BVBA DEMES – Belgian and European Small Caps Expertise
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Our provider today is Gert De Mesure of BVBA Demes.
What is your area of expertise? How long have you been active in this area?
I specialise in research of Belgian and European small caps as well as research of Belgian and international Real Estate Investment Trusts (REITS). I have been active in REITS for more than 10 years, and researching small caps for 25 years.
Why should people buy your analysis? Why is it important for people who want to access better investment opportunities?
I have in-depth knowledge of the companies I research and have built up good relationships with the management of those companies. I have an independent view. I focus on long-term relationships and want to maintain my good reputation.
For small caps I do not make valuations based on future growth, instead I focus on the results of the current year and discount these to eternity. The main element is that I am not including growth after the current year. Analysts always have a valuation based on growth figures (inflated or not, that’s the question). But if you always include growth, each stock is then a buy. I prefer a more conservative approach: what is the value of the company today, without that future growth. That valuation can show a discount, in which case it’s certainly worth buying, or the stock has a premium: investors already pay part of future profits. Nothing wrong with that, the question is how high the premium is and what the growth prospects are.
This approach is very conservative and gives investors a good idea to what degree future profits are priced in the current stock price.
What is something that is generally misunderstood or not known about your area of expertise?
With REITs, a lot of investors focus solely on the net asset value (NAV) of the funds. The NAV is a liquidation value. When it comes to going concerns, investors should focus on the return on equity which shows a high correlation with the premium to NAV of most REITs. The debt leverage is accordingly a very important element. The relatively low funding cost is thus very supportive.
What are the investment opportunities and prospects in your area of expertise?
Small caps: when done properly, small cap research can be very profitable as it gives you an advantage compared to other market players.
REITs: interest rates are low in Europe and will stay low for a longer period. This is an ideal environment for REITs. Furthermore, we see in Belgium that most REITs are themselves active in development, allowing them to generate higher returns, combined with continuing declining financial costs.