Owning good businesses globally

Owning a share of stock equates to owning part of a business and it's profits. This has been the core philosophy of Sifter Global Fund for over 15 years. This year, we’ve screened more than 4000 businesses all over the world. Though some might say valuations are high, we think that there are great businesses to be acquired at attractive prices. Our elimination process is effective. Instead of picking stocks, our Stocksifter tool provides us with the most attractive ones. Out of 4000 investment opportunities, we’ve eliminated over 98%. Finally, we zoom an intense R&A in 85 businesses out of which we have invested in three new ones in this year. Our goal is the best possible deal flow and ranking of it.

Sifter businesses today

The Q3 earnings reports of our businesses were largely positive and provide us an insight in to the 30 businesses Sifter has invested in. The graph below demonstrates how Revenue, Ebit and Earnings per Share (Eps) have improved in comparison to last year’s figures (Q3-2018 vs Q3-2017).

Revenue growth: Sifter businesses were able to boost their sales by 8.5% on average. There are businesses that grew even faster, but we think those are pretty good numbers even for global giants like Microsoft or Safran.

Ebit growth was even better, with an 11.1 % year on year increase. There is no single reason as to why this is the case – it depends on the business.

Eps growth took the biggest leap, being 23.5% higher than in the previous year. This was largely due to the tax cut reform in the US.

Sifter Fund price has increased by 3.5% year-to-date. However, it’s is only historical measure and does tell nothing about the future. The better metrics, to forecast the future, are the real businesses indicators.

One conclusion is that the businesses you own through Sifter Global Fund have been doing well. Our main goal is to research how they will perform in the future.

Picture 1: Sifter businesses Revenue, EBIT and EPS growth compared to Fund NAV

How about the future?

This is the tricky part. As you know, nothing is given. However, our job is to read, analyze and draw conclusions on the businesses you own through Sifter Fund. The Sifter process means that we follow every possible detail of those businesses every day. Based on this tracking, we don’t attempt to guess stock price movements but instead dig into business drivers and upcoming earnings. We look at the cash generating capacity of the businesses in your Sifter cylinder.

  1. To make an assumption of the future, we must understand the resilience of the business model. That is crucial.
  2. The return on Invested Capital must be good. The current ROIC for Sifter businesses is c. 16%. In other words, every euro they invest back in their business operations creates them 1.16 € value. This is one sign of a good value creator. We also know, that Sifter businesses invest 60 % of their profits back to their operations. This is good.
  3. Based on in-depth research, we have outlined a conservative evaluation that Sifter businesses will grow their expected annual earnings by c. 5-6% in upcoming three to fives years.
  4. Finally, we have chosen debt free, or close to debt free companies (currently -0.2X ). This means that when interest rates increase, businesses don’t run in to liquidity or solvency problems.

Obviously, there are plenty of other details which must meet Sifter criteria, but those mentioned above are key. When key business parameters are in good shape, you can feel safe in spite of stock price turbulence in the markets.

Read more from Sifter invested businesses Q3 /2018 report

Story of Sifter

25 years ago, Sifter was established to manage the assets of one family, specializing in equities globally. Since then, the company has grown to be a professionally managed global equity fund with its own proprietary equity research. It has investors all over Europe. A typical Sifter investor is a family or a family office. They value the research driven investment process and favorable returns. The founding family has a significant co-investment in Sifter Fund.

We thank our investors and also welcome new investors who share values with us: long-term buy and hold strategy and owning high quality businesses globally.

We are looking forward to the next 15-years, to make Sifter an even better equity investment for you.

Santeri Korpinen
CEO, Sifter Capital

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