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Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
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Automation will accelerate under tight labour markets
Equities 5 minutes to read
Peter Garnry
Chief Investment Strategist
Summary: Automation and robotics are key technologies for companies to offset the cost headwinds from inflation, tight labour markets and demographics in the years to come. In the case of DSV, one of the world's largest logistic companies, heavy investments in automation technology has enabled the company to slightly expand its operating margin and reducing its workforce while competitors have been forced to do the opposite. Automation and robotics as an investment theme is key for the long-term investor.
Key points in this equity note:
- DSV has invested €350mn on automation since 2018 and says it is key for survival in the global logistics industry. Numbers are showing that these investments are paying off relative to the competitors.
- AutoStore is one of DSV’s key automation and robotics suppliers expected to grow revenue by 21% this year while delivering an impressive 48% EBITDA margin.
- Inflation, tight labour markets and demographic headwinds will underpin strong incentives for companies to automate business processes in order to cut costs. Key portfolio theme for the long-term investor.
DSV invests heavily in logistics automation
DSV, which is one of the largest logistics companies in the world, was featured yesterday in the media saying that it had spent €350mn on automation technology since 2018 and that the company would invest even more. Automation is increasingly becoming a competitive advantage or key factor in staying ahead in the global logistics industry.
DSV’s relentless focus on automation is showing up in the numbers. Unlike to its two competitors DHL and Kuehne-+Nagel, DSV has managed to expand its operating margin in the first six months from the same period a year ago, and while many other logistics companies are increasing their global workforce, DSV has shrunk its workforce by 2.5%. DSV says it is necessary to invest heavily in automation in order to survive.
A key automation and robotics supplier for DSV is the Norwegian company AutoStore (AUTO:xosl) which is projected to report FY23 revenue of €705mn up 21% y/y and up from just €181mn in FY20. Not only is AutoStore growing fast it is also showing profitable growth with an attractive EBITDA margin of 48% and positive free cash flow generation.
Robotics and automation are key technologies to offset tight labour market
Labour markets remain tight as we wrote in yesterday’s equity note causing wage growth to be elevated and continue for longer underpinning inflationary dynamics. Demographic headwinds in many countries around the world will not help on tight labour markets. As a result, many companies deploying thousands of workers in their production will be forced to automate their processes.
Automation technologies have existed for more than 100 years with the Ford T assembly line breaking the production into 84 individual steps and optimization those for efficiency and cost. Automation technology has constantly evolved in the industrial sector and with computers automation processes have advanced even more and many digital processes are being automated on a regular basis with the help of machine learning and recent generative AI models. In recent years, automation of warehouse has become a key competitive factor in logistics and e-commerce, and this market is perceived to be huge in the years to come. Increasingly, automation of the services sector will accelerate with self-servicing technology.
As tight labour markets and demographics will continue to be an ongoing theme we are working on an official Saxo theme basket on automation which will select automation and robotics stocks from different segments (warehouse, digital, industry production etc.). This theme is key one for the long-term investor.
List of automation stocks
- Ocado
- AutoStore
- Rockwell Automation
- Intuitive Surgical
- ServiceNow
- Symbotic
- Novanta
- FANUC
List of automation and robotics ETFs
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