Research Methodology
Jupiqon’s research methodology is centered around the concept of value investing with a focus on finding an outstanding company at a bargain price. Our investment strategists aim to find good businesses that are appropriately priced so we can purchase undervalued stocks with a long-term investment horizon. Our research focuses on finding companies that will deliver sustainable earnings-per-share growth based on strong cashflow generation and solid future dividend streams. We look for strong, experienced, and disciplined management as well as monitor companies with poor fundamentals and avoid them regardless of their valuations. Our research process – aided in part by Emperos, our proprietary equity analysis application – consists of five stages that combine qualitative assessment with quantitative analysis. The five stages include Discover, Analyse, Engage, Review, and Decide.
How the Jupiqon research process works
In five logical steps, we identify stocks that embody our core values and investment philosophy
Discover
Screen entire universe of securities against a combination of Shari’ah compliance and proprietary valuation criteria
Analyze
Analyse all variables that affect each security’s market value before gauging its intrinsic value and margin of safety
Engage
Conduct comprehensive site visits that include extensive interaction with stakeholders as well as industry experts
Review
Employ a highly exacting checkpoint system to review all information for accuracy, completeness, and validity
Decide
Quantify relative risk of each security, identify favourable investments, and allocate resources between competing stocks
Discover
The start of our research process is characterized by discovering a distinct collection of initial stocks. The Discover stage can be thought of as a filter whose objective is to uncover stocks that meet both our Shari’ah compliance as well as our proprietary valuation criteria. This is achieved through three levels of screening, each consisting of various parameters and well-defined assessment methodologies.
Level 1 - Industry Screens
Securities of companies whose core businesses are contrary to Shari’ah principles and teachings are filtered out. Companies who generate substantial revenue through activities unrelated to their primary business that are unacceptable under Shari’ah are also avoided.
- Conventional financial services (such as banking and insurance) where such activity involves interest
- Pork-related and other prohibited meat products, use or sale for human consumption
- Alcohol production, use or sale for human consumption
- Tobacco and narcotic drugs production, use or sale for human consumption
- Pornography and other types of unethical entertainment
- Gambling and related activities
- Manufacture and sale of weapons
Level 2 – Solvency and Liquidity Screens
This level of screening deals with the company’s solvency and liquidity positions by examining the capital structure, levels and types of debt, holdings of cash and cash equivalents, and receivables. Companies that do not meet the following criteria are filtered out.
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Total debt* divided by net worth |
Less than or equal to 10%^ |
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Sum of the company’s cash and securities divided by net worth |
Less than or equal to 10%^ |
|
Accounts receivables divided by net worth |
Less than or equal to 10%^ |
- A high interest coverage ratio
- Large amount of reserves
Jupiqon will then meet with the management of the company and propose debt restructuring alternatives that will pay off the interest-bearing debt or replace interest-bearing debt with non-interest bearing debt. Jupiqon will consider these securities to be Shari’ah compliant, subject to management’s approval and implementation of these proposals.
Level 3 – Proprietary Valuation Screens
The objective of our proprietary valuation screens is to further narrow our investment universe to those stocks that meet our preliminary valuation cut-offs. Beyond narrowing down potential investment opportunities, these valuation screens measure the risk-to-reward ratio of each stock relative to other stocks and sort them according to predefined criteria.
Analyze
The Analyse stage is where findings from the Discover stage are analysed, interpreted, and evaluated. We study everything that can affect a security's value, including macroeconomic factors and company-specific factors. We also attempt to measure the intrinsic value of each stock by examining both qualitative as well as quantitative factors.
Level 1 – Macroeconomic and Microeconomic Analysis
Leveraging both public as well as proprietary confidential information, we analyse several macroeconomic variables besides examining the following microeconomic factors:
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Level 2 – Intrinsic Value Analysis
We employ complex mathematical and statistical modelling, measurement and research to gauge each security’s intrinsic value. A comprehensive risk assessment is also carried out to determine its margin of safety.
- Prepare and finalize 3-year preliminary earnings model
- Intrinsic Value Analysis
- Relative Valuation
- Sum of the Parts
- Risk Assessment
Engage
At the Engage stage, a multidisciplinary team comprising a mix of domain experts and investment strategists conducts site visits* of a select group of companies. This highly skilled and experienced team examines companies' operations and their facilities and holds formal meetings with key managements and other personnel. The face-to-face interviews are intended to gain a more in-depth understanding of the companies’ philosophy, mission and vision, the breadth and depth of products and services offered, and the future of the company as conceived by the management. With a view to gaining still greater insight into the company, an all-encompassing field research is undertaken that includes extensive interaction with customers, suppliers, competitors, and industry experts.
Review
The objective of the Review stage is to verify all information for accuracy, clarity, and relevance. A highly exacting checkpoint system is employed for reviewing, modifying, and updating time-sensitive financial information.
Decide
The Decide stage of the research process is where the final decision is taken after thorough deliberation and careful study of all stocks. Employing a robust risk management system known as the Emperos Risk Matrix (ERM), we quantify the relative risk associated with each security. Thereafter, our team of investment strategists leverage a revolutionary parallel thinking technique known as the De Bono Hats system and draw on their collective expertise, market intelligence, and practical insights to identify favourable investments and allocate resources between competing stocks.