Holly Black: Welcome to the Morningstar Series Three Stock Picks. I'm Holly Black. With me is Harriet Parker, she is an investment manager at Liontrust. Hello.
Harriet Parker: Hello.
Black: So, you're on the sustainable team. So we're looking for a different type of stock. Where would you like to start?
Parker: I'm going to start with Smurfit Kappa. So Smurfit Kappa is an Irish cardboard and paper-based packaging company.
Black: Which doesn't sound that sustainable?
Parker: Well, there's been a huge shift actually in the way that the public look at plastic packaging. So we think that the company is really going to benefit from this. So, at the moment, plastic packaging often isn't really recycled, and paper is much more degradable and cardboard has a really high, quite high percentage of recycled fiber in it as well.
Black: And do they have standards that they're trying to keep up to, percentages that have to be composted and things?
Parker: They're not. But what we spoken to a lot of the consumer products companies and we don't think that consumers are going to want to pay for a more sustainable packaging. But what is coming through is producer responsibility. So, they themselves have targets on, 2025 targets on how recycled packaging and whether it's compostable and things like that, and we think that's really going to make a difference for the company.
Black: And Smurfit Kappa is one of these companies that's vertically integrated. Why is that quite appealing as an investment?
Parker: It's appealing because they have control over their own supply chain really, and where they're leading in terms of management quality on how they manage forests and mills and things like that. So, over 90% of their pulp comes from certified sources.
Black: Fantastic. So what's stock number two?
Parker: Stock number two is Cellnex. And Cellnex is a Spanish towers company. It has towers all over Europe, and but is an independent company. So, what happens is mobile network operators are freeing up their balance sheets and doing a sale and lease back to the likes of Cellnex. And what this means is there's an overall resource efficiency angle here, as well as the company being kind of directly linked to connecting people and kind of the move towards increased communications.
Black: So the idea of throwing up cell towers doesn't sound that sustainable again, but this is about the fact that otherwise, all of the operators would…
Parker: Exactly, they would have their own towers. And so, what this means is, you're going to get telecom companies investing more in their core networks rather than this passive non-core infrastructure, which means that they will be able to make their networks denser, which will be critical for us when we're kind of moving to this more kind of mobile and mobile communications.
Black: That means I can check my email more quickly?
Parker: Exactly. It will do.
Black: What's stock number three?
Parker: Final stock is GB Group and its business is focused on solutions for online transactions and enables businesses to reduce the amount of fraud that's potentially in their business. So, this is all about identity verification for online transaction. So, if I want to take out a loan, perhaps, GB Group will be the one checking that I am who I say I am, and reducing fraud. So they'll be looking at my location, they'll be looking at a vast range of data to prove that I am who I say I am. And this, really benefits consumers, but also benefits businesses as well. And this is a very kind of high incremental margin business that we like, and we think there's kind of a strong structural growth behind it.
Black: And I think it's really interesting because it shows you that sustainable investing isn't just about the environment. This is about personal security and data, which is a big theme.
Parker: And it's all about making things safer and more resilient.
Black: Thank you so much for your time. And thanks for joining us.
