SMID Cap Private Market Value

Contact Us
Philosophy

We believe, superior long-term performance can be generated by investing in high-quality, durable business models at discounts to 
their private market value.

Emphasis on Quality First: Finding sustainable competitive advantages one stock at a time.

Private Market Value: Reinhart Partners’ proprietary methodology for determining a company’s intrinsic value.

Positive Risk/Reward: Protecting capital in tough markets while capturing most of the upside return when stocks advance.

Process

Quality First - Valuation Second

Estimating intrinsic value is at the heart of every equity management strategy. We believe, a disciplined, repeatable process sets a manager up for success, while a loose intellectually inferior model for value almost guarantees under-performance. The anchor in Reinhart Partner’s mid cap value strategy is intrinsic valuation methodology – Private Market Value.

Private Market Value – The Anchor

  • PMV is what an acquirer would be willing to pay for the entire company (per share).
  • PMV is derived by first observing actual takeover valuation multiples.
  • We utilize different metrics by industry to capture appropriate value-drivers.
  • Stock prices are more volatile than the underlying value of the franchise, which creates unique investment opportunities.
  • PMV becomes the “anchor” by which all decisions are framed within an emotional market.
  • New names are purchased at a 30% discount to PMV, and stocks are sold when they reach PMV.
  • The gap between price and PMV serves as an objective basis to trim or add to existing holdings.

Benefits of utilizing a PMV approach

  • Objective: Measures what buyers will pay for companies.
  • Disciplined: An anchor in the midst of emotional markets.
  • Opportunistic: Takes advantage of market volatility.
  • Custom: Applies to unique value methodology to each sector.
  • Dynamic: Captures changing industry fundamentals and outlook.
  • Strategic: Helps to identify key value drivers for every stock.

Screening the Midcap Universe - 1200 Companies

RANKING SYSTEM

Universe customized by sector
30 metrics in four categories: Quality, Valuation, Neglect, Fundamentals
Top third of each industry

DUE DILIGENCE

Company research to determine franchise quality and durability
Industry mapping, competitive dynamics, fundamental/financial analysis
Must meet rigorous quality standards

PRIVATE MARKET VALUATION

Based on historical M&A transactions
Customized by industry
Buy only if 30% or greater discount

Fundamental Analysis - Research Focus

Sustainable Competitive Advantage

  • Barriers to entry
  • Customer captivity
  • Favorable industry structure

Healthy Demand for Product/Service

  • Underlying growth is stable/growing
  • Long product life cycles
  • Avoid risk of secular decline

Reliable Management Team

  • Candid and trustworthy
  • Proven operators & strategic thinkers
  • Record of increasing value via capital allocation

Financial Durability

  • Robust balance sheet & free cash flow
  • Ability to survive the next crisis
  • Financial flexibility to create shareholder value
We Search for Quality First

Risk management is central to our investment process

Front-End Research
  • Durable business models limit fundamental downside
  • Avoid businesses in secular decline
  • Margin of safety built into valuation discipline
Technology
  • FactSet Portfolio Analysis tool
  • EVADimensions Portfolio Monitoring tool
  • Proprietary PMV ranking tool
Oversight
  • Daily monitoring and communication
  • Weekly Equity Team meetings
  • Quarterly Investment Committee meetings
  • Strategic review of significant underperformers
Portfolio Parameters
  • 40-50 holdings
  • Position size limit: 4%
  • Sector weights: +/– 10% vs. benchmark
  • Max cash weight: 10%