Investment Philosophy
Often confused with ‘Process’, the ‘Philosophy’ of an investor is what they believe drives share prices and outperformance over the long-term.
We believe that investment returns are generated by purchasing a share for less than the intrinsic worth of the company, (a ‘value’ philosophy), enhanced by identifying companies that can increase their fundamental intrinsic worth over time, to avoid ‘value traps’.
We seek to optimise the IRR by identifying ‘catalysts’ which will un-lock the share’s discount to the business’s worth or accelerate value creation. For ‘core’ investments we ourselves may be the ‘catalyst’ through the provision of capital, insight and personnel.
Target investment opportunities arising in the inefficient and niche market of UK small companies.
Use the manager’s specialist experience and enhanced diligence approach to assess risk. We stick to what we believe we understand, avoid unproven business models and are adverse to high indebtedness.
Harvest the benefits of long-term capital through patience and an ‘ownership’ mentality. We are medium-long term investors with a typical time horizon of 3-5 years, as this period allows for intrinsic worth to be recognised more widely and fundamental improvements or changes to have a positive effect.
Deliver returns through a ‘Value’ investing philosophy. We believe that a company’s intrinsic worth is driven by its future cashflows discounted back to today, however we do not make long-term forecasts and seek businesses with identifiable near-term cash flow generation to justify our assumptions on upside.
Incorporate ‘Private’ market perspectives into ‘Public’ company investment appraisal. Our financial analysis is focused on cash flow generation and returns on capital.
Take influential stakes to enable ‘engagement’ with companies to support or catalyse positive change.
OUR PHILOSOPHY
Identifying Catalysts
The fast-changing nature of the world economy and technology means any confidence in individual companies’ growth forecasts many years hence are fraught with risk.
We therefore focus the majority of capital into ‘recovery’, ‘turnaround’ or ‘transformation’ opportunities, where the past can be a more helpful guide to the potential future. There are businesses that have historic evidence of cash generation, yet have fallen on difficult times and have depressed profitability typically as a result of strategic missteps such as poor M&A, bad management or a lack of adaption to changing end-markets or circumstances.
With new management and an evolving Board, key issues can be identified, a strategic plan agreed and, if executed well, can lead to a mean-reversion, the recovery of returns and a re-rating, outperforming the market
We seek therefore to exploit ‘fear’ and ‘negativity’ targeting companies where we believe a turnaround is possible and structural change has not permanently damaged prospects.
We believe in the highest standards of sensible corporate governance, noting that small company circumstances don’t always fit with generic rules for all companies.
We actively target large stakes in companies to ensure a voice and influence, and through the strength of our arguments seek stakeholder support. Our philosophy is therefore heavily engaged which requires much higher-than-average contact with executive management, Boards and advisors. The purpose of this engagement is to build a deep understanding of the company’s dynamics and a positive relationship with the Board and executive management teams, ensuring their focus is on the maximisation of shareholder value.
“many shall be restored that now are fallen and many shall fall that are now in honour"
Quintus Horatius Flaccus 65BC