Judges Scientific: Small-Cap Compounder Run by An Excellent Founder Manager

Frank Weippert presented his in-depth investment thesis on Judges Scientific (London: JDG) at Best Ideas 2016.

Please note: This presentation focuses on a micro-cap investment idea. Micro-cap ideas may be particularly risky due to their low float, often spotty disclosures, and a higher-than-usual potential for market manipulation. While it is always essential to do your own work on every potential investment before committing to it, it is especially important to be extremely careful with micro-cap ideas. We bring the following presentation to you because we respect the instructor, but we warn that the idea may not be an appropriate investment. (This implies no endorsement of other ideas presented at this conference.)

Judges Scientific is a small-cap compounder run by an excellent founder manager. Judges’ business model is to acquire and run companies active in small niche markets for scientific instrumentation. The underlying businesses have very high market shares in their niche markets and achieve consistently high EBIT margins of ~20%. Judges grows via M&A but also organically. The company buys around one new business per year at cheap multiples of around 5x EBIT. Historically, this resulted in ~20% growth from M&A (still 10+% growth after dilution). There are still plenty of targets left to acquire, so value creation from M&A will likely continue. Organic growth was ~10% in the past and consumed little capital (ROTCE ~50%). This number recently came down due to a mix of reasons, including reduced government spending from university customers (~60% of sales). While there are short-term uncertainties, the sector should continue to grow over the long term (Frank’s assumption is 5% per year). Overall, Frank expects ~15% growth going forward. The recent valuation of ~11x EBIT and ~13.5x P/E provides a cheap entry point into this very well-run compounder.

About the instructor:

Frank Weippert serves as investment manager at Lacua Vermoegen, which mainly manages the money of a Regensburg based family. Nearly all assets are invested in equities. At Lacuna, Frank is responsible for setting up professional equity research processes and building up a portfolio of global small-caps. The firm looks mostly at well run “compounders” and businesses that go through inflection points (i.e. non-linear developments). Frank was previously a research analyst and associate at FORUM Family Office.

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