The Zulu Search

The Search

In ‘The Zulu Principle,’ Jim Slater proposed the LOW PEG METHOD of searching for growth shares. This is his most favoured investment approach, and was explored further in his best selling book ‘Beyond The Zulu Principle’.

That's why we've called this one ‘The Zulu Search.’

Classically, Slater looks for companies with low PERs, low PEGs, good cash flow, positive relative strength, and with no substantial director selling.

In everyday language this means that companies should be ideally on a low multiple; that an investor should be paying a low price for future earnings growth; that earnings should be converted into cash eliminating creative accounting; and finally that the share should be ‘acting well in the market’ by rising faster than the market as a whole. It would be a bonus if directors were buying their own shares.

Company REFS shows PEGs very clearly. To qualify for a PEG in REFS, a company has to have four years of earnings per share (EPS) growth. (NB: five years for highly cyclical companies, such as house builders).

Corresponding search values - used at the Jim Slater REFS seminar on the 23rd April 2002 - consistent with the above methodology are as follows:

• PEG less than 0.75
• PER less than 10
• EPS growth greater than 10%
• One year relative strength greater than zero
• Dividend yield greater than one.
• Cash flow per share/EPS greater than one

How To Run The Zulu Search

You can run this search by following these simple steps:

(If you are familiar with how to run a search, then do skip to the table shown between steps 9 and 10, which clearly shows you which values to enter.)

1. Logon to Refsonline.
2. Click on ‘Tables’ on the pull down menu at top of screen, and select the ‘Setup’ option. A dialog box will appear, entitled ‘Table Creation.’
3. Click on the ‘New’ button option at bottom right hand of this dialog box. Another small dialog box will appear, entitled ‘New Table Name.’
4. Type in a name for your table in the blank space provided: Zulu Search.
5. The dialog box will now contain a new, mostly blank table. You will see that ‘Zulu Search’ is correctly entered next to ‘Table Name’ at the top of the dialog box. You can ignore the two fields beneath this, entitled ‘View to Use’ and ‘Order by.’ In the table area itself, you can also leave the ‘Condition’ field as it is.
6. In first row of table, underneath the second column –entitled ‘Field Name’ - click on the empty box below it, and then scroll down the options listed, using the arrow to the left of that box. Select the correct ‘Field name’: PEG
7. Move to the third column, entitled ‘Logic,’ and again click on the empty box below it. Scroll down the options listed using the arrow to the left of that box, and select the ‘less than’ symbol: <
8. Moving now to the fourth column, entitled ‘Value,’ click on the empty box below it, and type in the correct value in this case: 0.75
9. Next, repeat this process in the empty row below the one that you have just entered values for, under each column heading, in order to enter in the other search values that Jim Slater outlines above, as shown in table below:
10. Field name Logic Value
    PEG < 0.75
    PER < 10
    EPS Gth Rate % > 10
    Ref Str 1 Yr % > 0
    Prosp DY % > 1
    Cashflow/EPS > 1
11. Now you should have a table of values looking similar to the one above. Next, you must click on the ‘Calc Pass’ button - one of the options at the bottom of the dialog box in which you have been typing values. On pressing it, the fifth column of the table, entitled ‘Pass,’ will gradually show numbers in descending order, corresponding to the number of companies listed against the cumulative criteria.
12. Press the ‘save’ button, also situated along the bottom of the dialog box in which you have just created your table.
13. If you now close the dialog box by clicking on the ‘x’ in top right hand corner of this dialog box that you have been creating your table in, you can see behind it the list of companies that represent the result of your search.
14. Next, click on the first icon on tool bar at top of screen, situated below the ‘file’ button. (If you hover the cursor over the right box containing the icon, the words ‘Show REFS Page’ come up on the screen). This will take you to the REFS page on that company.

What This Search Can Show

By way of example, running this search again on the 4th March 2005 produced just two companies: engineering group Widney and credit finance provider Hitachi Capital.

Widney was recommended in Investing for Growth (the sister publication to Company REFS) in June 2004 at 58 pence and by the date of the search on 4th March had risen by 94.8% to 113 pence. Despite the rise, according to the ‘Zulu Principle’ methodology, it still appeared to be inexpensive in relation to its future earnings growth on a PEG of 0.21, prospective EPS growth rate of 45.1% and single digit PER of 9.26.