Global Equities

Gaztransport et Technigaz (EPA: GTT)

Gaztransport et Technigaz (EPA: GTT) is one of the purest toll-booth businesses in the listed world, and almost no one outside the shipping industry has heard of it. The French company designs the membrane containment systems that allow liquefied natural gas to be carried at minus 162 degrees inside the hull of a ship. Rather than build the vessels itself, it licenses the technology to the shipyards, principally in Korea and China, and collects a royalty on essentially every large LNG carrier built. It is asset-light in the truest sense: the capital sits on the shipbuilders’ balance sheets, while GTT keeps the intellectual property, the engineering know-how and the fee.

The order book is the story. The world is in the middle of a multi-year expansion of liquefied gas supply, with new export capacity coming on in the United States, Qatar and elsewhere, and every molecule of that gas needs a specialised ship to move it. That has handed GTT a backlog stretching years into the future, with the royalty recognised as each vessel is built. The company is also extending the model beyond carriers: into LNG as a marine fuel, where tightening emissions rules are pushing shipowners towards dual-fuel engines, and into the containment of ammonia and other future energy carriers.

The economics of a licensing near-monopoly are extraordinary, very high margins, little capital employed, and a generous return of cash to shareholders. In the fund it is a relatively recent and modestly sized position, a little over 1.5 per cent of the portfolio and carried close to cost, sitting in the energy sleeve despite being, in truth, an engineering and royalty business rather than a producer of anything.

You do not buy a business like this cheaply, and you should not expect to. The risk is concentration and cyclicality: GTT’s fortunes are tied to the LNG newbuild cycle and to a handful of Asian shipyards, so a pause in ordering, whether from a gas-price shock or a shipbuilding glut, would slow the royalty stream. There is a long-running competitive and intellectual-property dimension to watch, and the newer ventures, including its hydrogen-electrolyser arm, are not yet proven earners. But the core is a near-monopoly on a piece of global energy infrastructure that the world is spending hundreds of billions of dollars to expand. It is a royalty on the movement of gas, about as unglamorous, and as well positioned, as an energy holding gets.

NGK Insulators (TSE: 5333)

NGK Insulators (TSE: 5333) is a ceramics company, which sounds like the least exciting sentence in this note, and is exactly why it belongs in it. The Japanese firm built its name on the high-voltage insulators that hang from electricity pylons, a product it still dominates globally, and has spent decades turning the same materials science into several quite different franchises: the honeycomb ceramic substrates that scrub emissions from vehicle exhausts, the precision components that sit inside semiconductor manufacturing equipment, and large sodium-sulfur batteries for grid-scale energy storage.

That spread of end-markets is the point. The electricity grid is being rebuilt and extended across the developed world to carry renewable power and to feed the data centres behind the computing boom, which is demand for insulators. The expansion of semiconductor capacity is demand for NGK’s fab components. And the intermittency of renewable generation is demand for grid storage. One unglamorous ceramics maker, quietly geared to three of the most durable infrastructure trends in the market.

This is one of the fund’s long-standing successes. The position has been held for years, has paid a steadily rising dividend across that time, the holding has more than doubled, and ranks among the best performers in the Japanese book. That is what compounding in a dull, high-quality business looks like: no drama, just years of patient ownership.

The honest caveat is the emissions business. As the internal combustion engine slowly gives way to the electric vehicle, demand for exhaust substrates will fade, and that is a real long-term headwind for one of NGK’s historic profit centres. The task, and so far the company is managing it, is to grow the grid, storage and semiconductor franchises faster than the emissions business declines. Add the familiar Japanese caveats of yen translation and a conservative corporate culture. But the balance sheet is sound, the governance-reform tide is lifting returns across corporate Japan, and the structural demand behind the newer businesses is strong. It is the ceramics behind the grid and the fab: mundane, mission-critical, and compounding.

BHP Group (ASX: BHP)

BHP Group (ASX: BHP) is the world’s largest diversified miner, and a holding close to home. It digs iron ore out of the Pilbara, copper out of Chile and Australia, and is building one of the world’s largest potash mines in Canada. It exited petroleum and most of its coal some years ago, leaving a business increasingly built around two things: the iron ore that still generates the bulk of the cash, and the copper that is meant to be the future.

Copper is where the interest lies, and it is the quiet connection back to the theme running through this note. Electrification, of cars, of grids, and of the enormous data centres the computing boom requires, runs on copper, and the world is neither finding nor permitting new large copper mines quickly enough to meet the demand. BHP’s existing copper position, led by its stake in Escondida, is among the best in the industry, and the iron-ore business is the cash machine that funds the pivot towards it. The metal under the build-out is as real an exposure to the theme as any semiconductor.

BHP is a long-held, core position in the fund, around 1.6 per cent of the portfolio, carried at an unrealised gain of roughly two-thirds and a dependable source of dividends over the years, as the report’s distribution history shows. It is one of the few Basic Materials names in a portfolio deliberately light in the sector, which tells you it is held on conviction rather than to match an index.
A miner is a cyclical business and should be owned as one. The iron-ore price is hostage to Chinese steel demand, which is structurally slowing, and the whole sector lives and dies by the commodity cycle. BHP has its own execution questions, from the cost and timing of the Jansen potash project to the discipline required to avoid overpaying for growth after its failed tilt at Anglo American. The dividend is generous but variable, falling with commodity prices when they turn. Yet you are buying a low-cost, long-life asset base, run with more capital discipline than the sector’s history would suggest, and geared to the one commodity whose demand looks most structurally underpinned. Real assets, real cash, and the metal electrification cannot do without, a deliberate counterweight to a book full of the digital economy.