Our focus on high quality companies with leading franchises

Our focus on high quality companies with leading franchises

We believe it is important to have a strict investment process and invest with a long-term approach. Companies that have a sustainable competitive advantage are well-placed to withstand short-term headwinds, regardless of market conditions, maintain market share, and ultimately find new ways to grow.

As a result, we focus on high quality companies that are market leaders, with strong balance sheets and cash generative business models that can benefit from the effect of compounding. We define these terms below:

High quality

The economics of a business drives long-term investment returns, and we target companies that operate in secular growth markets with a high and predictable return on sales and capital.

We have a strong preference for businesses with a protective moat or competitive advantage, such as a brand, intellectual property or market position. These provide a barrier to entry and a margin of safety. We avoid highly cyclical sectors due to the market timing risk and instead favour organic rather than acquisitive growth, as this is more repeatable.

Ideally, the business should have a simple, scalable and unique business model with consistent and predictable growth through a high degree of repeat sales or recurring revenue.

Market leader

We seek to invest in businesses that operate in niche industries that have a dominant market position, as they typically have a competitive advantage and can command greater pricing power and achieve above average economic returns providing superior investment performance over the long-term.

Balance sheet strength

Companies with a low level of debt are better positioned to withstand economic shocks. By their nature smaller companies tend to have a high degree of ‘operational’ gearing and to preserve capital we avoid stocks with high ‘financial’ gearing because excessive debt restricts the ability to invest and increases the risk of equity dilution at times of market stress.

We have a preference for ‘asset light’ businesses as they generally achieve higher returns on capital, and we believe this drives the long-term returns for shareholders.

Cash generative

We avoid loss making businesses and focus on profitable companies with proven track records as we do not want to be reliant upon the generosity of existing or new shareholders to support growth.

Cash generation, defined as surplus cash generated after operating expenses and capital expenditure, provides management teams with the ability to reinvest in the business, distribute dividends or pursue strategic acquisitions.

Disclaimer: Although Whitman uses all reasonable skill and care in compiling this report, no warranty is given as to its accuracy or completeness. The opinions expressed accurately reflect the views of Whitman at the date of this document based on our views at such time regarding market conditions and other factors, may depend upon assumptions or projections that may not prove to be correct, and are subject to change. The opinions stated are honestly held, they are not guarantees and should not be relied upon.

The value of investments may fall as well as rise and your capital is at risk. We strongly recommend that you seek professional advice before you consider making investments in such securities. AIM has less stringent rules and AIM company shares may be less liquid than those companies listed on the London Stock Exchange.

Current tax rules and the available tax reliefs offered on investments into AIM-quoted stocks may change at any time, and there is a considerable risk that if the legislation changed in respect of these tax reliefs, then those stocks that no longer qualified for such reliefs would be subject to heavy selling pressure, potentially leading to significant investment losses.

Disclaimer: The value of investments may fall as well as rise and your capital is at risk. Information on past performance, where given, is not necessarily a guide to future performance.
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