The Rise of Investable Utilities

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A growing trend outside of ESG

Public benefit corporations are a new range of legal persons which are for-profit corporations that can be listed on a stock exchange, but which differ from other corporations in that the shareholders are not the only recipients of practices “in the best interest”. Now, business objectives can also include the health and well-being of the environment, workers and the wider community. Often, shareholders rebel against the management of publicly traded companies when performance is poor and may cite poor shareholder returns as a reason to sue.

B-corps are somewhat immune to these impacts, as management can be invested in charity or sustainability. Imagine today’s ESG standards, but to a much higher degree. This is helpful in that management can now focus on building a healthy, forward-looking business without having to worry so much about short-term performance. As you will see later in this article, strong stock price performance is not the norm in this market today, but strong fundamental cues remain.

The corporate entity has been instrumental in harnessing the profit motive to enable business ventures to have a tremendous impact, both negative and positive, on contemporary society. The proliferation of these entities has also created a tension in our society and our jurisprudence as to their purpose and their impact on society. On the one hand, the success of the corporate form has led to a greater availability of products and services that have increased our standard of living and our quality of life. On the other hand, many believe that the corporate form owes society even more. Throughout American history, there has been a continuous call for corporations to exercise their power and influence in ways that not only create economic value for shareholders, but also create corporate value. in an ethical way that benefits society as a whole.

However, perk status shouldn’t be an excuse for poor performance, and in fact, could be a tool to drive a B-corp’s growth. Since the creation of this class of business entities across the United States in the late 2000s, there are now thirteen publicly traded B-corps and more than 20 additional corporations with B-corp subsidiaries. There are certainly positives and negatives in the corporate structure due to a lack of transparency of results and conflicting interests (although most of the negative opinions come from lawyers rather than economists). Also, as the format remains new, we still don’t have enough data to suggest under or over performance. I will use this article to introduce current B-corps to start tracking performance over time.

While the underlying idea of ​​the benevolent society is well-intentioned, Delaware’s departure from MBCL language in some key respects, in addition to MBCL’s creation of an enforcement system lax that may promote widespread adoption, undermines the intentions of the editors. Charities legislation, as it currently exists, is nothing more than the result of riding the wave of the corporate social responsibility movement.

PBC pure-play by market capitalization

Veeva Systems (VEEV)

One of the first tradable companies to upgrade to B-corp status is this pioneering cloud-based healthcare SaaS provider. Veeva has been one of the best performers of the past decade, although the valuation has fallen in line with the market over the past year. However, expect growth to remain above 20% annually for the foreseeable future with a chance for upside as the R&D side of the healthcare market recovers from a slow FDA.

United Therapeutics (UTHR)

This commercial-stage biotech company is focused on rare disease therapeutics and has multiple approvals. The current pipeline has multiple trials in all phases and some catalysts over the next few months could increase the current low valuation, even though the company recently obtained FDA approval. It’s definitely worth a deep dive for those who love the biotech industry (they’re even trying to grow lungs!).

Coursera (COURT)

Coursera is one of the largest online education providers in the world through partnerships with entities such as Google (GOOGL) (GOOG), Stanford Uni and IBM (IBM). Seek to grow the business as students seek cheaper and more flexible alternatives to traditional higher education. As a recent IPO, continue to be wary of the declining stock price trend and high valuation (a pattern you will see emerging for B-bodies).

Warby Parker (WRBY)

Warby Parker is a relatively new eyewear retailer that is trying to use e-commerce marketing strategies, such as at-home trial periods, virtual trials, and even at-home prescription refills. The company sells a wide range of exclusive frames and lenses, as well as ACUVUE (JNJ), Alcon (ALC) and CooperVision (COO) contacts. Revenues are expected to increase by around 20%, but the current valuation remains high.

Planet Labs (PL)

Planet Labs is a satellite image database provider. With a range of satellites in orbit and a variety of data insights, the company is leveraging a data subscription service for growth. Count on the company to provide slow but profitable growth in the future through its relatively niche platform. However, major competitors Maxar (MAXR) and BlackSky (BKSY) have quite similar offerings, which limits the huge growth potential of the peer group. Dedicated investors should take the time to research each.

Lemonade (LMND)

Lemonade is a new entrant in consumer insurance coverage. The platform offers a range of home, renters, car, pet, and life insurance services. With its focus on young, urban customers, the company has certainly suffered in the face of investors. Over time, however, I believe the company will find its niche through a simplified platform and better customer relations. The added benefit of consumers looking for a B-Corp insurance company may be another slight tailwind to consider.

All the birds (BIRD)

Allbirds is by no means an innovative company. However, this sustainable apparel company is following in the successful footsteps of names like Nike (NKE), Supreme (VFC) and Patagonia: limited-edition products, a focus on high-income sportswear fans, and a platform focused on Sustainable development. Although BIRD needs more time in the market before long-term prospects can be determined, I think the positive reviews on the website indicate potential.

Merged Financial Company (AMAL)

This union, PE and shareholder owned financial institution focuses on providing financial services to unions and non-profit institutions. The company is a leading provider of accounts receivable solutions, which has resulted in steady, but slow growth over the years. The company is certainly a welcome low-risk asset compared to many SPAC-listed peers of the past year.

GreenLight Biosciences, Vital Farms and AppHarvest

Enter innovative agricultural stocks. GreenLight (GRNA) is a biotechnology company with applications in crop science, primarily non-toxic pest control, through their RNA-based technologies. Vital Farms (VITL) is a small family farming collective that markets broiler chickens and dairy products. AppHarvest (APPH) develops indoor farming techniques that reduce weather-related risks, while reducing consumption and waste. While remaining small-scale, pre-commercial and/or speculative, these ventures address areas of research unique to our ever-needed agriculture industry.

Performance Summary

Although the companies are diverse in terms of business types, the performance is quite similar due to the fact that most of the companies went public in the last few years. Moreover, due to their small size and growth orientation, most companies are not yet profitable. This has led the group’s overall performance to be negative so far this year, with only AMAL and UTHR up year-to-date. However, it also means that the group may have the opportunity to outperform the market in the long term, as growth exceeds the market average.

  • Median Selling Price (MTR): 5.83x
  • Median year-over-year revenue growth: 24.9%
  • Median return since the beginning of the year: -45%

Growth is definitely the name of the game with these assets. I find the most attractive asset as an individual holding would be Veeva, and no other name really comes close in terms of quality. As a leader in cloud software for the healthcare industry, no other company on this list comes close in terms of moat, strong balance sheet, and profitability. However, as I mentioned before, there are other large companies that have subsidiaries that are B-corps, and adding those names to the group increases the security of that “wallet.” These names include Procter & Gamble (PG), Nestlé (OTCPK: NSRGY), Coca-Cola (KO), Unilever (UL) and Anheuser-Busch (BUD). Note that most are consumer goods companies, as more and more consumers prefer “beneficial” brands (whether through sustainable products, charities, etc.). See the full list of companies here.

Conclusion

I find that when considering investments in part B-corp, the whole group is an intriguing view of the market. Large consumer products conglomerates offer stability, while pure-play B-corps offer opportunities for speculative growth. Therefore, I wonder if ETF issuers will soon start offering ETFs covering the growing B-body market. Until then, I will monitor the group’s performance and provide periodic updates. I will even seek to see the group outperform traditional indices such as the S&P 500 (SPY) (VOO) or the Nasdaq 100 (QQQ). Every B-corp I’ve talked about certainly seems worthy of further research, so I hope I’ve piqued your interest in public benefit corporations.

Thanks for reading.

About Tina G.

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