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Political support for climate and environmental protection has been a driving force behind the growth of green actions in recent years. The Russian invasion of Ukraine has further fueled their dynamism. Rising commodity prices and pressure to make the energy mix less dependent on Russian fossil fuels are making decarbonization plans more urgent. The “REPowerEU” emergency plan, presented by the European Commission on March 8, aims to diversify gas supplies and reduce dependence on fossil fuels. Currently, the EU imports around 90% of its annual gas consumption, including 45% from Russia. Recent events are therefore a clear wake-up call for the EU and the goal now is to reduce dependence on Russian natural gas by two levels.
The necessary energy transition opens up growth prospects in areas such as clean energy and energy efficiency. But as an investor focused on the quality of companies, we have to be discerning. A large number of “green” stocks with high valuations and low market power are currently not attractive to our investment approach. Other technologies that could help reduce dependence on gas also seem unattractive to us in the short and medium term. Liquefied natural gas (LNG) and hydrogen, for example, are unlikely to be competitive in the short or medium term in Europe. The first being relatively inefficient and carbon-intensive, the second being heavily dependent on green energy and currently lacking competitiveness. However, according to our analysis, other segments of the energy transformation still offer attractive investment opportunities.
In this context, we believe that groups that could benefit from the REPowerEU plan could be those with strong pricing power and strong European exposure.
Schneider-Electric is one of these groups. Schneider is one of the world’s largest suppliers of products, systems and software aimed at improving the use of electrical energy and increasing production efficiency. The group’s offer supports the increased adoption of renewable energy, the improvement of electrical energy efficiency and safety through a combination of control and optimization products for low and medium voltage uses as well as ‘ ‘to safe food products. The group is exposed to Europe for approximately 30% of its total sales and should, in an inflationary environment, manage to preserve its margin despite the confinement of China and the inflation of raw materials such as copper.
Another beneficiary of this plan should be Siemens. The group’s Digital Industries unit aims to improve production efficiency and productivity with relevant products, systems and software of the fourth industrial revolution. The Smart Infrastructure activity focuses on improving energy efficiency and safety for low and medium voltage uses. Siemens products have achieved a concrete reduction in greenhouse gas emissions of approximately 90 million tons since their commissioning.
The acquisition last year of the energy business of its Spanish competitor ACS for 4.9 billion euros should allow the French construction company Vinci to develop in the renewable energy market. More selective than its competitors, the group focuses on margins (IRR between 8-15%) rather than volumes and should grow its renewable activity by at least +10% per year until 2030.
We have now taken our first positions in one of the main catalysts for reducing Europe’s dependence on Russian oil and gas: Equinor. Equinor is a Norway-based oil and gas company. Much of its production takes place in the North Sea, which reduces geographical and political risks. It is roughly evenly split between oil and gas, allowing the company to be 60% lower in carbon intensity than its peers. Equinor has the best ESG credentials in its industry with a AAA ESG rating and a clear and detailed transition plan in place (Net Zero in 2050). In practice, Equinor currently integrates the largest floating offshore wind farm in the world in the Norwegian North Sea. Finally, the company has never been involved in a major environmental scandal.
None of the companies mentioned is the subject of an investment recommendation.
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