Our Philosophy
We adopt a long term "bottom-up" approach to investment
Bottom–up stock picking involves assessing how a particular company will perform over a given period. If its potential performance appears strong,
we then assess the outlook for its industry and finally the overall economy.
We believe that equity markets are inefficient and, therefore, offer excellent investment opportunities over time. The inefficiencies arise due to excesses in investor emotion, a focus on short term investment horizons and consistent
focus on one of the least important aspects of a company’s financial health – its profit and loss statement.
In our view, one of the most important aspects of investing is objectivity. It is, therefore, possible to benefit from changes in market inefficiencies by focusing on logical,
ordered and objective investment decisions based on known facts.
We aim to buy shares which we believe are underpriced and expect to grow at rates greater than the market. Our strategy is to favour well-managed, good value companies that have significant growth opportunities through their comparative advantage.
This comparative advantage can be via a combination of a better product or service, a more efficient organisational model, a favourable niche or a commanding leadership position within their industry.
In our view, a good business requires good products and services and good execution.
The key to identifying these investment opportunities lies in our extensive insight and analysis of companies and the industries to which they belong. We achieve this through an intense company visitation program and our experienced
investment professionals using proven valuation techniques and models.
Valuation Techniques
In our view, no single valuation technique in isolation can effectively determine the value of a share. Each sector/industry of the market has different drivers. As a result, some valuation
techniques are more appropriate than others. However, the more common valuation techniques we employ are based on income and balance sheet factors:
Income:
- PE (ie Price to Earnings - how a share is priced versus its earnings)
- Yield (ie how much it returns)
- Free cashflow, discounted cashflow
- EBIT (earnings before interest and tax) / Sales Margin
- Revenue and profit growth half by half
- Enterprise valuation multiple
Balance Sheet:
- Interest coverage
- Return on assets
- Return on equity
- Return on incremental capital employed