This duopoly makes lifts and escalators, which are distinctly old world, so why do they appear in many fund portfolios?
The first reason is demographics and the movement of people from the countryside into cities. The proportion of the world’s population living in towns and cities today is around 55 percent. That figure is set to rise to 68 percent by 2050 according to the UN’s 2018 “Population Division” report.
Urban populations grew rapidly from 751 million in 1950 to 4.2 billion in 2018. Together, India, China and Nigeria will account for 35% of expected growth between 2018 and 2050. The UN projects that by 2050 India will have added 416 million urban dwellers, China 225 million and Nigeria 189 million.
The density of urban populations has risen and continues to rise so buildings must reach higher and their occupants need to be transported vertically.
Forecasts suggest that the global elevator and escalator markets will grow at rates substantially in excess of the global economy.
The second reason is that they are not simple providers of machinery. Over time they have modified their businesses so that a growing portion of their income is from the services they provide rather than the hardware they install. Although repairs and replacements form a large part of this, providing digital access and oversight is an increasing requirement, while safety and environmental concerns are increasingly important. These provide regular, recurring fees, rather than one-off lump sums, and thus a more predictable and higher quality source of income.
Finally between the two companies they have such a substantial market share that there is little competition, and so limited threats to their position or pricing.