Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and here with me today is James Thomson, manager of the Rathbone Global Opportunities Fund to give me his three stock picks.
Hello, James.
James Thomson: Hi, Emma.
Wall: So what is the first stock today?
Thomson: First stock is a U.K. company called Rightmove (RMV), a company that we are all familiar with, the largest property website in the UK. So their customers or estate agents who will pay them a monthly fee to list an unlimited number of properties on rightmove.co.uk.
Wall: What's the growth prospects for the company out there? Because as you say yourself, basically they own the market, so it's easier to go from 2% to 20% than they used to go from 80% to 90%.
Thomson: Spot on. I mean, we're not talking about market share gains here and they've pretty much sewn up the market, they have just about got all the U.K. estate agents already. The key to growth is pricing. Increasing prices in a modest way, yes, but actually selling them more services.
That's the way that you increase the package, the monthly package size.
Wall: What's the second stock today?
Thomson: The second sock is a company we've all heard of in the United States called Visa (V), which of course is the credit and debit card company, but really with Visa you are just buying the Visa network. These are the rails that transactions run over in order for your transaction to be approved or declined.
But there's also a longer-term, big picture thesis here, which is, although we use plastic every day for our purchases, 85% of the world's transaction still take place in cash.
Wall: And how much will Visa definitely dominate in that growing market? Because you have seen emerging markets' rivals in certain sectors oust the dominating developed market player; I'm thinking about things like Amazon (AMZN) versus Alibaba (01688). Just because you are great in a developed world, doesn't necessarily mean you are going to dominate in emerging markets?
Thomson: Yeah, spot on, and I own both of those companies, too. In China, that's a good example. Visa and MasterCard really don't have much of a presence. There is potential that there could be a co-branding opportunity for either Visa or MasterCard to team up with the Central Credit Bureau in China, but that maybe upside down the road, but you're right, there is room for multiple players not only within China, but also outside and the rest of the world.
Wall: What's the third and final stock?
Thomson: Third and final stock is a German company called Rational (RAA); and if you've been into a commercial kitchen, so we are talking about restaurants, hospitals, prisons, airlines, probably even the kitchen in this building, you may have seen a Rational oven.
Rational ovens are incredible because they can replace 50% of the equipment in a kitchen in just one single device, and sadly, quite a lot of the staff also. Because this one piece of kit, their Self Cooking Centre, does everything all at the touch of the button with great consistency and repeatability.
So you can bake, roast, grill, steam, simmer, stew all at the touch of a button, all to your specific taste. So if you like your steaks medium rare, you can do that the same way each time, no matter what the size of the steak. If you like your chicken cooked properly, but then a nice crispy skin, you can do high humidity at first and then you can do high temperature for the last part of the cycle to make the skin nice and crispy.
So it is an amazing piece of kit that saves kitchen's money, saves them on staff costs, saves them on equipment costs. But there is a huge potential out there still because there are two million kitchens, commercial kitchens worldwide that still use traditional equipment. So there is the growth opportunity for years ahead.
Wall: I'm a complete gadget freak, and I love the sound of this thing. But I'm guessing it's probably out of my price range. Does that mean it's also out of the price range of those two million commercial kitchens?
Thomson: No. You can get varying sizes of ovens. So the price range runs from about $3,000 to I think about $25,000 for the very top end, large volume, high throughput kitchens. And sadly they really are just looking for commercial customers. So the retail customer, I'm afraid is out of their sales channel. But I'm sure I can get you in touch with the company and see what we can do.
Wall: Is there also an ongoing – like the sort of lift operators, which then only have to come – they're only allowed to come in in service that product. Do you say that is an ongoing revenue stream?
Thomson: Yes, there is a small ongoing revenue stream from service from the cleaning products that you have to buy to clean the oven every night. But actually you know you hit on our problem. These machines are so well-made that they will last for years and years.
And so in many ways by making them so well, they probably slow down the replacement cycle. That's why it's important for them to keep adding new features and functionality, and that will allow the kitchen, even if the machine hasn't broken down after years of use to constantly upgrade and they've done that very effectively. Every three to five years, they come out with a new model that is even more whizbang than the previous.
Wall: James, thank you very much.
Thomson: You're welcome.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
