Our investment philosophy and process
Perennial Value's investment process is based on a 'value' stockpicking investment style. We hold the belief that investment markets are not fully efficient as asset prices are sometimes driven by irrational influences. As a value investor, we aim to invest in "good businesses that are under valued", with an underlying belief that good businesses are always eventually recognised by markets and re-rated to overall market multiples.
Stock selection process
Perennial Value's investment process begins with the screening of the investment universe. Many of these stocks are actively researched by the Team through a bottom up fundamental stock picking process. Stocks are eliminated based on factors such as expensive P/Es, high debt and lack of earnings track records. Detailed modelling and research is then conducted. To qualify for investment, stocks must have sustainable businesses and offer a good share price. Every potential investment opportunity is subjected to a standard range of steps in assessing key qualitative and quantitative criteria. The assessment encompasses the following key criteria:
- Sound financial position (low debt)
- Good management
- Demonstrable profit track record
- Strong market positions.
We place great emphasis on direct company and industry contacts and these are an integral part of the process. Relative value is measured by Perennial Value's proprietary stock ranking model, the 'Perennial Value Screen'. Having ratified the numbers, six key financial measures of each company are measured by the Perennial Value Screen:
- Price to earnings
- Price to free cashflow
- Gross dividend yield
- Price to net tangible assets
- Net interest cover
- Earnings growth.
Each stock is assigned a ranking according to each of the six key measures noted above. Each stock is then assigned a weighted average final score, which determines final rankings. The outcome of this research process is a list of stocks that are eligible for inclusion in the portfolio.
The final portfolios are constructed according to a strict risk management and compliance regime. The main driver of Perennial Value's portfolio construction is the Team's desire to deliver a 'true to label' value portfolio at all times. This means that the portfolio has a strong bias towards the best ranked or best value, stocks in the Value Screen.