Fenimore Asset Management, Inc. on UL Solutions Inc.
Thesis
UL Solutions supplies testing, inspection and certification services essential for many manufacturers selling products in the U.S. Fenimore views the recognized UL Mark as a toll-road-like business position. The shares fell around 40% amid concerns over spending on testing facilities, but the fund interprets that spending as investment in data-center-related demand and initiated a stake.
“This creates a toll-road-like position on product innovation and market access.”
Key risks
- Rising capital spending on testing capacity
- New capacity may not attract expected demand
- A lasting increase in capital intensity could pressure returns