The Royce International Premier Fund (Trades, Portfolio) disclosed five new positions in its fourth-quarter 2019 portfolio earlier this week.
Following the departure of David Nadel last November, the fund, which is part of Chuck Royce (Trades, Portfolio)’s New York-based firm, is now solely managed by Mark Rayner. The fund focuses on investing in a limited number of foreign small-cap companies with distinct competitive advantages, high returns on invested capital and products that have a sustainable moat.
Based on these criteria, the fund established holdings in Dorma+Kaba Holding AG (XSWX:DOKA, Financial), USS Co. Ltd. (TSE:4732, Financial), Karnov Group AB (OSTO:KAR, Financial), FDM Group (Holdings) PLC (LSE:FDM, Financial) and Alimak Group AB (OSTO:ALIG, Financial)
Dorma+Kaba
Having previously sold out of Dorma+Kaba in the third quarter of 2017, the fund entered a new 23,600-share position, giving it 2.26% space in the equity portfolio. The stock traded for an average price of 668.48 Swiss francs ($685.34) per share during the quarter.
The Swiss security company, which is also known as Dormakaba, has a market cap of 2.62 billion Swiss francs; its shares closed at 631 francs on Wednesday with a price-earnings ratio of 37.04, a price-book ratio of 13.3 and a price-sales ratio of 0.94.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Dorma+Kaba’s financial strength 5 out of 10. Although the company has issued approximately 666.6 million Swiss francs in long-term debt over the past three years, it is at a manageable level due to having adequate interest coverage. The Altman Z-Score of 4.28 indicates the company is in good financial standing.
The company’s profitability scored a 9 out of 10 rating, driven by operating margin expansion, strong returns that outperform over half of its competitors and a high Piotroski F-Score of 8, which implies good business operations. Although Dorma+Kaba’s revenue per share growth has slowed over the past 12 months, it has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
The fund holds 0.56% of the company’s outstanding shares.
USS
After divesting of USS in the second quarter of 2019, the Premier Fund opened a new 705,200-share position, dedicating 1.79% of the equity portfolio to it. During the quarter, the stock traded for an average price of 2,078.31 yen ($18.19) per share.
The Japanese company, which engages in the business of auctioning vehicles, has a market cap of 498.06 billion yen; its shares closed at 1,996 yen on Wednesday with a price-earnings ratio of 19.85, a price-book ratio of 2.76 and a price-sales ratio of 6.33.
According to the Peter Lynch chart, the stock is overvalued.
USS’s financial strength and profitability were both rated 9 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the robust Altman Z-Score of 10.43 suggests the company is in good financial standing.
The company is also supported by strong margins and returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 6, which indicates operations are stable. Despite recording a slowdown in revenue per share growth over the past year, USS has a 4.5-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 10.6% per year.
The fund holds 0.28% of USS’s outstanding shares.
Karnov Group
The International Premier Fund invested in 1.67 million shares of Karnov, allocating 1.27% of the equity portfolio to the stake. Shares traded for an average price of 49.23 Swedish krona ($5.11) during the quarter.
The Swedish company, which provides information solutions for professionals in the legal, tax and auditing areas, has a market cap of 5.03 billion krona; its shares closed at 51.5 krona on Wednesday with a price-book ratio of 8.29 and a price-sales ratio of 7.03.
Based on the price chart, the stock has gained nearly 20% since its initial public offering last April.
Weighed down by low debt ratios and poor interest coverage, Karnov’s financial strength was rated 3 out of 10 by GuruFocus.
The company’s profitability did not fare much better, scoring a 4 out of 10 rating. Although its operating margin of 8.76% outperforms over half of its competitors, its returns are negative. Karnov is also supported by a moderate Piotroski F-Score of 5.
The fund has a 1.72% stake in the company.
FDM Group
The fund picked up 430,793 shares of FDM Group, expanding the equity portfolio by 0.79%. The stock traded for an average per-share price of 8.43 British pounds ($10.90) during the quarter. The fund previously sold out of the stock in the third quarter of 2016.
The London-based professional services company has a market cap of 1.14 billion pounds; its shares closed at 10.3 pounds on Wednesday with a price-earnings ratio of 29.77, a price-book ratio of 16.12 and a price-sales ratio of 4.65.
The Peter Lynch chart suggests the stock is overvalued.
FDM’s financial strength and profitability were both rated 8 out of 10 by GuruFocus. The company is supported by a comfortable level of interest coverage as well as a high Altman Z-Score of 28.55.
Although the operating margin is in decline, the company is still has strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 6.
Royce’s fund holds 0.40% of FDM’s outstanding shares.
Alimak Group
The fund purchased 298,027 shares of Alimak Group, dedicating 0.59% of the equity portfolio to the holding. The stock traded for an average price of 129.6 Swedish krona per share during the quarter.
The Swedish industrial products company has a market cap of 7.07 billion krona; its shares closed at 131 krona on Wednesday with a price-earnings ratio of 15.78, a price-book ratio of 1.93 and a price-sales ratio of 1.54.
According to the Peter Lynch chart, the stock is trading near its fair value.
GuruFocus rated Alimak Group’s financial strength 6 out of 10 on the back of adequate interest coverage. The Altman Z-Score of 2.88 suggests the company is under some financial pressure as its revenue per share growth has slowed down over the past 12 months.
The company’s profitability scored a 7 out of 10 rating, driven by strong returns and a moderate Piotroski F-Score of 6. Although the operating margin is in decline, it still outperforms a majority of competitors.
The fund holds 0.55% of Alimak’s outstanding shares.
Additional trades and portfolio performance
During the quarter, the fund also added to a number of holdings, including Fukui Computer Holdings Inc. (TSE:9790), Intertrust NV (XAMS:INTER), Bossard Holding AG (XSWX:BOSN), Bravura Solutions Ltd. (AXS:BVS) and Restore PLC (LSE:RST), among others.
Over half of International Premier Fund’s $747 million equity portfolio, which is composed of 54 stocks, is invested in the industrials and technology sectors.
According to Royce Investment Partners’ website, the fund posted a return of 34.49% for 2019, outperforming the MSCI ACWI Ex. U.S. Small Cap Index’s 22.42% return.
Disclosure: No positions.
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