Renewable Energy

Cable and battery manufacturers currently have the best perspectives in the renewable energy sector. Portfolio manager Jon Sigurdsen believes that these sub-sectors stand out positively among the generally weaker economic development. The manager of the "DnB NOR Renewable Energy" equity fund and the "DnB NOR ECO" absolute return fund explains as much in his current market report. "Some companies in this sector look particularly attractive to us because the market is currently overrating the cyclical nature of the market", Sigurdsen says.

Strong order volumes boost the cable sector

"Activity is very strong in some power cable manufacturers; they could secure large orders these past weeks", Sigurdsen explains. In the power sector ABB, an energy and automatisation technology group, for instance invested about one billion US dollar in a project designed to connect wind farms in the North Sea to the German grid. And the UK power provider National Grid plans to invest 21.9 billion British pounds over the next eight years to expand the electricity transmission grid. "Projects of this size need years of planning and the clients of cable providers are largely companies with regulated returns. As such, they aren't angling for short-term economic successes", Sigurdsen says. Given the significant order volumes in this sector, he increased the allocation of his renewable energy fund to the electricity grid from four to ten percent. His current favourites are the providers Prysmian, General Cable and Nexans.

Growth potential in the battery sector

"The battery segment is the second renewable energy sub-sector we currently see as very promising", says Sigurdsen. Here again, he adds, the cyclical nature of the market is overrated. This is showcased for instance by the battery manufacturer Exide which can benefit from increasing aftermarket demand even if new car sales stall. Since the company has so far only targeted the European market for original equipment (OEM) it has still substantial growth potential in the Northern American OEM market and the international aftermarket. Investors have been overlooking this so far, focusing on other factors instead. Thus, the share of the fuel-saving start/stop battery manufacturer has recently fallen by 26 percent. The decline was prompted by lower sales in the US transportation sector, one of its distribution markets. Sigurdsen is optimistic however: "This won't matter much from our point of view because the company is de facto transitioning to a higher technology level and is penetrating new growth markets with its start/stop technology."

"A closer look at the regional differences in the sector reveals a disquieting trend towards ever lower liquidity in Chinese companies", Sigurdsen says. They tend to justify the financial straits with their government's current loan origination policy. "We believe that this is only part of the problem - the companies must improve operational sustainability and we see the risk of a bubble forming. We have therefore been skewing the geographic exposure of our funds towards America as the American firms currently handle the risks in the sector more carefully than their European and Asian competitors", Sigurdsen says.