ESG stock picks: 17 companies tipped to have “a positive impact on the world”
Companies ranging from fuel cell maker Ceres Power Holdings PLC (LON:CWR) as well as others such as a meat producer, supermarket, gym chain and building materials supplier have all been picked by analysts at Berenberg as their ESG “top picks”.
Rather than just emphasising the environmental element of the acronym, the analysts have picked 17 stocks they believe “have a positive impact on the world”, including examining the reactions of companies to the coronavirus pandemic.
Only companies that have showed excellence in “managing the safety of employees, executive pay, withdrawing dividends, furloughing workers and supply-chain practices […] ie that those companies that have superior supply chain practices, employee satisfaction and brand reputation management are in a better position to navigate difficult times”, have made it into their ESG picks, of which 10 are listed in London.
“Over the past 12 months, we have carried out a significant amount of bottom-up ESG stock analysis, especially on the environmental and social impact of the products and services that the companies under our coverage produce,” said analyst Georgina Webb in the note.
“The COVID-19 crisis has put some stocks on more attractive multiples as well as highlighting those that are committed to protecting long-term value for wider stakeholders.”
Fuel cells, pollution control and chickens
Ceres, which is an ESG pick for its solid-oxide fuel cells that combat climate change and improve air quality, has been given a price target of 470p that offer around 44% upside to its previous close price.
Analysts trimmed their underlying profit estimates 10% for 2020 to reflect increased research & development and other costs but also “to give some headroom for any COVID-19-related disruption to manufacturing”.
FTSE 100 group Halma’s (LON:HLMA) is picked because, as a supply of equipment, fire and elevator safety products and environmental testing equipment, it is “aligned to long-term growth drivers for increasing safety regulation, medical care and pollution control”. A price target of 1710p points to 14% downside, in the medium term, however.
FTSE 250-listed pork and poultry producer Cranswick (LON:CWK), which has a 3,850p target that offers 10% upside, is an unusual pick as the meat production contributes more greenhouse gas emissions than non-meat foods.
But the analysts note that it has “very strong sustainability credentials”, being one of only two manufacturers on the top tier of the Business Benchmark on Farm Animal Welfare.
Healthy investments, energy efficiency and ventilation
IP Group (LON:IPO) is admired by the analysts for its high exposure to the UN’s 17 sustainable development goals of “good health and well-being” through its £600mln healthcare portfolio and exposure to “affordable and clean energy” through its cleantech holdings Ceres Power and First Light Fusion.
With the building sector responsible for nearly 40% of total direct and indirect greenhouse emissions globally, Kingspan’s (LON:KGP) insulation products are one of the simplest and most cost-effective ways to improve energy efficiency of buildings and therefore “contribute significantly in achieving climate change mitigation”.
Similarly, Polypipe (LON:PLP), with a target of 520p, could see increased demand for the ventilation products from the pandemic, with Polypipe manufacturing water management products that are designed improve the safety, sustainability and efficiency of water use and management, while also improving defences and responses against climate-related hazards and natural disasters.
Pumping iron, safety inspections, supermarkets and hips
Gym Group (LON:GYM), which was given a price target of 220p, “is a positive social impact play, making physical exercise affordable to all”, aligning to the health and wellbeing theme.
While the Covid-19 lockdown and social distancing measures mean all of its gyms have been closed and membership payments have been frozen, leading to a forecast 52% decline in underlying profits, Gym Group has a strong balance sheet and the analysts do not think the pandemic will affect structural drivers in the longer term”.
A provider of inspection, testing and compliance services for commercial buildings, Marlowe (LON:MRL), given a price target of 540p, is seen by the analysts as being aligned to three of the UN’s sustainable development goals.
FTSE 100 groups Sainsbury (LON:SBRY) and Smith & Nephew (LON:SN.) were given price targets of 250p and 2,135p, offering 24% and 43% upside respectively.
From an ESG perspective, Sainsbury’s has committed £1bn to its goal of reaching net zero emissions by 2040 and promised its employees a 10% bonus on every hour worked.
While the lockdown has “enabled Sainsbury’s to prove its commitment to the community”, with analysts believe supermarkets will capture 20% of the lockdown tailwind as the impact eases “as cash constrained-consumers will want to save money by eating more at home”.
As for Smith & Nephew, the analysts said the artificial hip and knee maker “has for several years had 10 long-term goals that cover employee well-being, environmental impact, ethical business practices, zero product-related harm and social responsibility programmes”. However, in 2019 it revised its sustainability strategy under the banner of people + planet + products, adding enhanced targets for each category and establishing a sustainability council comprising executive level personnel to ensure their delivery.
Overseas companies make up the remaining seven names on the list: Befesa, Corbion, Huhtamaki, RWE, Signify, Umicore and Veolia Environnement.