3 top picks in sustainability and software

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Lex Hall: Hi, I'm Lex Hall for Morningstar. Today, I'm joined by Nick Griffin. He's the Chief Investment Officer at Munro Partners where he manages the Global Growth Fund. We're going to talk about a few picks that Nick has his eye on in several fields, one of them being renewable energy, another one in diagnostics and a couple of names in software as well.

Hi, again, Nick.

Nick Griffin: Hi, Lex. How are you?

Hall: I'm well. Thanks. Now, let's talk about – in a previous video, you were talking about opportunities in decarbonization. You've singled out a few – a couple of Danish names. Tell us about them.

Griffin: Yeah. So, the interesting thing about decarbonization is ultimately you're going to rely on some technology and some IP. As Denmark has been an embracer of obviously clean energy for a very long time and so they happened to build a couple of national champions in Vestas Wind Systems and Vestas Wind Systems is the largest OEM or original equipment manufacturer of wind turbines in the world today. That company has roughly $30 billion market cap. But if you think about the total addressable market or the opportunity over time, there's no reason why Vestas Wind Systems won't be as big as any of the old service companies we've seen come before them, which would put them in potentially a $200 billion market cap at some point in the future. And so, we're really at the start of this journey, and ultimately, that's where they would sit as an OEM.

On top of that, you'll need a developer and the number one developer in the world for offshore wind farms happens to be Orsted, also listed in Denmark, roughly $50 billion market cap today, probably a little bit more than that. And they have the know-how to build offshore wind, and that's no difference to being an offshore oil and gas company and the ability to deepwater drilling becomes offshore wind. And ultimately, we see both of those companies effectively replacing their oil and gas equivalents over time. It will take a very long time, but they have their lead today and we think they are well-placed to win.

Hall: OK. Let's switch fields a bit, and let's look at diagnostics. And a company that you've cited there is Thermo Fisher. What do you see in that company in particular?

Griffin: Yeah. So, as a growth investor, we obviously – we haven't talked much about covid, but covid is here and it's not great. But our goal is to try and find companies that are net beneficiaries of the covid crisis, and there are. I mean, all of us have pivoted our life in some way, shape or form. Thermo Fisher is really sort of a weapons manufacturer in the war, if that makes sense, against covid. They are an enabler of technologies, an enabler of testing. So, Thermo Fisher makes the PCR test that all of us have if we have a covid test. They've actually picked up an extra $5 billion per annum in revenue from covid testing alone, which is more than 20 per cent of their current revenue base. They'll also help build the vaccine. So, every country is going to try and build some vaccine capacity. They'll be in charge of that. They will even be in charge of filling the vaccines in the vials or the tubes, et cetera.

And lastly, I think it's fairly obvious that even once covid is passed, and I think covid will pass, countries are going to spend massively to prepare for the next potential pandemic. And so, from that point of view, we do – we just see them as a great partner of countries all over the world to help them do that. And the market cap of the company is about $150 billion. So, it's a big company but still not a well-known company and hopefully, the market it's going to move into is very, very big.

Hall: Yeah, OK. Yeah, you're right, because a lot of the discussion is being taken up by companies like Gilead Sciences and Pfizer and Astra Zeneca. So, it's interesting…

Griffin: Yeah, I think the simple thing to say is, we don't really know who's going to come up with a vaccine, and we don't really want to bet on that. We just want to bet on the shovels in this world because we know the war is going to be long and hard and very expensive and that's where Thermo comes in, and you don't have to pay big multiples for it. It's roughly 25 times earnings today.

Hall: OK. And finally, let's turn to software. A couple of names here. We're sort of cheating a bit. We said three topics, but you're getting a little bit more value for your money today. You've singled out Atlassian and ServiceNow. Tell us a bit more about them. Atlassian we know is Australian, but…

Griffin: Yeah, so the wonder – if you think about the internet and how it's evolved, it's gone from sort of search to social to streaming videos to now streaming video conferences. And so, the internet is basically enabling software now all over the world and very high-end software to enable collaboration and collaboration has been at the forefront during covid because we've all had to learn how to use these tools. The reason why we flagged these two companies is because they were emerging before this happened and now that emergence will accelerate.

And so, if you think about work from home or work from different locations, ServiceNow is sort of the number one IT support software company on the planet and it's very much about cloud-based IT support, so you can operate your business in the cloud. And that's where ServiceNow fits. And we'd see it very much in the slipstream of, say, Salesforce.com.

Atlassian is really a collaboration tool that can go across pretty much every industry on the planet. It's very much focused on developers at the moment, but I think that significantly underestimates the other areas it could move into. And so, here, we're just trying to identify those few software companies that are going to become mission critical to people. I think most businesses will end up with five or six software subscriptions, and obviously, Microsoft will be one of them, and maybe Salesforce will be the other and we think these are two potential up and comers that we think will also fit those bills in the long run and that's why we like it.

Hall: OK. So, just to recap, that's Vestas Wind Systems, Orsted and in diagnostics, Thermo Fisher and in software, Atlassian and ServiceNow. Nick Griffin, thanks very much for your insights today.

Griffin: Thanks for having me.

Hall: I'm Lex Hall for Morningstar. Thanks for watching.

This report appeared on www.morningstar.com.au 2021 Morningstar Australasia Pty Limited

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