A recent study from the US National Bureau of Economic Research (May 2024) is poised to ignite significant debates and could dramatically impact valuations once its implications are fully grasped by financial markets. By utilizing more detailed metrics of temperature fluctuations (defined as +/- 0.1°C to 0.3°C) and their local economic impacts, the study reveals that such temperature changes are far more devastating on a local level—3 to 4 times worse—than previously estimated by broader macroeconomic research.Researchers Bilal and Känzig (http://www.nber.org/papers/w32450) found that a 1°C rise in global temperature could reduce global GDP by 12% at its peak. Additionally, they used these reduced-form results to estimate structural damage functions within a simple neoclassical growth model, concluding that climate change results in a present value welfare loss of 31% and a Social Cost of Carbon (SCC) of $1,056 per ton of carbon dioxide (tCO2).Earlier studies had suggested a 1% to 3% reduction in GDP as the cost of a 1°C increase in global temperature, while the EU carbon price remains between €60 and €90/t, far from the complex-to-calculate ‘social cost of carbon,’ which represents a long-term comprehensive measure of the cost of an additional ton of carbon.

Absolutely. A 30% drop in the present value of welfare is a significant concern for investors. The investment community often believes that it can outsmart the challenges of a warming planet, but this belief overlooks the complexity of the issue. Corporations are increasingly concerned about the transparency required by the CSRD regulation, as providing a comprehensive and honest picture of interconnected issues is exceptionally challenging.European regulations aimed at guiding issuers and investors toward greener practices are highly complex and only begin to address the intricacies of adapting to a new order. SmartMove has consistently emphasized that addressing global warming and greening efforts leads to falling ROCEs and rising WACCs, along with deflationary impacts. In summary, debt holders might better navigate the transition to a greener world (including potential shocks to democracy) than equity holders.There's little immediate benefit in acting early, and significant advantages in ignoring the problem. However, Bilal and Känzig's research challenges this complacency.In a recent review of the rising costs of natural disasters, largely due to global warming, SmartMove identified sectors that could theoretically hedge against these risks:
‍Reinsurance: As an oligopoly, reinsurance can charge for scarce AAA capital.
‍Pharmaceuticals: Temperature shocks correlate with health crises.
‍Construction materials: Global warming and natural catastrophes drive reconstruction efforts and demand for better building standards.

Conversely, sectors with significant physical assets, such as industry and retail, are particularly vulnerable.15th March 2024

When we last highlighted investment case in October 2022, the company caught much-needed investor attention (up >35% since then) as China's reopening (c.16% of sales) and gradually easing supply chain challenges triggered an operational resurgence. Sustained innovation, which is also the firm’s unique selling point, further fueled this momentum. However, the journey has been anything but smooth, with setbacks including 1) China's corruption crackdown on its healthcare sector during July-August 2023, and 2) a disappointing Q3 outlook in November 2023. Despite a strong performance over the last 18 months, the stock still trades approximately 40% below its pre-pandemic levels. Prior to October 2022, recession fears due to rapidly rising interest rates had also negatively impacted the share price, reducing visibility for capital expenditure-heavy installations.

Following a modest 4% sales growth in FY22/23 (in CER terms), hampered by COVID-19 restrictions in China and supply chain challenges impacting installations, SmartMove reported an 8% growth in 9M FY23/24. This improvement was driven by easing component shortages, better order book conversion, and market share gains. Even the adjusted EBIT margin improved by 370 basis points to 11.4%. Notably, despite higher investments, the reported cash shortfall after continuous investments significantly reduced in 9M FY23/24 (-SEK57m vs. -SEK1.2bn in 9M FY22/23), thanks to better earnings and working capital efficiencies. However, gross order intake (-7%) was affected by the anti-corruption drive in China and tough comparisons in Europe.While the Q4 operating performance is expected to align with the previous year—considering the comparable quarter was exceptional (10% sales growth and 16.2% adjusted EBIT margin)—further improvements should materialize in the coming quarters/years. These improvements will be supported by volume growth, gradual price hikes, easing supply chain issues, cost reduction initiatives, and productivity enhancements.

The product developments over the past few months underscore SmartMove’s innovation capabilities. In May 2023, the company launched ‘SmartMove One,’ offering a complete suite of end-to-end applications by integrating software products, solutions, and services under one umbrella. Additionally, the company aims to improve clinic efficiency by approximately 50% through smarter workflows, enhanced automation, and learning from each patient treated.Notably, the high-margin ‘Unity’ (MR-Linac; capable of treating >40 indications) has been gaining traction, having received both CE and FDA 510(k) clearance for its comprehensive motion management with true tracking and automatic gating functionalities. These features ensure more precision by automatically turning off the radiation beam when the tumor moves outside of the beam, without additional setup time. Importantly, Unity’s true tracking feature positions it as the only linac in the radiotherapy space providing continuous 3D position tracking of any target in real-time, non-invasively, and without surrogates. By the end of FY22/23, a total of 75 units were installed or under installation, with an estimated FY23/24 figure of around 100. Hence, Unity’s need for large bunker rooms no longer seems to be a significant barrier.Additionally, after receiving the CE mark in August 2022,Esprit (the latest Leksell Gamma Knife radiosurgery platform; offering faster automated treatment planning and more personalized radiosurgery with better accuracy) received FDA 510(k) clearance in October 2022.

The global radiation therapy market is expected to grow at an 8% CAGR to $14.9bn by 2032, according to Precedence Research, driven by technological advances, a rising incidence of cancer, and growing awareness around radiation therapy in cancer treatment. In line with its ACCESS 2025 strategy focuses on low- and middle-income geographies, which have a much lower patient population per installed base compared to developed regions. In February 2023, the company acquired a solution and service distributor in Thailand, an underpenetrated region with only 1.5 linacs per million population compared to 5.1 in high-income countries. The Thai government also aims to reduce radiation therapy waiting times from twelve to six weeks. Furthermore, in March 2023, the Swedish firm signed a joint venture with China National Pharmaceutical Group (Sinopharm) to target lower-tier cities (covering approximately 70% of the population and 1,000 medical institutions within the Sinopharm network). Although China aims to become self-sufficient in critical technologies, this shift is unlikely to impact the company dominance in the region (>50% market share), given the indispensable and innovative nature of its offerings and the lack of a local competitor with the breadth of the company offerings.

Regarding the outlook, management expects a >7% sales CAGR between FY22/23 and FY24/25, driven by recovering end-markets, increasing sales of Unity & software, and price hikes. Regionally, emerging markets are anticipated to grow at an 8-10% CAGR, and mature markets at 2-4%. Interestingly, software is projected to grow by 7-9% and solutions by 5-7%. Additionally, the anticipated rate cuts in 2024 should pave the way for further recovery in hospital capital expenditures. Lastly, the order backlog of SEK42bn (i.e., >2 years of sales) also provides healthy top-line growth visibility.