How does Phoenician Capital screen for companies?
We screen a global universe of about 16,000 listed companies on both numbers and qualities.
Numbers
multi-year performance, how efficiently capital is allocated, how durable revenue is, balance-sheet strength, and growth in free cash flow.
Qualities
the business model, how it earns revenue, its market position and whether it can scale.
Management
how much of the company insiders own, whether their interests match shareholders', and how they have allocated capital.
What does the research cover?
Our due diligence covers fifteen areas in three groups.
The market
short-seller reports and legal actions, products and services, the addressable market, competitors, and cyclicality.
The financial model
discounted cash flow valuation, projected financial statements, price against value, margin of safety, and risk.
Management
incentives, compensation, company culture, capital allocation, and potential catalysts.
How does Phoenician Capital value a company?
We build a valuation model for each company around its own unit economics. We forecast unit sales, prices and variable costs, then work through contribution margin, gross profit and operating expenses to operating profit. We subtract capital expenditure to arrive at free cash flow.
The cash flows are projected for ten years and include a two-year recession. Where relevant they are adjusted for currency devaluation. They are discounted at the weighted average cost of capital, with a terminal value. Each model is back-tested against the company's own history.
Does Phoenician Capital meet management?
Yes. After the initial research we speak with management and visit the company. We ask about performance, strategy, growth plans and capital allocation, and we form a view of the quality of leadership and of how the company manages risk. We often stay invested alongside the same management team for many years.
How does Phoenician Capital define and manage risk?
We define risk as the chance of a permanent loss of capital, not as short-term price volatility. Our protections are thorough due diligence, a margin of safety between price and value, diversification across companies, sectors and countries, and position sizing. We do not use leverage, short selling or derivatives.
We measure risk by the losses the fund has actually realised over time: investments sold below their purchase price.
How does Phoenician Capital handle market volatility?
We treat falling prices as a chance to buy good businesses at better valuations, and we hold cash so that we can act when that happens.
What is the benchmark?
Our first aim is a positive absolute return that protects and grows capital. We also compare our results with the S&P 500 and the MSCI World Index.