Investment Aproach

Investment Aproach

Our investment approach continues to be focussed on high quality cash producing assets, which by virtue of the type of asset, location or barriers to entry, should appreciate in value in contrast to many other assets that generally depreciate over time. In this regard, we recently came across a paragraph in the book.

When reviewing the value of the commercial properties we own, we have generally found the required depreciation provisions to be substantially overstated. This is the principal reason why we measure our performance based on the cash flow generated from the operations, less sustaining capital expenditures, and add to this the annual increase in intrinsic value to determine our return on assets. There are some exceptions, but in general, this applies across most of our chosen asset classes.

In addition, as a portion of the increase in intrinsic value of our type of asset results from capital appreciation, the timing is also important to overall returns. Under laws, capital appreciation is not  an asset is sold, but we are able to deduct depreciation against current income. Accordingly, over time the intrinsic value increase can be greater for the assets we own, than that of assets which conversely generate the bulk of their income up front, deplete in value over time and pay substantial current laws.

The challenge for us and other like-minded investors is that many people look principally at price-earnings multiples, and therefore do not focus on the cash flows being generated, or the significant extra returns that accrue from the appreciation in the value of assets. As we build our asset management operations, we therefore are continuing to review opportunities to ensure that the intrinsic value of our operations attracts appropriate recognition in the market place.

We select opportunities which:
• fit with our core competencies of service transformation for both the public and private sectors
• leverage benefit from our existing business centre infrastructure
• require contained capital requirements (unless there is a real value proposition for the Group)
• demonstrate a fair risk/reward balance and acceptable contractual obligations
• have a defined bid process and a clear set of decision criteria set by customers with whom we can build a good relationship.

Guidelines of Investment

  • We invest in areas where we possess a competitive advantage.
  • We acquire assets on a value basis with a goal of maximizing return on capital.
  • We build sustainable cash flows to provide certainty, reduce risk and lower the cost of capital.
  • We recognize that superior returns involve hard work and often require contrarian thinking.
  • We seek profitability rather than growth, because size does not necessarily add value.