European equities spotlight: Carel

We seek the best quality growth companies in Europe – businesses with differentiated products and economic moats that command pricing power. These companies can generate high and sustainable returns enabling them to invest excess cash in long-term growth and maintaining their competitive advantages, in this way compounding shareholder value.

We focus on fundamental research to unearth these companies — particularly those exposed to long-term secular trends that can transcend business cycles and short-term market challenges. An example of a quality growth company that we hold in our European smaller companies strategy is Carel Industries, a global leader in heating, ventilation and air conditioning and refrigeration (HVAC/R) for industrial, commercial, and residential buildings. Carel makes products including programmable controls, heat exchangers, humidifiers, valves, speed controls and sensors.

Competitive advantage: Research, engineering and technological excellence has led to leadership in market niches around energy efficiency. Carel can tailor and “design in’’ solutions for customers, which generates customer loyalty and pricing power.

Factbox: Over 70% of Carel’s top customers have been with the company for 10 years. Carel has 60% of the European rooftop control market (these units produce hot and cold air for commercial buildings).

Secular growth: We see Carel benefiting from secular growth trends including:

• Energy Efficiency: Carel heat pumps and HVAC/R controls help to reduce carbon emissions and energy consumption, and its products improve indoor air quality, which was vital during the Covid-19 pandemic
• Digitalisation, the company leverages IoT (Internet of Things) and AI to offer connected solutions and services

We believe that Carel has an attractive long-term growth trajectory. The company doubled its revenues from 2018 to 2022.