Dion Hershan: 805 days down (and counting)

Yarra Capital Management

July 2024

Funds operated by this manager:

What's Social Proofing?

Insync Fund Managers

July 2024

Observing where the world is moving to is crucial to future-proofing portfolios and generating strong consistent returns. Demographic and technological shifts are rapidly changing consumer buying patterns. While understanding numbers is important, grasping human behaviour delivers deeper insights. Diligently analyzing these shifts and their implications helps identify future winners.

Social proof is a significant behavioural phenomenon now impacting purchasing decisions. It establishes trust and credibility for brands. Positive experiences shared by others reduce perceived risk and increase consumer confidence. With overwhelming choices, social proof guides consumers simplifying decision-making. Humans are social creatures, and seeing others adopt a product creates a desire to align with perceived norms.

Social commerce is transforming online shopping by integrating inspiration, research, and purchase into a seamless experience. This shift enhances consumer behaviour, with social commerce poised for remarkable growth, outpacing traditional e-commerce. In 2023, it accounted for 18.5% of worldwide online sales and is projected to exceed $1 trillion by 2026.

Key to social commerce's success is its authenticity and user-centric approach. Consumers discover products through peer, influencer, and brand content, fostering trust and engagement. Platforms   like Instagram    and TikTok are essential research tools for the Gen Z generation, emphasizing relatable and dynamic content. AI-powered recommender systems drive user engagement and targeted advertising, with companies like Meta leveraging vast amounts of data to deliver personalized content, improving ad returns and customer experiences.

Funds operated by this manager:

Insync Global Capital Aware Fund, Insync Global Quality Equity Fund

Disclaimer
Equity Trustees Limited ("EQT") (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) ("Insync"), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.

Stock Story: National Grid

Magellan Asset Management

July 2024

Growing electricity demand combined with the desire of governments to decarbonise their economies has presented substantial opportunities for capital investment in energy infrastructure. National Grid is a major beneficiary of these trends. The company is poised to grow the scale of its operations at a record pace over the next six years, with expectations they will commission more new and upgraded infrastructure than in the previous 30 years. National Grid has posted strong operating and financial performance over many years and now faces a prolonged period of unprecedented investment that will lead to long-term earnings growth.

Background

National Grid is a UK-based multinational whose primary activities are the operation of transmission and distribution of electricity and gas across the UK and Northeastern USA. 

National Grid operates through the following business units:

• UK Electricity Transmission operates high-voltage electricity transmission networks in England and Wales.
• UK Electricity Distribution operates the electricity distribution networks in the East Midlands, West Midlands, southwest of England and South Wales.
• New England business operates electricity transmission networks in Massachusetts, New Hampshire and Vermont, and electricity and gas distribution networks in Massachusetts.
• New York business operates gas distribution networks, electricity distribution networks and high-voltage electricity transmission networks in New York.
• National Grid Ventures develops, operates and invests in large-scale clean energy infrastructure. It operates separately from the core regulated operations of National Grid. The unit has a diverse group of businesses including subsea electricity interconnectors (interconnectors are high-voltage cables used to connect the electricity systems of neighbouring countries), wind and solar power generation, competitive electricity transmission, battery storage, conventional generation and liquified natural gas (LNG) regasification and storage. 

In the year ended 31 March 2024 (FY24), the Underlying Operating Profit for Continuing Operations for National Grid increased by 6% at constant exchange rates to £4,773 million.  Capital investment increased to a record £8,235 million, an increase of 11% on the previous year.  

National Grid delivered good operational performance over FY24 with high levels of network reliability; for example, Transmission and Distribution reliability remained steady at 99%-100% across all company-owned networks. The company is committed to achieving net zero and Scope 1 and 2 emissions fell by 6% in FY24.

Opportunities

The critical need for economies to invest in energy infrastructure has never been more pressing. Investment in an economy's energy infrastructure promotes economic growth, improves manufacturing and technology capabilities and enables decarbonisation - a key step in addressing climate change. 

Governments in the company's key jurisdictions have all made ambitious climate targets - the UK government has targeted a fully decarbonised electricity system by 2035 and New York has targeted a 100% zero emissions electricity sector by 2040 while Massachusetts has targeted a 50% reduction in carbon emissions by 2030. New York, Massachusetts, Vermont and New Hampshire all have ambitions to reach net zero by 2050. This decarbonisation in the US northeast and the UK is the dominant driver of growth for the company's business portfolio with the expansion and strengthening of energy systems being critical to the wider energy transition. 

"...artificial intelligence and advanced computing has led to increased growth in underlying electricity demand..."

The impacts of decarbonisation on the energy infrastructure sector are enormous. Across the UK, New England and New York, National Grid expects electrification of heat and transport to increase electricity demand from its networks by between 37% and 51% by 2035. In the US, renewable energy capacity could almost triple by 2032 to 110 gigawatts (GW) as the Inflation Reduction Act and Infrastructure Investment and Jobs Act encourage investment in the sector.  

In addition, the development of artificial intelligence and advanced computing has led to increased growth in underlying electricity demand, placing further demands on the capacity and reliability of existing power systems. 

As a consequence, policymakers in the UK and the US are encouraging investment in electricity transmission and distribution and other energy infrastructure. Given the bulk of earnings generated by National Grid are derived from regulated energy utility businesses, this encouragement can be expected to lead to increased investment, which leads ultimately to earnings growth.

Capital Investment Plan

National Grid invested £33 billion across its businesses over the past five years. In May 2024, the company announced that it expects to invest £60 billion in the five years to the end of March 2029, approximately double the level of investment of the past five years. The significant step up in capital investment will deliver annual group asset growth of around 10% and 6%-8% underlying EPS CAGR from a 2024/25 baseline. The scale of the investment is staggering. For example, the company's UK Electricity Transmission business is expected to install more than 12,000 kilometres of new cables across 17 new projects - the equivalent to the diameter of planet Earth. 

This investment plan is dominated by investment in electricity networks and will mean approximately 80% of group assets will be electric by 2029 compared to approximately 70% of assets today. Given the commitment of governments to ongoing decarbonisation, the increased exposure of the company to electricity networks positions them well to benefit from ongoing capital investment over the coming decades. 

By Gerald Stack, Head of Infrastructure & Portfolio Manager
Sources: Company filings

Funds operated by this manager:

Magellan Global Fund (Hedged), Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), MFG Core Infrastructure Fund, Magellan Core ESG Fund

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