Earnings certainty warrants a premium

Earnings certainty warrants a premium. Non-mining investment in Australia remains weak, despite a period of record low interest rates. The Australian unemployment rate (6.2%) is rising. Wages growth in Australia remains weak, which together with rising unemployment continues to undermine consumer sentiment. We appear to be in a low growth environment, where the average forecast EPS growth for the S&P/ASX 300 for FY15 is just 3.5%. We feel comfortable that our portfolio is underpinned by a raft of quality companies that can grow their earnings outside of the economic cycle. This quality bias means that the average PE multiple of our holdings is slightly above the market at around 16 times our one year forward earnings forecasts versus 14.6x for the Small Industrials Index. However, we are happy to pay a premium for earnings certainty and for companies that can generate organic growth in such an environment including the likes of iSentia, M2 Group, Fisher & Paykel Healthcare and Healthscope. Read our latest quarterly here: (VIEW LINK)

OC Funds Management (OC) is a boutique small cap specialist which was founded by its investment staff and non-executive directors. OC commenced operated in December 2000 with the launch of two long only small cap Australian equity funds, the OC...


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