Ann: Becoming a substantial holder, page-5

At Renaissance Smaller Companies we identify opportunities by monitoring the difference between prevailing market prices and the assessed valuation. Most commonly this occurs due to behavioural inefficiencies (caused by sentiment or momentum driven price movements) or informational inefficiencies (situations where the market has mispriced securities due to incorrect assumptions or lack of recognition of change).

Renaissance believes that all companies (and therefore securities) no matter what they make or do, whether they are considered to be ‘growth’ or ‘value’ companies, can have a hard valuation attached to them. To ensure the accuracy and reliability of our valuations, we:

• Generate valuations based on rigorous ‘in-house’ research that are compared to external valuations in order to understand the reasons behind any valuation differentials
• Use multiple valuation measures (both absolute and relative) designed to take account of the specific attributes of the business being valued
• Construct valuations that capture all elements of a particular security, with specific reference to the future income streams of each of the businesses or assets
• Ensure that structural change is recognised and factored into expectations
• Test valuations for sensitivity to different macroeconomic conditions; and
• Assess the quality of company management and strategies