Our team highlights two small companies that we think have the attributes to be great long-term investments.
Our team highlights two small companies that we think have the attributes to be great long-term investments.
Our team highlights two small companies that we think have the attributes to be great long-term investments.
Our team highlights two small companies that we think have the attributes to be great long-term investments.
When it comes to investing in the stock market, we live by the rule that time is more important that timing. If you own a business long enough, your investment returns will compound at the rate in which that business is compounding value per share.
This is one of the reasons why the global small companies universe is so compelling for the long-term investor.
However, seeking to identify and evaluate businesses that can compound intrinsic value at high rates over the long term isn’t easy.
Without extensive research and due diligence, high-quality cash flows and talented and long-term oriented management teams, most small caps will compound nothing but your portfolio losses.
So, we want to highlight two small companies that we think have the attributes to be great long-term investment for the patient investor.
Uni-Select (TSE: UNS)
Uni-Select is a Canadian-listed automobile parts supplier and automotive-paint distributor.
The firm’s three businesses include Canadian Automotive Group(operator of well-known Canadian auto-parts chain Bumper to Bumper), GSF CarParts (a large U.K car-parts retailer), and FinishMaster (the largest auto-paint distributor in the United States).
The company is in the midst of a business turn-around and we see strong growth prospects under a new leadership team.
Uni-Select’sCEO, Brian McManus, joined the company last year after an 18-year stint as CEOat Stella-Jones Inc. – one of the largest suppliers of pressure-treated wood products in North America.
McManus has taken steps to improve Uni-Select’s balance sheet and has embarked on making acquisitions.
Uni-Select recently purchased 13 auto-parts shops in Ontario and we believe FinishMaster has a great opportunity to consolidate paint distributors in North America.
Competition can be a risk, but Uni-Select is among the top three players in each of its business areas and will more likely take market share from smaller players, he adds.
All three businesses of the Group’s business have attractive recession-resilient attributes.
Uni-Select’s stock trades at 16 times forward earnings and 13 times forward free cash flow.
We expect this business to compound its earnings and free cash flow at 10 to 15per cent over the long term, with acquisitions a contributor.
Focus Financial Partners (NASDAQ: FOCS)
FocusFinancial Partners is an investor in wealth management firms.
The NewYork-based company has been acquiring stakes in mainly U.S. registered investment advisory (RIA) firms since going public in 2018. It operates as a network of partnership firms by buying a 50-per-cent stake in them.
It currently has 75 partner firms across the US, Canada, the U.K, and Australia.
RIAs are the fastest-growing platforms in the U.S. – much faster than broker-dealers and wirehouses.
Focus has built a robust business, resulting in revenue being compounded by about 25 percent a year over the past five years.
While we expect organic revenue growth will be negative this year due to the steep correction in stock and bond markets, its overall revenue will still grow 10 to15 per cent from acquisitions.
Focus trades at just 7 times forward earnings and 10 times forward free cash flow. The business does use leverage, which is affected by rising interest rates, but the term structure of its debt makes us very comfortable.
This article is prepared by Langdon Equity Partners. Content in respect of the Langdon Smaller Companies Fund (ARSN 657 901 614 (the Fund) is issued by Pinnacle Fund Services Limited ABN 29 082 494 362 AFSL 238 371 (‘PFSL’) as responsible entity of the Fund. PFSL is not licensed to provide financial product advice. It contains general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so.
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