hugomanenti95 @hugomanenti95: "Hi all, I hope this finds..."

Portugal

Hi all, I hope this finds you well! Markets have calmed down, so I’ll take the opportunity to discuss some of our Q2 earnings reports. My focus this week will be on the electrical and solar sectors. 𝟭. 𝗔𝘁𝗸𝗼𝗿𝗲 $ATKR (Atkore Inc.) is a US manufacturer of electrical conduit and fittings, cable and cable management systems, infrastructure, safety and security products. Its end markets are varied – commercial, industrial, government, power, data centers, telecoms, solar, water and transportation infrastructure. Given the sustained investments into power generation, renewable energy, grid upgrade, data centers and public infrastructure, Atkore has a very attractive multi-year growth runway. However, the company guided down Q3 and Q4 2024, as well as FY25... 𝑺𝒐 𝒘𝒉𝒂𝒕 𝒊𝒔 𝒈𝒐𝒊𝒏𝒈 𝒘𝒓𝒐𝒏𝒈? In the short term, construction activity has slowed down due to a multitude of factors – high interest rates (impacting construction and solar), shortages of transformers, long grid interconnection queues, lack of regulatory clarity, political uncertainty, etc. Yet, while the slowdown in volumes is real, the main issue for Atkore has been pricing. Many of the company’s products are indeed commoditised – in particular PVC and steel conduits. After the bump resulting from pandemic disruptions, it was expected that prices normalise. Unfortunately, the slowdown in activity combined with an unsustainable surge in steel imports has resulted in a supply / demand imbalance, hitting prices more than expected. This is the main cause for the miss, as sales volumes remain on a growth trajectory – despite the above-mentioned headwinds. In my view, the guidance for 2025 looks sandbagged. The company is well managed and has several initiatives that will further grow volumes and protect margins (solar manufacturing expansion, telecom-specific products, cost improvements). In addition, the macro environment should be more supportive next year, with lower interest rates, greater transformer availability, political certainty, etc. And indeed, the Dodge momentum index signals meaningful growth in non-residential construction for next year, assuming planning activity does materialise. My view is that while Atkore is currently facing 𝗰𝘆𝗰𝗹𝗶𝗰𝗮𝗹 𝗵𝗲𝗮𝗱𝘄𝗶𝗻𝗱𝘀, the 𝘀𝗲𝗰𝘂𝗹𝗮𝗿 𝗴𝗿𝗼𝘄𝘁𝗵 story remains intact and should become obvious next year. 𝟮. 𝗪𝗲𝘀𝗰𝗼 $WCC (WESCO International Inc) is also active in the electrical sector, as the leading distributor in North America. It offers a complete range of electrical products, serving the utility, broadband, data center, communications, security, construction, industrial and public sector markets. Wesco benefits from many of the same trends as Atkore – electrification, onshoring, data centers, grid upgrade, power generation, renewable energy, etc. While Wesco does not have meaningful commodity exposure, its margins are typically lower than Atkore, which is normal for a distributor. Unsurprisingly, Wesco is also going through a cyclical slowdown in several of its end markets, in particular telecom and utility. And just like Atkore, I expect this to be transitory. Volumes have been flattish for a year, but we are starting to see green shots. Looking at backlogs and inventory across the supply chain, and given an expected increase in demand next year, WCC looks solidly positioned for growth and margin expansion. 𝟯. 𝗡𝗲𝘅𝘁𝗿𝗮𝗰𝗸𝗲𝗿 $NXT.US (NEXTracker Inc.) is the #1 manufacturer of solar trackers. Trackers aim to maximise the efficiency of large solar installations by adapting to the terrain, maximising sunlight exposure, as well as protecting modules from adverse weather (e.g. hailstorms). Demand for power generation is strong, driven by AI-related data centers, EVs, onshoring, economic growth, etc. Utility solar is now one of the cheapest and fastest sources of power to install – even before accounting for subsidies. And it is likely to remain so, driven by continued efficiency and technology improvements. It is also – of course – one of the cleanest. Unfortunately, in the short term, the industry is facing headwinds – grid interconnection queues, shortages of transformers, delays in implementing the IRA, lack of regulatory clarity on solar module tariffs, and political uncertainty. In spite of this, the business is growing, its margins are expanding, and its backlog is at record highs. I particularly appreciate that Nextracker continues to hit guidance and win market share, demonstrating the quality of the business and the management team. In stark contrast with its competition (ARRY). 𝗖𝗢𝗡𝗖𝗟𝗨𝗦𝗜𝗢𝗡 Those are three businesses that are leaders in their markets, with secular growth runways and strong management teams. Valuations are near cyclical lows, while growth is expected in the coming years. Hence, despite the short term bumps, I am looking to increase exposure again. Which of the three businesses do you like the most?

ATKR, dirt cheap

100.00%

WCC, no commodity exposure

100.00%

NXT, solar is the future

100.00%

3 Mentioned

ATKR

Atkore Inc.

WCC

WESCO International Inc

NXT.US

NEXTracker Inc.