Champions

Geoff Gannon suggested a screen for hidden champions:

  1. Companies with 10 years of consistent 15% or higher operating margins and a market cap less than $1 billion
  2. Companies with 10 years of consistent 15% or higher return on equity and a market cap less than $1 billion
  3. Companies with 10 years of consistent 8% or higher return on assets and a market cap less than $1 billion
  4. Companies with 10 years of consistent earnings per share increases and a market cap less than $1 billion

I’ve sent my computer chugging away at the problem, and came up with the following list:

N (EPIC OPMM ROE10 SREPS)
1  (ABC 30.7 29.4 1.0)
2  (AGK 19.6 24.4 0.95)
3  (AZN 27.4 34.4 0.91)
4  (BATS 19.1 32.2 1.0)
5  (BRBY 20.1 27.3 0.98)
6  (CHG 19.0 20.3 1.0)
7  (COB 16.1 21.1 1.0)
8  (DGE 21.5 40.1 0.98)
9  (DGO 58.8 15.2 0.93)
10 (DOM 15.1 65.3 1.0)
11 (DPLM 15.7 15.7 0.98)
12 (DTY 30.1 72.7 0.98)
13 (EMIS 28.8 30.4 1.0)
14 (FRES 54.8 28.6 1.0)
15 (HL. 53.15 70.2 1.0)
16 (HLMA 19.0 21.0 0.96)
17 (HSV 19.3 22.9 0.95)
18 (IAP 21.5 21.3 0.98)
19 (IBPO 32.9 94.75 1.0)
20 (IGG 45.4 23.65 1.0)
21 (ITE 30.6 52.8 0.96)
22 (ITRK 16.2 43.8 1.0)
23 (JHD 15.7 32.1 1.0)
24 (LSE 46.3 19.05 0.91)
25 (MCRO 34.8 50.8 0.91)
26 (NCC 27.65 19.25 1.0)
27 (NG. 24.8 38.1 0.93)
28 (NXT 15.4 147.45 0.98)
29 (PAP 20.8 38.4 0.95)
30 (PAY 16.1 40.65 0.9)
31 (PNN 27.1 17.1 0.98)
32 (RB. 21.5 34.7 0.98)
33 (RMV 55.4 169.8 1.0)
34 (ROR 21.8 35.2 1.0)
35 (RWS 22.3 20.85 1.0)
36 (SGE 25.5 16.1 0.98)
37 (SN. 19.2 26.8 0.98)
38 (SPX 16.1 20.2 0.98)

It’s quite a small list, and doesn’t adhere strictly to his criteria. It’s something for you to go away and investigate. Firstly, I have selected companies with caps over £200m. I haven’t topped them at $1b. The companies do have median ROE of at least 15%, although I haven’t taken into account gearing. You’ll have to look into that yourself. I have ignored return on assets, because that’s not readily available to me. I haven’t checked that the companies have at least 10 years earnings histories. I also haven’t insisted on blemish-free EPS increases – although it will be close. Projected earnings are included in the EPS figures. I have used the spearman-rank squared (statistic SREPS) of the earnings figures. Anything with 1.0 means that the EPSs form an increasing series. I reckon that anything over 90% is pretty close, though. As you can see, less than half the companies have completely unblemished records.

If you work through the list, you’ll probably eliminate most of them. Predominant exclusions will be a market cap that is too high, lack of a 10-year record and outrageous valuation. Overgearing is likely to eliminate a few others. I wouldn’t be surprised if ALL of the companies had to be eliminated, and that it would be necessary to look at companies with caps under £200m.

Anyway, something for you to look at.

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About mcturra2000

Computer programmer living in Scotland.
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