Dear Clients and Colleagues
COVID-19 has resulted in a shift in consumer spending. Post-lockdown, there has been an uptick in home spending and increased demand for hygiene, health and well-being products, while demand for products associated with socializing or going to work has declined. Spending on technology hardware, such as PCs, laptops and cartridges has almost reached pre-COVID levels, while spending on gardening products has increased by a low single-digit year over year.
At this stage, we remain underweight within the consumer discretionary sector. We tend to favour consumer companies that can rely on several distribution channels and possess strong brands. In times of crisis, consumers tend to prefer to stick with brands they know and trust. Our investment philosophy also prioritizes companies that offer above average industry growth, better margins and stronger balance sheets.
Husqvarna, a company we included in our international portfolios during COVID-19, fits these characteristics. Husqvarna is a global leader in outdoor power products, including chainsaws, trimmers, lawn mowers, and garden tractors. It is also active in consumer watering products under the Gardena brand. Husqvarna’s portfolio includes products for consumer and professional use. The company generates 36% of its sales in North America, 48% in Europe and 16% in other international markets. For its 2019 fiscal year, the company reported sales of US$4,472 million and an EBITDA of US$612 million.
Husqvarna remains the global leader in robotic lawn mowers and battery-powered products. In fact, the company invented robotic lawn mowers 20 years ago. There has been a recent increase in the market penetration and popularity of robotic mowers, stemming from several factors: a labour shortage in the service industry, the rising costs of contractors, lower productivity, and a lack of quality of the work done by contractors. Another reason for the increased use of robotic mowers comes from a sustainability standpoint. Robotic mowers are petrol free and generate only 60 decibels, a fraction of the noise made by conventional petrol-based mowers. Robotic mowers are also designed to service professional markets. Landscapers, property managers and other fleet owners are all adopters of the solution and this represents a very new and untapped market.
In an attempt to contain greenhouse gas emissions, citizens and consumers are expected to take on environmental initiatives. We anticipate increasing environmental consumer awareness to intensify within many product categories. We believe battery-powered products will continue to experience high consumer demand.
Have a great weekend.
The Global Alpha Team
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