Each week, a professional investor tells us where he’d put his money. This week: Francesco Conte of the JPMorgan European Smaller Companies Trust picks three winners.
The global market backdrop appears challenging, but we are keen on European smaller companies owing to a positive outlook for earnings growth combined with market valuations close to long-term averages. The JPMorgan European Smaller Companies Trust seeks out dynamic companies with strong growth prospects that are independent of the economic cycle. Many of these tap into exciting structural growth themes such as environmentalism, ageing populations, wellness and digitalisation.
High importance is placed on environmental, social and governance (ESG) issues. Well governed companies that respect the environment and nurture their employees as well as wider society are more likely to generate sustainable earnings in an ever more competitive global environment. Here are three stocks that tick these boxes:
Falck Renewables: the future of energy
Falck Renewables (Milan: FKR) is a pure-play renewable energy specialist with well diversified geographic and technological exposure. Falck builds, owns and operates wind, solar, waste-to-energy and biomass energy sites throughout Europe and the US.
Incredible technological progress has resulted in huge efficiency improvements in solar and wind power generation over the last decade and this is expected to continue. In many regions renewable energy generation is now cheaper than its conventional counterpart, while the demand for renewable energy continues to climb. Falck has a large development pipeline, resulting in extremely attractive long term growth prospects.
AAK: a play on healthier eating
AAK (Stockholm: AAK) is a top-quality European smaller company at the centre of the wellness trend. It is a leading global specialist in producing high value-added plant-based oils and fats. These are replacing animal-based alternatives as customers demand healthier and more environmentally friendly food and personal-care products.
The strong management team has a fantastic record of delivering consistent organic sales growth, margin expansion and selective acquisitions. AAK has developed strong relationships with clients through co-development of niche, technically advanced products. This supports the company’s pricing power, helping it deliver a high return on capital.
Bravida: environmentally sustainable buildings
Bravida (Sockholm: BRAV) is a market leader in technical installation services throughout the Nordic countries. It is at the heart of reducing the environmental impact of our buildings by utilising the latest technologies. For example, Bravida can install intelligent plumbing systems to reduce water wastage, design smart lighting systems to optimise energy consumption and introduce systems that recycle the excess heat produced by cooling systems.
The company’s asset-light business model allows it to generate strong free cashflow, which it uses to reinvest in new growth opportunities. Bolt-on acquisitions have complemented the company’s high organic growth potential. We believe that the company’s excellent long-term outlook is not reflected in its attractive valuation.