I have been recently thinking about an underappreciated but significant edge we have on other companies when investing alongside quality management. Its not just that the managers own more than 24% of the company (which is significant), but unusual behavior from management, is exemplified by the following.
The company holds $20 million in cash, paying an increased dividend when most companies were reducing dividends, (think Banks), not going to the shareholders for an equity raising and increasing the number of shares by diluting shareholder equity , (again think Banks)
Negotiating a long term lease agreement at the bottom of the GFC and being proud about how much money they have saved for the long term (source Anthony Radford AGM 2009).
Not compromising the business by selling out to a large corporation. (In answer to the question Would you welcome a takeover or sell the company? Anthony Radford AGM 2008, You are deluding yourself if you think we are going to sell this company)
Compensation structure of top management, ie. No options, very modest salary structure
Sham M Gad author Value Investing states: In evaluating the quality of management, focus on the variables that management can control. Discover a great capital allocator and you will have discovered a great manager. Good capital allocation can be judged by two controllable variables within a business: book value per share and return on invested capital. In CST case the last three years: book value has grown from 0.14, 0.16, to 0.23 return on capital -17.4%, 14.6% to 37.0%
Management that behaves in such extraordinary ways usually produces extraordinary results over the long term and is not often done by many.
Cheers on this long weekend
CST Price at posting:
$3.01 Sentiment: Buy Disclosure: Held
