Renewable energy enters theme basket universe Renewable energy enters theme basket universe Renewable energy enters theme basket universe

Renewable energy enters theme basket universe

Equities 6 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  Today we are announcing that our theme basket universe is expanding with a new basket focusing on renewable energy. The basket is the third best performing basket year-to-date as investors are rotating into renewable energy stocks as the EU is accelerating its push to become energy independent from Russia which means massive investments into renewable energy in the coming years. We are highlighting two new changes to our defence and commodities baskets in our preparation for providing access to our theme baskets.


Renewable energy is set to get a boost from Ukraine war and energy crisis

The energy crisis was already under way before the war in Ukraine broke out due lack of investments in oil and gas, and a historically bad year for wind energy. Russia’s invasion of Ukraine has catapulted Europe into emergency mode on energy security with the EU pursuing a path towards energy independence from Russia as quickly as possible. Part of this move towards independence is based on accelerating renewable energy and using excess renewable energy production in Power-to-X (PtX) which is a conversion of excess energy into hydrogen for energy storage.

Previously we had asset owners in renewable energy and manufacturers of equipment for renewable energy in our green transformation basket, but we have decided to spin out renewable energy production (solar, wind, hydro, geothermal, and biomass) into its own separate theme basket. The constituents in the basket is in the table below. Our renewable energy basket is the third best performing basket year-to-date highlighting the investor flows seeking exposure to this theme. The key risks to this theme is accelerating commodity prices on raw materials used for renewable energy equipment (steel, silicon, copper, cement etc.).

NameMkt Cap (USD mn.)Sales growth (%)EBIT margin (%)Diff to PT (%)5yr return
China Yangtze Power Co Ltd79,4171.355.214.8103.3
LONGi Green Energy Technology Co Ltd61,76174.814.041.81,027.5
Orsted AS50,94954.920.98.2223.9
Verbund AG36,63438.526.5-12.9528.5
Vestas Wind Systems A/S29,5935.22.1-1.587.4
Enphase Energy Inc27,57678.515.67.015,860.5
EDP Renovaveis SA24,6661.663.8-3.6245.6
Brookfield Renewable Partners LP19,2787.530.0-3.2229.3
Constellation Energy Corp18,953NANA-0.4NA
SolarEdge Technologies Inc17,79334.610.55.62,037.9
Corp ACCIONA Energias Renovables SA12,257NANA10.0NA
Siemens Gamesa Renewable Energy SA11,715-0.5-9.426.1-12.6
First Solar Inc8,9337.820.1-4.4216.1
Xinjiang Goldwind Science & Technology Co Ltd8,310-10.16.824.426.0
Northland Power Inc7,5671.638.68.4108.5
Sunrun Inc6,32674.6-41.460.2503.4
ERG SpA5,08627.022.812.1221.9
Ormat Technologies Inc4,627-6.025.5-6.748.1
Drax Group PLC4,16922.83.92.5211.8
Solaria Energia y Medio Ambiente SA2,82278.576.8-2.01,902.0
Aggregate / median438,43215.320.58.2223.9
Source: Bloomberg and Saxo Group

Defence and commodities baskets are updated

Due to many client request about access to our theme baskets we have decided to pursue the availability of these baskets for our clients. Part of this process is streamlining the theme baskets which means that we have decided to reduce theme baskets to 20 stocks. The two first baskets that have been reduced to 20 stocks are the defence and commodities baskets.

In the defence basket we removed the five smallest companies on market value which were Babcock International, Chemring, Invisio, Avon Protection, and Avio. See the updated defence basket below.

NameMkt Cap (USD mn.)Sales growth (%)EBIT margin (%)Diff to PT (%)5yr return
Raytheon Technologies Corp149,28013.87.78.570.1
Lockheed Martin Corp118,8692.513.61.890.6
Boeing Co/The112,6227.1-4.736.115.2
Airbus SE96,4434.510.234.063.0
Northrop Grumman Corp70,813-3.115.8-2.5108.8
General Dynamics Corp67,4511.410.86.645.5
L3Harris Technologies Inc48,877-2.111.85.4153.3
TransDigm Group Inc36,9952.937.511.1260.7
BAE Systems PLC29,5311.311.56.438.5
Thales SA26,556-4.77.412.635.9
Howmet Aerospace Inc15,215-5.515.011.172.7
Dassault Aviation SA13,23032.07.48.125.8
Rolls-Royce Holdings PLC10,915-3.94.222.6-61.2
Elbit Systems Ltd9,74312.18.11.8104.8
Rheinmetall AG9,2472.110.60.9172.0
Kongsberg Gruppen ASA7,2067.210.4-6.9269.4
Leonardo SpA5,8055.45.719.5-26.9
Saab AB4,94310.57.4-3.83.0
Ultra Electronics Holdings PLC3,117-1.112.41.884.8
QinetiQ Group PLC2,3377.27.314.823.3
Aggregate / median values839,1942.710.37.466.6
Source: Bloomberg and Saxo Group

The commodities basket has been changed in a more dramatic way. First of all, we have changed the name from commodity sector to commodities. Secondly, we have removed chemicals from the basket because it was too high up the value chain of commodities as chemicals are a value-added product and not a raw materials product such as coal, iron ore, or petroleum. By removing chemicals the commodities basket also gets a higher return correlation with the Bloomberg Commodity Total Return Index which is the leading benchmark index on commodities. The commodities basket has also been reduced to 20 stocks with a focus on agriculture, energy, mining, and forest products. The constituents in the commodities basket can be seen below and the basket is also the best performing basket year-to-date up 32.9% (see performance table above).

NameMkt Cap (USD mn.)Sales growth (%)EBIT margin (%)Diff to PT (%)5yr return
Exxon Mobil Corp351,89654.98.46.231.1
Shell PLC210,02144.88.514.931.0
BHP Group Ltd199,98647.148.4-8.6248.1
PetroChina Co Ltd150,02335.26.923.7-10.1
Rio Tinto Ltd135,75642.347.0-1.6238.9
ConocoPhillips130,357144.025.913.1135.2
Equinor ASA123,03194.037.8-10.0167.7
Petroleo Brasileiro SA95,79766.444.7-3.394.4
Glencore PLC87,75643.15.08.184.0
China Shenhua Energy Co Ltd87,52543.723.91.3135.0
Canadian Natural Resources Ltd73,43877.934.58.7124.4
Newmont Corp65,6076.310.6-14.3173.0
Southern Copper Corp60,43236.955.5-20.7164.8
Archer-Daniels-Midland Co51,28132.53.3-16.9134.0
Mosaic Co/The24,26442.320.0-1.8138.6
Wilmar International Ltd21,87230.24.125.554.5
Norsk Hydro ASA21,06630.911.14.9100.4
Bunge Ltd16,09742.93.60.470.7
Mowi ASA14,46311.813.13.0131.4
Svenska Cellulosa AB SCA13,7452.240.2-7.2247.9
Aggregate / median1,934,41542.616.51.3134.0
Source: Bloomberg and Saxo Group

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