Since the financial crisis began over five years ago, we have been in an environment where strong companies are getting stronger and the weak have become weaker.
When looking to make an investment in a company, Richard Plackett, co-manager of the BlackRock UK Special Situations fund, looks for high quality growth companies that can grow significantly and sustainably over the long-term and are able to withstand volatility and uncertainty.
Richard's investment decision-making process involves a company ticking the box of five characteristics before he invests. He looks for good management, a strong market position, cash generating, a good long-term track record and robust balance sheet.
Management - "An investable company must pass a management appraisal, in which its movers and shakers will be reviewed for their sales ability, control skills, strategy and equity involvement."
Howden Joinery manufactures and sells kitchens in the UK, and whilst we believe it will be many years before we return to a normal consumer environment, Howdens has grown through market share gains and depot roll out, a trend we believe will continue in the future. Whilst we are generally cautious on consumer stocks, we favour those such as Howdens that have positive supply side dynamics.
Strong market position - "A company must then prove it has a strong market position. If this is not delivered by the product itself, it must prove it has an unrelenting supply network. The fund invests in UK companies, the majority of which have vast overseas earnings potential. In the developed world, both consumer and governments have a huge debt burden, while developing markets have stronger growth prospects and are less burdened by debt."
Domino Printing - a coding and printing technology business with a global network of 25 subsidiary offices and 200 distributors. The group sells to over 120 countries and has manufacturing facilities in the UK, China, Germany, India, Sweden and the USA. Although it is small, Domino printing has increased its dividend for the last 25 years
Cash generative - "A company must possess or be in a position to be able to produce the funds for expansion. This may be considered a struggle for some companies following the financial crisis but many that survived the crisis emerged stronger than ever."
Senior - the international manufacturing group's recent results has shown how a company, despite tough market conditions, can grow profits significantly
Good long term track record - "A company's track record will be carefully unpicked, any black spots from the past could indicate trouble in the future. Companies with potentially problems are scrupulously avoided."
Spirax-Sarco provides products and services central in efficient management of steam or industrial fluid in plants. Spirax-Sarco has increased its dividend for the last 43 years. This position has been held in the portfolio for almost 10 years demonstrating our high conviction investment approach.
Strong balance sheet - "The final test, companies will have net cash and no debt. In an ever more competitive economic environment, the winners are pulling further away from the losers and the contrast between failure and success is only getting starker. A company must be able to demonstrate that they are financially solvent and in recent years, those companies that survived the financial crisis have continued to improve on their financial strength."
Aveva is engaged in the development of plant design software for a variety of industries, including oil, gas and power. Their software is integral to the plant construction process. Originally a breakaway from Cambridge University, the group has continued to focus on R&D, widening the product suite to appeal to a wider audience. Newer products such as AvevaNET and Aveva Everything 3D will generate future revenue streams
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