Aging populations have led to top-heavy societies in many developed countries. Besides the United States, all the major economies will see a decline in their working population in the not-too-distant future.
Germany, for example, needs 650,000 net migrants every year for the next 20 years to keep its workforce flat. And in the United States, the population of seniors is expected to double over the next three decades, reaching 88 million by 2050. In 2050, 80 countries can expect to experience declining populations, up from 20 today. While the changes may happen at a glacial pace, they really matter.
For the first time, Canada has more people over the age of 65 than under 15, according to Statistics Canada. Baby boomers make up 27 per cent of the Canadian population. By 2021, nearly 19 per cent of the population will be over 65. And by 2041, more than 23 per cent of Canadians will be senior citizens.
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These changing demographics have led to new investment ideas. For global equity investing, it’s important to find companies with products or services that benefit from an aging population but whose stock market valuations and forecasts don’t fully reflect that yet.
One such company is the Quebec-based Savaria Corp., which manufactures personal mobility products such as home elevators as well as stair and wheelchair lifts. It also offers van conversions. Both areas of the business are likely to benefit from older populations.
Founded in 1979, Savaria had its best year in 2016, reaching record revenues (26 per cent higher than in 2015) and gross earnings (41 per cent higher than in 2015). The company continues to invest in its business for future growth. For example, it acquired the automotive division of Shoppers Drug Mart last year, which provides more sales locations for its growing vehicle conversion business. It also brought a new patient lift to market at the end of last year, creating additional revenue streams.
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When looking for opportunities in global equity, it’s important to constantly meet with companies and discuss industry trends with their peers, suppliers and competitors. That way, it’s possible to refine the perspective based on the strength of different companies’ potential customers and test the investment thesis.
Let’s consider Orpea, a French operator of high-end nursing homes. Most of its business is currently in France, but due to the limited number of licences available there, its growth has focused on foreign markets, primarily elsewhere in Europe and, more recently, China.
Orpea could see five per cent growth from mergers and acquisitions in the future, with organic growth above five per cent in 2018 and beyond. But based on consensus numbers, Orpea’s stock price doesn’t reflect those estimates.
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It’s unlikely competitors will present a large threat in Orpea’s markets because of licensing regulations and their limited ability to buy at scale. In addition, France’s stock of specialized care beds for the last stages in life is hugely inadequate. Therefore, growth opportunities exist for operations like Orpea’s, where the focus is on providing very high-quality home care for the older generation.
The changing demographic profile in different regions brings challenges but also investment opportunities. The market often doesn’t fully appreciate the positive implications associated with the changes that companies are undergoing. Identifying those companies and positioning a portfolio to capitalize on their expected outcome will help institutional investors meet their return requirements over time.
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Mikhail Zverev is head of global equities at Standard Life Investments.