Blue Chip Investing in the Green Economy - Corporate Presentation May 31, 2019 - Greenchip Financial
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Blue Chip Investing in the Green Economy Corporate Presentation May 31, 2019
Founded April 17, 2007
Greenchip Global Equity Fund - $85m AUM
• Environmental theme fund (launched Jan. 2, 2008) – renewable energy, energy
efficiency, cleantech, water, food, and transportation
• 170 accredited investors including foundations and endowments
• Sub-advise Mackenzie Global Environmental Equity Fund (launched 10/18)
Excellent ten-year track record
• Outperforming the MSCI World Index
• Significantly outperformed Cleantech Indexes
Experienced Management Team
• John Cook, 25 years investment management experience
• Greg Payne, PhD, CFA, 18 years investment management experience
• Julie Ambachtsheer, CFA, 10 years investment experience
• Chuck Holt, JD, CBV, LL.M, CAIA, 10 years private equity, compliance and operations
experience
Investment Thesis
1) An historic “Great” Energy Transition is underway,
creating a tailwind behind environmental sectors and
significant new risks for unprepared investors
2) Environmental sector growth, technologies, and
regulatory policies are often misunderstood and, as a
result, securities are frequently mispriced
3) Greenchip’s global approach, value strategy and
bottom-up process is right for this space
Climate and the Great Energy Transition
The Transition Greenchip’s take
Ø Annual global energy consumption is 13 BTOE, 80%
of it still fossil based
It’s BIG
Ø Primary energy supply costs almost 10% of GDP
Ø Solar and Wind still generate less than 10% of global
electricity, despite 20 years and $2t of investment
It’s going to take TIME
Ø Paybacks on efficiency investments are improving but
new technologies still needed - takes time
Ø Populism (gilets jaunes, Trumpism, etc.) and tragedy
of the commons create significant challenges for
carbon pricing and environmental regulation (policies
Focus on ECONOMICS and we need and support)
CAPITAL INVESTMENT
Ø Economics justify increasing annual global transition
investment from $800b to $2.5tESG is insufficient to capture climate opportunities
and diversify from climate risk
Exposure)to)environmental)drivers
Environmental,
Themed,Strategy
Impact Investing $480
Sustainability Themed Investing $1,100 Generally, ESG integration
focuses on how companies
ESG,Integration
behave, while environmental
Positive Screening $1,800 sector investing focuses on
Tracking)error)(diversification)
what companies produce
Norms-based Screening $4,600 and sell.
ESG strategies have high
Corporate Engagement $9,800
correlations to benchmarks
and are less exposed to
ESG Integration $17,600 environmental drivers.
Exclusions $19,700
0 5000 10000 15000 20000 25000
$ billions
2018
Source: 2018 Global Sustainable Investment Alliance ReviewEnvironmental Theme Sectors
Over 600 companies with a cumulative $6 trillion market cap
Energy Clean Sustainable
Clean Energy Water Transportation
Efficiency Technology Agriculture
Waste
Building Food
Renewable management Transportation
management processing/ Water utilities
utilities and pollution operators
and efficiency logistics
controls
Renewable Software and Agricultural Water Transportation
Lighting
equipment logistics inputs equipment equipment
Electric Engineering/ Advanced Sustainable
infrastructure consulting materials food retail
Diversified Environmental
Leaders
Energy storage Power Metering and Sustainable
equipment management monitoring forestry
Renewable Automation and Industrial
fuels drives efficiencyOur Bottom-up Investment Process
• P/B, P/S, P/E, EV/EBITDA
• Debt/Equity, Debt/EBITDA
Database Screening
600 Companies
• Private equity heritage
• Management interviews and
competitive analysis
Extensive due diligence • Use DCF modeling to
determine target price
150 Companies
ESG Controversy Screen
• Assess company's financially material ESG
performance to identify controversy risk
Concentrated Portfolio
30-35 CompaniesConcentrated sector allocations: 30 - 35 holdings
Energy Clean Sustainable
Clean Energy Water Transportation
Efficiency Technology Agriculture
45% 22% 6% 7% 8% 12%
*Siemens Philips Lighting Johnson Controls *Cosan KSB Alstom
Canadian Solar *Siemens Takuma Ltd. Cascades *Violia Environment *Siemens
Jinko Solar ON Semiconductor Nemaska Bunge SABESP *Hitachi
First Solar Kemet *Siemens The Andersons
Solar Edge AVX Corp *Hitachi CropEnergies
Technologies
Vishay InterTech TPI Composites Verbio Bioenergy
EDP
Infineon Technology
Enel SPA
Takuma Ltd.
*Violia Environment
*ABB
Boralex
Kulike & Soffa
Infigen
Energy Recovery
*Cosan
*Cosan
Renewable Energy
Group Ecobee
*ABB *Panasonic
*Panasonic
* Multiple sectors
Source: Bloomberg, BlackrockPortfolio Characteristics
Greenchip
Other Characteristics
March 31, 2019 Global Equity MSCI World
Fund
- Average annual turnover*: 30% (includes
rebalancing)
Forward P/E 11.2 15.0
- Average number of holdings*: 33
Forward EV/EBITDA 7.4 9.7
- Average market capitalization**: $10.3 billion
Dividend Yield 2.0% 2.5% - Median market capitalization**: $1.9 billion
Trailing Sales Growth 5.5% 11.1% - Monthly standard deviation*: 4.1%
Price to Cash Flow 7.6 11.0 - Risk rating**: Medium
Debt/Equity 1.1 1.4
* Since inception
** Current
Price/Book 1.2 2.2Portfolio Diversification - Greenchip reports vs. MSCI
World and CTIUS but allocations show this is a benchmark agnostic
fund (April 30, 2019)
Geographic Allocation Market Cap. Allocation
Micro ($100m
Europe Large (> $10b)
)
32% 26%
18%
Asia
23%
Mid (> $1b)
49%
United
States
Canada 27%
6%Gross Fund Performance and Volatility
Clean Tech
Greenchip vs. Benchmarks Greenchip Index
Jan. 2, 2008 – May 31, 2018, $CAD Year (Gross) MSCI World (CTIUS)
250
2008 -24.1% -26.7% -38.7%
230
2009 23.3% 10.4% 17.2%
210
2010 2.6% 5.9% 1.7%
190
2011 -10.1% -3.2% -16.2%
170
150 2012 11.7% 13.3% 4.9%
130 2013 35.8% 35.2% 46.3%
110 2014 6.9% 14.4% -0.3%
90 2015 18.0% 18.9% 21.8%
70 2016 4.1% 3.8% 8.1%
50
2017 31.9% 14.4% 20.9%
07
08
09
10
11
12
13
14
15
16
17
18
2018 -7.9% -0.5% -4.9%
20
20
20
20
20
20
20
20
20
20
20
20
Greenchip Fund (Gross) 2019 ytd 11.9% 8.6% 12.0%
MSCI World Annualized 7.7% 7.2% 4.1%
CleanTech Index Monthly Std.
Dev. 4.1% 3.4% 5.4%
Source: RBC IS, Greenchip, Bloomberg,11
MSCIProcess has helped identify 26 take outs since inception…annual portfolio turnover approximately 30% 1. Alstom (Power Assets) 14. Nalco 2. Ansaldo STS 15. Polypore International 3. Boralex Income Fund 16. Pure Technologies 4. Canadian Hydro Developers 17. Ruggedcom 5. Cooper Industries 18. SAFT Group 6. EDP Renovaveis 19. Sierra Geothermal 7. Enel Green Power 20. Sprott Renewable 8. Fairchild Semiconductor 21. Telvent 9. Faiveley 22. Terraform Global 10. Innergex Trust 23. Trina Solar 11. International Rectifier 24. VicWest 12. IXYS 25. Western Wind 13. JA Solar 26. Xantrex
Theme for discussion - Solar
Solar 1. Tailwind – electrification, economics
• Become the cheapest electron in most regimes
160 9
Blended Average Solar PV Price ($/W)
• Flexible technology that can be built at any scale
140
140 $8.0 8 • Required for EVs and grid storage to reduce
Global Solar Installations (GW)
environmental footprint
7
120 109
2. Misunderstood – growth, consolidation
100 6
100 • Underestimated growth - 2% of global generation
5 should grow to 15% over next 20 years (more with
80 73 economic storage)
4 • Leaders have increased market share from 33-
58
60 66% in past 5 years – margins will improve
45 3
38
40 3. Value – Jinko and Canadian Solar
28 31 2
17 $0.8 • Less than 0.5x book, 5x trailing earnings
20 1
7 • Balance sheets misunderstood. Over $500m in
3 6
restricted cash that is not counted against debt
0 0
• Current ratio >1 including short term debt (Jinko)
5
07
09
11
13
15
19 17
03
20
20
20
20
20
20
-2
20
Source: Mercom, BNEFTheme for discussion - Renewable Utilities
• Coal and natural gas
U.S. Generation (2007-2017) have been heading in
2500 2.0% opposite directions
1.8%
2000 1.6% • The percentage of
electricity generated by
Annual Generation (TWh)
% of Total Generation
1.4% fossil fuels has dropped
from 72% to 61%, while
1500 1.2%
renewable generation has
1.0% increased from 8% to
17%
1000 0.8%
0.6% • The percentage of solar
500 0.4% generation has increased
a whopping 59X since
0.2% 2007
0 0.0%
2007 2009 2011 2013 2015 2017
Coal Nuclear Hydro Wind
Naturl Gas Solar % of solar
Source: NREL, EIATheme for discussion - Electrification
Battery and plug-in hybrid Electric-vehicle sales
electric-vehicle deliveries forecasts (millions)
(millions) 70
2.5
60
2
50
Other
1.5 40 Britain
Germany
30 Norway
1 United States
20 China
0.5
10
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2026 2033 2040
Source: Bloomberg NEFTheme for discussion - Power Management
Semiconductors and Passive Electronics
1. Tailwind – energy efficiency
• Demand for power management semis, capacitors,
resistors and other components in efficiency applications
growing at 2-3x the rate of traditional uses and several
points higher than the general economy
• Last two years 12-17% vs. historical 5-8%
2. Misunderstood – business cycle
• Demand cycle has fundamentally changed
• Industry is short capacity, and planned capacity at best
maintains supply/demand imbalances
• Consolidation – Greenchip has already had three take-outs
in the sector
3. Value
• Strong balance sheets with net cash positions of 25-50%
of market cap
• AVX, Kemet and Vishay Intertech represent 90% of the
global tantalum capacitor market
• Component pricing measured in pennies, with oligopolistic
market dynamic, there is room to increase prices and
marginsTheme for discussion - Mass Transit
Largest railway equipment
suppliers by turnover (2017)
CRCC
Alstom
Bombardier
Siemens
Hitachi
Knorr-Bremse
Wabtec
Trinity
Progress
GE
0 5,000 10,000 15,000 20,000
Euro millions
Source: International Railway Journal 10/18Looking forward
1. Valuations generally improved in 2018 – valuations today are far
more attractive than they were before the 2008 financial crisis
2. Rebalancing in volatile times provides upside leverage
3. Risk management
• Renewed focus on strong balance sheets
• Increased allocation to renewable utilities
4. Maintain value relative to market
• P/B, P/S, P/E, EV/EBITDA
• We often see opportunity in companies with lower margins and lower return on
equity (market tends to view this as a weakness)
5. Excited generally about solar, renewable utilities, power
management, and mass transit sectorsImpact - Each dollar invested creates $1.22 of annual
solution revenues. 84% of revenues aligned with 5 SDGs
Water Utilities SDG 6 Clean Water and
Water Equipment 8.5% Sanitation
Renewable Utilities
Water Equipment
SDG 7 Affordable and Clean
Electric Infrastructure 34.6% Energy
Energy Storage Equipment
Renewable Fuels
Software and Logistics
Advanced Materials
Metering and Monitoring
SDG 9 Industry, Innovation and
Industrial Efficiency 14.5% Infrastructure
Engineering / Consulting
Power Management
Automation and Drives
Waste Management and Pollution Controls
Building Management and Efficiency
SDG 11 Sustainable Cities and
Lighting 18.7% Communities
Transportation Operators
Transportation Equipment
Food Processing / Logistics
Agricultural Inputs SDG 12 Responsible
Sustainable Food Retail 7.1% Consumption and Production
Sustainable Forestry
Source: Greenchip March 31, 2019Disclaimer
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