德银-全球-能源行业-能源转换：德银碳校准框架-2019.2.22-44页_2mb

Energy Transition Summary: DeCAF Insights

Core Content

The Deutsche Carbon Alignment Framework (DeCAF) is a research tool used to evaluate how well companies are aligned with the energy transition. It considers factors such as volume, margin, value, and timing, and highlights companies that are either aligned or misaligned with the shift toward lower carbon emissions.

This report covers several key sectors including European Cement, Global Autos, and Oil and Gas, with a focus on their alignment with the energy transition. It also discusses China Auto, Shimano, and Umicore as potential beneficiaries of the shift toward electric vehicles and sustainable technologies.

Main Sectors and Key Points

EU Cement

• CO2 Emissions: The cement industry is a major contributor to CO2 emissions, accounting for ~5% of global CO2 and ~60% of emissions from the process of turning limestone into cement.
• EU ETS: Cement companies benefit from free CO2 allowances under the EU Emissions Trading System (ETS), which has helped them profit from surplus allocation and stockpile against future tightening.
• Emissions Intensity: Improvements in emissions intensity have been minimal, mainly due to operational adjustments rather than capital investment in better technology.
• Capacity Rationalization: The report suggests that capacity rationalization could offset the costs of the ETS, with potential for a rise in capacity utilization (CU) from 66% to 80%.
• DeCAF Recommendations: Buzzi Unicem and HeidelbergCement are highlighted as potential beneficiaries, with Buzzi recommended as a Buy and HeidelbergCement as a Hold.

EU Autos

• Emissions Targets: EU regulators require a reduction in fleet emissions to 95gCO2/km by 2021 and a further 37.5% cut to 60gCO2/km by 2030.
• EV Growth: The report upgrades global EV forecasts, with a focus on mild hybrids and full EVs. It expects over a third of global ICE sales to be 48V or HEV by 2025, and 60% by 2030.
• DeCAF Recommendations: Volkswagen and Renault are recommended as Buy, while Geely and NIO are also highlighted as potential buys in the Chinese market.
• Costs and Margins: The shift to EVs is expected to have a significant impact on margins, with potential for investment costs to be offset by revenue gains.

Global Oils

• Emissions Intensity: Oil majors like Shell are under scrutiny for their high emissions intensity and traditional reliance on fossil fuels.
• Reserves Life: The report highlights the importance of reserves life and the shift in reserves mix among oil majors, with Shell being particularly scrutinized.
• DeCAF Recommendations: BP, Equinor, and TOTAL are recommended as Buy due to their better positioning in the energy transition.

China Auto

• Market Trends: Despite a decline in overall auto sales, EV sales are rising rapidly, capturing ~5% of the market.
• Policy Uncertainty: The Chinese auto sector is waiting for clear policy guidance, with potential for further stimulus measures.
• DeCAF Recommendations: Geely and NIO are recommended as Buy due to their strong positions in the EV market.

Shimano (Buy)

• E-Bike Market: Shimano is a leader in e-bike components, with a growing market share and potential for structural growth.
• Revenue Potential: E-bikes offer a significant revenue opportunity, with key components like powertrain and controls adding ~$1750 to a premium model.
• Price Target: The report sets a price target of JPY20,000 for Shimano, based on its growth potential in the e-bike sector.

Umicore (Hold)

• Battery Capacity and Recycling: Umicore has structural exposure to battery capacity and recycling, with a focus on cathode materials and anode testing.
• Valuation Concerns: Despite its growth potential, Umicore's valuation (21xPE; 12x EV/EBITDA) is seen as a limitation.
• Investment Strategy: Umicore is investing in capacity expansion and has a strong position in cathode materials, but faces competition from Asian manufacturers.

Glencore (Buy)

• Transition Metals: Glencore has strong exposure to transition metals, which are crucial for the energy transition.
• Coal Exposure: Its valuation is hampered by coal exposure and litigation issues, but the company is actively repositioning itself.
• DeCAF Recommendations: Glencore is recommended as a Buy due to its strong core metals exposure and potential for cash returns.

Key Insights

• DeCAF Framework: The framework evaluates companies based on their alignment with the energy transition, considering factors like volume, margin, value, and timing.
• EU ETS Impact: The EU ETS has created a misalignment between volume and value for cement companies, with some companies benefiting from free allowances.
• EV Growth: The report highlights the increasing importance of EVs and hybrids in the automotive sector, with a focus on their potential to meet emissions targets.
• Renewables and Energy Storage: The US EIA projections show limited growth in renewables and energy storage, with gas and coal still playing a significant role.
• Macro Trends: The energy transition is a long-term trend, with the report suggesting that the shift from fossil fuels to cleaner energy sources is inevitable.

Summary Table

Conclusion

The report provides a comprehensive analysis of the energy transition across multiple sectors, emphasizing the importance of aligning with low-carbon strategies. It highlights the role of DeCAF in identifying companies that are well-positioned for the future, while also acknowledging the challenges and opportunities in the transition. The insights suggest that while some sectors like cement and autos face significant challenges, others like oils and transition metals present growth opportunities.