One of our Core Fund Managers, Magellan Investment Partners (Magellan), recently recommended two new positions to the portfolio, both listed in Germany: SAP (SAP.ETR) and adidas (ADS.ETR). SAP provides enterprise software used to run core business operations, while adidas is a global sportswear company spanning performance and lifestyle products.

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Magellan view SAP as an attractive long-term investment underpinned by i) significant revenue uplift as it transitions its customer base from on-premise to the cloud where it remains early in the journey, ii) the ability to sustain healthy revenue growth post this transition through innovation led price increases including AI functionality and continued cross-sell and upsell, and iii) healthy revenue growth and retiring of legacy products supporting meaningful margin expansion towards peer levels. Magellan think the market is currently providing an attractive entry point given a short-term focus on quarterly cloud revenue and backlog growth which is being negatively impacted by the heightened uncertainty earlier in the year around tariffs, US government spending cuts, and the broader macro environment. While not immune from the macro environment, Magellan largely view this as a pushout of customer migrations with limited implications for long-term profits and cashflows. SAP is also being impacted by software wide concerns around AI disruption which Magellan consider misplaced for SAP specifically.

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Magellan view adidas as undervalued quality. adidas is a strong number two player in the sports & lifestyle footwear and apparel industry which grows above GDP. While a competitive industry that can see new entrants and impacts from fashion cycles, Magellan believe adidas’s brand, football heritage and scale enable it to remain an industry leader and has seen it take share over time and build a geographically diversified business. While less well positioned in the US given Nike’s dominance, the US is a small proportion of profits and more opportunity than threat. Near-term market concerns around macro conditions, a resurgent Nike, rising inventory levels, and ageing lifestyle products combined with conservative guidance, poor management communication, and looking back to 2022 issues have created in our opinion an attractive entry point. While some of these near-term concerns are warranted, Magellan believe they are more than fairly reflected in adidas’ share price, which combined with historically counter cyclical PEs provide downside protection should they occur and an attractive opportunity if they do not. adidas also has a strong balance sheet and is expected to start buying back its shares in 2026.