By Alan Rowsell, Investment Director, Aberdeen Standard Investments
The world of automation has transformed every aspect of our lives. For stock-pickers such us ourselves, this is creating numerous investment opportunities. And nowhere more so than in the rich and diverse global smaller companies sector.
Back to the future
In 1959, carmaker General Motors (GM) unveiled the imposing 2,700 pound Unimate #001 – the world’s first robotic arm. The brainchild of George Devol, GM deployed Unimates across its die-casting plant. By the early ‘60s, there were over 450 machines in action. A robotic revolution was born.
In the intervening years, automation has grown in sophistication, efficiency and operational range. It has become ubiquitous across the business landscape. Today, it is used everything from car manufacturing and industrial warehousing, to instrument inspection and security.
The world is just a click away
Since the advent of the internet, the face of retail has changed irrevocably. Tempted by choice, price and convenience, a growing number of consumers make their purchases online. In 2017, UK shoppers spent over $4,200 per capita online. France and Germany accounted for around $1,940 and $1,280 respectively. As a result, many high-street names across Europe are losing custom. A number of household names have even had to shutter their businesses. But not everyone is a loser. For example, demand for warehousing has soared as a result of this move from ‘bricks to clicks’. With that, has come the need for ever more sophisticated automation to ‘pick, pack and ship’ the goods.
Jungheinrich, the German forklift and warehouse specialist, is one of the companies benefiting from this transition. Its logistics business is now the company’s fastest-growing sector, thanks to its impressive organic expansion. It is also rolling out its Industry 4.0 solutions. This system manages and controls the various warehouse procedures, creating a simplified, efficient and dynamic operation.
Staying with efficiency, Japan’s Monotaro, which provides industrial supply products, recently assessed its workforce practices. It found its employees spent a sizable percentage of their time walking from one part of the warehouse to the other. Monotaro’s response? Racrew – a fleet of automated-guided vehicles that it hopes will double productivity. The company will deploy the machines at its new Kasama Distribution Centre. Innovations like this are prevalent across the world of e-commerce. We would expect this trend to continue as more retailers move their operations online.
A timely report
In the neo-noir sci-fi blockbuster Minority Report, Tom Cruise plays a cop with a difference – he arrests criminals before they commit a crime. The stuff of fancy? Perhaps not. For, thanks to the ‘Internet of Things’, companies are also able to predict the future.
Take Aspen Technologies, for example. It has developed APM, a suite of predictive maintenance software used in the oil refinery, chemical plants and engineering sectors. By continuously analysing the machinery, APM is able to calculate where issues might arise before they happen – sometimes months in advance. Operators can then replace the part before it breaks, preventing costly shutdowns. Unsurprisingly, this is a growth segment of the market. Indeed, Aspen has already won a number of major contracts. This includes from Italy’s Saras, the largest oil refinery in the Mediterranean.
Move over, Rover
Automation is not just found in industry: machines now conduct a variety of complex household functions. A good example is home security which, thanks to mobile technology, has grown in sophistication. One company to highlight is Alarm.com. It is the market leader in interactive home security, allowing consumers to create a fully-automated, state-of-the-art smart home. Alarm.com has achieved this by marrying smart security systems, video monitoring and access control into one cohesive system.
Of course, Alarm.com is not alone in this field, which includes Honeywell, Ring.com and Verisure, among others. However, we believe Alarm.com’s open ecosystem and use of a cellular network give it a competitive advantage. Its expansive network of over 6,000 local dealers also sets it ahead of rivals.
In the year 2525…
Looking to the future, we believe that automation will become increasingly multifunctional. From the factory to the home, it will be able to adapt to different tasks and operations. The evolution of A.I. means machines will increasingly perform advanced self-diagnostics and make on-the-spot ‘decisions’.
Of course, there are concerns that automation will lead to mass unemployment. Some of these concerns are understandable. However, we also believe that more sophisticated automation and human interactions will create alternative jobs. This includes in a variety of burgeoning or as-yet undiscovered fields.
The growth in automation – and all the related industries – will also create new investment opportunities. Our job is to apply our rigorous bottom-up investment process to uncover these market leaders of tomorrow – today.