AZEK primary sells composite decking - engineered products made from recycled plastic and wood fibres that outperform traditional lumber with superior durability, lower maintenance requirements, and longer lifespans.
The Canopy Global Small & Mid Cap Fund maintains a position in Trex – the industry pioneer and market leader in composite decking with approximately 50% market share, compared to AZEK's 35%. Both continue to take share from smaller competitors.
Trex is widely recognized as the 'Kleenex' of the category with superior brand recognition, broader distribution, better margins, and manufacturing advantages through greater use of recycled materials. Trex is also one of the US’s biggest recyclers of used plastic bags, having pioneered a process of taking this waste product and converting it into a highly functional, desirable, and profitable alterative to wood decking.
In our view, the Hardie-AZEK merger highlights the compelling growth story in composite decking in the US. It currently represents only 24% of the total decking market, with research suggesting penetration could double within 10-15 years. However, building products stocks have been under pressure in recent months as investors weigh the pace of recovery in the US housing market in an environment of elevated economic and policy uncertainty, so we view the announcement as opportunistically timed.
We look forward to seeing how the industry landscape evolves and remain confident in Trex's leadership position in this attractive category.