WHEB Commentary

How we pump up value in the FP WHEB Sustainability Fund


One of the best performers in our Fund, Nibe Industrier, a Swedish heat pump manufacturer, not only demonstrates our ability to generate outperformance, but is also a good illustration of how we can add value at each stage of our investment process.

Investment universe: In order to be included in our universe, a company must have at least a third of its business coming from one of our nine themes. We believe that investing in companies whose core business is providing solutions to sustainability challenges will lead us to superior growth opportunities. Nibe, for example, predominantly sells energy-efficient heat pumps. Heat pumps are devices which use a small amount of energy to move heat from one location to another. Typically, they are used to pull heat out of ground or air to heat a building but the process can be reversed to cool a building.

Heat pumps are considered as a renewable energy technology in the European Union. These are a highly efficient way of heating a house and are increasingly being chosen by people who are keen to avoid high bills and be more environmentally responsible. Heat pumps still constitute only a very small proportion of the heating market in Europe as a whole. Forthcoming energy-saving subsidies for private homes in the UK and the EU Commission’s decision to include exhaust-air heat pumps in the regulatory framework for calculating renewable energy represent further growth potential for Nibe.

Idea generation: We draw on a range of sources to sift through more than 1,000 stocks in our investment universe to generate investment ideas. Our use of quantitative screens can help us to identify high quality stocks, which are trading at attractive valuations. With the help of such a screen we identified Nibe, a relatively obscure stock which very few brokers follow.

Fundamental analysis: Two key principles driving our analysis are to focus on the underlying business dynamics and to take a long-term perspective. After carrying out in-depth research and speaking to the management, we reached the conclusion that Nibe is a well-managed company which can consistently grow its sales and earnings in both good and bad times and generate high returns to shareholders.

By taking a long-term perspective we are often able to see through macro-economic uncertainty. Even though Nibe generated the majority of its sales in Europe, we initiated a position amid the Eurozone crisis in May 2012, when the Swedish market had just dropped 12% from its recent peak.1 As a result we were able to buy the stock at a four-year low in its price/earnings ratio.1

Engagement: We think that engaging with companies to improve their environmental, social and governance disclosure and performance will benefit long-term shareholders like us. Readers of our quarterly Governance and Engagement Report will have noticed that we voted against Nibe’s management in May 2013 due to the lack of independent sub-committees on remuneration and audit. We were therefore pleased to get a very positive response from the Chairman to say he would review Nibe’s committee structure in the next annual review. He also said, rather gratifyingly, that we were the first international investor who had ever given them an explanation of our voting decisions.  His personal letter was an illustration of how constructive engagement can often achieve results, particularly in small or medium sized companies.

Portfolio monitoring: We always make sure our investment theses remain intact by constantly monitoring market developments and company updates. Nothing is more rewarding than when your investment thesis is validated by the company’s results quarter after quarter. Nibe is an example of a company which has been delivering consistent results, supporting our investment thesis. Despite very tough end markets in Europe, the company still managed to grow its business through acquisitions and even improve margins at the same time.

We believe that getting the investment process right is the key to generating outperformance. Nibe is an example of how we are able to add value at every stage of our investment process. It has gone up 76% since we bought it on 30th May 2012 and outperformed the Swedish market by 39%.1

1. Data Source: Bloomberg as of 24th February 2014

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