Let’s talk about Value Investing with Gianmaria Panini from Genève Invest
6 NOV, 2023
In the realm of investments, a philosophy that has proven its resilience over time is Value Investing. We had the pleasure of interviewing Gianmaria Panini, Managing Director of the Italian Desk at Genève Invest, to delve into how this company successfully applies this technique in its investment strategy.
In a market characterized by volatility, how does Genève Invest approach the selection of securities from a Value Investing perspective? How does the company manage the risk associated with these investments?
At Genève Invest, we conduct a 360-degree analysis of companies. We assess individual balance sheet items, competitive advantage, and strategic positioning of a company. These parameters must demonstrate that the company is solid, resilient, and has better future prospects compared to its competitors. The Value Investing approach is inherently focused on the intrinsic value of the company rather than price fluctuations. The goal, in this sense, is to take advantage of market volatility rather than suffering from its negative consequences. This approach inevitably requires alignment with the goals and needs of each individual client, underscoring the importance of adopting a personalized and individualized investment approach.
How much importance do you attribute to macroeconomic and geopolitical events in the selection of investments according to the Value Investing strategy?
The weight of these events is relatively low, as we believe that, even in an economic environment with modest prospects, the companies we select can be resilient. For example, they can pass on the price increases resulting from the inflationary spiral of recent years. Many of the events and news that occur daily are often just 'background noise' that distracts from the truly relevant aspects concerning a company.
What characteristics do you look for in managing a company before considering it as a potential Value Investing investment?
We only select companies that we consider to be temporarily undervalued by the market while simultaneously showing growing balance sheet items. The main indicators we analyze include EBITDA, EBITDA Margin, Free Cash Flow, and revenue. In addition, we also monitor P/E and EV/EBITDA to understand if the company is over/undervalued compared to competitors.
How do you assess the long-term growth potential of a company when applying the Value Investing approach?
Among the most significant indicators for evaluating a company's long-term growth potential, we highlight ROIC (Return On Invested Capital), which measures the return that the company generates on invested capital. ROIC is calculated by dividing net operating income after taxes by invested capital (which includes debt and equity). A high ROIC indicates that the company can create value for shareholders by investing in profitable projects and efficiently managing its resources. A low ROIC, on the other hand, suggests that the company struggles to generate profits and grow in the long term. A Value Investing approach, therefore, seeks to identify companies with a high and stable ROIC over time, and that are trading at a price lower than their intrinsic value, determined through the estimation of discounted future cash flows.
How does the approach to selecting securities change when it comes to established companies versus emerging startups?
For established companies, we focus on fundamental analysis. We examine balance sheets, cash flows, profits, revenues, and other financial data to assess the company's financial strength. In contrast, for startups, we primarily evaluate their prospects, growth metrics, product development, market adoption potential, and the scalability of the business. For the latter, we also apply valuation criteria calculated with a wider margin of safety compared to what is used for more stable companies. This choice helps manage the higher volatility typical of investments in less established players.
How is the role of innovation and technology evaluated in selecting securities from a Value Investing perspective?
Innovation is a fundamental driver for a company's growth and evolution. These factors can influence a company's ability to generate future cash flows, maintain or increase its competitive advantage, and adapt to changes in the market and consumer preferences. However, innovation and technology are not the sole criteria to consider; they should be integrated with other elements such as the price-quality ratio, financial strength, management quality, and environmental, social, and governance sustainability.
How much importance does Genève Invest attribute to sustainability and corporate social responsibility in its investment selection according to this philosophy?
We recognize that these criteria are gaining significant consideration among investors and can be important indicators of a company's long-term growth. However, they are not the primary selection criteria for Genève Invest. We believe that sustainability has become somewhat overused and can, therefore, provide a distorted perception of a company.
How is liquidity properly managed in the context of Value Investing-based investments?
Managing liquidity in investments involves balancing two objectives: on one hand, maintaining a sufficient cash reserve to cover unforeseen expenses or investment opportunities that arise, and on the other hand, investing excess liquidity in assets that offer a higher return than the cost of capital. To do this, various factors need to be taken into account, such as risk profile, time horizon, financial goals, and the characteristics of available investments.
How is portfolio diversification balanced with concentration in specific securities?
Continuous monitoring of client portfolios allows us to stay updated on individual positions held and assess potential actions. Specifically, if a client is overexposed or underexposed to a specific company, we adjust the position to maintain an average exposure percentage ranging from 3% to 5%.
