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Love him or hate him, Donald Trump knows how to grab the headlines.
In days gone by, in response to his critical comments during the Presidential debate about Germany's energy policy, the German Foreign Office would probably have issued a dry, carefully worded statement on fancy embossed paper, gently pushing back to set the record straight.
But this is 2024, so instead, in this era of instant social media communication, you get a gem like this:
The local dachshunds can breathe a sigh of relief. Who says the Germans don't have a sense of humour?
From paws to power
Behind the lighthearted dig at Trump, however, was a serious point. Germany is rapidly pivoting its energy generation away from fossil fuels to more sustainable sources. According to the latest figures from the Federal Environmental Agency, 57% of electricity consumption in the first half of 2024 was supplied by renewables. With a target of 80% renewable power by 2030, much of it coming from both on and offshore wind, the future looks bright for companies up and down this value chain. We have written before about Cadeler, a significant holding in our portfolio. Cadeler's highly specialised ships are used to install the turbines for the new wind farms that are springing up in the middle of the North Sea. The business is going to be kept very busy over the next decade.
For Germany to reach its ambitious renewable target, however, requires more than just building new wind farms. Of equal importance is extending and upgrading the critical infrastructure used to physically move power around the country. Electricity consumption is expected to grow by 80% to 150% by 2045 and the government recently approved a plan to build a further 4,800km of new electricity cables and upgrade another 2,500km to meet this demand at an overall cost of up to €320bn.
Sniffing out the hidden gems
Which companies will benefit from this huge infrastructure upgrade? A couple of years ago our work led us to focus on a little-known industrial company called Friedrich Vorwerk which we believed was ideally positioned to benefit from the rapidly growing market for energy infrastructure. With a long history of planning and constructing everything from gas pipelines, electricity networks and district heating systems, the company has seen its order book explode in the last twelve months as it won a share of a major new electricity highway project called A-Nord. The current backlog equates to about three years worth of revenue for the company.
Source: Downing Fund Managers and Friedrich Vorwerk Quarterly Company Reports 2021 -2024
However, the A-Nord project is just the start. There are even bigger contracts due to be awarded later in the decade and, if Vorwerk were successful in their bidding, this could transform the company from the relatively unknown small cap it is today into an energy transition powerhouse.
Source: Friedrich Vorwerk Q4 2023 Presentation
Despite Donald Trump's claim to the contrary - it's clear that Germany's shift to renewable energy is barking up the right tree and companies such as Vorwerk are set to benefit greatly.
Risk warnings: Please note that past performance is not a reliable indicator of future results. Capital is at risk. Investments and the income derived from them can fall as well as rise and investors may not get back the full amount invested. Investments in our funds should be held for the long-term and are higher risk compared to investments solely in larger, more established companies. Opinions expressed represent the views of the fund manager at the time of publication, are subject to change, and should not be interpreted as investment advice. Important notice: This content is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing LLP as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. Downing does not offer investment or tax advice or make recommendations regarding investments. Downing is a trading name of Downing LLP. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England and Wales (No. OC341575). Registered Office: 6th Floor, St Magnus House, 3 Lower Thames Street, London EC3R 6HD.
