Mello London 2018 Notes Day 2: Keith Ashworth-Lord's Buffetology Fund and Judith McKenzie

Friday, Nov 30 2018 by
37

I didn't attend Day 2 of this year's Mello London event, but luckily for me, Ben Hobson did. I've got a hold of some of his recordings - two good speeches here:

Keith Ashworth-Lord

Switch On Companies; Switch Off markets

  • Keith Ashworth-Lord ('KAL') manages the UK Buffetology fund
  • The fund tries to find really great companies at a price that makes sense, invests meaningful quantities in them, and intends to hold them forever
  • They use 'Business Perspective Investing' - this expression came from Benjamin Graham but is more closely associated with Warren Buffett
  • The key requirement is economic moat
    • They look for companies defying the first law of capitalism (excess returns over the cost of capital, year-in, year-out)
    • Pricing power is the crux
    • Growth potential - both for the company and the market
    • Companies that are predictable in terms of where they will be in 3, 5, 10 years' time
  • First thing KAL looks for is rising margins on sales at gross margin and operating margin levels - this indicates economies of scale
    • static or declining margins —> franchise could be coming off the boil
  • Even more important is ROE
    • They look at marginal ROE - what's happened in the past 1-5 years
    • This is delta (change in) earnings over delta equity
    • Must be a cash return on equity; high conversion of earnings into free cash flow
  • Look at cash flow over a five year basis to account for volatility
  • 'Cash flow is absolutely king'
  • Return on equity minimum of teens
  • Cash flow has to be minimum of 80% of earnings
  • Most of their businesses tend to have a very strong balance sheet & net cash
  • They allocate capital rationally
    • They look for situations where money can be invested to generate high marginal returns, which leads to future organic growth
    • Reinvest meaningful quantities of cash for future profitable growth
  • Growing by acquisition can make sense - moving into complimentary industries, synergies
    • But they don't like the 'transformational' acquisition
    • Something like 9 out of 10 of these make no new wealth for the company
    • Croda (LON:CRDA), which they own, was an exception
  • Management that are owners, that return cash to owners rather than hoard it
  • Investment holy trinity: enduring franchise w/ growth prospects…

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Diageo PLC is an alcoholic beverage company. The Company operates in various categories, including spirits and beer. Its geographic segments include North America; Europe, Russia and Turkey; Africa; Latin America and Caribbean, and Asia Pacific. Its principal products include Scotch whisky, Gin, Vodka, Rum, Beer, Irish Cream Liqueur, Wine, Raki, Tequila, Canadian Whisky, American Whiskey, Progressive Adult Beverages, Cachaca, Brandy and Ready to Drink. It manages its operations from various locations, including the United Kingdom; Ireland; Italy; Turkey; the United States; Canada; Brazil; Mexico; Australia; Singapore; India; Nigeria; South Africa; East Africa, and Africa Regional Markets. It also produces a range of ready to drink products mainly in the United Kingdom, Italy, South Africa, Australia, the United States and Canada. more »

LSE Price
3401p
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0.3%
Mkt Cap (£m)
80,432
P/E (fwd)
24.5
Yield (fwd)
2.2

Croda International Plc creates, makes and sells specialty chemicals. It operates through four segments. The Personal Care segment focuses on ingredients for skin, hair, sun and color cosmetic products. Its portfolio includes anti-ageing ingredients for skin, conditioning agents for hair care and metal oxides for ultraviolet (UV) filters. The Life Sciences segment includes three businesses: Health Care, which develops products for pharmaceutical and nutraceutical markets; Crop Protection, which develops products for agrochemical companies, and Seed Enhancement, which develops products to improve seed performance and farming yields. The Performance Technologies segment delivers ingredients for five business areas: lubricants, coatings and polymers, polymer additives, geo technologies and home care. The Industrial Chemicals segment is a diverse sector based on selling co-streams, developing applications and undertaking toll processing. more »

LSE Price
4856p
Change
1.4%
Mkt Cap (£m)
6,163
P/E (fwd)
23.1
Yield (fwd)
2.3

Games Workshop Group PLC designs, manufactures and sells fantasy miniatures and related products. The Company's segments include Sales channels, Product and supply, Central costs, Service centre costs and Royalties. The Sales channels segment includes Trade, which sells to independent retailers and includes magazine newsstand business and distributor sales from its publishing business (Black Library); Retail, which includes sales through retail stores, its visitor center and global exhibitions, and Mail order, which includes sales through its Web stores and digital sales. The Product and supply segment designs and manufactures products and incorporates production facility in the United Kingdom. The Central costs segment includes its overheads, head office site costs and costs of running Games Workshop Academy. The Service centre costs segment provides support services and undertakes strategic projects. The Royalties segment includes royalty income earned from third-party licensees. more »

LSE Price
4784p
Change
-1.0%
Mkt Cap (£m)
1,570
P/E (fwd)
23.3
Yield (fwd)
2.9



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8 Posts on this Thread show/hide all

matylda 30th Nov '18 1 of 8
2

Thanks for the write up Jack, much appreciated.

Blog: Briefed Up
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rwnicolson 30th Nov '18 2 of 8

Thank you too. Just a small correction. The value investor referred to is Thomas Russo. His investment talks are available online and are worth watching.

| Link | Share | 1 reply
Jack Brumby 30th Nov '18 3 of 8

In reply to post #423358

Cheers rwnicolson, I hadn't actually heard of him before. I'll edit that now.

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Jack Brumby 30th Nov '18 4 of 8

In reply to post #423348

No worries - it was great to meet you, hope you enjoyed the rest of the event!

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jonthetourist 30th Nov '18 5 of 8
1

Yes, very nice notes thank you. I was there for Judith but not Keith (although I have his book). Both talk a lot of sense, although Judith's comments about comparatives and being judged sounded particularly heartfelt as she is on a bad run.

Jon

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shipoffrogs 30th Nov '18 6 of 8
2

Great write up for those not there, KAL is a class act. Thanks

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Gromley 30th Nov '18 7 of 8
4

Hi Jack,

I think you phrased my question (the first one to Judith McKenzie) much more elegantly than I did! ;-)

Had I not already handed the mic back I would probably gone for a cheeky follow up question / clarification in that I wasn't so much thinking about timing the market and getting in "at the bottom" but rather looking for a time when the execution risk of whatever transformation is being undertaken has been reduced.

Judith with here fund cannot really do that, firstly because of scale but secondly because she probably wouldn't get a seat at the table to work with the management before taking a stake.

However, we don't have those limitations. I was very impressed with Judith's presentation and her views on the companies. So I for one will be watching carefully for situations where I may be able to buy once Judith has done all the hard work for me (and taken the suffering)

I would not recommend blindly following anyone, but I certainly think there is a case to look at others for initial ideas.


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Jack Brumby 6th Dec '18 8 of 8
1

In reply to post #423438

Hi Gromley,

Judith seems to really appreciate the importance of viewing her investments as growing businesses rather than numbers on a spreadsheet or a series of financial ratios. I've got a lot of time for that approach, so I'll be keeping an eye out too!

There's nothing wrong with being purely quantitative, of course, but it's nice to hear the way she talks about companies. It echoes what Keith Ashworth-Lord was saying about business perspective investing, I think. I listened to her interview with the Adept Technology CEO yesterday on piworld, don't know if you've seen it:
https://www.piworld.co.uk/2018/08/20/judith-mackenzie-meets-adepts-ceo-ian-fishwick-july-2018/

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