Business Breakdowns
· Matt Reustle, Mark de Vos
[00:00:00] S0: Interesting example that paints the picture quite well. On the opposite side when you think about the risks, you referenced some of the cycle exposure that they might have. Is there anything else? Any customer concentration risk or anything else, whether it be from overseas, cheaper products, things along those lines that stand out to you? [00:00:00] S1: The primary risk to the business we spoke about earlier is that cyclicality based on those big end markets. So if pharma isn't spending, that's not a great environment for them. They're not too reliant on US government funding or anything that. So academia and government is only just under 10% of sales. And actually the NIH related funding, which is the one that's particularly under pressure, that's only about 1% of their sales. So it's not a huge part. China's the only other part that's hard to forecast. I think we can be confident about the need for testing there in the long term. In the short term, of course it can be hard to predict. They're the main ones I'd point to. [00:00:00] S0: This question will come a bit out of order, but the M&A thesis that I described within the business, I'm curious if this is ever a target of M&A in terms of them being acquired, Agilent being acquired—does that come up? Because it does have certain characteristics which would fit what acquirers would look for and I just wonder if that's ever out there in the market or in the headlines.
· Matt Reustle, Mark de Vos
[00:00:00] S0: This question will come a bit out of order, but the M&A thesis that I described within the business, I'm curious if this is ever a target of M&A in terms of them being acquired, Agilent being acquired—does that come up? Because it does have certain characteristics which would fit what acquirers would look for and I just wonder if that's ever out there in the market or in the headlines. [00:00:00] S1: I haven't seen that in the market, if I'm honest. It's hard for one of their direct competitors. Thermo Fisher would, I'm sure, love to buy them. Very acquisitive company. It's much larger. Probably could if it really wants to. I think the challenge would be you'd attract competition scrutiny. I struggled to see that one happening. Otherwise, we certainly hope they remain a sort of independent business. [00:00:00] S0: Yes. Don't get in the way of compounding. Well, this has been fascinating and I think you simplified some pretty complex topics, so I appreciate that. I can say that personally, the way that we close out these conversations are with the lessons that you could potentially take away and apply elsewhere as an investor. What would stand out from doing your research and your experience with Agilent that might be a takeaway for other investment work?
· Matt Reustle, Mark de Vos
[00:00:00] S0: Yes. Don't get in the way of compounding. Well, this has been fascinating and I think you simplified some pretty complex topics, so I appreciate that. I can say that personally, the way that we close out these conversations are with the lessons that you could potentially take away and apply elsewhere as an investor. What would stand out from doing your research and your experience with Agilent that might be a takeaway for other investment work? [00:00:00] S1: There's two that came to mind. The first one would be not to underestimate the quality of what sounds a boring business. If I was to tell you at the pub about a business that services lab instruments, you might be forgiven for telling me to move on. Actually, this is a fantastic business. 33% operating margins, growing high single digits with a really long growth runway as they grow that attach rate. Not to be underestimated. The other one would be that actually often it's better to be in the businesses that are supplying tools. In this case, the life science tools companies have outperformed the pharmaceutical sector hands down and Agilent is a testament to that. [00:00:00] S0: Picks and shovels has been working for almost 200 years now. Well, Mark, this has been an excellent conversation. It's been a pleasure. Thank you so much for joining us. [00:00:00] S1: Thank you.