Inditex’s “Join Life” uses TencelTM, organic and recycled cotton and other recycled fibres like polyester and polyamide.
IKEA aims to switch 30% of their cotton fibre usage into more sustainable fibres, and TencelTM is their preferred fibre.
Whilst all this is going on it is important to remember that Lenzing is not doing this out of the kindness of its heart. It, in fact, makes good business sense to be sustainable. The vertical integration in DWP gives the company an important cost advantage, boosting margins going forward, and it is an important component of their ‘moat’ as the production sites and pulp quality are hard to replicate.
Lenzing can charge a premium for their specialty fibres, but more importantly, the price of these specialty fibres doesn’t swing around with the price of cotton, unlike the more commoditised viscose. This means that as the contribution of specialty fibres increases as a proportion of the overall business, the return profile of the company will not only improve, but be more stable and predictable. In short, the quality of returns will continue to improve, and Lenzing should compound growing returns, which will be well protected by the moat it has built
around its business.
This is exactly what we look for in a company.
Meanwhile, the market continues to value Lenzing like a commodity viscose player. It is up to us, like Lenzing has done, to spot the trend and take advantage of the investment opportunity this presents us with.