The Green promise is changing the way we do things. But change tends to be continuous and incremental –evolutionary rather than revolutionary and it comes in direct and indirect ways. It pays to think outside the theme and make a choice based on whether the investment aligns with your objectives and go from there.
ABB Group is one company that will grow with the electrification of vehicles.
ABB (NYSE: ABB) is multinational Swiss-Swedish engineering company with 2018 revenues of US $27.6 billion. The company is a technology pioneer and its North American research centre, which is developing electric car and train technology, is based in Montreal.
ABB has four operating segments. Electrification Products (29% of revenues) makes a variety of equipment including the charging system for electric vehicles. Robotics and Motion (19%) makes power electronics and industrial robots. Industrial Automation (24%) is ABB’s artificial intelligence unit, making systems to control factories. The Power Grids division (28%) makes components for transmitting and distributing electricity.
In December, ABB announced the sale of its Power Grids division to Hitachi in an $8.8 billion deal that closes later this year.
Performance: The stock has rallied from its 52-week low of US $18.05, touched in December. The stock is unchanged year-to-date, and off 21.2% in the past 12 months. ABB’s p/e ratio is 18.78 – not cheap but not overly high either.
Why is it Green? ABB is a leader in electric vehicle charging systems. This includes all the pieces of the future gas station – the bays, the plugs, and the software that runs it. It is also a leader in clean factories, through its Robotics and AI units.
Recent developments: ABB reported 2018 results on Feb. 27. Revenue was 4% higher
than the year before with particular strength in Robotics and Motion. Orders were up 8% year-over-year and the order backlog was up 6%. Profit of $2.17 billion was 2% lower.
2018 was a year of transition for ABB. The sale of its power grid to Hitachi allows ABB to focus on leading edge areas engineering. On April 1, it will be split into four units again – Electrification, Industrial Automation, Motion and Robotics, and a new division called Discrete Automation. Cost cutting is expected to save ABB $300 million a year.
Dividend: Like many European companies, ABB pays only one dividend per year, based on profitability. Last year’s payout, in April, was $0.826 per unit. If that were repeated in 2019, the yield would be 4.3% per cent at current prices.
ABB is trading near the bottom of its 52-week range and offers a low risk way to participate in the growth of the electric vehicles and clean factories. It stands to gain as demand in these areas grows.
This article appeared in the March 18, 2019 issue of the Internet Wealth Builder newsletter.