Investment Philosophy

Our quality investment philosophy has remained unchanged since our inception. That is our unwavering commitment to investing in quality companies that offer attractive valuation.

Quality companies

Five factor quality web assessment

Attractive valuations

Exploit mispriced market opportunities

Concentrated
portfolios

High conviction holdings

Early leader in
Australian ESG

ESG is one of 5 factors used to assess quality companies

Style neutral

Quality bias

DNR Capital was born from our fundamental belief in investing in quality companies. Quality companies are well placed to deliver investment returns through economic cycles. Concentrated portfolios of quality companies maximise the opportunity for outperformance.

DNR Capital believes that quality companies outperform for these reasons: 

  • Quality companies successfully reinvest capital to drive sustainable returns over time.  
  • Companies in structurally attractive industries have pricing power to grow above inflation.  
  • Higher quality balance sheets help to ride out cycles. 
  • The ability to value quality companies is enhanced by the sustainability of earnings. 
  • Strong ESG credentials support long-term sustainability of earnings. 

We have a disciplined approach to identifying quality companies at attractive valuations. DNR Capital has developed a proprietary “Quality Web” methodology, where we define quality companies as being those companies with the following five attributes: 

  • earnings strength (particularly improving return)
  • superior industry structure
  • balance sheet strength
  • strong management
  • low environmental, social and governance (ESG) risk.

Quality Web

Industry structure

  • Porter analysis
  • Nature of industry
  • Competitive positioning and pricing power
Balance sheet strength

  • Net Debt /(Net Debt + Equity)
  • Net Debt / (Net Debt + Mcap)
  • Net Debt to EBITDA
  • Interest cover
Earnings strength

  • Average EBITDA margin
  • EBITDA margin trend
  • Average ROE
  • ROE trend
  • Average cash flow conversion
  • EBITDA FY3 coefficient of variation
Low ESG risk

  • Governance focus
  • Financial impact of environmental and social issues

 

Strong management

  • Consistent, logical strategy
  • Prudent capital allocation

Our assessment of a company’s quality is overlain with a detailed valuation assessment. Through this analysis we are seeking to capitalise on the following market inefficiencies: 

  • investment opportunities where improving quality might not be recognised by the market 
  • investment opportunities where the market has unduly de-rated quality 
  • investment opportunities where the market has underestimated the sustainability of earnings. 

To maximise the potential for outperformance, DNR Capital constructs long-term, high conviction, concentrated investment portfolios. There are a number of factors considered in the portfolio construction process, including a top-down economic appraisal and portfolio risk characteristics, such as security and sector correlations. We are long term investors, investing over a period of three-to-five-years. 

DNR Capital has a team of highly qualified, experienced investment professionals who conduct in-house investment analysis.     

DNR Capital’s investment philosophy of a disciplined focus on quality companies has delivered strong investment returns through multiple market cycles. 

Our investment strategies

Australian Equities Income Strategy

This strategy delivers exposure to higher levels of tax effective income and capital growth by investing in a concentrated portfolio of large cap companies.

*Past performance is not an indicator of future performance. No allowance has been made for taxation and fees are not taken into account.