Downgrades usually hunt in packs

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Livewire Markets

Scottish Pacific is the largest independent factoring company on the ASX, explains Romano Sala Tenna, Portfolio Manager at Katana Asset Management. Factoring is a type of debtor finance, where the company buys accounts receivables from a third party at a discount to face value. After hitting a high of $4.01 in September, the stock has fallen to ~$2.40 on downgraded profit guidance. "The school of hard knocks has shown us over the years that downgrades normally hunt in packs," so while they're cautious in the near-term, he says they’d “be looking to build bigger positions over the coming years." A strong position in a niche market, with the banks looking to scale-down or exit the market, and a reasonable valuation provides a strong long-term proposition. For his thoughts on the driver of the downgrade, watch the short video below.

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