Barrack St Investments Limited is an investment company providing investors with access to an expertly crafted portfolio of quality listed Australian small to mid-cap growth companies that is managed by ECP Asset Management Pty Ltd (ECPAM). ECPAM has a strong funds management investment team renowned for its stability, track record and sound investment process and through a management service agreement, ECPAM provides its expertise in dictating the composition of BST’s portfolio with BST’s Board of Directors monitoring ECPAM's performance and investment decisions. ECPAM will receive a management fee representing 1.0% per annum (plus GST) calculated and paid monthly based on the net tangible assets of the Company and an annual performance fee which is equal to 20% (excluding GST) of any outperformance over 8% per annum subject to a high water mark.
ECPAM’s investment philosophy is built on the belief that the economics of a business drives long-term investment returns. Investing in high quality businesses that have the ability to generate predictable, above average economic returns will produce superior investment performance over the long-term. The portfolio of investments comprises investments in well managed small and mid-cap companies whose operations cover a wide spectrum of business activities and is constructed from the perspective of a business owner and not simply by tracking the index weighting of various index component stocks.
Barrack St. was incorporated in Queensland in January 2014 and was listed in August 2015. While Barrack St is a separate company it is an integral and important part of the overall distribution strategy of ECPAM and is the retail product offering of ECP Asset Management’s Australian Ex50 investment strategy.
ECPAM is a wholly owned subsidiary of EC Pohl & Co and the EC Pohl & Co group of companies have indicated that they intend to retain at least a 30% interest in Barrack St at all times thereby ensuring a long-term association with the group.
Creating Shareholder wealth through active management of a portfolio of ASX listed quality small to mid-cap growth companies.
THE BENEFITS FOR INVESTORS IN BST INCLUDE:
- Reduced share investment risk through a diversified investment portfolio;
- Professional, disciplined management of an investment portfolio;
- Access to available tax advantages of Listed Investment Company Capital Gains when available;
- Convenient and simple administration of your investment as your single holding in BST gives you access to a multitude of stocks;
- Anticipated continued growth in fully franked dividend income;
- Access to a Dividend Reinvestment Plan;
- No entry or exit fee charged by BST; and
- Easy access to information via BST’s registered office or website or the Australian Securities Exchange.
THE INVESTMENT OBJECTIVES OF BARRACK ST ARE TO:
- Increase Shareholder wealth by achieving capital growth over the medium to long-term without resorting to gearing; and
- Preserve and enhance the NTA per share after allowing for inflation.
IT IS BST’S CURRENT POLICY TO MANAGE THE PORTFOLIO WITHIN THE FOLLOWING GUIDELINES:
- Exposure to a minimum of 15 different companies to give the portfolio adequate diversification; and
- BST will aim to maintain more than 90 per cent of available funds in equity investments at all times. The remaining funds will be held in bank bills, similar cash securities and on deposit in the short term money market.
ECPAM’s investment philosophy is to invest in high quality, capital light, growth companies identified by an investment process which filters out non-compliant companies. The Investment process filters for investment grade companies using the following metrics:
- Historical sales growth;
- Return on equity; and
- Interest cover.
The first requirement ensures that a company is growing. Only those companies with sales that have been growing faster than the Australian economy (as measured by Nominal Gross Domestic Product) are accepted. The principle here is that we don’t want to own businesses that are stagnant or shrinking.
The second requirement, return on equity is our litmus test for business model success. Only companies showing an annual return on equity of 15% or greater are considered. To put this another way, if an investor can get a return of 5% on government bonds that are relatively risk free, we believe that 15% is the minimum that an investor in a company should receive for the extra risk of owning equity. This represents an equity premium of 10%.
The third requirement ensures balanace sheet strength and business resilience through economic cycles. Only those companies whose operation cash flow covers their annual interest bill on their borrowings by four times or greater are considered. That is, company cash flows have to drop by more than 75% before they are going to have trouble servicing their debt.
When these three filters are applied together to all the Australian listed companies, we are left with 80 to 100 companies to consider for investment. The common traits these companies share are that they are growth orientated with a strong business franchise, and in particular, those that we believe have a sustainable competitive advantage.
A sustainable competitive advantage is like having a moat around a company’s business. It protects a business from competitors and new entrants to its market. Companies with a sustainable competitive advantage usually have workforces that are incentivised for business success. The company’s suppliers are not usually in a dominant bargaining position, so the company has access to well priced and consistent inputs.
Before we actualy buy a stock, we ask ourselves the question. “Would we buy all of this business if we had the money?” That is, we buy shares in the business as a business owner, not as a trader of shares.
However, we will consider selling at certain times. For example, if there is a major change in management and we feel that there is insufficient continuity of management to be associated with the track record, we may sell. A major takeover or merger, or if the market valuation of the company exceeds certain thresholds, may prompt the selling of the shares to achieve a lower weighting. If a company’s cash flow deteriorates to a point where it no longer is four times the interest paid, we would seek to understand why and if the answer was unacceptable, we would in all likelihood sell the shares.
Using this philosophy, the day to day management of BST’s investment portfolio is undertaken by the Managing Director.
BST pays dividends from the dividend and interest income it receives from its investments. It has always been the Company’s stated aim to ensure that dividends paid to Shareholders increase in value at a rate in excess of the rate of inflation and to be fully franked. To date, BST has delivered on this aim, paying its dividends at half-yearly increments.