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Stocks

Created 2023-03-31

Chap 1 : Terry Smith Stockopedia screen

Roland's criteria:

C1 : Economic sector includes consumer cyclical, consumer defensives, technology, telecoms, healthcare and industrials
C2 : Long-term average ROCE greater than 14%
C3 : Operating profit margin (TTM) greater than 15%
C4 : Net debt less than five times TTM net profit
C5 : Interest cover (TTM) greater than 10x
C6 : Price to free cash flow (TTM) less than 30 (equivalent to 3.3% FCF yield)
C7 : Free cash flow 5y growth rate greater than 0%
C8 : Market capitalisation greater than £500m

Link

As an example, DTY (Dignity), in 2021 Net profit was £12.1m, net debt was £+556m. So C4 = 556/12.1 = 46, which is way too high. In 2016, NP= 57.2, NDebt = 524, so even at that stage, it was too high.

Contrast with CCC in 2021, which had negative net debt. So it's good.

ULVR 2022: net debt = 22916, net profit = 7642 => C4 = 22916/7642 = 3.0. So it's OK.

BNZL 2022: net debt = 1627, net profit = 474 => C4 = 1627/474 = 3.4. Safe

DPLM 2022: net debt = 398, net profit = 94.7 => C4 = 398/94.7 = 4.2. Safe

EXITS

Beating the UK indices in 10 hours a year - Lewis Robinson

How to invest in Quality Companies - Terry Smith

ROCE deciles of the FT100/FT250 indices (2023-03-17) - Stockopedia