Clear Capital

Starting at the end of 2007, we consciously avoided the ‘clean tech’ label. Climate Change, and more particularly the policies to combat it are multi-faceted, and our potential area of coverage includes renewables (wind, solar, marine, but also biofuels), carbon markets, energy efficiency and storage, fuel cells and vehicles. The field overlaps with waste, pollution and most of all, water – another defining global environmental and economic issue for the coming decade. Despite recognizing the seriousness of the problem, and need for solutions, we approach the volatile stocks with risk assessment and the Gartner ‘Hype Cycle’ model in mind – puncturing hype and aiming to uncover unduly depressed sectors and stocks. Coverage ranges from pure play carbon credit and exchange groups to established engineering stocks addressing fuel economy and emissions, and will expand opportunistically. Current topics include high fuel prices – generally, but not always, supportive for climate change driven stocks.

Over the past year, our media sector coverage has concentrated on themes such as consolidation, regulatory changes and growth in digital radio. We will continue to examine any developments here with a critical and sceptical eye, and will rigorously apply our valuation techniques to reach a robust conclusion on any M&A activity, real or merely rumoured. This analytical approach will carry on being combined with our emphasis on our emphasis on collating and synthesising primary data with secondary information sources to reach a balanced view, rather than taking management comments at face value. We will also be expanding our coverage throughout 2007 to include more specialist publishers and media agencies, aiming to uncover those with sustainable sources of competitive advantage, in either the consumer or b2b sphere.

In our first twelve months of coverage of the UK leisure sector, we have focused on highlighting valuation anomalies of the online gaming stocks. The US legislative crackdown served to crystalize some of the largest risks which were vexing us. As a result, we can look forward over the next six months to starting to expand our coverage in to the more traditional areas of gaming and gambling. Elsewhere in the leisure sector, the question over the sustainability of the roll-out capability of brands and management teams continues to intrigue us. We will continue to endeavour to highlight tightly run companies whose share prices do not suffer from excessive momentum.

The consumer downturn caught many analysts by surprise. This reaffirmed our view that Retail sector research must integrate a bottom-up with a top-down perspective. Consequently, we consistently assess the realism of our assumptions in the light of the latest economic and market data. At the same time, we liaise with our ever growing network of industry contacts to ensure that we catch new trends early and interpret the data correctly. We find these contacts are key to adding value in a sector where everybody has a view but few people have overview. We will continue to broaden our coverage with a focus on sub-sectors such as flooring, home improvements, home shopping and fashion.

Speciality Financials

Speciality Financials includes multiple subsectors from Asset Managers to Non-Prime lenders. We cover around 25 stocks in this sector and pride ourselves on the primary data networks we have built in the Asset Management, Lending, Debt Collection and Investment Banking arenas. In a sector where P/E and P/B driven valuation is the norm, we make extensive use of Free Cash Flow models which seek to recognise the importance of regulatory capital requirements. As the Asset Managers grapple with the rapid emergence of boutiques in a bull market and as the British economy's financial gearing keeps ratcheting upwards, our focus on intrinsic value allows us to inject sanity into our valuations.

General Insurance

Our General Insurance coverage focuses primarily on the Lloyd's market, where we cover all of the larger listed vehicles. Depending on client demand, we launch occasional forays outside the Lloyd's market, for instance to cover the listed insurance brokers or to cover the Bermudan insurer. In a sector in which financial statements provide limited meaningful data, we rely on our network of contacts in the Lloyd's and London insurance market to help us distinguish the best underwriters from the run-of-the-mill. Whilst we recognise the importance of the ubiquitous P/NTA multiple for valuation purposes, we make extensive use of warranted P/NTA valuation and Free Cash Flow models to reflect the constraint that regulatory and rating agency capital requirements impose on this sector.

Healthcare

Healthcare is a vital sector of the economy where the long-term outlook is positive driven by favourable demographics and the macro-economy, but offset by an increasing focus on the costs of healthcare provision worldwide. Clear's coverage spans both Healthcare Technology (biotech, pharma, medtech) and Healthcare Services, where we focus on themes such as genericisation, pharma's productivity problem, pharma's bottom line, the increasing role of diagnostics, privatisation of healthcare systems and globalisation. We advocate a highly selective approach in this sector and seek firms operating in attractive markets that can wield genuine competitive advantage.

Technology

The UK technology sector is fragmented, and whilst we broadly group the companies between Software & Services, and IT Hardware, our approach is thematic, assessing the specific implications of global technology trends. Technology companies are exposed to highly competitive markets, and many parts of the sector face a shift from growth to maturity. Against such a background, we seek companies with genuinely defensible IP positions.

Support Services

Support Services is a large and disparate group of companies with a variety of business models and industry characteristics. We begin our coverage of the sector with a focus on facilities management and rental companies - well established business models in a period of extraordinary macro stimulus, but often facing margin/return pressure. We will explore the sources of return squeeze and seek to understand the competitive dynamics that will differentiate winners from the losers when the public sector outsourcing stimulus slows down. Our interest in rental companies lies in assessing capital allocation decisions relative to the state of end-market cycles, and the prospects for generating excess on capital throughout the cycle. We will focus in particular on exposures to the US recovery.

Quantitative & Strategy

A combination of macroeconomic, fundamental and technical analysis is applied to the target market; this enables us to identify company characteristics that will lead to superior performance and directly from there, devise appropriate investment strategies.