ASSOCIATED 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.
