James Tsinidis is co-portfolio manager of Munro Partners Climate Change Leaders Fund and recently interviewed by the Australian Financial Review. The Melbourne-based firm oversees around $5.1 billion in assets.‍

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‍Your fund has returned 42.8 per cent in the 12 months to June 30. What fuelled this performance?

We believe there’s been a realisation that there is a significant power crunch coming in the US.

After 20 years of no electricity growth and years of underinvestment, there is now more awareness that demand is going to pick up based on the building out of data centres because of a reshoring of major manufacturing facilities to the US, and the electrification of transportation and buildings.

A lot of the companies in the portfolio are benefiting from this dynamic because they either generate power themselves (i.e. they build renewables or operate nuclear plants), provide services into the grid (transmission and distribution equipment and installation), or have products that help customers lower their energy footprints.

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‍Nvidia is among your top holdings. What do you expect from its upcoming results, and what do you make of the rotation out of big tech stocks?

We think Nvidia can double its earnings per share again in the next five years because of the immense demand coming from the cloud hyperscalers for the computing power Nvidia’s semiconductor chips provide.

Its key customers, like Alphabet, Meta, Amazon and Microsoft, have all now reported their second-quarter results, and all four companies spoke about growing their data centre capital expenditure budgets based on demand signals they are seeing from artificial intelligence. While Nvidia’s price-to-earnings multiple is optically high, at approximately 30 times, it is not particularly demanding, given its outlook for earnings growth over the medium term.

On big tech, we aren’t surprised to see some profit taking, particularly leading into the US election in November. Our view is that the several months preceding the US election will likely be a more volatile period for equity markets. However, the medium-term opportunity for growth equities is very constructive, as interest rates have now peaked, valuations are reasonable for the S&P 500 at a price-to-earnings of approximately 20 times, and the earnings outlooks particularly for structural growth areas like big tech, healthcare and climate remain very strong.‍

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What do you make of the US earnings season so far?

So far, we’re happy with the results and outlooks of the companies that we own. While there are some comments about a weakening consumer and perhaps some bottlenecks in the system (in terms of product delays or supply chain bottlenecks) for tech, these are at the margin.

It appears that the market isn’t rewarding good results, and we’d put that down to the set-up not being great short term, with strong markets year to date, higher valuations, the US election and worries that there is a slowdown coming. In the medium term, we’re confident that our companies can continue to sustain their earnings growth trajectories because they all have strong structural growth tailwinds behind them.

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Which stock in the fund is the most undervalued?

We really like a small-cap company called Clean Harbors, which disposes of hazardous waste and recycles used motor oil. As these aren’t perceived to be high-growth sectors, the company is flying under the radar. However, it has a durable double-digit earnings growth profile, driven by major environmental tailwinds including land remediation, water quality issues and oil recycling.

The company trades at an enterprise value to its earnings before interest, taxes, depreciation and amortisation multiple in the low teens. This is compared to solid waste peers that are in the mid-teens because the market seems to prefer the certainty of growth coming from residential waste collection.

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‍Any podcasts or TV shows you’d recommend?

If you want real deep dives on companies, I like the Business Breakdowns and Acquired.

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What’s your favourite local bar or restaurant? And your go-to order?

Not very glamorous, but I like taking the kids to Brunetti in Carlton and then the movies. They get an ice cream, and I have a coffee, so everyone’s happy.

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This article was originally posted by The Australian Financial Review here.

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