Expert: Nick Griffin & James Tsinidis – Is climate the biggest opportunity since the internet?

Bryce: [00:00:15] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce, and as always, I'm joined by my equity buddy Ren. How are you going? Alec: [00:00:31] I'm very good. Bryce. I'm very excited for this interview. One of the biggest topics if not the biggest topic in the Equity Mates community last year was sustainability and climate change. Yes, and we're kicking off the year with a big interview with two experts who are right in the middle of this subject. So I'm going to learn a lot and hopefully find some investing ideas in this massive thematic to kick off the year. Bryce: [00:00:55] Absolutely no better way to kick off, and it is our absolute pleasure to welcome Nick Griffin and James Tsinidis to the studio. Guys, welcome. Nick Griffin: [00:01:03] Thanks for having us. Thanks very much. Bryce: [00:01:05] So Nick is the founding partner and chief investment officer at Munro Partners, and James is a partner and portfolio manager at Munro Partners as well. And they are both here to talk about the investment case for climate. So Ren, let's kick into it. Alec: [00:01:21] Let's do it now. Nick, we've had you on the show before and when we've had you on. We've been talking about, you know, big technology companies, and Munro has built a reputation for investing on the forefront of some of these big technological changes. So how does climate fit into this? Why is climate one of these big technological changes? Nick Griffin: [00:01:42] So when you're investing full stop? You know, the biggest thing you can do is try and find some sort of structural tailwind that that tailwind will ultimately lead you towards some great companies. And those great companies will also get you great earnings growth and earnings growth will equal share price growth and get your return. So so that it's pretty simple. And so if you go back over time, you know the smart phone. The adoption of smart phones effectively credit Apple. The adoption of e-commerce creates Amazon, the adoption of tap and go payments or buy now, pay later credits Afterpay in Australia. That's sort of, you know, the structural tailwinds that you're looking for that creates the earnings growth that creates the winners. Climate is just another one of these structural changes. You know, from our point of view, it's reasonably obvious that we're going to attempt to decarbonise the planet. It's on the, you know, most consumers care about it now, most corporates care about it and governments care about it as well. So that's three pronged approach means that you are going to attempt to decarbonise the planet. And I really think it's that corporate one. That's the big driver here, where most companies now are being held to account on their ability to decarbonise the planet. And so if you look at that and you think about, well, how much is that going to cost? You know, there's a range of estimates out there, but we think it's somewhere between 30 and $50 billion to to electrify and decarbonise. The planet goes across electricity, transport, packaging, et cetera. And so at the end of the day, the reason why we think this is one of the big structural changes is because that steady $250 billion of revenue for the companies that are going to enable that decarbonisation. So so our job as investors is to follow the demand, follow the money, find the companies that will enable that decarbonisation, that will equal earnings growth and inspire us to share price growth. And that's exactly what you did with smartphones or e-commerce or cloud computing. And this is why it's exactly the same. And that's why we just think it's a really exciting area. And the best thing about it is, you know, we're right at the start. Yeah. Bryce: [00:03:31] So if climate is the sort of umbrella structural change within that, what are some of the really interesting structural changes that you're particularly sort of focussing on and interested in at Munro? James Tsinidis: [00:03:42] Yeah, good question. So obviously, as Nick mentioned, sort of 30 trillion of spend over the next 30 years to 2050 as most of the targets sort of net zero by 2050. And we sort of think more broadly than just sort of thinking about renewable energy and things like that, electric vehicles, we're trying to capture the whole sort of sustainability piece here. So that's the first place that we look at is is renewable energy itself and all the companies helping to transition from fossil fuels to renewable power sources. So everything from solar panels, wind turbines right through to sort of the companies that are actually building it and getting it to the consumer next pace would be the energy efficiency side. So it's probably something that's was talked about all this sort of front of mind. But, you know, just retrofitting old buildings, homes, et cetera, with new insulation, new heating, cooling systems, et cetera. The third piece we think about is just the clean transportation side. So that's everything, everything from Tesla to the companies that power electric vehicles in the semiconductor side and so forth from the battery side, the commodity side, but also other forms of transport as well that are maybe harder to decarbonise, which are maybe further out into the future. So they sort of have some of the hydrogen type of stocks where you is sort of looking at decarbonising over time, you know, shipping and other other sort of areas as well. In the last piece is it's just a circular economy side. So everything from sort of waste collection companies through to plastic recycling companies through to companies that are benefiting from a shift in substrates so generally from plastics to aluminium or container board, et cetera. And so those are sort of the four. Key things we're thinking about, but obviously there's a huge multitude of opportunities within each of those as well, so Alec: [00:05:17] all massive topics and would love to sort of just briefly step through each of them for you to give us, I guess, a little bit of a lay of the land. What are some of the challenges in each of those fields? Where are the opportunities and are there any companies that you think are doing really interesting things? Obviously, we could do a full podcast on each topic, so we don't expect we don't expect the full thesis, but just so for Bryce and I and for people listening. If we just want to understand what each of those labels mean, we can have a bit of a bit of an idea. So Nick, why don't we start with you? Of those four categories Clean Energy, Energy Efficiency, Circular Economy and Clean Transport Dealer's choice, why don't you pick one to start with? What's one that gets you excited? And can you talk us through it a little bit? Nick Griffin: [00:06:01] Yes, I'll take an obvious one and then I'll do two. I'll do the obvious one in the lesson of one and then I'll change it. So the obvious one is clearly clean transport, so every single person listening to this podcast is probably considering buying an electric car. And I would argue the next car is probably an electric car. Electric cars are just like smartphones were back in 2008, so we all learnt a feature phone I. We all end an internal combustion engine and then we all switch from a Nokia 60 110 to a smartphone. That's what we did, and we all didn't stay with Nokia. We all went to Apple. And so the argument is we always go with, you know, with Ford, we'll go to Tesla as we move to electric cars. That's why Tesla has the market cap. But there will be others along the way, and there's a whole supply chain within that. So as you move to electric cars, obviously there will be car companies that went out of that, both legacy car companies and new car companies coming along. The second thing that will happen is, you know, the supply chain. So the semiconductor supply chain will be very important. So instead of building engines, you'll be putting lots of semiconductors into these cars to like power semi's, etc. And that's companies like Infineon and on Semi in the US and the other ones we like there. And then thirdly, you know, you'll have to put an entire electric architecture in these cars and do charging stations and et cetera. And so that's really for your electric infrastructure company. So that's how we take clean transport. And you know, there are companies building these charging terminals. There are companies that make these semis and they're obviously the car companies that make electric cars. Right now, the supply chain looks elsewhere. And lastly, there's the batteries, there's the lithium and the nickel and everything. So for us, the supply chain looks a lot cheaper than the brands today, but at some point that may change your route. So that's that's clean transport. That's the really obvious one. And I think the one stat I'd just leave your listeners with is this inflexion is actually happening right now. So you can't really see it in Australia. But you know, countries like Norway, Norway are already up to 60 percent electric cars. Wow. Little trick China is at. Twenty five percent of all new cars are electric, Europe's at 15, and Australia and the US is still hanging around at five. So but we will catch them, we will. It's just a matter of time. Bryce: [00:08:05] Yeah, it's a challenge. I have thought about electric cars, but I live in like, you know, a pretty dense area of just sort of the outer CBD in Sydney and where we live. Our suburb has no parking spots per house. It's, you know, everyone parks on the street. So how are you supposed to run an electric cord from your house down 100 metres where your car's parked to charge your car? It's a massive Nick Griffin: [00:08:29] challenge that is a challenge, and it's a challenge that we'll solve over time. Yeah, but you know, the car, the car shift will probably not happen. The smartphone shift took about six years. The car shift will take about 20 years to get to an electric. But even at that rate, it's important to remember that the total addressable market for car is like, you know, 20 X what a smartphone is. Yeah. So it becomes companies that can benefit from the shift, you know, basically have 20 years of continuous demand in front of them. Yeah. And I think what excites us is that's 20 years of continuous demand when, you know, most of them are trading at, you know, market multiples or below because people just haven't really thought through the structural shifts that's occurring. They're happy to give the multiple to Tesla and price in, you know, the 20 30 earnings today, but they're not prepared to do it to these companies that are integral in supply chain and that's the opportunity we love. Alec: [00:09:19] So if that if clean transports the obvious one, why don't we move to the less obvious one, nick? And then we'll get to the other two? Nick Griffin: [00:09:26] I guess the more or less obvious one is energy efficiency. This is actually the biggest one. So the simple way to think about the best way to save, you know, to get to carbon net zero is to say you BHP and you're producing a sustainability report, which they do. It's on their website. It's got and pages in it, including Excel spreadsheets. And it ultimately shows you how they're going to get to net zero and it's audited by. The easiest way to do that is to become energy efficient, so to move their buildings to six star energy ratings. So think about the insulation and cladding on new buildings to think about the heating, ventilation and cooling system that they're running off to switch from gas fired to renewable power to double glazing your gloss. You know, this is a basically a building renovation boom that you see in Europe, particularly right now, and we suspect you'll see in the rest of the world than here. Just really boring companies that you wouldn't think would benefit from this. I got a benefit for us. So, you know, we've become experts, in fact, or heating, ventilation and cooling. We've always liked insulation. You know, these are great structural trends that don't have to be technology. They still go to demand curve in front of them and you don't really have to pay for it. Alec: [00:10:28] One thing I love about investing is that you can become an expert in something that you just never thought you would be interested in. You've become an expert in insulation. Who would have thought Nick Griffin: [00:10:37] that an industry is a solid industry? And what about Bryce: [00:10:40] you, James? Do you want to take us through the other two? James Tsinidis: [00:10:42] Yes. So maybe I'll do the renewable energy side and the way we sort of looked at it to sort of uncover where we wanted to invest was, we looked at that sort of 30 trillion number that we spoke about, and we got some estimates from European Investment Bank estimating where that 33 can be spent. And actually energy efficiency was the biggest spend at about a quarter of the spend. But the next biggest was actually renewable energy buildout. That's about just on a 20 percent of their estimation. And then from there, what we basically did was basically do the maths. So 30 trillion, 20 percent or 30 trillion over 30 years, and we're within renewable energies that are going to be spent. Where are they going to get the power from? IEA is going to be solar, onshore wind, offshore wind, et cetera, and basically just did the maths of where we thought the Dollars would flow. And then we basically looked at the companies to benefit from it, from each of those those areas. So basically looked at the simple manufacturers of the products side, wind turbine companies, the companies that put the products in and actually run the wind farms and so forth. And companies all across sort of the transmission grid as well. So that's basically what we do for the renewable side and just effectively try to figure out the revenue opportunity for each of these companies with within their effectively built and built the universe of these travel companies and trying to pick the best opportunity at the time. So that was what we did for a noble energy, very much that sort of top down and then the bottom up company work afterwards. Alec: [00:12:04] When we were prepping for this interview, we read something on your website. That forecast suggests the world needs 20 times more wind farms than are in existence today, but there's only three companies that can build them, which just blew my mind that, you know, in such a, you know, we've we've talked about how big a growth area this is going to be, and there's three companies that that are competing for this work. Can you just talk us through how that's the case? James Tsinidis: [00:12:28] Yeah. So that's on the OEM side. So the company has actually built the turbines themselves and ship them and so forth. Next out, investing in this area, I think 15 years ago or so and back then, there's actually a lot more of these companies and a lot of them actually went broke because, as you can imagine, sort of shipping around very large, you know, the size of jumbo jet type turbines. There's a lot that can actually go wrong. And we're seeing that at the moment with obviously with Covid and supply chains and these type of things. Profitability is really under pressure. And so a lot of these companies just didn't survive. And so they either merged or went out of business or whatnot. And so you end up with three main players in the developed world and then you had the Chinese players as well, but obviously shipping around things of that size. There is that sort of natural barrier relative to other industries where sort of Chinese competition come coming and maybe beaten the Western counterpart over time. It hasn't happened as much in that industry. You end up with a pretty stable set of Western companies being based as Siemens Gamesa and GE, so they've sort of been somewhat protected from that sort of Chinese competition over time. And then the others that they've competed against this year have gone broke or whatnot as the industry's matured. You had a situation where things were very much determined by incentives and several tax breaks and so forth in different different countries. And so as the demand sort of shifted based on that, companies did go out of business over time as a demand sort of spot and sell. Now we're in a situation where the cost of wind is actually below sort of fossil fuels in a lot of markets. And so you don't have that sort of boom bust situation anymore. And these three companies are the ones that have survived. On top of that, you do have a services side of things as well. So when you do put in a wind farm, if you're a corporate looking to put in a wind farm or a utility or something like that, if you're not a sort of big company, you also need to have your your wind farm serviced as well. And so a lot of these contracts, because they sort of 30 year projects, you don't just want to leave it to anybody. And so that's why these sort of three big sort of names end up winning because you ultimately get the service contract for a long period of time and they lock in that customer for, you know, from long term contracts and so forth. So that's why you sort of seen this situation on the developer side, it's a bit more fragmented. As you can imagine, there's a lot of different companies and utilities and so forth looking to basically build their own, their own wind farms or solar farms and whatnot. So it is different on that side. It's very fragmented market, but that's that's good for these sort of three big wind turbine companies because the more fragmented the market, the the more customers that they have and the more they can sort of push their contracts onto the customer. Alec: [00:14:54] And before we move to circular economy one, I'd be remiss if I didn't ask this question because it's one of the biggest debates in the Equity Mates community at the moment. Where's your view on nuclear power? Like, does it play a role in this clean energy thematic? Is it too expensive? Nick Griffin: [00:15:13] your I can take that. And most people listening would realise we're probably in a bit of trouble on this getting to net zero target. The temperature is rising. The climate is changing. And so we are very much in the all of the above category. You basically need to go for anything that's going to work from here. The problem with nuclear is it's just going to take so long to build a new like it is literally 10 to 15 years to build a nuclear power plant and to permit it and to find somewhere to put it. So the existing power plants are very, very useful. Well, we see lots of new ones. We think less likely. Bryce: [00:15:44] And so, James, just to close out the four categories are circular economy. What are some of the challenges opportunities that you're seeing there? James Tsinidis: [00:15:51] So yeah, there's a range of different investments are going to cost the fund on circular economy, everything from sort of reverse auto vending machines, companies that build them, put them in. And basically you put the plastic bottle back in and it recycles it for you and maybe gives you some money as well. At the same time, so everything from that sort of companies are just building their containerboard or aluminium can or whatnot, just taking share from from classical or other substrates. And so we have seen just very simple, very boring type of companies do really, really well over the last few years because as you can imagine, there's this huge plastic problem or this huge waste problem. And so anything that just improves the circularity of products is obviously massively beneficial to the environment. Classic example One of the biggest holdings in the fund right now is Ball Corp, which is an aluminium cans company. I produce aluminium cans, and so next time you go down to the coffee shop or the doughnut shop, you know you might notice that the previous Mount Franklin bottle was in the plastic bottle that might actually be converted to can. If it's sort of a high end shop, that's a tailwind for companies like Bulk, or they can charge for that sort of premium product and aluminium cans go it sort of a six or seven per cent Kiger because of that sort of just very simple substrate shift. Then obviously when you think about glass and things like that, that's very heavy. And in an e-commerce world, it's not that practical as well. You don't want your glass. You don't want your Amazon order coming in glass and smashed up at your front doorstep. And so it's inefficient to transport from an oil perspective and also just from a safety perspective as well. These sort of substrates do take share over time, and it's just very simple, easy way to find a very consistent growing business or areas of interest. And business is just going to grow with that sort of nice structural growth tailwind ahead. So the circular economy has a lot of really good, interesting just below the radar type of stocks in there. The gym that Bryce: [00:17:34] I go to actually serves all their water and aluminium cans, and I Alec: [00:17:39] that's the kind of gym you don't Bryce: [00:17:41] like. So now I know I'll have a look on the bottom and see where it's made, but I James Tsinidis: [00:17:49] His company, Black Ops, doing tops as well. So next time you go to the football and you got your plastic beer, your plastic cup with the beer in it, and you know, as a kid, you remember, you know, you stack them up nice and high from from the Essendon Collingwood game. Now that potentially, you know, be interesting to see if you know the aluminium cup gets gets rolled out as well. That's that's a bulk of product as well. So I take your eyes out for that interesting. [ Alec: [00:18:12] Wow. There you go. So Nick, when we were speaking about the clean transport thematic, you mentioned how far Australia is behind some of the other parts of the world, I guess more generally across these other three thematics and just climate generally. How does Australia compare where in the world is over indexing? Where are you saying some of these really great companies emerge from? Nick Griffin: [00:18:35] Obviously, Australia doesn't compare very well. I think most people can say that from the outside looking in and even in the inside looking at it. Look, the reality is we haven't really had the political framework that's that's incentivised these things to be done. And look, we're catching up, obviously, which is great. So just to give you an idea, some sort of government framework is helpful to allow these businesses to borrow and which ultimately helps your economy in the long run. So, you know, James just talked about Vestas is the largest wind turbine manufacturer in the world, and it's listed in Denmark. It's the biggest company in Denmark next to Novo Nordisk. Sorry. And you know, Tesla is the largest electric car mechanic here in the world, and it's founded in California, right? So this isn't a coincidence. It's not a coincidence that the two places in the world that have been most climate friendly have happened to created two of the biggest leaders in this space. And Australia actually hasn't had that environment, so we haven't actually been able to build this like this. That's unfortunate. That's done now as we go forward. The reality is, Australia has a role to play clearly with the minerals that we have to go into batteries. And I think a lot of people on Equity Mates, a pretty across system and much more across it than we are, quite frankly. You know, we we have a view on lithium. We like nickel, but you know, the companies of the size that people are looking at are probably not suitable for our fund. But we did. We would not put people off doing that because it's a long demand curve in front of them. The second thing is place Australia can participate is obviously with the development of renewables. The solar stuff that people are looking at doing into the north up Northern Territory and the solar farms you see popping up around Australia, in the wind farms, up around Australia. From a developer perspective, it's a rich environment for those utilities that want to focus on this country. That would be my short answer. Bryce: [00:20:10] There's obviously a lot of commitments being made, and both from governments and companies to hit that sort of net zero and one way that we're seeing it sort of translate in markets is the purchase of carbon offsets. And then subsequently we're seeing a pretty impressive rise in the price of carbon credits. Alec: [00:20:30] Yeah, I think it was Bryce as best investment last year. It's just the price of carbon.  Bryce: [00:20:35] KRBN. It's something that we're sort of invested in here at Equity Mates. Are you able to explain a little bit about this market carbon credits? And do you think that carbon credits should be considered as investments by the Equity Mates community? Nick Griffin: [00:20:51] These things have been around for a very long time. I know they're new in Australia and people are speculating on them. I would encourage you to be just a little bit careful and only because I've seen this happen before. So the reality is how does a carbon credit system works? Is you allocate free credits to the entire industry to allow them to pollute and then every year you offer them less. And so if they want to pollute at the same amount, they have to buy a credit or they have to reduce their pollution. That makes sense. And so over time, in theory, the price of carbon should continue to go up to force people to pollute less. That's how it should work. But it often goes wrong because people hide and store credits, if that makes sense and you don't know there or the economy slows down and so people don't have to do these things are highly sensitive to the cycle, so suddenly they don't need as many credits. And so there's a number of ways the system breaks down. And so to give you an idea, just to give you an example. Europe is on its third attempt at a carbon credit system and the first two times the carbon price went to zero because everybody hit the credits or overestimated how many they needed and then went into a recession. And the carbon price went from 60 euros or already zero. And then they had to scrap the whole system and reset it again. And then I went it up and went all the way to zero. And now that's got the whole system and reset the game, and I think they've got it right this time. So I personally think that carbon price in Europe will continue to go up. But in Australia, we you're sort of right at the start, so it could be quite volatile. Mathematically, it should go up over time. It just hasn't worked out that way in lots of other examples we've seen over the years. And so just understand that they are quite cyclical. You know, there is volatility here. And ultimately, you know, we just prefer to invest in the companies that these these businesses are going to have to use to lower their carbon footprint. It's a much easier way of doing it. Alec: [00:22:32] Yeah, I think I think that's a it's a good warning and a good good note to end it on. There's some great companies that are doing great things and that are really exciting to see how they're changing the world. And James, when you look at the companies out there, we are obviously seeing a lot of disruptive new companies, you know, the Teslas of the world that are really, I guess, focussed on this climate challenge. But then we're also seeing a number of legacy established companies disrupting themselves and trying to take this challenge head on. And the way that we've sort of coined it here is the Tesla v VW VW decision. Yeah. When are you thinking about investing in the companies that are that are newer and focussed on this climate challenge or these legacy companies that are disrupting themselves? How do you try and navigate that and, you know, pick winners, I guess? [00:23:23][51.2] James Tsinidis: [00:23:24] Yeah. Look, that's a really good question. Really stupid question. We've obviously seen over time. If you think back to sort of the tech examples that are 10 years ago and I've spoken on the last decade or so the companies have made it through, have been the ones that have been willing to sort of disrupt themselves and sort of implode their sort of near-term profitability for the benefit of the long term. And obviously, you guys would have seen, you know, Netflix versus Disney over time and few years ago, Disney sort of called out that ESPN was sort of struggling because people were cutting the cord for their cable and basically switching to over the top. It's a very, very profitable business for a company like Disney. They get a lot of fees from cable for ESPN and their channels on cable. And what they basically decide to do a few years ago was basically start their own streaming product like ESPN Plus and Disney Plus, etc. And that's very, very detrimental to their near-term profitability. But what happened was the market actually looked through that and gave Disney credit because I could say, Okay, these guys just aren't going to go down as a Kodak or whatnot. They're actually going to disrupt their own business and come out the other side and restore their profitability and basically live to fight another day. And so in climate change, and if you're using the example of VW, which I think is a really good one versus Tesla, the companies that don't do that Disney approach, basically they'll make money for the near term, but ultimately fail and the their p e ratio or they video about duration, whatever the multiple is that people looking at is going to be right because people can say they're not going to be going concern into the future. So the good companies will be the ones that just go all in and basically implode their near-term profitability to basically get that higher multiple because they're going to be going concern for the future. So companies are willing to do that are the ones that would be interested in. So I think Nick's got some views on VW space, and VW is a really good example because no one spending more to devote it to electric, they're building their own battery plants. They. I think there's been 85 billion euros over the next four years. Wow. And it trades at six times earnings and Tesla trades at 100 times earnings. So, you know, if you take a slightly longer term view, arguably VW is a better investment, assuming they can succeed, but they are coming from behind. But so VW would be very interesting to us. In the same breath, you know, Peugeot trades a six times earnings and is probably not going to make it. So that would be the one that we're not as interested in or Nissan, for instance. So we do think there's an opportunity there. It's the same for the oil companies as well. You know, the oil companies are ultimately decarbonising themselves. They traded seven times earnings. If they can get to the other side, that's a that's a good opportunity as well. Alec: [00:25:49] Yeah, right. Didn't think we'd be talking about oil companies today, but Nick Griffin: [00:25:52] there you go. Some of them are going to do it. This is no different to any other disruption we've seen in the last 30 years. James used a good example of Disney versus Netflix. You know, Xerox still exists, even though no one uses photocopies anymore. You know, you can't do this. It can be done. And we would never discount that some of these companies will be able to do. Bryce: [00:26:10] Guys, before we turn to the discussion around actually finding some winners in this space, we're just going to take a quick break to hear from our sponsors. So, Nick, as we've discussed in 2021, global investment in the transition to low carbon broke 500 billion and was more than twice the 2010 total. And you've mentioned that between now and sort of 2050, there's going to be 30 trillion dollars in investment. I guess the question then is is this just a rising tide lifts all boats scenario Nick Griffin: [00:26:44] at the start of probably will be, to be honest. So this, I think, sets up very much like the internet did back 20 years ago. You know, we're on the record as saying this is probably the biggest opportunity we've seen since the internet. So at the start, you're going to have a lot of companies running around saying they can do lots of things. And the market to give them credit for it. And you see this already in electric cars, whether it's Rivian or the Surge or Fisker, you know, they're all running around saying they can do something in the market or give them credit for. We're probably now moving into that next phase into who actually can make money, and that bit will be more interesting. And then right at the end, you'll end up with these handful of amazing winners that you know they're going to lose the Facebooks, the Amazons that will become decarbonisation champions. One of them, we already know it's Tesla. Then there's going to be many, many more. That's sort of how we see it playing out. And so right now, when we invest in this fund, you know, there's a lot of companies that a lot of sort of sub 20 billion market cap, they're not very big in the grand scheme of things, and they potentially could be huge. And we accept that we'll probably make some mistakes along the way here. But the goal is to get to that endpoint and find those champions because those few champions will ultimately give you the returns that you're looking for that you got out of Apple or Facebook or Google or Amazon did. The same thing should happen here. Alec: [00:27:54] Well, I think we've got the episode title for today's interview the biggest opportunity since the internet. If that doesn't frame what we're talking about here, I don't think anything will. What you said there and then here and you know, there'll be some big winners in each of these sectors similar to the internet is a really exciting opportunity for us and for in the second part of this interview, we really want to pick your brains on how you guys go about finding those winners or finding those possible winners. We've asked each of you to come with one company that you think could be a big winner, and we want to talk through those companies. But before then, James, if we just take a step back. What's your process to even getting to that point to even trying to identify which companies could be a winner? Munro Yeah. Can you? If you can just talk us through the top down, is it bottom up or how do you actually start navigating this huge world and start identifying those companies? That could be really exceptional? James Tsinidis: [00:28:57] I suppose a lot of our work is just from mining companies and reading and so forth and just trying to build a collection of sort of Bottom-Up ideas. And, you know, we pretty much never say no to a meeting or you're always just trying to look out for what's out there. But from the top down, I think it comes back to that maths that we sort of Ren through earlier. We tried to basically figure out how much is going to get spent and in which areas. And from there, it's it's not that hard to sort of map those areas of spending to who's going to potentially benefit big talked about insulation. We sort of already knew whole the installation companies were out there. And so when we sort of realised that Europe was going to basically try to incentivise speeding up of renovation cycles, it was basically an easy thing to sort of map that to the companies that we've been following for a long period of time. Similar in retrofitting buildings with Highjack, you know, there's probably half a dozen companies out there, industrial type of companies. So we basically go and all the bottom up work on that. The last question about sort of a rising tide lifts all boats is a really interesting one in sort of the renewable energy side. You sort of talk about the oil companies and so forth as well. That is so big and that's coming from such a low base. We talked about the sort of 20 X growth in wind that is probably enough for all the companies to basically do well in terms of their earnings growth over time. So there will be existing leaders today will see share, but they're still going to grow for a long period of time as well. So, yeah, we're sort of trying not to discount companies that are coming from other industries into areas like offshore wind and so forth. So we're not just looking at the existing players today, but others that can maybe transition their businesses across as well. So yeah, there's a wide, wide range of sort of companies on the list from traditional sort of fossil fuel type of companies through to the ones that are already green today, like the the Danish companies that you talked about. Bryce: [00:30:38] Well, let's stick with companies. James, can you share one company that you think will be a big winner in this space? James Tsinidis: [00:30:46] Yeah, I'm going to go for a very easy one. And hopefully you mentioned dividends at the very outset, really one of the more boring ones. And I'll let Nick pick maybe a couple of exciting ones, but I don't want to own the biggest stocks in our fund is just NextEra Energy. The US is traditionally utility, and so it is the largest renewables developer in the US. It does pay a dividend yield, which grows 10 percent per annum. So it's, you know, it's got a it's got yields protocol valuation support from that perspective, unlike a lot of sort of renewables stocks out there, which is sort of trading on price to sales or whatnot. Don't have much in the way of earnings just once it's a very consistent grower to grow 10 percent per annum in line with basically the growth in renewables. Renewable energy. So you've got a very sort of consistent existing business there in terms of its existing utilities business. And then obviously all the business that wins in terms of deploying solar and onshore wind and so forth, but also a management team that's willing to try new things as well. So getting involved in EV roll out hydrogen batteries, etc. So they're also willing to sort of try new things as well. So as I say, the valuations not ridiculous and it does sort of pay you as well as you go along. So that's always good in a tricky market environment because ultimately these kind of companies, although they'll sell off with the market, they're not going to sell off forever. So nextera energy is probably my very simple and somewhat boring one, but it might have one that's more exciting. Bryce: [00:32:09] Well, what a wind up near. And then I guess Nick Griffin: [00:32:13] it's not going to take all the risk. That's how it works from my point of view. Look, I think the I talked about it before. If you think about an electric car instead of using petrol, it needs battery power. More power to you. Get it to accelerate the thing that anyone who's driven one knows how fast it takes off. It goes from zero to 100 in three seconds. That's all being driven by these things called power semiconductors. Power semiconductors are, you know, the muscle in the muscle car and power semiconductors. You know, you used to use them to, you know, drive a toy car or to turn lights off and on. And they're now having to pull all this amazing amount of torque and power through them. So the companies who operate in this space have suddenly gone from sort of know bog standard semiconductor makers to integral to the performance of the car or the performance of renewable energy facility or the performance of of some industrial facility. And so those companies are now waiting so exciting. And the true leaders in the space I'm going to give you to actually are Infineon in Germany and ON semiconductor in the United States. There are other companies that do it, but these are the two biggest pure plays. Both of them, you know, try to, you know, roughly 20 times earnings, slightly above or slightly below for one. And so they're not expensive at all. And to give you an idea, you know, the content that they would put in an internal combustion engine and in terms of semiconductors back out would be about 150 bucks. The content that they've got to put an electric car today will be 600 bucks. And when that car becomes autonomous, it's 6400 bucks. And so you just get this massive structural tailwind from the shift from you don't need to sell any more cars, you just need to sell more electric cars. And you know, that's going to happen. So you get this wonderful structural tailwind. You don't have to pay the price for it. And we know today when we're 10 years. And so from our point of view, it's a very, very simple. It'll be bumps along the way, but a very simple and and easy investment opportunity that people probably haven't really looked at properly. Alec: [00:34:06] Fascinating. I every time I hear an expert talk about semiconductors, I just realised that there's so much more I have to learn and there's so much opportunity out there. And you know, we all watched Nvidia just run and run last year, so hopefully some of these can follow in their footsteps. Nick Griffin: [00:34:24] Yeah. And I think that's actually a good example, actually. So, so you didn't know what in video did until artificial intelligence in video gaming is along. You didn't know what Qualcomm did until mobile phones came along. So you don't know who these companies are because you don't look inside your phone to check what makes them all or look inside your data centre and say that if you do the work, you can find him and say, these guys are the these guys will power the electric car revolution, and they should become as as as as commonly known as Nvidia. You know, five or 10 years from now, we Alec: [00:34:57] could talk sustainability and some of these companies all day, but we are running out of time. So if people want to learn more about, I guess, the work you guys are doing and the sustainability focussed fund that you run, where should they be going? Nick Griffin: [00:35:13] Yes. So we have a brand new website at Munro Partners, so that's the first place to go. We love it. The new tagline is Invest in the journey with Munro Partners. So I think we've all discussed here this is going to be a journey, right? It's a journey that we all agree we're on and we all agree. There's lots of opportunity. There are going to be ups and downs on the journey clearly like there was in the internet journey. But ultimately, I think there's there's the wonderful opportunity. What we have done at Munro is we run three products now, so we run our absolute return product, which is quoted on the stock exchange under the code. So that's our global equity product. We also have a long only product that is also quite good on the stock exchange, which is our global equity product, but without the downside protection. And for this climate opportunity, we have decided to set up a standalone product. It's called NCLH or the Munro Climate Change Leaders Fund being quoted on the stock exchange now for a week or two, I believe at the time of the recording of this podcast. And in that fund, we're basically just giving you our best 15 to 25 ideas globally that we think will enable the decarbonisation of the planet. Those companies will change over time. We're not using an index approach is very much an act. If approach and most importantly, we're bidding in the management teams that we think are providing the products that will enable the decarbonisation of the planet and ultimately become those big winners that we saw previously with the internet. And so for the people listening, you know, you got two choices and you can you can buy the next latest battery resources stock that you think is really interesting and you can definitely do that. Or you can just buy MgCl and we'll take care of the rest. And along the way, there's going to be some bumps, but hopefully when we come back in five years, you know, this opportunity will have developed. We would have found some of these great winners. We would have delivered some, some nice returns for you. And also, I suppose you have the comfort of knowing that if you put money in the product that you know, it's going to the companies that we think will enable the decarbonisation of the planet. And so you're getting that that that benefit also, if this is something you truly believe in and it's clearly something which really, really nice Bryce: [00:37:09] where we're all about making markets accessible at Equity Mates, and I'm glad that it is a listed product. So for those that are interested, they can get access to the work that you're doing. So yeah, it's been a fascinating interview. Now we do close with three final questions, but we have asked them before. So we're going to have a bit of a climate theme to them. Alec: [00:37:28] Ren Yeah. And we'd love both of you to answer if you have the same answer, that's that's fine. But we want to really pick your brains as much as possible. So for the first question, James, why don't we start with you? We normally ask, What do you have any must-read books? But we'll put a climate twist on it this time. So for those that want to understand the climate opportunity, do you have any must read climate related books? James Tsinidis: [00:37:59] I think the best thing that I've read in the last 12 months was actually a paper from sort of consultant and you've put me on the spot here and I forgot the name of a consultant. But I think I said last year was although we had all these efficiency programmes coming in, like we talked about sort of people buying their own electric car and all this sort of stuff, things aren't happening quickly enough. So carbon actually went up last year, not down because the world is growing and people are burning more coal than ever and so forth. They actually showed that it was actually going up, which is the wrong trajectory. So we're not we're not hitting 1.5 degrees as set out at Paris. We're hitting three degrees, you know? So it's quite a frightening thing. And so what they suggested was that, you know, the acceleration had to happen immediately, and it needs to be really, really big to get you back on that trajectory, but down to 1.5 times. And so I think that sort of science stuff that's maybe a little bit hard to read is actually really important because it tells you that the time is now the inflexion is actually now. And so the opportunity is now as well from the perspective of investment and and where the money's going to be spent. So probably the most interesting thing I read last year was somewhat frightening as well. At the same time, Alec: [00:39:10] that's a worrying stat. Forty five minutes into the show, we probably should have asked that earlier, but the fact that emissions are still going up, not what you want to hear. Nick, what about you? Any books that you think must read in this space? Nick Griffin: [00:39:23] Yeah. So there's a good one called the Great Disruption, written by a guy called Paul Gilding. He's an Aussie. He's an ex Greenpeace guy who sort of then got into working with corporates to to try and help them understand the enormity of the task. It's actually quite an old book. It's amazing how much he's predicted everything that was coming. He wrote it, you know, back in 2015, 2016. And so from that point of view, it's still very relevant today. And I think it's important to read it because, as James says, you just do understand the enormity of the task you and how far behind we truly are that ultimately, you know, even people on the call. And I think he writes it very well. If we on the call get depressed or down about this, you know, because they realise how far behind that we are to know that, you know, ultimately, we're going to be forced to do this because the climate is going to start to change in front of us. And we probably all think we can already see it. And as that starts to happen, you know, things will start getting much, much faster because people will panic. And this is he lays out very clearly in the book, and it's a very optimistic book and and we are very optimistic. But that that's, you know, and obviously, there's a lot of impetus to do this right now. We expect there'll be a lot more this time next year. Alec: [00:40:30] It's good to hear you're optimistic. That's that's reassuring. it's a scary topic sometimes when you really start to think about it. Going alongside that optimism and, you know, giving us reason to hope. We like to ask what's the best company people have ever come across? But let's put a climate twist on it again. What's the best company you've seen that gives you reason for hope? That's, you know, that's really trying to solve a big challenge in this space or doing something really exciting and really innovative in this space. James Tsinidis: [00:41:00] I mean, talk about optimism. I mean, there is plenty of good news things out there so that we spoke about some of these Californian companies and so forth. So Apple actually is going to net zero, as you'd probably expect from a really high quality company like that with, you know, lots of stakeholders out there that care about the environment. And so what that? Is Apple enforces all of their supply chain to go to net zero, and so that's companies in Taiwan that make semiconductors and so forth. So they have to go out and sources this green power. How do they do that in a land constrained country like that? They all offshore wind and they go and basically ask the offshore wind players to build on wind farms. And so interesting company is just another Danish company. As Nick mentioned, there's a few good ones that have come out of that. And so this one's actually called Orsted. So they've had a tricky sort a couple of months as sort of other oil and gas companies are trying to come into their sector. But the reality is offshore wind is going to be so big, but they're going to still have a meaningful share. They're going to go for a very, very long period of time. So I think one of the top sort of sustainability companies in the world. Very good track record. One of the first to move actually was a fossil fuel company that transitioned many years ago. That's a that's a good company going through a difficult transition at the moment with the with the likes of BP and Shell coming in, but nonetheless have a really good sort of longer term sort of outlook profile. James Tsinidis: [00:42:21] So for me, it's got to be Tesla. I mean, there's just so many reasons to be optimistic and guess maybe it's a little bit expensive right now, but it's still a must on on on any sort of time horizon. And so just do. The reason why it makes you so optimistic is because here's some guys who basically said We're going to build an electric car against all the odds, raise the capital against all the odds. Got people to back them, build the car, everyone gets in. It says it's amazing and caused an entire industry to chase them down towards and achieve their goals. And I think the message I'd leave with the people listening is if you think capitalism and decarbonising the planet to two things that can't happen together, then then Tesla proves you wrong. Yeah, and it proves you wrong in spades. The reality is, it's a win win win. This is how you're going to do this. It's about finding great management teams that are trying to solve big problems. That's what we did when we built smartphones. That's what we did when we bought e-commerce. That's what we did when we looked at software. That's what we're doing with climate. And these companies are winning because they are solving a big problem and there will be many, many more Teslas to come. And I think that's the definitely the most exciting and most optimistic development in the last five years. And it is accelerated this path faster than any of us could imagine. It's allowed capital to then go to these companies. That allows us to launch a product like this, which raises capital, which then, you know, goes to the people who will help solve these problems and they will win. And so and you will get returns. And so that that closes the loop, which means this is going to happen. It's going to happen is going to be some bumps, but it's going to happen. And I think that's the thing that makes us most excited. Alec: [00:43:50] Yeah, I love that. Yeah. And then final question, if you were speaking to a group of young investors, well, I guess, you know, Bryce and I aren't quite as young as we used to, we used to be, but we still think we're young. So speaking to us and people in the Equity Mates audience, if you had if you could give us any advice on, you know, investing in this space and learning more about this space, what advice would you give us? Nick Griffin: [00:44:16] OK, so I'll do this one. Yeah, so like everything, there's only going to be a handful of winners, right? So you're looking in the right area. You might make some mistakes. Don't worry about it and just cut the mistakes. Move on, keep looking in the right area. And then when you find that winner, run up for a very, very long period of time because the guys who execute well will keep executing well and their Bryce may get ahead of itself and behind itself. But ultimately, you like in a good area, you've got to run it for a long period of time because, you know, they'll only be a few winners. So don't be disheartened if you make mistakes. You know you could have love smart phones, bought BlackBerry, you can still have your BlackBerry shares today, OK? So no, get rid of the losers away from the loser. Move towards the winner and and you'd be very happy. So if you're looking in the right place, don't be disheartened if you make mistakes. When you get it right and you're confident, don't sell it. Just because the price went up because of the mess adds up, it'll keep going and going and going, Alec: [00:45:10] Yeah, I love that. And James, any words of wisdom to to leave us on? James Tsinidis: [00:45:15] Yeah, I suppose it's similar to what Nick was just saying in terms of just running that winner. And, you know, if the math adds up, I think the most important thing that I've learnt over time is, you know, how powerful these S curves are. We probably didn't really talk about them today. But when you're on that S-curve, i that penetration curve, that's really, really powerful. And so the earnings of the companies that are basically benefiting from that as careful will keep grinding higher regardless of what happens out there in the world in terms of, you know, interest rates or geopolitical threats or whatever it might be. There's lots of things to sort of shake you out of investing or, yeah, good stocks that are sort of not related to that company, not related to that curve. And you're just going to try to lock that out as best as you can as hard as it sometimes is and just recognise, you know, where the earnings are going for the company. And so that area of interest and so long as you get that right, the macro, you know, you don't have to worry as much, just try to stick with the company's earnings. So that's that's the most important thing, I think, for sort of less experienced investors just getting the earnings right. Bryce: [00:46:18] Well, Nick and. James, thank you so much for kicking off the year with such an inspiring conversation. This is a topic that, as we said at the top of the show, is incredibly important for the Equity Mates community, and I feel like there's never going to be a moment where we don't have anything to talk about in this space. So we will look forward to, I guess, getting you on at some point down the track as well to get an update on how the fund is going and where how things are changing in the industry. But thank you so much for your time and we really appreciate it. Nick Griffin: [00:46:47] Thanks very much for having us.