Liontrust Sustainable Investment Annual Review 2022 - Flipbook - Page 23
Examples of companies exposed to our sustainable investment themes
BETTER RESOURCE EFFICIENCY
This group of themes is all about finding companies whose products
or services enable us to use finite resources more efficiently and
includes smarter and less wasteful use of energy, materials, water,
improving industrial processes as well as decarbonising energy.
Advanced Drainage Systems: In 2022, we took a position in
Advanced Drainage Systems, a company that manufactures
corrugated pipes and septic tanks that help keep waterways safe
from pollution and prevent excessive stormwater runoff. While this
is a clearly a positive activity, what we think is unique are their
manufacturing processes; last year, they recycled over half a billion
pounds of plastic to make these products, making them one of the
largest plastic recyclers in the US. Because these pipes typically
have a lifespan of up to 100 years and are fully recyclable
at the end of their useful life, ADS is exposed to our theme of
‘Delivering a circular materials economy’. The company scores a
B2 on our matrix rating due to the positive benefit of their products
and the way they are made. The company has excellent business
fundamentals, driven by the fact that they have huge scale benefits
due to being 5x larger than the nearest other player in the industry.
This means they can price competitively while maintaining high
returns on equity. There is significant operating leverage in the
business and so we believe high single digit growth in revenues
should translate to high levels of earnings growth.
PTC Inc is an industrial design technology business for niche
industrial end markets. It effectively supports the digitalisation of the
manufacturing industry. The premise of this business is that it enables
resource efficiency in manufacture and use to be included in the
design phase. This includes resources (energy, water, materials) saved,
defects avoided due to their IOT technology and CAD and lifecycle
design products. This business is associated with our Improving the
resource efficiency of industrial and agricultural processes theme.
Befesa is involved in taking the hazardous dust by-products of metal
sheltering and treating and recycling it to form metals which they
sell. They specialise in recycled metal processors (ARC furnaces
used to recycle steel) and are not exposed to primary (virgin) ore to
metal processing (which we believe will eventually decline). Their
business helps reduce the negative impacts and treat the hazardous
waste from metal processing and recycle this back into use. The
business is set to benefit from global tightening of regulations to
encourage more recycling of metals (which requires about 80% less
energy to produce than primary mined ores). The recent acquisition
of Zinc smelting facilities in the US means they now plan to make
100% recycled green Zinc where it all comes from the waste
products of recycled steel.
Vestas is a Danish wind turbine manufacturer and service provider
which is one of the three main players outside of China. Wind
power is a renewable and low-carbon source of energy and the
company contributes to reducing emissions from the electricity grid
by providing cost-competitive wind-derived electricity. Regulation to
reduce emissions and increase renewable penetration (in this case
wind) underpins our growth assumptions to the end of this decade
and supports our valuation assumptions for this stock. We have
not been invested in Vestas for many years due to concerns about
profitability as the operating margin (a measure of profitability)
has been declining in response to more competitive auctions for
renewables and falling turbine costs (their operating margin has
gone from above 15% in 2015 to zero at the end of 2022). What
changed in 2021 and prompted us to invest in this company is that
the turbine industry started to demonstrate some pricing power in
response to inflation in their costs (they have been able to increase
costs of the turbines they sell to reflect the inflation they have been
experiencing in their materials and logistics). We believe the turbine
industry will have to become more disciplined in pricing to survive
and Vestas is best placed to capitalise on this.
Ørsted A/S engages in the provision of renewable energy solutions
and is the world’s largest developer and operator of offshore wind.
Ørsted has firmly embraced the energy transition, transforming its
business over the last decade to become the global leader in offshore
wind. They have installed 9.9GW of renewable energy capacity,
expanding their geographical footprint, generating enough energy
to power the energy requirements of more than 15 million people,
and helping to avoid 11.3m tonnes of carbon emissions. In 2021,
energy generated from renewable sources accounted for 89% of
Ørsted’s total energy generation and this is set to expand as they
continue to invest significantly in wind and solar generation projects.
Ørsted is a major player in the global green energy transformation.
This business is held in our SF bond funds.
All use of company logos, images or trademarks are for reference purposes only.
Liontrust Sustainable Investment: Annual Review 2022 - 23