Reintroducing Brembo

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Reintroducing Brembo.

Brembo is one of the oldest holdings in our International share portfolio so it was pleasing that it achieved the highest share price gain (+59%) in the 11 months to the end of November across all of our portfolios. This month, we reintroduce you to the company and explain why it is a market darling.

Brembo is an Italian brake manufacturer whose products are targeted at the premium market, with customers including Ferrari, Audi, Porsche, Mercedes Benz, Ducati and Harley Davidson.

Investing in an Italian company may seem fraught with danger given the country's economic troubles in recent years. However, Brembo is a good reminder that the art of investing lies in the specific not the general. Our approach has always been to identify great companies based on their own merits, rather than by taking a broader geographic or sector view.

Based in a town near Milan, the firm grew from a family-run mechanics' workshop in 1961 to today's business with more than 7,000 staff and production facilities around the world. While Italy is a country where many manufacturers struggle to compete internationally, Brembo has used innovation, combined with production on four continents, to carve out a niche supplying brake discs and calipers to the high-performance motor industry.

We first invested in the company in July 2007 when its share price was €6.63 (it is now trading around €43) after being impressed by its strong competitive advantage; technical expertise developed through a focus on high performance Formula One braking systems.
As the company CEO says: "In order to sell cars, you need to improve the driving experience. You need to make them something people want to get into and drive, make them more exciting. Brembo brakes do that."

The company has developed a significant portfolio of proprietary (patented) process technology. An example is the technology to remove weight from their braking systems. This has proven successful with luxury car manufacturers as less weight means lower carbon emissions — something the entire industry is trying to deliver.

Brembo's dominance of the premium braking system market is also allowing them to expand into the mid-premium market where it is winning lucrative volumes (e.g. C-Class Mercedes) without detracting from margins. This opens up a whole new volume frontier — the United States is now its largest market and significant growth lies ahead in the Indian, Chinese and Japanese markets.

It hasn't always been smooth driving for Brembo. The company and its share price came under pressure during the GFC as automotive sales worldwide fell. But Brembo weathered the downturn better than many peers, partly because of its focus on the premium segment and racing. Today car and motorbike manufacturers use Brembo's brand to boost the appeal of many of their products, rather than just the top-of-the range models.

Brembo remains a core holding in our international portfolio and we believe it can continue to fire on all cylinders.


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