Sustainable Equities Boutique

Company visits speak volumes

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Sustainable Investing
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Marc Hänni

Head of Swiss Equities, Senior Portfolio Manager

How do you find the real equity gems? By getting up close to the companies. The visit at an innovative Swiss building technology firm shows that this brings sustainable results.

Recently, Swiss company Belimo invited financial analysts and investors to spend a day at its head office in Hinwil in the Zurich highlands. We began the morning with a presentation on the firm's business operations, looking to the future, and focusing on sustainability, followed by a guided tour of the production facilities in the afternoon. Belimo, established in 1975, has been listed on the Swiss stock market since 1995. The company – whose name is an acronym combining elements of the German words for advise, deliver, and install – is a world-leading manufacturer of actuator solutions for heating, ventilation, and air-conditioning control systems, which are predominantly used in public and commercial buildings.

A personal welcome from the management

There were addresses from Belimo figures such as the CEO, CFO, and Head of Corporate and Brand Strategy, while energy experts from the University of Applied Sciences Rapperswil were among the guest speakers. In addition to the factory tour and presentations, we had the opportunity to put questions to the management:

  • What strategy is the company pursuing? Is it far-reaching and sustainable?
  • Is there enough investment in research and development?
  • Are production and warehousing efficient?
  • Is the lofty equity price justified?

Sound reporting is a testament to business success

Last year, Belimo's production of actuator solutions in the building technology sector reached nearly 7 million units. Sales have been growing continuously with stable margins for several years. The company's leading market position allows it to dictate prices. In air applications, accounting for 55% of sales, it is the global leader with a market share of 42%. For water applications, which generate 45% of sales, it is one of the top three providers worldwide with a rising market share that already stands at 18%. Belimo has a broad geographical base, with 48% of its sales in Europe, 40% in North and South America, and 12% in Asia.

Research and development expenditure pays off in the form of the most innovative product range in the sector. Belimo sources its components from other companies and focuses on installation, testing, and customer-specific tailoring. This strikes me as a streamlined, cost-efficient business model.

Growing worldwide with a blend of traditional and modern

Belimo's growth strategy is broad-based, and to me is proof of smart, farsighted management. It has four elements:

  • A greater emphasis on water applications in their traditional business of damper actuators and control valves.
  • Extending the product range further in the sensor segment, which is just two years old and has already launched room sensors for hotels.
  • Enhancing the integration of actuator, valve, and sensor technologies.
  • In geographical terms: strengthening the pillar in Asia.

Independent experts confirm future prospects

According to the presenting researchers from the Institute for Energy Technology at the University of Applied Sciences Rapperswil, buildings account for 40% of global energy consumption. Buildings swallow almost half the energy used throughout Switzerland, for purposes such as hot water, lighting, heating, ventilation, and communication. Further measurements show that it is more efficient to transport energy with water than via air. For instance, a cold-water circuit can control the room climate in a more energy-efficient way than conventional air-conditioning fans.

The researchers confirmed that renewable-energy supply is much easier and more efficient with buildings than, for example, with non-stationary energy users such as cars, because the required equipment is far less limited in terms of weight, volume, and safety, and can be based on a centralized infrastructure. In private homes too, there is a trend towards energy supply with no connection to the public electricity or gas network.

The researchers’ conclusion was that the conversion from fossil fuels to renewable energy sources can be made in the near future with sustainable building technology that also saves energy, generates energy on site, stores it, and transports it increasingly with water instead of via air – right from planning and installation rather than from the use stage.

State-of-the-art technology from cellar to roof

The persuasive explanations in the presentation room were followed by a tour of the highly modern production facilities. Adequate light, good air, and tidiness create a distinctly appealing working environment. At neatly grouped stations, the workforce assemble the bought-in individual parts into standardized or customized devices that are then checked to make sure they function perfectly. The whole building is fitted with Belimo brand actuators, valves, and sensors, highlighting how innovative building technology meets complex sustainability requirements.

Digitalization and defossilization combined

Energy efficiency is right on trend, as ultimately it saves operators time and money – especially if they can control their premises from anywhere through digitalization via the cloud. In turn, many consumers are calling ever more loudly for measures against global warming, while regulations on energy consumption and harmful emissions continue to tighten, accompanied by corresponding incentives. Aging infrastructure in older buildings must be replaced in line with the new restriction standards. Emerging markets are also equipping their buildings ever more safely and conveniently. Belimo is ideally placed to step into the breach and meet this demand.

Sustainability across the entire value chain

Belimo is making an exemplary contribution to sustainable development in three ways: First, the company treats the environment and its resources with care. Second, it ensures the health and wellbeing of society. Third, at the managerial level, it is structured and well monitored, targets healthy economic growth, creates a culture of trust among the workforce, fosters talent, and allows equal career opportunities for everyone.

For the purpose of short-haul transportation, the value chain starts with sustainably operating suppliers who are as local as possible. Belimo regulates this contractually, and reviews it on a regular basis. Assembly of the sourced parts, also performed in an environmentally friendly way, is followed by low-waste delivery to customers, based on sophisticated warehousing logistics.

According to the company's own measurements, the almost 7 million actuators produced in 2018 can prevent just under 7 million metric tons of production-related greenhouse gas emissions to the end of their service life of at least 15 years, from procurement, manufacture, delivery, and use through to disposal.

Genuine enterprise value justifies the equity price

Belimo's balance sheet reflects financial strength, not least because of low liabilities. Therefore, I believe that the company could cope with any fall in sales and exports, or higher procurement costs that the ongoing global trade disputes or other geopolitical developments could bring about with impacts on Belimo's trading partners.

With the informative insight that I gained from my company visit at Belimo, with confidence, I can check all 10 points on my strict quality checklist:

  1. Global market leader with a broad geographical base
  2. High-quality range of products and services
  3. Successful business model
  4. Sound and stable business operations
  5. Efficient value chain that meets strict sustainability criteria
  6. Clear corporate strategy with a long-term focus
  7. Innovative strength through targeted investment in research and development
  8. Healthy balance sheet with low indebtedness
  9. Substantial long-term earnings growth potential
  10. Accessible, transparent management

The findings will be entered into the research database that my team and I are constantly expanding as an essential basis for our work. It pools all our knowledge of the approximately 120 Swiss companies that we follow closely. I will discuss the evaluation with the team. Then we will review the Belimo positions in our portfolios. Most of them have contained the stock for some time – a good decision with sustainable results. After all, the equity price has more than quadrupled over the last 10 years, thus gaining in value around three and a half times more than the entire Swiss equity market.



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