrogen application, and nitrogen fertiliser is not a discretionary input for farmers in the way that many other industrial products are. This gives the company a useful degree of through cycle demand resilience, even though pricing remains cyclical.

The key economic driver for CF Industries is the spread between nitrogen fertiliser selling prices and natural gas input costs. This is where the company enjoys a meaningful regional advantage. North American natural gas remains relatively low cost compared with many international production regions, particularly Europe, where energy costs have been more volatile and structurally higher. This cost advantage allows CF to remain cash generative through the cycle and, when nitrogen markets tighten, to generate very attractive margins.

While fertiliser pricing has normalised from the exceptional levels reached during the energy shock, the investment case is not dependent on a return to those extremes. The more interesting point is that global nitrogen supply remains capital intensive, energy dependent and geopolitically sensitive. CF combines scale, cost advantage and strong cash generation in an industry that is essential, but often poorly loved by equity markets. That combination of real asset scarcity, food security relevance and disciplined capital allocation makes the company a useful holding within a portfolio looking for durable industrial cash flows rather than fashionable narratives.

London Stock Exchange Group (LSEG LN)

London Stock Exchange Group was discussed last month as a business in transition from a traditional exchange operator into a global financial data and analytics company. That transition remains the central point. The market continues to associate the name with listings and trading activity, but the economics of the group are increasingly driven by recurring revenue from data, analytics, index, risk and workflow solutions following the Refinitiv acquisition.
The progress since last month is in the continuing evidence that LSEG is becoming a higher quality, more repeatable earnings business. Integration benefits, cost discipline and operating leverage are gradually improving the shape of the income statement, while the recurring nature of the data and analytics revenue base supports greater earnings visibility. Capital markets activity will always be cyclical, but it is no longer the only lens through which the company should be assessed.

This creates a useful valuation tension. LSEG is still partly valued as an exchange and market infrastructure company, while its improving revenue mix increasingly resembles global financial information peers with stronger margins, higher retention and better pricing power. Continued buybacks, integration execution and incremental margin improvement should help close that perception gap over time. In a market often willing to pay very high multiples for fashionable recurring revenue, LSEG remains an unusually grounded example of the same economic idea, subscription style revenue, high switching costs and embedded customer workflows, but attached to a more sober valuation.

Valero Energy (VLO US)

Valero Energy is the largest independent petroleum refiner in the world, operating 15 refineries across the United States, Canada and the United Kingdom with approximately 3.2 million barrels per day of throughput capacity. The company converts crude oil into gasoline, diesel and jet fuel, with earnings driven primarily by refining margins, commonly referred to as crack spreads, and by the cost and quality of crude feedstock available to its system.

The important point with Valero is not just scale, but sophistication. Its refining system is highly complex as measured by the Nelson Complexity Index, meaning it can process heavier and more difficult crude streams that simpler refineries cannot handle as efficiently. This matters because complex refiners can often buy discounted feedstocks and convert them into higher value refined products. The potential return of heavier Venezuelan crude into global markets is therefore relevant, as Valero is well placed to benefit from crude quality differentials where its system complexity becomes an advantage rather than an accounting footnote.

Refining is cyclical, and the market is well aware of that. However, the sector has changed. Years of underinvestment, tighter environmental permitting and rationalisation of older capacity have made high quality refining assets harder to replicate. At the same time, demand for transport fuels has proven more durable than many energy transition forecasts assumed, while aviation and diesel demand remain tied to real economic activity. Valero also has a growing renewable diesel exposure through its Diamond Green Diesel joint venture, which provides optionality without diluting the core cash generation of the refining business. The result is a company exposed to the old economy reality that the world still runs on refined products, but with enough asset quality, complexity and capital discipline to make that exposure investable.