Investment Philosophy

 

- We believe a company (castle ) with dominant and durable competitive advantage (a wide moat) will consistently generates return on capital well above its cost of capital and create shareholder's value.

 

- We believe these type of franchise operators will generate superior share price returns in the long term.

Competitive Advantage Assessment

Some Franchise Characteristics to be assessed for strength and duration

Economic Moat
What This Means
Resulting  Durable
Competitive Advantages
Regulated access to industry
(monopolistic/oligopolistic environment)
High barrier to entry,
No/limited competition
Strong Pricing Power,
‘Guaranteed’ Demand
Intellectual property
(patents, proprietary technology, etc)
High barrier to entry,
Differentiated/unique products
Strong Pricing Power,
Dominance & Longevity
Strong brand (perceived superior product quality, reliability, performance)
Sticky / inelastic demand,
Brand premium
Strong Pricing Power
High switching cost (financial & time costs related to product switching)
Customers stay loyal,
High barrier to entry
Strong Pricing Power
Favourable access to resources
(raw materials, labour, etc)
Superior supply chain,
Low cost producer
Cost Leadership, and/or
Strong Pricing Power
Economies of scale (distribution dominance, strong buying power)
Cost advantage,
High barrier to entry
Cost Leadership, and/or
Strong Pricing Power
Management excellence
(good corporate governance track-record, strong execution, trustworthy)
Ability to sail through adversarial business condition, Shareholder value centric
Survival of the Fittest,
Superior Financial and Operational Management

 

Common Franchise Advantage

Franchise vs. Business with ‘No’ Durable Competitive Edge

 
Business
Franchise
Weak / Commoditized
Business
Ability to weather tough economic conditions
High
Low
Embedded goodwill  
High
Low
Cash flow generating ability
High
Low
Pricing Power
High
Low
Consistency of profit patterns
High
Low
Return on capital
High
Low
Growth visibility
High
Low
Interest Cover/Cash
High
Low