If you?ve ever wondered how you can evaluate management teams of companies listed in Asia?s stock markets, you can turn to insights from value investor Yeo Seng Chong.
Yeo?s the founder of Yeoman Capital Management, an Asia-focused investment management company whose flagship fund has generated an impressive annual return of 12.74% for the 19 years and two months ended December 2016. In comparison, the MSCI AC Far East ex-Japan Index has gained just 3.84% per year over the same period.
In Yeo?s view, there are five things investors can look out for to assess a company?s management team. They are:
If you’ve ever wondered how you can evaluate management teams of companies listed in Asia’s stock markets, you can turn to insights from value investor Yeo Seng Chong.
Yeo’s the founder of Yeoman Capital Management, an Asia-focused investment management company whose flagship fund has generated an impressive annual return of 12.74% for the 19 years and two months ended December 2016. In comparison, the MSCI AC Far East ex-Japan Index has gained just 3.84% per year over the same period.
In Yeo’s view, there are five things investors can look out for to assess a company’s management team. They are:
1. A long listing history and track record
Yeo prefers to see a company have a listing history of at least five years. With that, investors are able to evaluate how a company has performed “under the public eye and with audited financial statements.”
2. A good financial track record
Yeo looks for companies with a track record of (a) generating healthy returns on equity, (b) stable earnings, and (c) maintaining a strong balance sheet.
I looked at Singapore’s stock market and found a number of companies with these traits. One example is Vicom Limited (SGX: V01), a provider of vehicle inspection and testing services in Singapore.
Source: S&P Global Market Intelligence
In the table above, you can see how Vicom’s return on equity, earnings per share, and net-cash position (where net-cash refers to total cash and investments minus total borrowings and capital leases) has changed from 2006 to 2016.
You’d be able to see that the company has (a) generated a return on equity of at least 16.6% for the period under study, (b) a clear upward trend in earnings, and (c) a substantial net-cash position for that entire timeframe.
3. A history of stable or growing dividends
In Yeo’s line of thinking, a company’s dividend track record can tell investors plenty about a company’s management team. He looks for stable or, more preferably, growing dividends. A company that cuts its dividend and yet jacks up its managers’ pay would not interest Yeo.
An example of a company with stable and/or growing dividends in Singapore’s stock market would be Hongkong Land Holdings Ltd (SGX: H78).
Source: S&P Global Market Intelligence
The chart just above plots the real estate investor and developer’s dividend per share from 2006 to 2016. Over the 11 years we’re looking at, the company’s annual dividend in each year has either been kept unchanged or increased.
4. A history of no rampant issuing of shares
A company that issues shares to its managers all the time would be a big no-no for Yeo. The reason? As shareholders, our stake in the company will be diluted if the company issues new shares all the time.
Offshore drilling services provider Mermaid Maritime Public Company Limited (SGX: DU4) is an example in Singapore’s stock market of the negative effects of dilution. From 2012 to 2016, the company’s net income had grown by 229% from THB 182.7 million to THB 600.8 million. But, due to a near doubling of its share count from 784.7 million to 1,413 million, its earnings per share has increased by just 82.6% from THB 0.233 to THB 0.425.
5. A history of not buying assets all the time
Yeo is not interested in companies that go on “never-ending asset purchases.” He prefers a company’s management team to be focused on its core business.
So there you have it, five things that Yeoman Capital Management’s founder looks at when he’s assessing the quality of a company’s management team. They can be useful tools in your investing tool kit, so keep them in mind the next time you’re studying a company.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Hongkong Land Holdings. Motley Fool Singapore writer Chong Ser Jing owns shares in Vicom.