H&G Investment Management portfolio manager Joseph Constable only makes a handful of ‘meaningful’ investments each year, dedicating the rest of his time to extensive due diligence.

This busy work is part of the investment process that Mr Constable – who also serves as executive director of H&G owner HGL –  uses to identify undervalued companies in the sub-$100 million market cap segment.

In particular, Mr Constable likes to find businesses that floated on the market ‘too early’, or companies whose board members are serving only for their pay cheque and not because they believe in what the business is doing.

“They’re few and far between,” he said. “But the way that we find them is primarily through our own proprietary screening and the metrics that we’re looking for and, from history, knowing the kind of identifiers that you might be looking for.”

These identifiers can include a change in management, or new shareholders coming onto the register. Other times, finding an opportunity can be as simple as finding businesses that the market is valuing below the assets on its balance sheet.

In some cases, Mr Constable’s research even uncovers assets that have not been listed on balance sheets, which can add to a company’s value.

Once these opportunities are identified, Mr Constable takes a stake and, importantly, looks to work with the board to fix the business’s problems, unlocking its value for H&G and other shareholders.

“I like to think that by the time any company gets a listing, it’s rarely a dud,” Mr Constable said.

“It’s still a difficult process to get there and while occasionally you get some people that are just very good at selling something that doesn’t exist, [these companies’ listings] are usually premature in the sense that they don’t actually have enough revenue, let’s say, or even earnings, and/or it’s the price.”

As well as helping to fix problems, Mr Constable works with boards to manage markets, look for and negotiate potential acquisitions, and introduce them to brokers who can help their company develop.

In other cases, he buys out board members and shareholders who have become ‘disconnected’ from the company – whether that be because they just wanted a pay cheque in retirement, or only came to be shareholders after inheriting stock.

“The most regular issue we would see is the people running companies for a lifestyle purpose rather than making money for shareholders,” he said.

“We might buy the shares from them and be sure to engage and make sure the right thing is happening, at least for the shareholders.”

Join Joseph Constable this Friday, 3rd December, at 12pm (AEDT) on our weekly The Insider: Meet the Fund Manager webcast to hear him talk about his favourite stocks, investment strategy, market insights and more. There will also be an opportunity to ask questions during the session. To book yourself in, click here.

Sources

• LinkedIn, Joseph Constable