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Global Equities case study: global animal health company

Our Global Equity ESG strategy aims to invest in companies with a combination of time-tested fundamental and environmental, social and governance (ESG) characteristics that are attractively priced. This is well-illustrated through our exposure to one of our current holdings, a global animal health company.

We seek companies with good or improving ESG characteristics – and the latter has the potential to unlock significant value. Indeed, our research has found that companies who have managed their ESG risks have historically outperformed over the long-term1. One such example that demonstrates good ESG characteristics is a leading global animal health company that produces vaccines and medicines for both pets and farm animals.

A deep dive into the company's fundamentals shows that it is a well-run company. It has demonstrated strong growth, recording revenue growth of 10% to $6.3bn in 20192. However, in May, the company lowered its full-year guidance citing uncertainties posed by the coronavirus (such as expected recessionary conditions in the global economy and FX headwinds)3.

Nevertheless, our strategy has a long-term focus and the Alpha Model – our proprietary automated analyst which assesses the attractiveness of companies in the investable universe from multiple angles over the long term – shows that sentiment towards the company remains positive and it has a reasonable valuation relative to its peers. It looks most attractive based on profitability metrics, with positive trends in both net and gross margins. As a result of its recent earnings growth and owing to the essential role it plays in sustaining and protecting animal life, we view the company as a resilient, attractive investment – despite recent downward revisions to its full-year guidance.

Engaging on animal health

From an ESG perspective, the company is less exposed to ESG risks than human-focused pharmaceutical companies. In addition, the company has no material ESG-related controversies. Alongside our colleagues at EOS, we engage with the global animal health company. Thus far, the company has been receptive to our engagements: we have had in-person meetings and calls with members of the Investor Relations and Innovations teams. We have been engaging on the topic of antibiotic stewardship, encouraging the company to establish a global policy and implement pollution limits in its manufacturing process. In addition, we have been engaging to encourage the company to increase gender diversity on the board and improve its disclosures around human capital management.

To dive into the details of  the company's fundamentals and ESG characteristics as well as our engagements with it, read the full case study here.

  • Nothing in this document constitutes a solicitation or offer to any person to buy or sell any related securities or financial instruments.
  • Past performance is not a reliable indicator of future results.
  1. 1“ESG investing: a social uprising,” published by Federated Hermes Global Equities in October 2018.
  2. 2“2019 Annual Report,” published by the company in February 2020.
  3. 3“ First Quarter 2020 Results,” published by the company on 6 May 2020.

Disclaimer

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