To find investment opportunities, KAM focuses only on companies that have identifiable business franchises and which are available at valuations that offer an attractive risk/return profile.

KAM’s approach to identifying opportunities quickly relies on three tools we have developed to support our investment.

Valuation Sheet – KAM’s investment team consider up to one hundred companies at a time. 

We determine the most attractive opportunities by reviewing a broad range of valuation metrics such as Price to Sales, Price to Book, Price to Earnings (historic, future and cyclical), Enterprise Value to EBITDA (an operating cash flow measure), dividend yield, levels of net debt (or preferably cash), Free Cash Flow yield, and others. 

We pick out companies that are undervalued on several metrics.

Ratio Sheet - we take the companies that meet our valuation criteria, and individually analyse them on our Ratios Sheet, scanning a history of each company’s financial results over as long a period as possible (preferably more than two economic cycles) to judge the quality and cyclicality of the company’s earnings. 

We analyse the income statement, balance sheet and cash flow statement together to gauge the quality of the earnings and risk, and to look for surprises and issues that require further investigation. 

Most importantly, we compare the story as management tell it to the numbers that their auditors are willing to sign off, to spot inconsistencies.  This gives us a good snapshot of the company we are considering, its strengths and weaknesses, and further questions we should ask. 

The process is designed to fail quickly, to throw out the ideas that are not attractive as soon as possible, thus enabling us to spend our limited time performing detailed research on high-potential opportunities. The above two steps take very little time; about 20-30 minutes for the Valuation Sheet, and 15-20 minutes for each Ratio Sheet.  In this way we quickly identify the very few companies that may represent real opportunities and justify intensive research. In many instances none of the companies scanned will meet our stringent criteria.

Research Report – the most important part of the investment process is in-depth analysis.
 
When an opportunity does emerge, we perform rigorous analysis on a company’s operations. We read annual reports, talk to management, search the newspapers, read all available research, and talk to competitors and suppliers.

We carry out as much research as is necessary to give us confidence that we have found an excellent opportunity.

This research is summarised in a consistent format within our Research Report.