Guinness European Equity Income Fund on RATIONAL AG
Thesis
Rational continues to deliver solid underlying performance, with Q2 sales up 4% year-over-year and EBIT up 16%, while Europe and North America remained strong. China has been weaker as Yum China shifts procurement toward local suppliers and lower-capex provincial locations, allowing cheaper local competitors to gain share. Rational is responding with its lower-priced iCombi One product and has already won a new key account. China represents only around 2% of group sales, and the fund remains comfortable with the position given strong returns, cash generation and growth opportunities elsewhere.
“We're watching Rational closely but aren't concerned, given management is taking the right strategic steps to stay competitive.”
Key risks
- China sales declined by approximately 25%
- Customer localisation of sourcing in China
- Competition from lower-priced local manufacturers