Cooper Investors Global Endowment

Portfolio Insights & Market Observations

*MSCI AC World Net Divs AUD
Source: Internal CI data reports, 30 June 2025

During the quarter we rebalanced our position in Franco-Nevada (FNV) after strong share price appreciation (reflecting the rapid run-up in gold) had expanded the position to become by far the largest in the fund. We remain invested as a core position. We added to several holdings that had lagged year to date including Microsoft (MSFT), Canadian National Railway (CNR) and HDFC Bank (500180).

The portfolio also initiated a new position in US-listed restaurant business Texas Roadhouse, Inc (TXRH), which is written up in the ‘Stock in Focus’ section.

¹ Past performance is not a reliable indicator of future performance.

Observations From The Road

During the quarter the team travelled to London to meet our UK-headquartered businesses which account for 20% of portfolio NAV. A highlight was meeting senior management at London Stock Exchange Group (LSEG), where we’ve enjoyed face-to-face discussions with both the CEO and CFO in the past 6 weeks.

Since the 2023 Capital Markets Day the business has seen notable turnover at C-Suite level with departures of the CFO, COO, Head of Data & Analytics, and Head of Capital Markets. While this would ordinarily be a concern, LSEG has been on a journey of metamorphosis from a mid-cap collection of regional exchanges in 2018, to a US$80bn Mcap global data and analytics powerhouse today.

Many parts of the business needed seriously upskilling with significant investment to run optimally at this scale and see the group legitimately considered in the same peer group as US information services leaders like S&P Global, MSCI and Thomson Reuters. Recent executive hires hit a different standard of quality and experience than the old ‘London Stock Exchange’ days, being not only consistent with the new elite expectations of ambition and innovation but also with deeper domain expertise in the Data space. As two examples: 1) new CFO Michel-Alain Proch brings capability and experience in understanding, packaging and selling data from French media business Publicis, and has been involved in large integrations with a playbook of analysing and optimising cost bases of content or data businesses. 2) Incoming Head of Data Gianluca Biagini was Global Head of Data, Valuation and Risk Analytics at (former holding) S&P Global as well as Bloomberg Data Solutions, two organisations who have proven highly adept at monetising data sets.

Results in Q1 saw +8% organic growth with +6.4% growth in the annual subscription book and particular strength in the Risk Intelligence and Post-Trade parts of the business which are growing 9-10%+. As a lower volatility ‘boring’ compounder, LSEG’s share often don’t participate in risk rallies. This, along with some correlation to the weak USD (half of revenues denominated in dollars) saw the shares stock down 8% this quarter (albeit the US-listed ADR was flat). This weakness should be well timed as we expect half year results to deliver solid growth across the business (especially in the transactional parts given recent market volatility) and a reload of the buyback.

We see value latencies aplenty at LSEG. There is potential for accelerating top line growth via increasing pricing power driven by innovation and better customer relationship management. Prudent handling of the cost base and capital discipline led by new CFO Michel-Alain Proch should boost margins and returns while completion of significant IT investments including a Cloud transition with Microsoft should see capital intensity decline. If this plays out there can be low-teens growth in free-cash-flow per share.

We don’t see these outcomes reflected in the current share price (around £106), which should underwrite an attractive IRR over the next few years, with an asymmetric risk profile (LSEG typically outperforms in weak markets) that doesn’t require heroic assumptions around a multiple re-rate. Stripping out the group’s 51% stake in US fixed income trading platform Tradeweb, we estimate ‘core LSEG’ trades around 19x next year’s estimated earnings. This is a highly attractive price for a 50% EBITDA margin, critical markets infrastructure business.

Stock In Focus

Headquartered in Louisville Kentucky, Texas Roadhouse, Inc (TXRH) is a casual dining steakhouse chain with over 700 locations across the US and international markets. Recently surpassing Olive Garden as the top US casual dining chain, it is known for its ‘scratch-made’ food including hand-cut steaks and affordable prices with the brand having built up a cult-like following across blue-collar America.

Source: Reddit

As a mid-cap with a US$12bn market cap it remains relatively unknown outside of the US – indeed the restaurant website still cannot even be accessed on Australian-tagged devices (we have pointed this out to their IT department).

TXRH began its journey with founder W. Kent Taylor sketching out the concept of a steakhouse on a napkin to convince two investors to invest and open its first location. 30 years later TXRH is the US’s largest casual dining concept by revenue. We have grown to believe in Kent’s vision but needed more convincing than a napkin. Our initial scepticism for casual dining concepts was based on few long-term successes in the space - in terms of business models we typically prefer quick service restaurants (QSR) that enjoy superior returns on capital and, with the right concept, can scale quickly and profitably. Investing is a learning art and our exploration into the TXRH’s track record, financial profile and visiting restaurants proved our initial scepticism was misguided.

We first visited a Roadhouse on a February trip to Tennessee and were shocked at queues stretching from inside the front door well into the carpark.  A cursory check of the online waiting list revealed a wait time of multiple hours. In fact, we had to eat the day after our initial planned session and drive more than an hour to reach a location with a reasonable waiting period.  A medium rare rib-eye and a ‘cactus blossom’ side of onion rings later, it was clear we had discovered something special.

After several months of research, we felt comfortable with the future of the core Texas Roadhouse concept which relies on an exceptional customer value proposition of fresh, tasty and healthy food, served at a compelling price point with warm Southern-style hospitality. Further work led us to evaluate the future growth opportunities of the company.

A healthy runway of store growth remains for the 600+ Texas Roadhouse locations which we think could double over time. The concept remains underpenetrated in many states, with (for example) 20 stores in Kentucky (population 4m) the same as in Georgia (11m), Illinois (13m) and California (40m). States like Washington (8mn), Oregon (5mn) and Mississippi (3mn) represent white space with only 10 locations between them. Throughout this rollout we expect to see management controlling restaurant level margins in the sense that margins could be higher but are intentionally held down to prioritise the ‘customer surplus’, i.e. customers feeling they are getting great value for money.

This drives store traffic growth which consistently outstrips market expectations. Much like another great American cult consumer brand Costco, Roadhouse traffic repeatedly confounds expectations that growth is behind it. There is an opportunity to replicate this success with the group’s two other unique home-grown concepts of Bubba’s 33, a sports bar themed family eatery and Jaggers, a QSR focused on burgers and chicken sandwiches. Given the early nature of these concepts, few locations exist outside the home markets of Kentucky, Indiana, Texas and Florida.  To better understand the latency and taste them firsthand we met with the business at their HQ in Louisville and had lunch with the team at a nearby Jaggers. Spending two hours one-on-one we aimed to observe the cultural aspects we’ve heard so much about and understand opportunities within their newer concepts.

Immediately apparent, even before entering the building is the sense of reverence the company has for recently deceased founder Kent Taylor. Heartfelt messages and tributes to him written in bricks lay alongside the pathway to the entrance of the office written by employees, customers and friends.  Walking into the lobby reveals a replica of Kent’s office, complete with a daggy couch, sports memorabilia and cowboy boots.  Filling the walls of the office are awards to ‘Roadie of the Year’ and ‘Managing Partner of the Year’.  Other pieces of Texas Roadhouse history are also on display with the original napkin and the first ever printed menu that looked astonishingly like the current offering.  Kent’s legacy lives on and the executives that grew up around him do not want to tarnish that.

The birth of a US$12bn steak empire

During the meeting a few observations became clear. Firstly, management is vigilant around pricing relative to competitors ensuring a multi-dollar price gap adjusted twice a year.  The philosophy is that pricing is the easy lever to pull when costs are under pressure and TXRH doesn’t want to take the easy way out.  They never price upward for cyclical beef prices and only price for structural inflation. In most locations an early bird diner can eat a 6oz USDA grade sirloin steak, choice of two ‘scratch made sides’, free bread and peanuts for an attractive US$11.99. In Australia, we would struggle to buy a raw steak in Coles at that price, let alone dine out. This is an unmatched customer value proposition for a sit-down dinner cheaper than a takeaway for a dollar-stretched American family.

Secondly, it is the people that make TXRH a special company and incentives are aligned.  As they like to tout their ‘made from scratch’ food we think the same about the management team.  Current President Gina Tobin and CEO Jerry Morgan started their careers as ‘Managing Partners’ (the TXRH equivalent of store managers) nearly thirty years ago.  Both their portraits have been immortalized on a wall at HQ as the first and third ‘Managing Partner of the Year’ in the company’s history.  This model has served TXRH well - Managing Partners receive 10% of the operating profit of their store and are incentivised to manage topline and bottom line as a bonus.  This encourages long-term thinking and for them to bring their A-game every day at the store. We recognise this pattern as a ‘Decentralized Ownership Culture’, something we admire and actively look for in potential investments.

Finally, dining at a Jaggers and a Bubba’s 33 made it evidently clear the value proposition, people and culture remain very TXRH. At Jaggers, a high-quality burger or chicken sandwich, a side of fries or ‘tater tots’ and a drink costs less than US$10. Many locations lean into the co-branding with a picture of founder Kent Taylor and a Texas Roadhouse sign as patrons enter a Jaggers. Both concepts have a long runway - Bubba’s 33 is nearing 50 locations and opening another 30 in 2025 alone - we see potential for several hundred.  Jaggers is earlier in the journey with under 20 locations, for context Habit Burger and Grill has nearly 400 stores of which more than 200 are in California.  Both concepts give TXRH additional store growth and extend the already lengthy roadmap.