The Reserve Bank of Australia (RBA) has recently proposed a ban on surcharging for debit card transactions, a move that could reshape the landscape for Australia’s payments sector. This proposal, currently under a review phase expected to last six to nine months, aims to alleviate payment acceptance costs for merchants while simultaneously restricting their ability to pass these expenses on to consumers. Beyond this proposal, there’s a broader review underway to reassess fees associated with Mastercard, Visa, and bank interchange fees, amplifying the potential regulatory shake-up within the sector.
Ron Shamgar, Head of Australian Equities at TAMIM Asset Management, shares valuable insights into how three ASX listed companies in the payments space – Tyro Payments, Smartpay, and Cuscal could each be impacted by these prospective regulatory shifts. For investors, understanding these impacts is crucial for assessing the strengths and challenges of each company as they navigate potential changes in Australia’s evolving financial landscape.
Tyro Payments: Positioned to Capitalise on Change
Tyro Payments (ASX: TYR) stands out among its peers for its resilience against the adverse effects of the proposed surcharge ban. With a market capitalisation of $400 million and a healthy balance sheet with $70 million in net cash, Tyro’s business model is more diversified than others in the sector, which buffers it from heavy reliance on surcharges. Additionally, Tyro’s forecast EBITDA stands at $62 million for FY25, placing its valuation at an attractive 5.5x EBITDA multiple.
Unlike many competitors, Tyro’s revenue model does not depend heavily on surcharge fees. Presently, only about 30% of Tyro’s merchants voluntarily apply surcharges on both credit and debit transactions, and its “zero-cost EFTPOS solution” offering merchants the option to accept payments with surcharging represents only a small percentage of Tyro’s transaction volume (2% of TTV and is what at risk from RBA review). This means the company has minimal reliance on card surcharges, thus reducing its risk exposure to potential regulatory impacts from the RBA’s ban proposal.
According to Ron Shamgar, Tyro could perceive this regulatory shift not as a threat but as an opportunity. Tyro anticipates that merchants, newly cost-sensitive due to restricted surcharging, may increasingly seek competitive pricing solutions. Tyro’s POS terminals are already equipped to distinguish between credit and debit cards, allowing merchants to apply surcharges selectively to credit transactions if needed. This unique flexibility positions Tyro to attract new business while retaining its existing client base under the new regulatory environment.
Moreover, Tyro’s resilience in the face of these changes and its low valuation relative to its earnings make it a compelling choice for investors. Shamgar points out that Tyro’s current share price appears undervalued, especially given the company’s limited exposure to debit surcharging and a strong market position in the health sector. As the payments landscape evolves, Tyro’s strategic focus on retaining pricing flexibility and catering to a cost-sensitive merchant base could make it a potential market leader.
Smartpay: Facing a Potential Margin Squeeze
Smartpay (ASX: SMP), a Kiwi-based payments company with a substantial presence in Australia, finds itself more exposed to the potential impacts of the RBA’s proposed surcharge ban. With a market cap of $150 million and an EBITDA of $18 million, Smartpay’s model is more reliant on debit card surcharges for its Australian operations, particularly within its zero-cost EFTPOS solution, which constitutes around 80% of its Australian revenue.
If the RBA’s proposed ban on debit card surcharges takes effect, Smartpay will likely have to renegotiate its contracts with Australian merchants to offset the lost revenue generated from these high-margin fees. The company’s profitability in Australia could face considerable pressure, as debit surcharging has been a significant source of revenue for Smartpay, helping to compensate for low transaction fees within the payments space. This change may reduce its operating margins, potentially putting Smartpay’s valuation under strain.
However, Smartpay has a promising growth trajectory in New Zealand that could provide a counterbalance to the headwinds in Australia. The company is launching new terminals across its 35,000-strong fleet in New Zealand, transitioning from a rental-based revenue model to one where Smartpay captures the full merchant service fee for each transaction. This strategic shift could add an estimated $30 to $40 million in incremental EBITDA if the rollout proves successful, providing a valuable growth avenue outside Australia.
Shamgar emphasises that Smartpay’s partnership with Cuscal, a payments processor in Australia (and soon in New Zealand), could play a strategic role in buffering Smartpay from the potential impacts of a debit surcharge ban. With close operational alignment, the two companies may have a smoother transition into the new regulatory framework, potentially even opening the door for acquisition opportunities down the line. Such a move could help Smartpay reduce costs and streamline its payments processing, particularly if Cuscal brings additional efficiencies to the table.
In short, Smartpay’s exposure to the RBA’s regulatory proposal presents both a challenge and a growth opportunity. If successful in New Zealand, Smartpay could leverage its expanded revenue model to offset some of the negative impacts in Australia, giving it a chance to stabilise and grow even as regulatory pressures mount.
Cuscal: Minimal Direct Impact, Positioned for Growth
Cuscal occupies a unique position in the payments sector, focusing primarily on infrastructure and processing for banks, fintechs, and corporate clients. Unlike Tyro and Smartpay, Cuscal does not directly engage in merchant acquiring or impose interchange fees, making it less vulnerable to changes in surcharging regulations. As a result, Cuscal stands relatively insulated from the potential impacts of the RBA’s proposed ban, providing it with a certain degree of stability in an otherwise turbulent market.
Cuscal’s market position as a backend processor within the payments ecosystem is advantageous, as it allows the company to support a wide range of clients without directly competing with them. Cuscal is also one of only five organisations in Australia that hold the full range of licensing, connectivity, and capabilities required to manufacture payment products, which makes it a critical player behind the scenes in Australia’s payments industry.
Shamgar notes that Cuscal’s infrastructure focus is further strengthened by Australia’s increasing shift towards real-time payment systems and the rise in debit card usage, both of which play into Cuscal’s growth trajectory. The proposed surcharge ban may actually benefit Cuscal indirectly, as merchants could steer more consumers towards debit transactions, which would increase processing volumes within Cuscal’s system. This shift may add incremental revenue from increased debit card usage without subjecting Cuscal to the volatility associated with surcharge-dependent revenue.
With a potential IPO on the horizon, Cuscal could use the capital raised to pursue mergers and acquisitions (M&A) in complementary areas of the payments sector. Shamgar suggests that Cuscal’s unique positioning within the payments infrastructure space makes it a prime candidate for strategic acquisitions that could broaden its market reach. Cuscal’s potential to merge with companies like EML’s (ASX: EML) Australian division, for example, would be both complementary and accretive, further reinforcing Cuscal’s role in Australia’s payment processing landscape.
The TAMIM Takeaway
The RBA’s proposed surcharge ban marks a pivotal shift in Australia’s payments landscape, presenting both challenges and opportunities for companies across the sector. With regulatory reviews targeting not only debit card surcharges but also interchange fees and other cost structures, the payments industry is on the brink of significant change. This shift will demand that companies demonstrate resilience, adaptability, and strategic foresight to thrive under a new regulatory framework.
For companies like Tyro, Smartpay, and Cuscal, the key lies in aligning their business models with evolving merchant needs while remaining competitive. The anticipated ban could lead to increased price sensitivity among merchants, driving demand for innovative, cost-effective payment solutions. Companies positioned to offer flexibility and a streamlined cost structure are likely to attract greater market share as merchants navigate these changes.
At TAMIM, we believe that while some companies may face margin pressures, others will discover growth opportunities by expanding into underserved markets, innovating with new technologies, or pursuing strategic partnerships and acquisitions. For investors, this regulatory environment underscores the importance of a diversified approach. By balancing near-term challenges with long-term growth potential, investors can better capture value in a sector poised for transformation. The evolution of Australia’s payments landscape signals that adaptability and strategic positioning will be paramount for sustained success.
Disclaimer: Tyro Payments (ASX: TYR), Smartpay (ASX: SMP) and EML Payments Limited (ASX: EML) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.
This week’s TAMIM Reading List delves into intriguing topics that span finance, culture, and history. Explore how the FBI secretly created a coin to investigate crypto scams and reflect on whether our impatience hinders true intelligence. We uncover why people are often “confident idiots” and examine the key laws of financial health. Dive into the question of why modern design seems so ugly and discover how psychedelic mushrooms are becoming more potent. Plus, read about the surprising dynamics of rockstars and revisit the New York Times’ first coverage of Hitler’s rise in 1922. Each article offers fresh perspectives on the challenges shaping today’s world.
The U.S. energy landscape is undergoing a significant transformation as AI-driven industries rapidly expand, and the demand for robust, reliable energy sources intensifies. Meeting these growing energy needs requires a combination of established and emerging solutions to power the digital infrastructure that supports AI technologies. With the resurgence of nuclear power and continued reliance on natural gas, the U.S. is poised to build a reliable energy foundation capable of meeting the increasing demand driven by AI, reshoring, and electric vehicle (EV) adoption.
This evolving energy landscape presents opportunities for companies involved in grid modernisation, energy infrastructure upgrades, and the supply chain supporting these advancements. Below, we explore the role of nuclear power and natural gas in the current energy strategy, followed by key stocks that stand to benefit from the U.S. energy boom.
Nuclear Power: A Key Solution for AI’s Energy Demands
One of the most notable developments in the U.S. energy sector is the resurgence of nuclear power as a solution to meet AI’s significant energy requirements. AI data centres, which are essential for handling advanced computations, consume massive amounts of electricity. Companies such as Amazon and Microsoft are taking proactive steps to secure reliable, clean energy sources for their operations. For instance, Amazon recently acquired a nuclear-powered data centre to support its AI initiatives, while Microsoft has partnered with Constellation Energy to reopen the Three Mile Island nuclear plant, providing a sustainable energy source for its data centres.
The rising demand for AI data centres, coupled with reshoring efforts in the U.S. and the widespread adoption of EVs, is driving large-scale grid upgrades and a renewed focus on building dependable base load power infrastructure. Nuclear energy, known for its consistent and zero-carbon output, has re-emerged as a cornerstone of this energy strategy. Government support, such as the U.S. Department of Energy’s loan to revive the Palisades nuclear plant in Michigan, signals a broader commitment to nuclear power as a key component of future energy policies.
Natural Gas: An Abundant and Reliable Partner
While nuclear power is gaining momentum, natural gas remains a crucial component of the U.S. energy mix. Its abundance, relatively low emissions, and ability to provide consistent base load energy make it a vital partner in powering AI technologies and supporting the broader economy. As a bridge between fossil fuels and renewable energy, natural gas ensures the grid’s stability while more intermittent sources like solar and wind are integrated.
The role of natural gas extends beyond AI-driven industries. Its capacity to meet the increasing demands of EVs and reshored manufacturing industries makes it a critical element of the ongoing energy transition. With substantial government and private investment in energy infrastructure, there are new opportunities for modernisation and expansion of the U.S. energy grid, ensuring it remains resilient as the energy landscape evolves.
A Boom in the Electrical and Industrial Supply Chain
The rapid growth of AI, combined with the reshoring of industries and increasing adoption of EVs, is driving a boom in the electrical and industrial supply chain. Upgrading the grid and building reliable base load power infrastructure represents a once-in-a-generation opportunity to overhaul global supply chains, particularly in the U.S.
Significant investments are already underway in key infrastructure projects, with companies involved in grid modernisation, energy transmission, and supply chain upgrades poised to benefit. Businesses that support nuclear energy, natural gas, and renewable energy projects are expected to see substantial gains as they play a central role in reshaping the energy landscape. The next section highlights a few key stocks positioned to capitalise on the U.S. energy boom.
Key Stocks to Watch in the U.S. Energy Renaissance
Several companies are strategically positioned to benefit from the resurgence of nuclear power and the increasing demand for energy infrastructure in the U.S. Here are some key stocks that investors should keep on their radar:
Sprott Uranium Miners ETF (NYSE: URNM)
The Sprott Uranium Miners ETF (URNM) provides investors with exposure to the uranium mining sector, a critical component of the nuclear energy supply chain. The ETF holds a diversified portfolio of uranium mining companies, including significant holdings in Cameco Corp., NAC Kazatomprom, and Sprott Physical Uranium Trust. As of Q2 2024, URNM had 38 companies in its portfolio, with the majority of exposure in materials and geographic diversification across Canada, Kazakhstan, Australia, and the U.S.
URNM tracks the North Shore Global Uranium Mining Index, focusing on companies dedicating at least 50% of their assets to uranium mining and related activities. With nations committing to tripling nuclear energy capacity by 2050, URNM is well-positioned to benefit from a market experiencing rising uranium prices due to growing global demand for clean, carbon-free power. The ETF’s performance has been robust, delivering a a strong return for the 12 months ending in June 2024.
Sprott Physical Uranium Trust (U.UN.TO)
The Sprott Physical Uranium Trust offers direct exposure to physical uranium, allowing investors to capitalise on rising uranium prices without dealing with the complexities of investing in mining companies. As global interest in nuclear energy continues to rise, uranium has become an increasingly valuable asset for powering sustainable energy solutions.
As of June 30, 2024, the Trust held 65.5 million pounds of physical uranium, valued at $5.615 billion. Despite some volatility in uranium prices, the Trust remains well-positioned to benefit from the long-term demand for uranium as nations expand their nuclear energy capacity to meet net-zero goals. This investment vehicle provides a unique opportunity to participate in the growth of the nuclear sector, which is central to achieving future energy objectives.
Uranium Energy Corp. (NYSE: UEC)
Uranium Energy Corp. (UEC), America’s leading uranium mining company, is strategically positioned to benefit from the resurgence of nuclear energy. UEC has operations across Texas, Wyoming, and New Mexico, with recent production restarts at its Wyoming Hub and Spoke In-Situ Recovery (ISR) platform. The company boasts the largest ISR resource base in the U.S. and has a significant presence in Canada’s Athabasca Basin.
UEC’s strategic focus on expanding its pipeline of low-cost uranium projects positions it as a key supplier of carbon-free fuel for nuclear power. The company operates seven ISR uranium projects, all with the necessary permits, making it one of the few new producers in the uranium market. Although UEC has faced financial challenges, its long-term growth prospects remain strong as demand for clean nuclear energy continues to rise.
Constellation Energy Corp. (NASDAQ: CEG)
Constellation Energy Corp., the nation’s largest producer of carbon-free energy, plays a critical role in the U.S. energy transition. The company supplies power to over 20 million homes and businesses, with a diverse portfolio that includes nuclear, hydro, wind, and solar resources. Constellation’s ambitious goal to eliminate all greenhouse gas emissions by 2040 demonstrates its commitment to driving the shift toward sustainable energy.
A significant part of Constellation’s strategy involves leveraging its nuclear fleet, the largest in the U.S., to maintain a steady output of clean energy. In collaboration with Microsoft, Constellation recently took steps to reopen the Three Mile Island nuclear plant, positioning itself as a leader in meeting AI-driven energy demands. The company’s solid financial results underscore its ability to generate consistent returns while expanding its clean energy initiatives.
The TAMIM Takeaway
The resurgence of nuclear power, coupled with the continued importance of natural gas, is reshaping the U.S. energy landscape to accommodate the growing demands of AI, reshoring, and electric vehicles. The infrastructure required to support this energy transition presents significant opportunities for investors, particularly in companies involved in grid modernisation, energy supply chain upgrades, and base load power infrastructure.
At TAMIM Asset Management, we believe that focusing on the “picks and shovels” of the energy transition—companies that provide essential tools and resources for large-scale infrastructure projects—offers a strategic way to capitalise on evolving energy policies and technological advancements. The U.S. energy renaissance represents a rare opportunity to invest in the future of energy, balancing traditional and emerging sources to achieve sustainable growth.
Disclaimer: Sprott Uranium Miners ETF (NYSE: URNM) and Constellation Energy Corp. (NASDAQ: CEG) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.
When constructing an investment portfolio, one of the most important decisions is asset allocation – the process of determining how much of each asset class to include. This decision significantly influences the portfolio’s performance and how it responds to both opportunities and risks. In his recent article, “Ruminating on Asset Allocation,” renowned investor Howard Marks emphasises the need to balance offense (growth) and defense (income) in any investment strategy.
For investors seeking a well-rounded approach, combining Australian equities, particularly small and mid-cap stocks, with private debt can create a strong blend of growth and income generation. This article explores how these two asset classes work together to build a portfolio designed for both long-term capital appreciation and steady income.
Understanding Asset Allocation: Balancing Offense and Defense
At the heart of asset allocation is the balancing act between two essential goals – growing wealth (offense) and generating consistent income (defense). Traditionally, portfolios have been split between equities for growth and bonds for income. However, with today’s broader range of investment opportunities, investors can design more sophisticated strategies that meet their financial goals and risk tolerance.
Howard Marks highlights that a successful asset allocation strategy involves understanding the trade-offs between offense and defense. Offense focuses on seeking higher returns by taking calculated risks, while defense emphasises reliable income generation, which helps maintain portfolio stability. In today’s investment landscape, a mix of equities for growth and private debt for income can provide a thoughtful balance.
Australian Equities: The All Cap Approach Focused on Small and Mid-Caps
Within equities, Australian small and mid-cap companies present unique growth opportunities. While larger companies may offer stability, small and mid-caps tend to be in earlier stages of growth, with more potential to expand and generate significant returns. This makes them ideal for investors aiming for long-term capital growth.
Why Focus on Small and Mid-Cap Companies?
Investing in small and mid-cap companies, like those targeted by TAMIM Asset Management’s All Cap Fund, offers the chance to capture significant growth. These companies are often more agile and innovative, allowing them to respond quickly to new opportunities in their industries. Unlike large caps, which may experience slower growth due to their size, small and mid-cap stocks provide investors with the potential for higher returns.
For example, TAMIM’s All Cap Fund focuses on identifying high-quality small and mid-cap companies with solid fundamentals, such as strong management and sustainable business models. These firms often operate in niche markets or sectors with high growth potential, making them attractive for investors seeking to build wealth over time.
Growth Potential in Australian Small and Mid-Caps
Small and mid-cap companies are typically in the early phases of their growth journey, giving them room to expand operations, enter new markets, or innovate within their industries. For investors focused on offense, these companies provide a powerful engine for long-term capital appreciation.
By concentrating on small and mid-cap stocks, investors can capture the rapid growth that often accompanies companies moving from emerging players to industry leaders. This positions Australian small and mid-caps as a strong “offensive” component in a portfolio, offering the potential for higher returns over time.
Private Debt: Reliable Income Generation for a Balanced Portfolio
While equities provide the growth needed for a portfolio’s offense, private debt plays a critical role in generating consistent income. Private debt involves lending to companies or individuals outside of public markets and has become increasingly popular among income-focused investors. Compared to traditional bonds, private debt offers higher yields and more stable income streams, making it a valuable defensive asset.
TAMIM Asset Management’s Credit Fund is a prime example of how private debt can serve as a key income generator in a portfolio, while offering low volatility and steady cash flow. This can make it an ideal complement to the growth potential of equities.
Why Private Debt?
Private debt is an attractive asset class for several reasons. It can deliver stable income streams and offers higher yields than traditional fixed-income instruments like government bonds. For investors seeking to maintain a flow of income while keeping risk in check, private debt provides an excellent solution.
Steady Income: Private debt investments can generate regular interest payments, offering a reliable income stream for investors. This steady flow of cash can be especially appealing to those looking for predictable income, such as retirees or investors seeking diversification from equity-driven returns.
Higher Yields: One of the key benefits of private debt is its ability to offer higher yields compared to publicly traded bonds. Returns in the range of 8-10% are not uncommon, providing a substantial income source that helps enhance the overall portfolio return without the high volatility of equity markets.
Lower Volatility: Unlike equities, private debt investments are not traded on public markets, which means they do not experience the same daily price fluctuations. This has the potential to reduce the overall portfolio volatility, making private debt an effective tool for generating income without being overly exposed to market risks.
Reliable Income During Uncertainty: Private debt’s regular interest payments and structured nature ensure that it continues to generate income even during times of market instability. This makes it a valuable defensive asset for investors focused on maintaining stable cash flow in uncertain economic conditions.
Combining Australian Equities and Private Debt: Growth and Income
For many investors, a portfolio that combines Australian small and mid-cap equities with private debt offers the best of both worlds – strong growth potential from equities and reliable income from private debt. Together, these asset classes create a diversified strategy that aligns with both offense and defence goals.
An example of a balanced asset allocation might look like this:
50% Australian Small and Mid-Cap Equities (TAMIM All Cap Fund): This portion of the portfolio focuses on high-growth companies in emerging sectors, offering the primary engine for capital appreciation.
40% Private Debt (TAMIM Credit Fund): This allocation provides steady income, helping to balance the portfolio’s risk profile by delivering consistent cash flow, even in volatile market conditions.
10% Cash or Other Fixed-Income Investments: Holding a small portion in cash or liquid assets ensures flexibility and liquidity, allowing investors to respond to new opportunities or market shifts.
This approach to asset allocation allows investors to capture the growth potential of Australian small and mid-cap companies while also securing potential steady, reliable income from private debt.
The TAMIM Takeaway
Asset allocation is the foundation of any successful investment strategy. As Howard Marks emphasises in “Ruminating on Asset Allocation,” it’s essential to balance growth and income generation in your portfolio. A thoughtful combination of offensive assets (like equities) and defensive assets (like private debt) helps investors achieve their long-term financial goals while managing risk effectively.
For those seeking to optimise their portfolio, the combination of TAMIM Asset Management’s All Cap Fund focused on high-growth Australian small and mid-cap companies and the TAMIM Credit Fund designed to generate reliable income from private debt provides a compelling solution. This balanced approach allows your portfolio to benefit from both growth opportunities and stable cash flow.
At TAMIM, we believe that a balanced approach to asset allocation is key to building long-term wealth. By integrating growth-oriented small and mid-cap equities with the steady income of private debt, we help investors build resilient portfolios that can potentially weather the ups and downs of the investment landscape.
As cities continue to grow and the adoption of artificial intelligence (AI) accelerates, energy consumption is reaching unprecedented levels, placing significant pressure on existing infrastructure. Addressing these growing demands requires substantial investment in modern, resilient energy systems that blend traditional energy sources—such as oil, gas, and nuclear—with newer, cleaner technologies like renewables. This transition presents valuable opportunities for companies that provide the essential services and infrastructure needed to support large-scale projects.
At TAMIM Asset Management, Robert Swift, Portfolio Manager of the Global High Conviction Portfolio, emphasises a “picks and shovels” approach to investing. This strategy focuses on companies that supply the critical tools and technologies needed to support the energy transition and infrastructure development, rather than directly investing in speculative high-growth sectors. With countries like Japan revitalising nuclear energy as a stable base load power source and regions balancing renewable energy with traditional fuels, this investment approach becomes even more pertinent. Below, we explore three long held investments -Emcor Group, MDU Resources, and Hitachi Ltd.—that align with Robert Swift’s philosophy and are well-positioned to capitalise on global infrastructure demands.
Emcor Group: A Leader in Critical Energy Services
Emcor Group (NYSE: EME), a leading provider of electrical and mechanical construction services in the United States, plays a crucial role in designing, building, and maintaining essential energy systems for urban centres and industrial facilities. The company’s services span HVAC, electrical systems, and power generation, which are crucial for supporting cities and industries, including the AI-driven data centres that require modern power infrastructure to operate efficiently.
Emcor’s business model is balanced and adaptable, enabling the company to thrive across various high-growth sectors, such as data centres, semiconductor manufacturing, and healthcare. This versatility positions Emcor as a significant player in the transition to energy-efficient infrastructure. The company is not just focused on new energy projects; it is also involved in the modernisation of existing grids to improve energy efficiency and reliability.
Recent financial results illustrate Emcor’s strength. In Q2 2024, the company reported $3.7 billion in revenue, with a project backlog of $9 billion, reflecting its strong pipeline of future work. A key factor in Emcor’s success is its commitment to advanced technologies like Virtual Design and Construction (VDC) and prefabrication, which enhance project execution and align with industry trends of integrating digital solutions into construction and energy services. These technologies allow Emcor to streamline operations, reduce costs, and complete projects more efficiently, giving it a competitive edge in the industry.
Emcor’s focus on critical infrastructure services and its strong positioning in high-demand sectors make it a compelling choice that benefits from the broader energy transition.
MDU Resources: Supporting America’s Energy Infrastructure
MDU Resources Group (NYSE: MDU), is a diversified energy and construction services provider that plays a central role in the development of America’s energy infrastructure. The company focuses on regulated energy delivery, including electricity and natural gas, which provides stable, predictable cash flows. This focus positions MDU well to meet the needs of expanding urban areas and the increasing demand for efficient energy systems.
MDU’s strategy is to become a pure-play regulated energy delivery company, with steady growth supported by its utility operations. As of mid-2024, MDU serves 1.2 million utility customers and operates over 30,400 miles of transmission lines across several states. Its pipeline operations, with a daily capacity of 2.8 billion cubic feet, play a vital role in meeting natural gas demands, especially in significant energy markets like the Bakken region, known for its oil and gas production.
The company’s performance in Q2 2024 showed the Pipeline segment achieving growth of 99%. The company also announced the completion of the Heskett IV, 88-megawatt simple-cycle combustion natural gas turbine project. This project exemplifies MDU’s commitment to modernising its energy delivery capabilities while expanding capacity. The company’s long-term $2.8 billion capital investment plan aims to enhance and upgrade infrastructure, focusing on sustainable growth while maintaining a robust balance sheet.
Additionally, MDU is well-positioned to benefit from the U.S. Infrastructure Investment & Jobs Act (IIJA), which allocates significant funding to modernise the country’s infrastructure, including energy systems. MDU’s involvement in large-scale projects funded by this initiative is expected to drive further growth as the nation prioritises energy reliability and modernisation. MDU represents a strong option that balances traditional energy needs with forward-looking growth strategies.
Hitachi Ltd.: Bridging Traditional and Future Energy Needs
Hitachi Ltd. (TYO: 6501), a Japanese multinational conglomerate, plays a pivotal role in the global shift toward sustainable energy and digital transformation. The company’s expertise extends across power grids, nuclear energy, and advanced industrial systems, which positions it well to support the modernisation of energy infrastructure worldwide. Hitachi’s broad involvement in energy projects ranges from renewable energy solutions to digital tools that optimise energy management, making it a key contributor to the evolving energy landscape.
Hitachi’s financial results for Q1 FY2024 showed strong revenue growth, driven by Green Energy & Mobility division and Digital Systems & Services segments. A significant portion of this growth is attributed to Hitachi Energy, which focuses on large-scale infrastructure projects like high-voltage direct current (HVDC) systems for integrating offshore wind energy into power grids, as well as nuclear power solutions for stabilising energy supply and meeting clean energy targets.
The company’s work in nuclear energy has gained renewed interest, both in Japan and internationally, with a dramatic revenue increase in this segment over the past year. This growth reflects the resurgence of nuclear power as a dependable base load energy source, especially in countries looking to reduce carbon emissions while maintaining energy stability. Hitachi’s involvement in projects like advanced nuclear reactors and supporting the safe decommissioning of older facilities showcases its comprehensive approach to nuclear energy solutions.
A key factor in Hitachi’s success is its digital platform, Lumada, which integrates AI and the Internet of Things (IoT) to optimise energy management. This platform allows for real-time monitoring and predictive maintenance of energy systems, helping clients reduce operational costs and improve energy efficiency. By bridging the gap between traditional energy solutions and cutting-edge digital technology, Hitachi offers investors exposure to both reliable infrastructure and the next wave of technological innovation.
The TAMIM Takeaway
As urban growth continues and energy demands increase, the need for infrastructure investment is more critical than ever. Companies like Emcor, MDU Resources, and Hitachi are well-equipped to address these evolving needs, providing essential services and infrastructure that support the global energy transition. Emcor’s role in energy-efficient systems, MDU’s strategic investments in utilities and construction, and Hitachi’s leadership in nuclear and digital infrastructure make them stand out options for investors seeking exposure to long-term growth opportunities in the infrastructure sector.
Robert Swift’s “picks and shovels” investment approach is about finding companies that provide the fundamental tools necessary for large-scale transitions, rather than betting directly on speculative outcomes. By focusing on firms like Emcor, MDU, and Hitachi that enable the modernisation of energy systems and infrastructure, investors can capture the potential for sustainable returns while contributing to a more resilient future. We look forward to reading the next report from the A.S.C.E. on the state of U.S. infrastructure in general and the energy segment in particular. Here is a link to the last report from 2021.
At TAMIM Asset Management, we believe the infrastructure space presents a strategic way to benefit from evolving global energy policies while mitigating risks associated with speculative investments. The companies discussed here exemplify how the “picks and shovels” strategy can deliver robust returns across economic cycles and play a crucial role in shaping the future of energy.
Disclaimer: Emcor Group (NYSE: EME), MDU Resources Group (NYSE: MDU) and Hitachi Ltd. (TYO: 6501) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.
Tyro Payments (ASX: TYR) stands out among its peers for its resilience against the adverse effects of the proposed surcharge ban. With a market capitalisation of $400 million and a healthy balance sheet with $70 million in net cash, Tyro’s business model is more diversified than others in the sector, which buffers it from heavy reliance on surcharges. Additionally, Tyro’s forecast EBITDA stands at $62 million for FY25, placing its valuation at an attractive 5.5x EBITDA multiple.
Smartpay (ASX: SMP), a Kiwi-based payments company with a substantial presence in Australia, finds itself more exposed to the potential impacts of the RBA’s proposed surcharge ban. With a market cap of $150 million and an EBITDA of $18 million, Smartpay’s model is more reliant on debit card surcharges for its Australian operations, particularly within its zero-cost EFTPOS solution, which constitutes around 80% of its Australian revenue.
Cuscal occupies a unique position in the payments sector, focusing primarily on infrastructure and processing for banks, fintechs, and corporate clients. Unlike Tyro and Smartpay, Cuscal does not directly engage in merchant acquiring or impose interchange fees, making it less vulnerable to changes in surcharging regulations. As a result, Cuscal stands relatively insulated from the potential impacts of the RBA’s proposed ban, providing it with a certain degree of stability in an otherwise turbulent market.
The Sprott Uranium Miners ETF (URNM) provides investors with exposure to the uranium mining sector, a critical component of the nuclear energy supply chain. The ETF holds a diversified portfolio of uranium mining companies, including significant holdings in Cameco Corp., NAC Kazatomprom, and Sprott Physical Uranium Trust. As of Q2 2024, URNM had 38 companies in its portfolio, with the majority of exposure in materials and geographic diversification across Canada, Kazakhstan, Australia, and the U.S.
The Sprott Physical Uranium Trust offers direct exposure to physical uranium, allowing investors to capitalise on rising uranium prices without dealing with the complexities of investing in mining companies. As global interest in nuclear energy continues to rise, uranium has become an increasingly valuable asset for powering sustainable energy solutions.
Uranium Energy Corp. (UEC), America’s leading uranium mining company, is strategically positioned to benefit from the resurgence of nuclear energy. UEC has operations across Texas, Wyoming, and New Mexico, with recent production restarts at its Wyoming Hub and Spoke In-Situ Recovery (ISR) platform. The company boasts the largest ISR resource base in the U.S. and has a significant presence in Canada’s Athabasca Basin.
Constellation Energy Corp., the nation’s largest producer of carbon-free energy, plays a critical role in the U.S. energy transition. The company supplies power to over 20 million homes and businesses, with a diverse portfolio that includes nuclear, hydro, wind, and solar resources. Constellation’s ambitious goal to eliminate all greenhouse gas emissions by 2040 demonstrates its commitment to driving the shift toward sustainable energy.
Emcor Group (
Hitachi Ltd. (