BlackRock’s Plackett on how to select investments with high-growth potential
Since the financial crisis began over five years ago, strong companies have been getting stronger and the weak have become weaker. When looking to make an investment in a company, Richard Plackett, co-manager of the BlackRock UK Special Situations fund, suggests to look for high quality growth companies that can grow significantly and sustainably over the long-term and are able to withstand volatility and uncertainty.
The investment decision-making process involves a company ticking the box of five characteristics before he invests. He looks for good management, a strong market position, cash generating, a good long-term track record and robust balance sheet.
“An investable company must pass a management appraisal, in which its movers and shakers will be reviewed for their sales ability, control skills, strategy and equity involvement,” he says.
Howden Joinery manufactures and sells kitchens in the UK, and whilst we believe it will be many years before we return to a normal consumer environment, Howdens has grown through market share gains and depot roll out, a trend we believe will continue in the future. Whilst we are generally cautious on consumer stocks, we favour those such as Howdens that have positive supply side dynamics.”
Moreover, a company must possess or be in a position to be able to produce the funds for expansion. This may be considered a struggle for some companies following the financial crisis but many that survived the crisis emerged stronger than ever.
“A company’s track record will be carefully unpicked, any black spots from the past could indicate trouble in the future. Companies with potentially problems are scrupulously avoided,” he added.
As an example, Spirax-Sarco provides products and services central in efficient management of steam or industrial fluid in plants. Spirax-Sarco has increased its dividend for the last 43 years. This position has been held in the portfolio for almost 10 years demonstrating our high conviction investment approach.
“The final test, companies will have net cash and no debt. In an ever more competitive economic environment, the winners are pulling further away from the losers and the contrast between failure and success is only getting starker. A company must be able to demonstrate that they are financially solvent and in recent years, those companies that survived the financial crisis have continued to improve on their financial strength,” BlackRock said.