We want to connect investors and consumers with fast growth, highly innovative sustainable companies.
In this first in a new series profiling some of the most promising ones from an investment perspective, the team from WHEB Asset Management talks about Wabtec, an engineering firm developing safety equipment for the rail industry.
What problem does the company uniquely solve and how does it solve it?
Wabtec manufactures safety equipment and various other equipment for railways. It is the market leader for positive train control (PTC) technology which enables remote control of brakes as a safety overlay. It is also the market leader in electronically controlled pneumatic (ECP) braking equipment which enables all brakes to be applied simultaneously across freight cars, reducing stopping distance by 30-60% and saving 50% on car maintenance from wear on wheels.
Tell us more about how the company fits with WHEB’s investment ethos.
Wabtec fits into our sustainable transport theme because of its focus on providing equipment for the rail industry. Rail is an environmentally preferable way of moving freight to road, being far less fuel intensive and polluting than moving goods by trucks. Wabtec also has exposure to our safety theme as much of what it does enables rail transport to operate more safely as well as more efficiently.
Why would the company be an attractive investment for sustainable investors?
We believe Wabtec is a high quality company that benefits from the shift to more sustainable transport – particularly taking freight off road and onto rail in the US. It also benefits from increased safety regulation for rail in the US and elsewhere.
How has it performed in investment terms?
Last year Wabtec was up 64% – well ahead of market returns. According to its 2012 Report and Accounts, Wabtec was the only US listed company whose share price has not declined over a calendar year for 12 consecutive years, and it went on to have a stellar year in 2013.
What’s the 10-year outlook for the company?
We think Wabtec has a lot further to go in international expansion, having taken non-North American sales from 24% in 2005 to 37% in 2013. It can also increase the aftermarket portion of its sales which has risen from 50% in 2005 to 57% in 2013. It has a history of being acquisitive and consolidating the rail supply market and we believe it will be able to continue to do this. In 10 years’ time, we believe the company will have more than doubled in size and become a lot more geographically diverse.
Any other comments?
Wabtec has 1,250 active patents worldwide and 350 patents filed in the last three years. It has a joint venture with ZhuZhou CSR in China to develop and produce brake systems for rail transit. It has a 50% market share in North America for braking-related rail equipment.
We initiated a position in the shares in January last year when we switched out of French rail equipment manufacturer Faiveley. One of our main reasons for making the switch was that Wabtec had far higher standards of corporate governance than Faiveley – an example of how our integrated approach to analysis of companies leads us to arrive at investment decisions. Since making the switch, Wabtec has outperformed Faiveley.
For more about WHEB, its flagship Sustainability fund and other sustainable companies it invests in, visit its website.