Founded in 1974, Mawer Investment Management has a team of over 90 people managing more than $14.3 billion in assets. Central to the portfolio managers’ investing approach is seeking wealth-creating companies, primarily measured by return on invested capital, with excellent management. They buy when these companies are trading at discounts to intrinsic companies judged by a discounted cash flow model, and diversify broadly. Amid the uncertainty in 2012, the firm built resilience in their portfolios through focusing on companies with margin of safety, balance sheet strength and good management.
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Carfinco Financial Group Inc. (TSX:CFN)
Carfinco is a vehicle financing alternative for consumers who cannot find lending from traditional sources. It purchases loans from select vehicle dealers in each province of Canada. CFN has a market cap of $246.2 million and its shares trade for $9.99 on Friday afternoon after increasing almost 22% over the past year.
Over the past five years, Carfinco has increased its revenue per share at a rate of 23.7%, EBITDA at 27.4% and book value at 20.3%, annually on average.
Carfinco reported record year-end 2012 results, with net earnings of $20.6 million, compared to $17.1 million the previous year. Net earnings increased primarily due to an increase in finance receivables balance greater than that of the previous year. It also met its goal of increasing finance receivables 21.5% over the year.
Revenue increased 20.5% to $71.8 million, and loan originations increased 28.6% to $149.6 million. ROE was 53.3%, decreased slightly from 55.8% the previous quarter.
Carfinco converted from an income fund to a public corporation on Jan. 1, 2012, and began trading on the Toronto Stock Exchange (TSX) on Jan. 3 under its current stock symbol.
Also during the year, it distributed $11.6 million to shareholders, or 47 cents per share, representing 51.5% of its distributable cash. The company pays a monthly dividend of 4 cents per share per month.
Mawer purchased a holding of 240,500 shares at the average price of $28 per share in the fourth quarter, equal to a 0.3% weighting in its portfolio.
Carfinco has a P/E of 12.23, P/B of 5.6 and P/S of 3.4.
Enghouse Systems Limited (TSX:ESL)
Founded in 1984, Enghouse Systems is a software and services company that develops and sells enterprise-oriented applications software. Enghouse has a market cap of $516.8 million, and trades for $19.99 after its price increased 41% in the past year.
Over the past five years, Enghouse has displayed the following growth rates per share: 24.6% for revenue, 35.4% for EBITDA, 30.6% for free cash flow and 5.6% for book value, on average annually.
In the first quarter ended Jan. 31, 2013, Enghouse had revenue of $42 million, a 37% increase year over year, primarily due to contributions from its acquisitions. On March 1, 2013, it acquired Locus Holdings, a Norwegian fleet management solutions company, for approximately $14 million. The company is focused on diversifying its revenue stream and growing market share through further acquisitions.
Net income was $3.4 million, or $0.13 per diluted share, down slightly from $4.1 million, or $0.16 per share, the prior-year quarter. It had $80.1 million in cash at quarter-end, down slightly from $83.7 million the previous quarter, reflecting almost $10 million spent on acquisitions of Visionutveckling AB and Albatross Scandinavia AB during the quarter, in addition to $1.7 million in dividends paid. Enghouse has no long-term debt.
The company increased its dividend 23% to $0.08 per share per quarter, marking its fifth consecutive year of increased dividends.
Mawer established a position of 350,826 shares at an average price of $60 per share in the fourth quarter, equal to a 0.73% weighting in the portfolio.
Enghouse’s current price is close to a 10-year high. Its P/E of 25.4 is close to a three-year high, its P/B of 3.19 is close to a 10-year high and P/S of 3.47 is close to a five-year high.
Alaris Royalty Corp. (TSX:AD)
Alaris Royalty is another alternative finance company, but provides it to private businesses in North America. These businesses often either do not have access or do not find attractive traditional debt or private equity, such as privately held companies whose owners want to maintain control of them. Alaris has a market cap of $711.2 million and its shares trade for $28.21 on Friday afternoon after increasing 52.5% over the past year.
In the past five years, the company had the following decline rates per share: 14.2% decline in revenue and 7.8% decline in free cash flow on average annually.
In 2012, Alaris increased revenue 49% to $32.1 million, due primarily to adding three new private company partners, Quetico LLC, Labstat and Agility. Earnings declined to $18 million from $34.7 million in 2011. It expects revenue of $44.7 million for 2013 based on estimated revenues from agreements with its partner companies.
Alaris had $3.6 million in cash on its balance sheet at year-end, down slightly from $3.9 million the previous year. It has total long-term debt of $50 million, and no long-term liabilities. The company increased its monthly dividend twice in 2012, 10.5% total, resulting in a total annual return to shareholders of about 40%.
Mawer bought 373,062 shares of Alaris in the fourth quarter, for a 1.09% weighting in the portfolio.
The current price of Alaris is close to a five-year high. It also has a P/E ratio of 33.56 and P/S of 18.87, which are both close to their five-year highs. Its P/B is 2.26.