QAV 532 CLUB

Cameron  00:06

Welcome back to QAV. This is episode 532. We’re recording this 1:41pm, Tuesday 16th of August 2022. Bloody day in the markets today, TK. Well, with some of our stocks anyway. How are you TK?

Tony  00:24

I’m good. It’s been a tough reporting season though, in some aspects for sure.

Cameron  00:29

Yeah. The market is actually up today but a couple of big stocks have had bad annual reports come out which has tanked them massively. We’ll get into that later on. What else is going on in your world? You’re going away on vacation, TK?

Tony  00:45

I am. I’m heading off to the hopefully sunny climes of Fiji. Although I think it’s raining over there at the moment. It’s finally cleared up in Sydney and I’m gonna go and fly to a country where it’s raining.

Cameron  00:57

Spend a week in your hotel room just watching the monsoons outside.

Tony  01:01

Yeah, so I won a golf trip in a tournament about three years ago now and haven’t been able to go because of COVID, so we’re heading off tomorrow.

Cameron  01:11

That’s good. I thought you were going because it was your lovely wife’s birthday, but you’re going on a golf trip.

Tony  01:16

Well, she was invited, but she’s going to go to Perth next week instead to visit some friends over there.

Cameron  01:21

Oh, she’s not coming to Fiji. No,

Tony  01:23

No, no.

Cameron  01:24

Oh, I thought you were taking her away for her birthday.

Tony  01:28

No, I’m going with a buddy. We’re playing golf.

Cameron  01:30

You said, “its Jenny’s birthday and I’m going to Fiji,” and I thought those two were connected. No, it’s her birthday and you’re getting out of town. Wow.

Tony  01:37

Yeah. So, it’s her birthday tomorrow, my lovely wife’s birthday. Happy birthday, Jenny. So, we’re going out tonight because I’m going to leave at like sparrow’s fart tomorrow to the airport.

Cameron  01:46

“Happy birthday! I’m going to Fiji!”

Tony  01:50

And then when I get back, we’ll tag, and she jumps on a plane and flies to Perth to go down to the Margaret River with a friend who’s having a 60th birthday down there. So, she’s got lots of girlfriends flying over there for that. And then Ruddy’s coming up to stay with me while Jenny’s away.

Cameron  02:06

Of course, he is. If I said to Chrissy, if it was her birthday and I said “bye, I’m going to Fiji on a boy’s trip,” I would be divorced by the time I got back.

Tony  02:18

Hence, we’re going out tonight to a really nice restaurant, and a gallery beforehand to buy her a birthday present. So, hopefully it’ll be enough in the good books.

Cameron  02:27

Good luck with that, TK. You forgot your wedding anniversary this year, too, didn’t you?

Tony  02:32

Yeah, I was at Cape Schanck.

Cameron  02:37

I dunno, man, I don’t like the sound of this. I don’t like the sound.

Tony  02:40

I lose track of days and times at Cape Schanck. It’s good, it’s good that way.

Cameron  02:44

Well, let’s get into the business at hand. Let’s see, what have I got on my notes to talk about? Oh, there’s a nice little article. Matt Taibbi, my favourite renegade journalist in the US, in his newsletter the other day, he had this thing about the US economy which I thought was interesting: “Signs of the coming economic horror accrue. Despite a spate of unconvincing reassurances to the contrary, evidence of approaching disaster continues to accumulate. Americans, particularly those under twenty-five, are overwhelmed by basic costs and spent spring and summer digging bigger holes for themselves via record levels of consumer borrowing. Federal Reserve stats this week showed a staggering 233 million credit card accounts were opened in the second quarter. That’s two thirds of the population. The most since 2008, while at just a staggering $46 billion was added to credit card balances during that same period, household debt past 16 trillion for the first time, while overall credit card debt has jumped 100 billion this calendar year.”

Tony  03:58

Well, so much for the Quadpay and Afterpay and Klarna and all those companies weaning Millennials off credit card debt, it hasn’t worked. You can’t accuse Matt Taibbi of understatement though, can you? “Signs of the coming economic horror!”

Cameron  04:17

That’s what I love about him. He really is a Gonzo journalist in the great tradition of Hunter S… Hunter S. Thompson. Yeah, well, I named my kid after him and I can’t even remember his name. That’s sad. What do you think about that? I mean, I know our economy doesn’t necessarily track alongside the US, but the US economy does obviously have a big impact on us. Those aren’t good signs for an economy. I know that we’ve come out of a recession — no, sorry, we’ve come out of the COVID thing — and the economy over there has been wavering, but that’s a that’s a really bad sign at this juncture.

Tony  04:53

I don’t know, is it? What’s the context for all that? So, people have put more onto their credit cards, but you mention 46 billion, is that 1%/10%/100% Increase? I don’t know. A lot of credit card debt over there.

Cameron  05:08

He said it’s staggering, so he thinks it’s a lot.

Tony  05:13

Well, yeah, I mean, it’s hard to know without knowing the context. And like you said, the credit card debt has jumped 100 billion this calendar year, again, is that a lot? The US is a pretty big market, so, I don’t know.

Cameron  05:26

Well, he did say the household debt has passed 16 trillion for the first time. So, 46 billion to 16 trillion is not much, right. If household debt is 16 trillion, 46 billion has been added to the credit card balances in terms of overall household debt. I guess that’s not a lot.

Tony  05:47

Yeah. So, I don’t know what the context is. I mean, there’s so much going on in the US at the moment in the economic space, it’s hard to know what’s going on. Inflation is high but it seems to have peaked, and some people are saying it could be coming down, which is why the stock market has rallied over there. But household debt is always going to increase. It doesn’t go backwards. It’s going to be driven by growth in the economy and house prices and all that kind of stuff.

Cameron  06:14

Growth in the population, too.

Tony  06:16

Yeah, that’s right. So, I don’t know what that signifies. Just posting those numbers by themselves, it’s hard to get a context. But yeah, if people are, for example, I mean, if I can draw a longbow here and say that what Matt Taibbi is saying is that people are becoming more indebted because the cost of living is going up in the States — and that’s a problem — however if the CPI is now peaking and might come down, there’s still going to be a credit balance or a debt balance that people have to pay off, but it may not be an ongoing problem. So, it’s pretty hard to read in the States at the moment. It all hinges on whether inflation keeps going up, which of course hinges on so many things like global political problems in Ukraine and straights of China, all that kind of stuff.

Cameron  07:02

Well, we’ll have Tobias Carlisle back on the show next week, and we can ask him what he thinks is going on over there. He can put some context on.

Tony  07:13

Yeah. I honestly think everyone’s got an opinion, but I don’t think anyone one knows, really, what’s going on over there — or can predict it. I mean, you can tell what’s going on but, you know, like it was, what, six months or twelve months ago when inflation started to appear? Everyone was going, all the economists were saying, “oh, it’s temporary,” right? And in the last few months it’s been, “oh, no It’s permanent, it’s gonna get worse.” And now it’s, “oh, no, could be temporary.” It’s like they’re just blowing in the wind.

Cameron  07:39

Well, we can ask the President of the United States what he thinks. I don’t mean Joe Biden; I mean the other president. I don’t know if you know it, but at one point between 2020 and 2021, Scott Morrison secretly made himself President of the United State, along with every other job. My take on this, by the way, is he knew he was going to lose the next election and he was just trying to fatten up his CV. He can now go, “look! I’ve been the health minister, I was the finance minister, I was the home affairs minister. I was you name it; I’ve done it all. I’m well rounded. I’ve done everything. Not just Scotty from Marketing now.”

Tony  08:17

Did you ever watch the late show? Back in the 90s?

Cameron  08:19

Of course, I loved the Late Show. I’ve been watching YouTube clips of it recently, actually.

Tony  08:24

Me too. But the John Fahey sketch, when he was state premiere, but he also took over minister for the Olympics and a few other things. The Late Show sketch was: so, who’s going to run the Olympics? “I’ll do that!” He kept putting his hand up, “I’ll do that!” Who’s running the trains, Mr Fahey? “I’ll do that!” It’s like Scotty from Marketing. Like, I get that whole thing. I mean, okay, it was a backup plan for COVID which was unprecedented — what happens if the Health Minister falls ill and can’t execute their abilities? But why not tell people, why did it have to be secret?

Cameron  09:00

Particularly the ministers?

Tony  09:01

Yeah. And in some cases, they were Junior ministers anyway who could step up and take the roll over in the natural cause of events, so.

Cameron  09:11

And he said, “oh, I just assumed my department told them.” Really? This seems like a pretty big thing that you would want to be… when you take somebody’s job, I think, you know, maybe a phone call at least. “Hey, Tony, I’m taking over your job.”

Tony  09:32

What was the Governor General thinking? Scotty rocks up, I don’t know what time of day it was, on the quiet. “Here, sign here. I’m taking over the country.” “Oh, righty-o. Yeah, sure.”

Cameron  09:45

What a cowboy. Back to business, gold became a sell. Gold AUD became a sell this week.

Tony  09:51

I think it was a sell a couple of weeks ago and it nosed above its sell price last week, and it’s back below it again.

Cameron  09:57

Oh, okay. But I see that you sold West African Resources out of your portfolio.

Tony  10:04

It took me a little while because it kept going up and down, but I sold out. And sold out of Perseus, PRU, as well. I did that a couple of weeks ago, actually, the first time gold became a sell.

Cameron  10:15

Right. Just a note to everybody out there if you’re sitting on gold stocks, might be worth just having a think about that. If gold has become a sell, probably not a good sign.

Tony  10:26

Yeah, it’s strange. The gold price has been up for a while now, but it does seem strange that we’re having high inflation and the gold price is going down. That’s fairly unusual.

Cameron  10:35

Usually, a hedge against things like that, right?

Tony  10:37

Correct.

Cameron  10:38

All right. Well. to reporting season. I saw in the Fin this morning “market turmoil wipes 57% of Challenger (CGF) net profits.” Challenger, big hit. I posted before the market opened on the Facebook group “keep an eye on it”, and then I went to Kung Fu and had lunch and came back and had a look at it and it was down 14%. It’s down 14.5% today, so I had to sell that out of my Super. And I think we’ve got it in a couple of our portfolios I’m gonna have to dump out of as well when we get off the call.

Cameron  10:38

Yeah, I’ve done the same, sold out of it, too. Disappointing. That was the great white hope for me. I thought it might attract a bid because it’s got a couple of large shareholders who are patiently sitting on about, I think, 17% of the company, something like that. Maybe it will now after the share price has tanked a bit.

Cameron  11:33

I think I still got out of it at a profit. It had been doing quite well, but that’s a big chunk. So, you know, how come we didn’t get any warning of this during confession season?

Tony  11:45

We certainly should have, so watch this space. There could be a class action if there was no continuous disclosure. We might make our money back in a couple of years when the lawyers grind their way through.

Cameron  11:55

Oh, nice.

Tony  11:56

And you give half to them.

Cameron  11:58

Yeah. I wanted to ask you about this thing in the Fin, though. It said net profit fell 57%, $253.7 million, blahdy blahdy blah. Later on, though, it says “Challenger said it’s normalised net profit was $472 million, up 19% from a year ago, and at the upper end of its $430-480 million guidance.” And “the company lifted its full year dividend 15% to 23 cents share.” I thought when I read this this morning, I thought those two things might be a buffer to the price getting whacked. What’s a normalised net profit mean?

Tony  12:40

So, I haven’t had a chance to pull it apart yet, but there’s something they’ve had to take a write down on.

Cameron  12:45

Is this Charlie Munger bullshit earnings here? Bullshit economics?

Tony  12:48

Well, normalised earnings are bullshit earnings. So, they’re basically saying, “if I take out all the things that lost money, this is what I would have made.”

Cameron  12:57

“We did really well. Don’t look over there, look into my eyes.”

Tony  13:05

Yeah, no, that’s exactly what it is.

Cameron  13:06

You know, Marketing the Messiah made a lot of money, Tony. If you don’t look at the fact that it didn’t make any money, it actually made a lot of money. If you ignore the fact that it didn’t make any money.

Tony  13:15

Yeah, if you ignore the costs.

Cameron  13:17

And the fact that it didn’t make any money. If you ignore those things, it did really well.

Tony  13:21

I’m just trying to work out what it was, but what I think’s happening is a write down was taken on an asset which doesn’t affect the cash bottom line for profit, which is the normalised profit; sometimes it’s called profit from continuing business or something like that. So, it’s a statuary profit which means they’ve had a write down, and I haven’t been able to work out where it is yet. I just skimmed through the article before the show. They bought a bank two years ago which has underperformed, so I think they may have been writing down the goodwill on that, but I’m not sure exactly what the write down is for.

Cameron  13:55

Well, the market didn’t give two shits apparently, they just said “nup”, boom, 15% gone.

Tony  14:01

I know. It seems a bit of an overreaction, but anyway.

Cameron  14:05

Yeah, it does. But it breached our three-point trendline, so we have dumped it.

Tony  14:10

And we don’t, we don’t have normalised or statutory trend lines. It’s just “rules are rules.”

Cameron  14:17

Rules is rules.

Tony  14:20

And if a few accountants want to get together and debate it, go ahead, but our rules are our rules.

Cameron  14:26

So, let me just have a look at the dummy portfolio while I’m here. CGF is in the dummy portfolio, I’m gonna have to get rid of that when we get off the call. Let me see. So, since inception, 18.01% per annum CAGR since September 2019 versus the ASX 200 up 6.81% per annum over the same period, so we’re still doing three times better than the 200 over that period of time. However, if I look at this financial year, we’re still trailing by a vanishing point. 200 is 12.22% this financial year, which is insane. It’s up 12% since July. What? In five weeks, what is it, six weeks? We’re up 5.35%, which is more normal for that period of times. I think that’s okay, we’re doing okay, but not compared to the All Ords in the last six weeks. And CGF’s not helping. Bloody hell, Challenger, what have you done to us? Somebody asked me yesterday if BPT is the new Apollo Tourism, I think Challenger might be the new Apollo Tourism. No, it’s done far better.

Tony  15:44

Neither is BPT. We have bought and sold it twice now, I think, so it’s getting close. Apollo, I think we bought three or four times, didn’t we, and had to sell it? And lost each time.

Cameron  15:53

Well, look with this run on Challenger, we bought it in February for $7.08. It’s now $6.08, so that’s not good.

Tony  16:04

We would have gotten a dividend along the way, though. But yeah, still not good.

Cameron  16:08

Yeah, we did get $42 in dividends. Still, anyway, that’s the portfolio report. Mortgage rates have moved, we need to change our mortgage rates again, TK?

Tony  16:20

Yeah, so I did a quick survey. I did one last week after the RBA raised rates and the banks hadn’t changed much, so I didn’t bother updating the spreadsheet. And they haven’t changed much this week yet either, but we were using 5.14 as our percent, as our average of the big banks mortgage rates, standard variable rates, and it’s risen to 5.25 this week. So, a couple of the major banks haven’t passed on all of the RBA increase, or perhaps they already passed it on and then didn’t do it again. But anyway, it’s gone up a little bit. So, 5.25 is the new rate to use, and if people are using my version of the spreadsheet, it’s in cell AW32 in the Top Scores page as well as the Download page.

Cameron  17:07

And in the AF you just go into the tab that has all the variables in it, I think, and you change it in there.

Tony  17:13

Yeah.

Cameron  17:14

Okay, what else you got to talk about today?

Tony  17:19

Well, sorry, before we move on from performance, I just wanted to point out that the top performers in Navexa in our dummy portfolio were NHC up 8.6% and FEX up 8.6%.

Cameron  17:31

Good ol’ FEX.

Tony  17:32

Yeah, so it’s interesting iron ore is going up, and iron ore stock is going up, because iron ore is going down still as a commodity.

Cameron  17:39

It’s like gold, right?

Tony  17:40

Yeah, and I don’t know what happened. I don’t know why Fenix is doing that, FEX, if but it’s a bit like West African Resources; the gold price was a sell, but they came out with a resource upgrade, an asset upgrade, so that’s why the price rose with them. So, it can still happen on a company-by-company basis that goes up when the commodity’s coming down, but overall, we sell anyway. Well, that’s the big news this week for me. It’s just been company reporting season. So, people should be doing downloads. I’ve been doing them daily just to keep a tab on what’s going on. I’m still trying to get all my cash back into the market, so I’m looking for things to buy. We have good days and there are lots of things to buy, and then we have days like today where I scratch my head and go “what can I buy?” But people should be aware that there are new companies coming onto the buy list. And we put out the buy list weekly, but they could probably do a midweek download and have a look as well, because I have found a couple; certainly, in the large cap space, have come on and I’ve been buying, and then there’s a few coming on in the small cap space. But there’s a lot of new figures in Stock Doctor and in the download spreadsheet for companies that we’ve been talking about, and we’ve owned in the past, or in the dummy portfolio. Companies like Genworth, Comm Bank, Suncorp, AMP, JB Hi-Fi. I’ve spoken about Beach Energy and Challenger which are both sells now based on the latest results. We didn’t touch on Beach, but I’m a shareholder — until this morning, when I sold — but it’s a disappointment because they had that big write down about twelve to eighteen months ago which really shocked the market when I last owned it, and got stopped out then, and new management kept saying “no, no, we’ll be conservative, and it’ll all be all right.” And then they’ve come out again with another disappointing result, so that’s a second strike for Beach. It’s not looking good.

Cameron  19:34

And again, no confession season warning, it’s just come.

Tony  19:37

Correct, it just comes, yeah. It’s surprising. That surprise factor is why the share price is dropping. But yeah, particularly irking when it comes to Beach because they knew that they should have known that any sort of bad news wasn’t going to be received well, and they should have been doing something to try and guide people or soften up the market in advance of releasing those results. I can’t imagine that the Stokes are gonna sit still for it. They own a chunk of Beach Energy, and their playbook isn’t to sit still when a company keeps underperforming like this, so I’m not sure what they’ll do, but I’m sure they’ll be fairly active in the company trying to fix it. So, that’s company reporting season, keep a lookout, people, it’s changing every day.

Cameron  20:19

Sorry, before you move on. Can I ask you, you mentioned GMA, CBA, etc. I ran financials update report on Stock Doctor this morning and I didn’t see those come up. I just looked at it from yesterday to today because I figured anything that came out last week would have been included in the buy list that we did over the weekend, but they didn’t show up when I ran it this morning and I wasn’t sure if that’s because they came out last week. They came out last week.

Tony  20:50

So, GMA, AMP, I’m not sure about Suncorp and CBA, but they came out last week. So, your financial update section of Stock Doctor you can select the date range, but if you go down far enough, you’ll probably find them in your list.

Cameron  21:03

Well, I figured I didn’t need to do a buy list to look for those today because they would be in the buy list that came out yesterday morning, because we got the financials last week. So, I’m just looking for stuff that’s come out since the buy list went out on Monday. So, yesterday and today.

Tony  21:18

Yeah. Okay, so you wouldn’t see GMA and Suncorp in that. CBA perhaps, but it’s being updated every day, so just be aware of that. The other thing to be aware of if you’re buying and selling, which I’m doing at the moment based on the results, is to watch out for ex dividend dates. So, be aware that if you buy, for example, something today, it may go ex-dividend in a couple of days’ time and the share price might drop. Don’t be alarmed, just add the dividend back here before you make the decision on whether you should sell or not. And likewise, you may want to wait until that drop occurs because you’re not interested in the dividend, you might want to take the gamble and delay for a few days and then buy ex dividend which will be cheaper.

Cameron  21:58

And just a reminder on the rules around that, because I had to remind myself on this last week; if we own a stock and it goes below its rule one or three-point trendlines sell trigger and it is about to go ex-dividend but hasn’t yet, even if it’s gonna go ex div tomorrow — and if we own it, we will get the dividend — you’ve told me in the past we sell anyway, we don’t wait for it to go ex div because when it goes ex div the price will normally go down the value of the dividend and it’ll be even further below. And if it’s already below the sell line, when it goes ex div its going to be worse. So, we sell. We don’t hold on to get the dividend.

Tony  22:43

Correct. So, Challenger is a good example of that. It’ll go ex-dividend in a week or so, I would think, and the dividend is a reasonable yield so it’s worth something. But that’s already factored into the share price, so I would expect it to drop again once the company goes ex dividend. So, something else to watch is the price of nickel the commodity. I had a look at that on the weekend, it’s getting close to a buy. It’s been in a steep downtrend the last month or so, it’s just started to have a less steep downtrend. It’s still a Josephine, but it’s getting close to turning up and being a buy again.

Cameron  23:17

And who are the nickel companies in Australia that usually would benefit from that?

Tony  23:24

Yeah, so the one that that I’ve owned in the past is Nickel Mines, NIC.

Cameron  23:29

Nick Scali?

Tony  23:31

 No, NIC, Nickel Mines.

Cameron  23:33

It’s a joke. Nick Scali is not a nickel company?

Tony  23:37

No, NCK, no. Gotcha.

Cameron  23:38

Come on Tony. Keep up, try to keep up.

Tony  23:42

I’m on holidays.

Cameron  23:44

Not yet! I’m having a look at the list of all the nickel companies, just trying to see what looks familiar. Wow, there’s a lot of them.

Tony  23:56

So, some of those will just be part nickel, though, won’t they? Which ones are you looking at?

Cameron  24:00

Well, RIO. S32. I don’t know how big a deal nickel is for RIO, is it a big deal?

Tony  24:07

Not big, no.

Cameron  24:08

South 32, probably not a big part of them either. Sandfire Resources.

Tony  24:14

Sandfire is copper, so nickel won’t be a big part of them either. A lot of miners will have some nickel but companies like Nickel Industries will have a lot.

Cameron  24:22

Nickel industries, NIC. Yeah, okay. All right. Nickel. That’s good to know. Hey, I don’t think it’s in our show notes, but I did see something I bought yesterday, there was a mineral sands player: BSE, Base Resources. I wanted to ask you about this because I had a look at what these mineral sands are that they deal in, and a lot of elements that I’ve never heard of before, went over my head. Pure mineral sands. I went looking for a commodity price on these things.

Tony  25:01

Yesh, it’s hard to find.

Cameron  25:02

I couldn’t find anything.

Tony  25:04

I’ve struggled before, too. Titanium oxide is the one I’d normally use but it’s even difficult to get a graph for that.

Cameron  25:10

They’ve got this mine, Kwale mine and the Toliara project in Madagascar. Ilmenite. I don’t know what the hell ilmenite is, what do you do with ilmenite?

Tony  25:21

I don’t know.

Cameron  25:22

It’s a titanium iron oxide mineral, there you go.

Tony  25:26

Yeah, that’s the big one.

Cameron  25:28

So yeah, I went looking for a while to try and find that and the other things that they dig out. Couldn’t find anything to go by. Oh, there we go: rutile, ilmenite and zircon. I obviously skipped those classes in chemistry. Rutile is an accessory mineral in igneous rocks but is more common in schists and gneisses. Geologist members like Mark Dugmore are going to be listening and just shaking their head going, “oh, you’re such an idiot.”

Tony  26:02

the German mineral “shishkinisht”.

Cameron  26:06

I know a bit schisms in the Catholic Church but I don’t know about schists in rock. And what was the other one? Oh, zircon, well I know what zircon is.

Tony  26:15

Just be careful with zircon, because it’s zircon rutile. So, if you look for a graph on zircon it might give you the fake diamonds, the man-made diamonds.

Cameron  26:24

Oh, it’s different?

Tony  26:25

Different zircon, yeah.

Cameron  26:27

Zirconium silicate. Maybe Mark needs to come on and tell us what these things are.

Tony  26:33

Well, I know titanium oxide is a feeder into paint, like house paint. So, I think that’s probably its major use, although I know some of those minerals you’ve mentioned can get used in silicon chip manufacturing, but the main thing is paint.

Cameron  26:47

So, no good on that.

Tony  26:49

Oh, sorry, and glass.

Cameron  26:52

So, if anyone knows where we can get commodity prices for those things, let us know. I’m sure Mark knows. We’ve got a lot of mining guys that’ll probably know.

Tony  27:01

Yeah, well, that’s good if they can tell us. I think we’ve looked into once before, didn’t we?

Cameron  27:05

I think we did, yeah, I couldn’t remember what you said.

Tony  27:07

I think rutile was the one to focus on from memory. I haven’t looked at it for a while.

Cameron  27:13

I know about the Russell’s. It’s not connected to the Russell’s?

Tony  27:17

Let me just call up Index Mundi quickly and see if I can find something there for you.

Cameron  27:22

All you need is cash.

Tony  27:25

I remember that, that was funny. Rutland Weekend TV.

Cameron  27:30

Dirk McQuickly.

Tony  27:37

We’re talking about Eric Idle for people who are not familiar with them, but it was a great little… starring George Harrison, too.

Cameron  27:45

As the interviewer.

Tony  27:46

Yeah. I can’t see a graph on Index Mundi. I remember it last time being hard to find.

Cameron  27:52

Okay. Sorry for that little side-track, there.

Tony  27:56

Yeah. Well, what else have I got to talk about? I was going to do a pulled pork on Sunland Group, which was a request from a listener a couple of weeks ago, and I’ll do that now. I guess the first thing to talk about with Sunland Group is it’s in winddown phase, which I think was the reason why the listener asked for it to be put under the microscope. So, here goes. So, Sunland Group is a Queensland property developer and it’s been around since the 90s, I think as a private company before that. They build both high rises and residential housing. They built a lot on the Gold Coast and into northern New South Wales, and I guess going north towards Brisbane. They were responsible for Q1, which was the tallest residential building in Australia — perhaps the world — for a while. They built the Palazzo Versace in the Gold Coast, so they’ve had a quite a good career of developing iconic buildings as well as residential housing development. The whole time it’s been helmed by a guy called Sol Abedian, and Sol is short for Soheil. I think, from memory, he’s Iranian. Anyways, he’s from somewhere in the middle east. He was a trained architect overseas but then couldn’t get his credentials recognised in Australia when he came out in the 80s, started building houses to pay the rent and went from there. One of the, sort of, immigrant success stories. The company has been controlled by him since it listed and he’s now the executive chairman, and his son is the MD, and they still retain quite a large shareholding in the company. So, it’s a classic owner-founder story. It’s had its ups and downs — not because of anything to do with management, but just the cycle of the property industry. I think it dropped as low as something like 30 cents a share during the GFC but it’s now back up to around $2.55ish. So, you could have picked it up for peanuts ten-fifteen years ago. The big news for them now is that Sol has come out and said he’s going to wind down the company. He said this about twelve to eighteen months ago, and he said that it would take about three years. So, he’s getting to retirement age and his plan is to sell off all their assets, finish off all their current developments, which is getting close to happening. So, they’ve realised a lot of sales in the last twelve months. They’ve still got a couple of projects which are near completion and they’re selling well, and they’ll settle towards the end of this year. And after that, they plan to pay off their debt with the proceeds from the sales and then return whatever’s left to the shareholders; either by special dividend, which they’ve done twice now in the last nine months or so, or by some kind of capital return. So, I guess in a nutshell, if you’re looking to buy this company know that it’s not going to be a long-term hold, it’s going to basically cease to exist in the next one-two years, if not even sooner. The chances of getting some kind of share price gain out of it are slim; the way that would happen that I could see is that if something comes along, which isn’t part of the plan. I can’t imagine someone would try and take over this company because it’s almost sold off all its assets now. But who knows, I mean, it’s hard to predict. But if the son said, “oh, look, I’m happy to keep running the company and don’t want it to de-list and I’ll keep it going,” maybe that might put a floor under the price. But I can’t see it happening. There’s nothing to suggest that this company won’t go from $2.50 a share back to zero, and you’d think, well, you’d hope if it’s trading at the right price you’d get your $2.50 back in terms of dividends or capital repayments. And that’s a big if, because the thing to watch in this kind of case is the NTA or net equity per share, which are the same in this case: they’re both at $2.24, which is slightly below the share price. When I did this analysis, it was $2.57. But bear in mind, the NTA that we have is the one from the last results, we still don’t have new numbers to go on for this company. So, you’d expect the NTA to drop because they’ve been selling off their assets. So, unless you’re an experienced property person and can look at what they’ve done, value the current pipeline, what you think they’ll get for it — bear in mind the market’s coming off the boil a bit — it’s gonna be hard to value this because we’re getting figure six months in the past for what the NTA is. If, for example, it was the reverse and the share price was below the NTA you might be able to buy it for 80 cents on the dollar, for example. It might be worthwhile doing. But that doesn’t appear the case at the moment. I would think the NTA will go down because they’ve sold assets when we get new results. The other thing to be mindful of, too, is there’s one analyst in Stock Doctor which they’re using as the consensus forecast, and that person has a target of $1.24 and the share price is currently $2.57. So, I’m guessing that person has done a deep dive into the property portfolio for this company and has worked out that at the moment, what’s left in terms of assets less liabilities is probably going to be a lot less than what the share price is currently. So, there is a bit of a quandary with this one. If I go through the numbers quickly. It’s a smallish company at the moment because it’s been shedding assets, it’s now down to $63,000 ADT. As I said, it’s trading way above its consensus target. The yield is good at 6.3%, but it’s been boosted by the special dividends it’s been paying out over the last two halves. So, the dividends are going to be lumpy and will depend on what assets sales have been realised and how much debt was against those assets, and they’ll be hard to forecast going forward. Financial Health is still strong and steady and it’s trading at a price to operating cash flow of 2.6 times. So, that’s good from the QAV point of view, but, you know, how long is the operating cash flow going to continue? Because they’re really not a long-term if not even a medium-term operating company. The current share price is above both IV  1 and IV 2. Directors hold 43%, which is good. In terms of manual data, it’s the lowest of the last six years. It isn’t a new three-point upturn. It actually had a big upturn back when they announced the winding down of the company, so I guess people did a quick analysis of what the assets were worth, the net assets were worth, and then rerated the share price then. So, that’s an interesting thing. But the share price has been bouncing around since then. Doesn’t have consistently increasing equity, which you’d expect given it’s in runoff mode. So, overall, the quality score is 73%, eleven on fifteen. So, it gets a score of eleven out of fifteen possible items, and a QAV score of 0.28. I can recall back in my investing dim, dark past, I bought a mining company — and I can’t recall which one it is, because it was going back twenty years or so — and it was in a similar situation. It had announced for a long time and were quite transparent in saying the mine was going to shut in two years’ time. In the last two years of its life, they said, “look, we’re gonna give 25% of the assets back to the shareholders over each half in the next two years by way of a dividend.” And at the time, which is why I bought the shares, the yield was 25%. The market actually rerated that yield by buying up the shares and it dropped back to single figures, which is more in line with the rest of the market. And of course, you know, we got our money back, but I sold out when the share price went up so much because I knew it wasn’t going to be a long-term hold. So, you can make money in these situations. I’m guessing it’s a bit late in the game to make money now, unless as I said before, something out of left field happens. So, you could buy this on the numbers, on the QAV numbers, it’s a 0.28 score, but I’m not sure I would be. The only upside risk I can see is if something happens that’s unusual, that hasn’t been planned for.

Cameron  35:57

Alright, well, thanks for doing that. Whoever asked for SDG, hope that helps.

Tony  36:01

Yeah, and thanks for the question. Interesting situation.

Cameron  36:04

You’re ready to do Q&A?

Tony  36:06

I am, yep.

Cameron  36:08

Andy is first up this week. “Hi Cam. Proposing a possible question, is the occurrence of a delisting event,” another delisting event, in this case OGC, Oceana Gold. “On 29/7 they made the announcement and about a week later during a slight upturn, not enough in hindsight, I bought some. Just sold today after realising. So, the question is: would TK rank a delisting as a QAV bad news sell inclusion? Similar to a CEO departing where we don’t know the actual impact on the company’s forward health, but we can make an assessment of some unacceptable risk of decline. The same case could be put forward for delisting. Some forum discussion is suggesting that OGC shareholders will have automatic conversion of their shares on the Toronto exchange, the TSX, where presumably they could be sold in exchange back to AUD, and also other suggestions that the price on the TSX could trend positive after OGC absorbed the cost benefits of closing the ASX admin side of things. In summary, I propose it is possibly too much risk for a QAVer to bear. #badnewssell, well it is for me anyway. I should add, TK has in the past underlined the suddenness element of a CEOs departure notice compared to a planned handover, and in this case, a somewhat sudden delisting notice somewhat buried in five other daily ASX announcements. By the way, Hotcopper forums are discussing the solution of arbitrage in between ASX and TSX which TK would have experienced in I’m sure but is possibly outside our gambit. Thanks again.” And he goes, “comparing this to the much-anticipated BHP London delisting in Jan 2022.” What do you think about all that, TK?

Tony  37:57

Yeah, again, another, sort of, one off interesting case. I like the way Andy posed the question, “proposing a possible question for next week’s discussion.” It’s like a Monty Python sketch.

Cameron  38:11

It is.

Tony  38:11

Right, new motion. Anyway, look, I wouldn’t say it’s an automatic sell but having gone through all the nuts and bolts of this one, I probably would sell it. Unless you’re prepared, Andy, to, you know, have a transfer of your shares from the ASX to the TSX, in which case, which is fine, it’s the same value — it’s a one-to-one transfer — then you can continue to hold them. But if you’re doing that you’ve got all the issues of currency movements, you’ve got all the issues of different taxation regimes, and I guess probably the biggest issue is that we don’t have numbers coming out of Toronto — we don’t have Stock Doctor for TSX. So, you’d have to go and find someone else to provide data for you to do number crunching on this company when it continues to operate on the TSX. So, some background: Oceana Gold owns mines in New Zealand, in the US and in the Philippines. I don’t think it has a, it may have a mine in Australia, I’m not sure. So, they have a main listing on the TSX and then they have a secondary listing over here. I kind of take a bit of issue with the suddenness of this because it was announced with their results, and the fact that there was five other daily ASX announcements on the day is what typically happens when you have unusual things announced with results, so it doesn’t get lost within the results announcement. They do usually split it out as a separate highlight. So, if you’re scrolling through the ASX or through Stock Doctor for the announcements section, you’ll see “results announcements management commentary official filing”, whatever it’s called, Appendix 4D or 4E, and then, “delisting from the ASX.” It may even be an ASX requirement that it gets separated out like that. So, I’m not sure it’s been hidden. It may not have been flagged that well, but it’s not necessarily hidden. The reason they’re doing it is that they have… its only 7.5% of the market cap for this company that’s listed in Australia, and so it’s not economical for them to keep all the costs of listing going in Australia for that small rump of shareholders. And it’s also stopping Oceana Gold from participating in all the indexes it should participate in in Australia. So, it’s a large company overall, but in Australian terms, it’s not. So, it’s not being picked up by the index fund managers here. And potentially that does create an arbitrage, if it’s undervalued here and overvalued in the TSX because it’s part of indexes over there, then, you know, people will arbitrage it — which is not a bad thing, but it’s not a healthy sort of investment in the company that the management would be after, I wouldn’t think. I did do the sums: the Canadian dollar is currently… or, $1.10 Aussie buys 1 Canadian dollar. So, we’re undervalued compared to them. The share price of this company, Oceana Gold, in Australia is $2.37, and if you did the conversion, it’s $2.16 which is the price in Canada. So, I think the markets already worked out the arbitrage situation for this one, because it converts on the cross currencies. What can you do? Well, in this case I would sell, Andy, for the reasons outlined before. If I was an Australian shareholder, I wouldn’t necessarily want to convert my shares to Toronto. You are getting a fair price for them now in terms of it being the same as the TSX price. The company is providing some options; they will give you the conversion at one to one and they’ll do it for you, which is eliminating the cost of brokerage. If you choose not to do that and you haven’t sold by the time it delists, which I think is at the end of this month, then they will voluntarily sell your shares and send you a check in Australian dollars for it. So, to me it looks like it’s being pretty well handled by the company. I understand why they’re doing this. But yeah, I think if I hadn’t been aware of this before I bought the shares then I would be selling them now.

Cameron  39:29

And of course, I know Andy’s probably talking about this more as a general example, but in this particular case gold is now sell anyway, so we would be selling it anyway.

Tony  42:25

Yeah, true.

Cameron  42:26

But yeah, that’s an interesting one. Good one, Andy, thanks for throwing that into the mix. Dave: “re: SKT,” Sky Network, which we talked about on the show last week. He emailed me the next day, I think, “they’re not proceeding with the takeover for MediaWorks. Management pulled their heads in allegedly after some feedback from shareholders about what a dud idea it was, but they are announcing their long-awaited capital return programme with their annual results later this month. Might be a timely buy if they return more than is baked into the share price. Do your own research, I hold,” Dave says. Also, “could I be so bold as to suggest a tweak to the sign off? QAV won’t change your past, but it will compound your future.” I see what you did there, Dave. Very clever. It will compound your future. Yes. So, that’s the SKT story. Not sure there’s much more to be said about that.

Tony  43:21

No, it’s on the buy list, small stock of $46,000 ADT. And again, a dual lister. It’s listed on the NSX and over here as well.

Cameron  43:30

NSX? What’s the NSX?

Tony  43:32

New Zealand Stock Exchange.

Cameron  43:34

Ah, okay. It’s not the NZSX?

Tony  43:37

Could be. New Zealand Stock Exchange. And it’s, yeah, I know it’s been a favourite of Dave’s for a while now.

Cameron  43:45

All right, I got a last question, a late one that came in on Facebook from Ally this morning. Ally asks: “let’s talk about dividend yields and why I wouldn’t choose from the top of the list down while favouring juicy yields, such as ASG or SSG, for instance. If I can hold on to them long enough to pay a dividend then my percentage gain on this share rises, so maybe mitigates some rule number one action. Just a thought bubble.”

Tony  44:12

Sorry, is Ally suggesting that she wants to buy high yielding dividend shares in preference to top of the list?

Cameron  44:20

I think that’s what the question is, yeah.

Tony  44:23

Yeah, sure, go for it. I mean, I think people can put their own overlays on all sorts of things on the list: ESG, dividend yield, market cap, all those kinds of things, for sure. I’ll probably still buy them in rank order, though, if she has a threshold that she wants to buy, like maybe she wants to 4% or 5% yield as a minimum. Yeah, I would still buy a stock with a higher QAV score over a stock with a lower QAV score in that ranking. No, look, it makes sense, and there’s been plenty of analysis around to say that if you hold on to a stock long enough — so maybe ten years or even longer — the dividend component of your returns starts to swamp the capital component of the returns. Because, you know, if you pay $1,000 for a stock now and it’s yielding 5%, you’re getting that money now, but if it grows based on your initial price that yield becomes quite high.

Cameron  45:17

Ally also suggested that for the sign off we could use some chess related quotes, and l told her on Facebook my favourite chess quote, and I think it does apply a little bit to what we do here. It’s by the great Cuban Grandmaster, early 20th century, José Raúl Capablanca.

Tony  45:35

Grandmaster Flash? I thought you were talking about the CHESS system they’re replacing with Blockchain on the ASX.

Cameron  45:44

Well if you’re going to pull out Grandmaster Flash on me, I’m gonna have to break into… “A child is born, with no state of mind, blind to the ways of mankind. God is smilin’ on you, but he’s frownin’ too, because only God knows what you’ll go through. You’ll grow in the ghetto, livin’ second rate, and your eyes will sing a song of deep hate. The place that you play and where you stay looks like one great big alley way. Huh?” Anyway, my quote from Casablanca is…

Tony  46:07

“Don’t push me coz I’m close to the edge…”

Cameron  46:16

That’s it, yeah. Before you said something about the tide is high and I was gonna break into Blondie, but then I remembered what I did to Olivia, and I didn’t want to see that Blondie died this week. I don’t wanna cause any more timely deaths of 70s female artists. Capablanca said, “you may learn much more from a game you lose than from a game you win. You will have to lose hundreds of games before becoming a good player.” And I thought, well, hopefully I don’t need to lose lots of money in investing to be good at it, because you’ve done that for us.

Tony  46:54

Yeah, that’s right.

Cameron  46:55

You lost all the money and then you’ve figured it out, and we can benefit from your experience rather than have to learn our own painful lessons.

Tony  47:04

True. What was Ally’s suggestion for a sign off?

Cameron  47:08

Oh, she just had a bunch of random chess quotes that she dug up, nothing that was particularly memorable. Sorry Ally! I didn’t write them down is the honest answer. Well, that’s all the Q&A for this week. Not much again. Obviously, people have just climbed into their holes and pulled the rock shut behind them while the market’s doing what it’s doing and we’ve answered everything there is to be answered. After hours…

Cameron  54:12

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