A company integral to the growth of the EV sector has provided opportunities

A company integral to the growth of the electric vehicle sector has provided investment opportunities for the JUNO KiwiSaver Scheme. Guy Thornewill, JUNO’s Head of Global Research based in London, explains. 

Metso Outotec, a maker of mining equipment, is a global leader in its field.

Based out of Finland, the company sells its products around the world. Metso products are used in mining operations for rock crushing and for processing and refining minerals. About 30% of sales are related to copper production, and Metso’s equipment is also important for lithium and nickel mining. All three metals are key in the production of batteries for electric vehicles, which we think is going to see rapid and sustained growth over the next decade.

The renewable energy theme is in line with our active management strategy, where our investment team focuses on selecting high-quality, growth companies. We also look for a competitive advantage and a strong management team.

Analysts expect the world to need 2-4x more copper than is mined today to meet the demand for electric vehicle batteries, and Metso’s equipment is therefore key to transitioning away from fossil fuel-powered vehicles. In this respect, the company is integral to the growth of the renewables sector, and so it aligns closely with our Environmental, Social and Governance (ESG) policy. 

Metso is the global number one in most of its end markets. Its services business, which has a more recurring nature, is close to 50% of sales. We invested because we think Metso’s end markets will see good growth over the coming years, and the company was trading at a cheap valuation with a 7% free cash flow yield.

JUNO’s investment strategy is to pick global leaders with structural tailwinds for growth. Metso fits the bill. Mining equipment is certainly a more cyclical industry than our typical investments, but while the current growth outlook is more muted for many industries, we think the drivers for this company will remain strong. Metal prices remain high despite some recent declines, which is spurring further capital expenditure from Metso’s key customers.

Did you know that rock crushing uses 3%-5% of the world’s total power consumption? Or that about 1% of the world’s power goes through Metso equipment? Metso’s new products are also much more energy-efficient, helping customers reduce their carbon footprint. Metso itself has cut its power footprint by over 50% in recent years. 

We consider ESG matters as part of our investment process. We believe good long-term returns and good management of ESG risks and opportunities go together.

Our ESG policy means we think about ESG risk and opportunity when we buy, manage and sell our direct investments in companies around the world.

Information correct as at July 2022. Pie Funds Management Limited is the issuer and manager of the JUNO KiwiSaver Scheme.Click here for our Product Disclosure Statement. Any advice is given by Pie Funds Management Limited, and is general only. It relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees if you act on any advice. As manager of the Scheme we receive monthly fees that are determined by your balance and whether you are 13 years or over. We will benefit financially if you invest in our products. We manage any conflicts of interest via an internal compliance framework designed to ensure we meet our duties to you. For information about the advice we can provide,our duties and complaint process and how disputes can be resolved, visit www.junofunds.co.nz. All content is correct at time of publication date, unless otherwise indicated. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary. Please let us know if you would like a hard copy of this disclosure information.