Investment opportunities in service providers and end-user infrastructure suppliers
In today’s article we are going take a look at the enablers of day-to-day energy consumption. It is a known fact that up to 60% of primary energy produced is lost as it is transported to the end-user. It is therefore important that the question of how to significantly reduce this loss is addressed.
The production of alternative energy such as wind, water, or solar, is most often done closer to the end-consumer; however, some constraints are inherent in the process and it cannot be managed in the traditional manner. Therefore, the implementation of an improved distribution network is key. The introduction of the smart grid and the application of smart-meters can also reduce the loss of energy as well as power consumption by close to 20%. The efficient application of such networks and instruments aims at harmonization and to perfect the interaction between the different production sites and end-users. Energy distribution projects are typically late-cycle undertakings, with customers highly risk averse and slow to make decisions. With customers’ expenses growing at alarming level’s, pricing has become key to obtaining new contracts.
The optimization of the grid is still years away as the application of such a two-way network requires a complete revamp of the presently available distribution infrastructure. Given this, the most reliable investment opportunities in this field with a compelling long-term risk-return profile at present are in diversified industrial’s, whose key business often centers making electricity available.
| Company | Ticker | Sector | Upside Potential | Sharpe (FY01) |
| Schneider | SCHN | Electrical Components & Equipment | 2 % | 4.27 |
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Investment case: Schneider Electric is a global electric equipment manufacturer operating in three main segments: electrical distribution; automation and control systems; and critical power and cooling services. Schneider’s competitors are Emerson, Rockwell, Honeywell, ABB, and Siemens. Yet it products are highly particular and have features others do not provide. Therefore, it enjoys revenue growth well above the peer group average, and offers a good risk-reward opportunity. |
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| Company | Ticker | Sector | Upside Potential | Sharpe (FY01) |
| Siemens | SIEG | Industrial Conglomerates | 7 % | 5.37 |
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Investment case: Siemens AG is a global operator in electronics and electrical engineering. It operates in sectors such as Industry, Energy and Healthcare. The company is an important player in the automation and robotics market; however, so far the company has been unable to really capitalize on its competencies. |
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| Company | Ticker | Sector | Upside Potential | Sharpe (FY01) |
| ABB | ABBN | Heavy Electrical Equipment | 8 % | 6.01 |
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Investment case: ABB Ltd is a global provider of power systems and automation technologies. It offers products and services designed to improve industrial productivity, increase power grid reliability and enhance energy efficiency. ABB is expected to become the key beneficiary of the global renewal of power distribution systems in the Americas and Europe. ABB offers an excellent medium and long-term risk-reward investment opportunity. |
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| Company | Ticker | Sector | Upside Potential | Sharpe (FY01) |
| General Electric | GE | Industrial Conglomerates | 7 % | 7.46 |
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Investment case: General Electric Co is a highly diversified conglomerate with products and services that range from aircraft engines, power generation, oil and gas production equipment, and household appliances to medical imaging, business and consumer financing and industrial products. The firm’s power generation section is the backbone of the company, and the recent acquisition of France’s Alstom strongly underlines the company’s strategy. |
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