Welcome to the Sustainable Money Mail 👋 We think investing should be about trying to beat the market while providing capital to companies that make the world a better place.
ESG Reporting Software Market to be worth $1.5B by 2027
The ESG Reporting Software Market is surging as ratings agencies, corporations and governments look to cloud-based solutions to track sustainability.
A new report by MarketsandMarkets™ forecasts the global market to grow from $0.7 billion in 2022 to $1.5 billion by 2027 (15.9% CAGR). The growth is driven by two segments:
Services: integration and implementation, writing, training and support, research, consulting, and delivering ESG solutions directly to companies
Infrastructure: software products and platforms for processing ESG data
Services is already well-established, with market leaders including Nasdaq, PwC and Workiva. But software infrastructure is falling behind, meaning there’s significant growth to come if this segment is to keep up with demand. Not to mention that the acceleration of A.I solutions opens up a whole new suite of products. Some of the companies moving into this sector include IBM, MSCI and Refinitiv.
OUR TAKE: With surging interest in ESG investing, it’s no surprise that sustainability-oriented SaaS is experiencing high demand. Stay tuned, and in future weeks we’ll be taking a closer look at some of the companies that are profiting from this boom.
STOCK PICK: Nike (NYSE: NKE)
Nike is one of the most effective consumer-facing design and retail companies, and it’s close to resolving a lot of the problems that has plagued it since the pandemic.
Results: Last week, Nike reported Q3 FY2022 results. Total revenue rose 14.0% to $12.4bn for the quarter, although net income fell by 11.2% to $1.2bn, mostly due to markdowns on inventory that built up over Covid. The good news is that inventory growth was roughly in line with revenue, meaning that product stocks should be at a normal level from hereon out.
Sales rose 27% in North America, i.e Nike’s growth continues to be driven by its core market. The 17% boost in EMEA and Africa is the icing on the cake.
Digital sales grew 20% on a reported basis, 24% on currency neutral. The reversion of last year’s USD rally should add extra strength to Nike’s international sales going forward.
The Q3 revenue beat that sent shares up 3.6% in one day was driven by the unexpected demand for sneakers. Riding the pandemic-induced athleticwear boom, Nike has seen a boost to sales to consumers at the higher end of the income range, who are relatively immunized from inflation and mild recession worries.
Brand dominance: Nike controls 17% of global sportswear market. Their brand value is $109 billion (according to BrandZ), up 31% from 2021 thanks to positive feedback and recommendations from customers.
ESG: Nike’s sustainable initiatives include ‘Move to Zero’, a landmark initiative to use “science based” technology to achieve net zero emissions by 2050. It has also made commitments to watershed restoration and fair labor practices.
Innovation: Last October, Nike announced plans to use fiber material technology to produce warmer outerwear using 75% less carbon than traditional fleeces.
Endorsements: Nike plans to ensure prominence through lifetime endorsement contracts with Cristiano Ronaldo, Michael Jordan, LeBron James etc. Dedicated product lines with their Key Persons of Influence span multiple decades and generate a consistent revenue stream.
Secure cash flow: Nike’s $1 billion deal with NBA as the official apparel and uniform provider brings in a significant cash flow injection during playoffs (October to June).
China dominance: Nike controls 23% of the Chinese sportwear market, comfortably beating other Western brands thanks to better inventories, and more localized products, sponsorships and local athlete and celebrity representatives.
Weakened competition: Nike expects to gain market share from Adidas after their split with Kanye West over his controversial statements about Hitler.
Nike shares are down 32% from 2021 highs, but are still trading at 30.1 forward p/e ratio, so you need to be pretty confident that they can sustain growth through hell or high water before you buy. If there’s a major recession, expect Nike shares to get crushed in the short term, but if the current mild recession story is to be believed, Nike can continue to beat the otherwise fairly languid market. This is a very good company with total dominance in the sneaker and sportswear market. Opportunities for growth come from the China market, where economic conditions (both on the retail and manufacturing side) seem to be returning to normal after years of disruption, from the growing middle class in Middle East and Africa markets, from expanding its digital sales platforms, and from the good old U.S consumer strength.
Note:
All opinions are the author’s own. This is not investment advice. Please consult your financial advisor before making investment decisions.
Disclosure:
The SMM and its writers do not have a position in L'Oréal SA, but may buy, increase or sell a position at any time.
Disclaimer:
See our “about” page for full Disclaimer