Embracing sustainability doesn’t have to come at the expense of financial performance — Morgan Stanley named several European companies it says have managed to show just that. The “standout names” have produced “quantifiable financial impact” on top of making improvements in ESG (environmental, social and governance) , Morgan Stanley’s analysts, led by Stephen Byrd, wrote in a note on Monday. These stocks are rated overweight and have average upside of around 20% to 35%, the bank added. Stock picks Oil major BP is one of the bank’s top picks. The company has several “transition growth engines,” such as biofuel, renewables, hydrogen, and electric vehicle charging. Those growth areas are expected to contribute $9-$10 billion of earnings by 2030, according to BP’s own estimates. The company is spending more on its new initiatives, with expenditure on growth areas to make up more than half of its overall capital expenditure (capex) by 2030. BP is also Morgan Stanley’s top pick in the energy sector. The bank said BP can achieve dividend per share growth of between 14% and 16% annually and generate $28 and $32 billion in cash flow from operations per year. Swiss building materials manufacturer Holcim is another one of the bank’s top picks. Morgan Stanley described the company as a “global leader” in cement decarbonization, and its “ambitious” medium-term decarbonization target puts it in a “league of its own.” The bank noted the company’s “strong delivery on cost savings” and sees scope for margin uplift in its non-cement business. Over the longer term, the bank sees “growth potential” from the company’s “transformational M & A” and believes a change in the company’s portfolio mix could lift cash conversion and return on capital. Morgan Stanley also named German utility firm RWE on its list. The bank said the company is an “energy security champion” and noted its commitment to allocating more than 90% of capex on renewables by 2030. The bank estimates that RWE will achieve around 16 billion euros ($17 billion) of free cash flow in 2023. “In the near term, our analyst expects RWE to trade on [earnings per share] upgrades given the power/commodity environment. Given this may persist for 3-5 years, the cash generation for reinvestment is material,” the bank said. — CNBC’s Michael Bloom contributed to reporting
