As we know, management team plays an important role in a listed company's performance. Good management team can create value, making right decision, driving company to the right direction and improving the balance sheet (financial strength) of the company. A similar business company run by different management teams can produce very different results.

Anyway, it is no mathematical or magic formula to evaluate a company management team.

How to assess a company management team in general?

There are 4 criteria to evaluate a good or reliable company management team as below:

1. Management team holding substantial stake or shares of the company.

This is to ensure that the management team has motivation to grow the company and minority shareholders’ interest is aligned with the management team’s interest. It would be even better if their personal net worth is closely tied to the value of the company. In Chinese we can describe as 共同利益 or 同一条船。

2. Create value for company for long run –  expansion and proper risk management

3. Taking reasonable remuneration (salary) – Eg. Google founder, Apple founder and Facebook founder received $1 for salary but entitle for big portion of share option.

4. Consistent with plan and result (track record) – Implementation of their plan and generating good result most of the time.

Let take Petronm as a case study for this assessment of a listed company management team. The background of the Petronm can be found from my first article at (https://klse.i3investor.com/blogs/david_petronm/127344.jsp)

Let evaluate Petronm’s management team using the 4 criteria as table below:

One can notice that the management of Petronm meets the 3 criteria out of 4 for good management team. One of the criteria (taking reasonable remuneration) has no information to evaluate for Petronm.    

I particularly surprise to see strong growth in Petronm’s loyal members from 2 mil+ to 4 mil+ within a year (2015 to 2016). The huge loyal member base provides consistent retails business and show high level of satisfaction of its customers. On the other hand, according to JPJ data, Malaysia total registered vehicle is about 26 mil (http://www.jpj.gov.my/web/guest/pendaftaran-kenderaan-perdagangan). 4 mil+ loyal members indicates about 15.4% of the total 26 mil vehicles choose Petronm as their preferred refuel station. This figure is quite close to its 19% market share. The percentage (15.4) can be even higher as I think not all 26 mil vehicles are active on the road. In term of future prospect, recent strong rally of refinery margin will drive Petronm’s profit in 2017. (https://klse.i3investor.com/blogs/david_petronm/127424.jsp).

With both refinery and retails businesses which are complementary each other, Petronm has some edge over other downstream players. Latest crack spread margin graph can be refer at http://www.cmegroup.com/apps/cmegroup/widgets/productLibs/esignal-charts.html?code=D1N&title=JUL_2017_Singapore_Mogas_92_Unleaded_%28Platts%29_Brent_Crack_Spread_&type=p&venue=0&monthYear=N7&year=2017&exchangeCode=XNYM

Summary

1.       Management team of a company is critical due to they need to make the strategic decisions for the company to grow continuously while considering the possible risk involved.

2.       True value of management team will be reflected in the stock price in long run. Many good management teams of Bursa have gained investors’ trust (strong capital gain) where they can lead companies to produce consistent results (Eg. LPI, Topglove etc).

3.       Consistency and track records are good measure of a management team. Management which rewards its shareholders with decent dividend will gain more support from institutional funds which they are normally long term investors. In addition, management team will be the largest beneficiary (from their largest shareholdings) from the consistent dividend rewards.

4.       There is no mathematical formula for assessing a company's management team. But I hope the criteria that I have explained in this article will give you some ideas. Studying on the financial results of a company is important, but it may not tell the whole story. Spend a little time investigating the management team may give us higher confident for our investment.

You can get my latest update on share analysis at Telegram Channel ==> https://t.me/davidshare

Disclaimer:

This writing is my own imagination for all the assumptions and estimations. It is strictly for sharing purpose, not a buy or sell call of the company.