SHARES

Mondi Plc has the best ‘Avoid the Human Factor’ score in SA

The company has a 2.0% probability of NOT being able to deliver on the growth implied in its share price.

Yesterday, Mondi Plc released its financial results for the year ending December 31 2021. The results were stellar as it reported an increase of 16% (year-on-year) on group revenue as well as basic EPS of 154 euro cents, up 19% from the prior period. The company cited higher sales volumes and selling prices due to the inflationary pressures as the main drivers of growth.

Mondi showed continued cash generation abilities and a strong balance sheet with net debt to ebitda declining to 1.2x as compared with 1.3x in 2020. Given the strong results, the company recommended a full-year dividend of 65 euro cents, up 8% from 2020.

Currently, as at March 4 2022, our friends at New Age Alpha New York have provided us with a Human Factor Score of 2.0%, which indicates that Mondi has a 2.0% probability of NOT being able to deliver on the growth implied in its share price (or if we turn this probability around an impressive 98% chance of delivering the growth implied by its share price).

Given the impressive results and excellent Human Factor Score, a strong case can be made for an investment in Mondi. However, caution must be taken given Mondi’s high exposure to Russia. The company has significant operations in Russia with the region representing around 12% of the group’s revenue. With geopolitical tensions escalating between Russia and the rest of the world this situation will have to be monitored continuously.

Avoiding the Human Factor

The Human Factor (H-Factor) is an actuarially based portfolio tool, developed by New York-based asset managers New Age Alpha, aimed at mitigating the risk of human behaviour in stock picking.

The H-Factor does not seek to generate returns by applying traditional methods such as the common smart beta and factor exposure funds we have all come to know. Instead, the H-Factor quantifies and avoids the risk of human biases in stock picking.

New Age Alpha’s Human Factor tool which is free to use scores over 6 000 shares globally including many JSE listed shares.

The probability used the only two things we know for sure about a listed company: the current share price and the profitability of a company as reported on the published financial results. From these two data inputs, we can calculate the probability of the company being able to produce the results implied in the share price based on whether the company has done this in the past 16 reporting periods.

Simply put, the lower the Human Factor Score a listed share has the lower the risk in holding that share.

Using a probability-based approach to portfolio management  

Using a probability-based approach to stock selection, we identify and avoid the risks present when share investors interpret vague and ambiguous information inherent in share prices in a systematically incorrect way.

The Human Factor Score measures the probability of the listed company generating the growth implied in its current share price.

We at Global & Local Asset Management use the “Avoid the Human Factor” strategy to manage our collective investment scheme portfolios. The strategy focuses on managing portfolios like an actuary and not a portfolio manager.

The strategy comprises developing probabilities which indicate the chance of a listed company NOT being able to achieve the growth implied by its current share price.

The approach taken by Global & Local Asset Management is not to manage portfolios like a portfolio manager but rather to adopt actuarial techniques to asset management.

If you would like to know more about how the Human-Factor score tool works and how we “Avoid the Losers”, then please contact us at Global & Local Asset Management.

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Mauro Forlin

Global & Local Asset Management

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