Montanaro specialises in quoted European small companies with a particular focus on those with a stock market value below €3 billion. As an independent quoted small company specialist, we have the resources and skills to complete due diligence ourselves on companies we consider to be undervalued. Investment ideas are generated internally - rather than through stock brokers - and are researched in detail in-house. With around 6,000 companies currently within our universe, we are spoilt for choice. There is never a shortage of exciting new ideas. Before detailed research on an individual company, we gather and carefully review extensive trade and industry data to help us to understand the sector in which a company operates and its growth drivers.
Investments are focused on companies that are profitable and where there are sufficient shares in public hands to enable us to establish a holding. We are mindful of our “circle of competence” – complicated, technology, or blue-sky companies are not for us. We focus on companies we can understand, typically niche franchises with good and experienced management, sound finances, simple business models, good order visibility, high barriers to entry, a strong, normally dominant market position and a competitive advantage that ensures pricing power. If there is a choice of more than one company in a specific sector, we would normally invest in the market leader. We prefer companies that can demonstrate self-funded organic growth rather than those on the acquisition treadmill.
We believe that you “get what you pay for in life” - it is worth paying more for a higher quality company. We like cash generative companies with high operating profit margins - an indicator that they are providing goods or services of value to their clients - which are better able to withstand a downturn. We assess carefully potential catalysts for share price performance such as positive news flow. We never lose sight of our primary goal which is to make money for shareholders through sound investment based on our own rigorous, fundamental analysis. We take a conservative approach. We also believe that it is right and proper to align our interests with those of our investors - we invest in our own funds and investment trusts.
To ensure that we remain well-informed, we regularly visit the companies in which we invest. We place great emphasis on management and seek to gain an understanding of their goals and aspirations by seeing them operate in their own environment. The track record of executives is examined in detail along with board structure, the level of insider ownership and the emphasis paid by management on sound corporate governance. We believe that good communication and regular dialogue with management are important.
In summary, we invest in well-managed, high quality companies in growth markets. We keep turnover and transaction costs low. We follow the companies in which we invest very closely over many years measured more in decades than the short-termism of others. We would rather pay more for a higher quality, more predictable company that can be valued with greater certainty. We are more interested in where an industry and a specific company will be in 5 - 10 years than its next set of figures. We are genuine long-term investors, seemingly an increasing rarity these days.