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Investment Insight Series – Cash harvest example: Equinix

Investment Insight Series

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We’ve taken an introductory look at the characteristics Sarasin use to classify companies
under consideration for investment and explored the examples of defensive franchises,
disruptive growth businesses and cyclical franchises. The final category is cash harvest
businesses. Our example from within the Sarasin portfolio is Equinix, who deliver a single
global platform for digital infrastructure.

Here’s the description we shared of typical cash harvest business: 

● These are usually mature businesses with limited internal need for the excess
cash that they generate.
● As a result, they are likely to return this excess cash to shareholders via
dividends or share buybacks.

The market can underestimate the duration over which these companies are able to
maintain superior and growing cash returns to shareholders.
Equinix operates highly-connected data centres that house the world’s networks, allowing
digital leaders to interconnect their digital infrastructure. As increasing global connectivity
changes digital consumption habits, it also drives growing demand for the data centre space
required to power it. Equinix operates practical monopolies with high entry barriers.
Factors supporting the investment case for Equinix include: 

Long-term opportunity for growth. Rising video data traffic, 5G deployment, increasing
reliance on cloud storage and enterprise data centre outsourcing are key long-term drivers.

Industry structure. There are four main highly-connected data centre companies with
limited competitive overlap. They are insulated from the wholesale sector due to the high
demand, high entry barrier nature of their assets.

Additional factors. Equinix has a strong track record of acquiring and integrating smaller
scale, highly-connected assets.

Equinix has a bold sustainability agenda and in 2019, over 90% of their global data centre
energy consumption was from renewable sources and they have been recognised by the US
Environmental Protection Agency for their leading green power use. Equinix are looking to
improve and are also educating their peers, encouraging a swift transition towards low-
carbon energy.

This sounds like exactly the sort of approach you would expect for companies held in a
responsibly managed portfolio. Sarasin continues to engage with the company to help
identify ways that their environmental impact can be reduced even further.
For any data centre business, there are ongoing questions around the internet’s wider
impact on society but Equinix are too far removed from the ‘content’ problem itself for there
to be productive engagement.

If you would like to know more about Equinix’s approach to sustainability, there is a
dedicated page on their website. There is also a global map where you can see their
business locations and, if you click on the location, what sort of renewable technology is
involved.