Transcript #550

QAV 550 

Cameron  00:07

Wel­come back to QAV. This is Episode — what is this episode? This will be 550. And I’m record­ing this on the 20th of Decem­ber 2022. It’s that time of the year when Tony is back down at Cape Schanck, he’s play­ing a lot of golf. I like to give him a cou­ple of weeks off, so he does­n’t need to think about QAV for a cou­ple of weeks. There’s not many ques­tions com­ing in from our QAV club mem­bers this time of the year, I guess peo­ple are busy fin­ish­ing up work and school hol­i­days and going away, what­ev­er they’re doing. Get­ting ready for Christ­mas. So, what I tend to do is a bit of a com­pi­la­tion for a week or two. And, you know, I was not real­ly sure what to focus on this year. I think last year I focused on iron ore and its tra­vails over the course of the year. This has obvi­ous­ly been a bit of a tricky year for invest­ing; the mar­ket start­ed to cor­rect in April as a result of, among oth­er things, the war in Ukraine. And there’s been the whole COVID thing in Chi­na and every­where else, and sup­ply chain issues, all those sorts of things; Labour short­ages, inter­est rate ris­es around the world, fears of glob­al reces­sions. But what I decid­ed to focus on was Tony’s his­to­ry of doing pulled porks. So, we joke a bit on the show that when Tony does a pulled pork he puts the kibosh on a stock, because it seems that some­times they crash after he does a pulled pork on them. So, I thought I would go back in time, jump in the TARDIS, and have a look at some of the stocks that he did pulled porks on at the begin­ning of 2022 to see how they fared over the course of the year. Am I imag­in­ing it, the Curse of the pulled pork kibosh, or is there some legit­i­ma­cy to Tony’s dark, mag­i­cal pow­ers? So, that’s what I’m going to do this week and maybe next week. So, this first clip is from QAV 500. This is an episode that we put out at the begin­ning of 2022, Jan­u­ary 5, 2022, first week of Jan­u­ary, and Tony is doing a pull pork on CIA, Cham­pi­on Iron. On the fifth of Jan­u­ary, the price of Cham­pi­on Iron was around $5.68.

Tony  02:43

Well, I actu­al­ly pre­pared to do CIA, Cham­pi­on Iron today as our pulled pork, which peo­ple can refer to as last week’s stock of the week if you want.

Cameron  02:52

Oh, you’re gonna do a pulled pork. Okay. 

Tony  02:55

Yeah, about four years ago, three or four years ago, they bought a mine called Bloom Lake and did a good deal on that, the pri­or own­er had spent a lot of mon­ey upgrad­ing it and then decid­ed to divest it and sell it. The thing about this par­tic­u­lar iron ore mine — and they do have a cou­ple of oth­er ones oper­at­ing in Cana­da, but bloom Lake is the main game for them — it’s, it’s an iron ore pro­duc­er that pro­duces very high-qual­i­ty iron ore, among the high­est qual­i­ty in the world, which is impor­tant from reduc­ing emis­sions side of things. So, Cham­pi­on Iron posi­tions itself as, as the, I guess, the way of the future for iron ore min­ing. And as we know, steel pro­duc­tion is a big car­bon emit­ter. One way that the steel indus­try is reduc­ing emis­sions is they’re mov­ing across to elec­tric arc fur­naces instead of using the nor­mal coal pow­er blast fur­nace. It still does use coal, but it uses high qual­i­ty coal. So, you can’t do elec­tric arc fur­naces with low qual­i­ty coal, like Fortes­cue Met­als Group pro­duces. And so, as steel com­pa­nies try and reduce their emis­sions, they move across to this dif­fer­ent type of fur­nace, which needs a high­er grade of iron ore. So, that’s the sort of val­ue propo­si­tion for this com­pa­ny. They also trum­pet the fact that because they’re in Cana­da, and a lot of the elec­tric­i­ty in Cana­da is, is either hydro or nuclear, they’re also a low emis­sion min­er, as well in their own neck of the woods. So, that’s kind of their val­ue propo­si­tion. Going through the num­bers, it’s scor­ing well for us, aver­age dai­ly turnover is 8.3 mil­lion. So, it’s a large cap com­pa­ny. Share price that I used in this analy­sis is $5.44, and that’s the fourth of Jan­u­ary, I’m record­ing this, that share price of 544 is less than the con­sen­sus price tar­get for this, or val­u­a­tion for this com­pa­ny. Its finan­cial health is strong and steady in Stock Doc­tor. Again, we don’t use ROE in our check­list, but just for peo­ple who are inter­est­ed its 77%, which is quite high. And what we do use is a price to oper­at­ing cash flow or Pr/OpCaf, which is only 3.3 times, and the PE is only 4.3. So, it’s cer­tain­ly a val­ue stock for us, even though it’s an over­seas min­er, and there’s cur­ren­cy risk, oper­at­ing in Cana­da would­n’t have much sov­er­eign risk, I would­n’t think, but not sure why the, the Pr/OpCaf is so low on this one. The price is also less than IV1 and less than half of IV2, so it scores well on both those met­rics. The fore­cast growth in earn­ings per share is down slight­ly — down 18%. So, we get a minus one for that, because if you put the growth over the PE it’s, it’s neg­a­tive. There’s no yield, so we don’t score for that. Direc­tors are hold­ing 10% of the com­pa­ny, so we’re scor­ing it for that. It’s, in terms of the man­u­al­ly entered data, it’s the low­est PE for the last six halves, so it scores well for that. It’s increas­ing net equi­ty, so it scores well for that. All in all it’s a qual­i­ty score of 92% which is high and a QAV score of 0.28. 

Cameron  06:05

And it’s up 3% since it was our stock of the week last week, so good on you, CIA. Good call last week, Tony.,. 

Cameron  06:16

So, how did CIA do after Tony did the pulled pork? You know, I’m always jok­ing that the pulled pork is sort of the kiss of death for stocks in our port­fo­lio. We own them, and then when Tony does a pulled pork they often crash. Well, as I said, fifth of Jan­u­ary it was about $5.68. It had a good run up until, you know, even though the mar­ket start­ed to tank in April or the fourth of April, it was up around $8; $8.06 on the fourth of April, which is quite a good run over the first few months of the year. By the eighth of June it was still at $7.76 and then, I guess, iron crashed, and it fell down to $4.50 in August. Stayed down there through to Sep­tem­ber, but in the last month, like in Decem­ber, it’s shot back up. It’s now around about $7 today as I record this on the 20th of Decem­ber. So, you know, if you’d held it from $5.60 through to today and not even sold it, you’d still be doing okay. It did have a rough patch there for a few months, and we prob­a­bly would have sold it when iron ore became a sell. Even if we had­n’t it would have prob­a­bly breached one of its own sell­ing con­di­tions, but it has recov­ered. What is next in the his­tor­i­cal pulled porks I won­der? Ah yes, so episode 501 we put out on Jan­u­ary 18, 2022, and Tony’s pulled pork for this one was ANZ. Now if I go and have a look at the ANZ share price back in Jan­u­ary it was track­ing around $28 on the 18th. Yeah, $28.75. So, let’s see what Tony had to say about ANZ… 

Tony  08:17

Alright, stock of the week. ANZ.

Cameron  08:21

Nev­er heard of them. Who are they, Tony? What, what is this thing you call ANZ?

Tony  08:26

Aus­tralia New Zealand Bank­ing Group, and every­one will know who ANZ is if you’re an Aus­tralian lis­ten­er, or a New Zealand lis­ten­er, one of the big four. Cou­ple of things that peo­ple may have, may have missed if they weren’t read­ing the Fin Review over Christ­mas. There is some spec­u­la­tion around that the, I guess well respect­ed CEO, Mr. Elliott, may retire in 2022. He will have been there I think for six or sev­en years by then. He was brought in, I think he may have been the CFO, Shane Elliott — uh, Shayne Elliott? I think it’s Shayne Elliott — before tak­ing on the CEO role, then spent most of his ear­ly tenure unrav­el­ling the pri­or CEO’s expan­sion into Asia, which had some mixed suc­cess. So, he brought all of that cap­i­tal back where it was earn­ing a bet­ter return in the Aus­tralian fran­chis­es. And then dur­ing the Hayne Com­mis­sion, I think prob­a­bly out of the CEOs of the banks, prob­a­bly did okay, or the best in terms of you know, he always was very, quite, hum­ble, and was lis­ten­ing to what the, what Mr Hayne was say­ing, rather than — which was not always the case with some of the bank CEOs who, and some chair peo­ple who some­times got a bit bol­shy with the Hayne Roy­al Com­mis­sion, much to their detri­ment. I guess that’s by the by, a CEO change can cause volatil­i­ty in a com­pa­ny’s share price, and this could all be nine months down the track, but I do raise it as prob­a­bly one of the impend­ing issues for ANZ. it can cause the share price to be volatile for a cou­ple of rea­sons; if they pro­mote from with­in, then chances are the peo­ple who were on the list and thought they may have got the gig may get upset and leave, which could cause some reor­gan­i­sa­tions in the man­age­ment, if not the busi­ness units, but if they employ some­one from out­side that could have a sur­prise effect, good or bad on the stock price. Most times good but can go either way. But either way, whether they employ­ee from with­in or from with­out, often­times a new CEO will spend the first sort of three months work­ing out how to best posi­tion the com­pa­ny for them­selves — and I’m being a bit cyn­i­cal here — but I’ve often seen a new CEO come in and take lots of write-downs, blame it on the last guy, and real­ly clean up the bal­ance sheet so that they can put a floor under their options going for­ward and make sure they make the most mon­ey out of all their incen­tives. That’s prob­a­bly their only oppor­tu­ni­ty to clean decks, if you like, and shake out the skele­tons, and take all the pro­vi­sion­ing that the last guy may not have want­ed to because it would have affect­ed the share price. So, the share prices can often go down soon after a CEO is replaced, but not always. So, just an obser­va­tion and some­thing to be aware of if you’re think­ing of invest­ing in ANZ. The busi­ness itself, I mean, it’s one of the big four banks; every one of the big four banks real­ly has a spe­cial­ty, like a strength com­pared to the oth­ers, and in ANZ’s case there’s a cou­ple. They are the biggest New Zealand Bank, which is a big mon­ey spin­ner for them. They are big in cred­it cards, and always have been, main­ly because of the Qan­tas Fre­quent Fly­er pro­gramme which they’ve been linked to for a long time. So, there are a cou­ple of strengths, and their strength is still in the Asia-Pacif­ic region, par­tic­u­lar­ly the Pacif­ic region. So, they still have prob­a­bly a big­ger mar­ket share in cer­tain juris­dic­tions over­seas than their com­peti­tors. So, they’re the strengths of ANZ. I think it’s com­ing onto our buy list now prob­a­bly because it’s the cheap­est of the, of the big four banks. Cer­tain­ly, on a PE ratio basis, it’s the low­est of the big four and I’ll get into the num­bers in a minute. But I raise this because there’s been like a, I guess, a short­hand way of invest­ing in banks on the ASX for a long time, and that’s basi­cal­ly just to invest in the, in the bank with the low­est PE ratio. And that way, you’re always kind of buy­ing the bank with the biggest val­ue and as it sort of cycles up in share price and the PE rais­es, you sell it and you buy some­thing else with the low­est PE, because big four banks are not a whole lot of dif­fer­en­ti­a­tion between them. So, in some respects it does­n’t mat­ter which one you buy, but rel­a­tive­ly it does and buy­ing the cheap­est PE’s always been a good sort of way to invest in the banks and real­ly the ASX in gen­er­al going for­ward. There are these sort of short­hand ways that the expe­ri­enced oper­a­tors get to know over time doing things like what they call pairs trade. So, if you an indus­try like bank­ing, if you want to buy the bank with the low­est PE, then you might want to short the bank with the high­est PE and so you ben­e­fit from that cycli­cal sort of rerat­ing of stocks. And the high­est PE bank is Comm­Bank at the moment, and there’s a ques­tion com­ing up lat­er on about Comm­Bank went down in the last quar­ter — and I think prob­a­bly one of the rea­sons for that is because it’s the high­est PE of the banks and so peo­ple do kind of trade out of the high PE bank into the low PE bank. Yeah, so that’s by the by, but again, like buy­ing list­ed invest­ment com­pa­nies when there’s a gap to their NTA, like buy­ing the top 20 stock which has the biggest gap between its cur­rent share price and it’s IV 2, they’re all kind of short­hand ways of invest­ing, espe­cial­ly if you don’t have much time to look at it and buy­ing the bank with the low­est PE’s anoth­er one of those. Any­way, that’s, I guess, back­ground infor­ma­tion for the num­bers and I’m doing my analy­sis based on the down­load I did on Sun­day, when the price was $28.40. The buy price at that time was $28.10, but as I said, last time I had a look, it was about a cent or two below that. So, if it does­n’t turn up again this might be a moot exer­cise, but still worth doing I think just to run through the num­bers on ANZ. It’ll prob­a­bly come back on the buy list I would think. The oth­er thing to men­tion about the big four banks is their yield, and ANZ’s no excep­tion. So, it’s cur­rent­ly yield­ing 5.06%, and it’s ful­ly franked, and if you gross that up its 7.23%. So, if you’re a retiree with a mil­lion dol­lars and want to live off the income, putting it into ANZ means you’ll, you’ll pick up $72,000 a year after tax, espe­cial­ly if you’re in a, like a self-man­aged Super­fund where you’re get­ting a full rebate for the frank­ing cred­it. So, the big four banks tra­di­tion­al­ly have been well sup­port­ed by retirees, and that’s prob­a­bly still going on today I would think based on those num­bers. To go through the num­bers, ANZ is a large aver­age dai­ly trans­ac­tion stock, as you’d expect; $134 mil­lion is trad­ed on aver­age every day in it, so very, very big. It’s QAV score is 0.36, so that’s also quite high, espe­cial­ly for large cap stock. And it will be get­ting pret­ty close to the top of our buy list with that kind of score. And a qual­i­ty score of only 64%, though, and that’s prob­a­bly the, the area to focus in on. To go through the num­bers, it’s slight­ly under the con­sen­sus tar­get, so that gets a one for us. It’s a bor­der­line Star Growth stock in Stock Doc­tor and it’s a Star Income stock, so both of those score 0.5 in our check­list. So, it gets a score of 1 for those two com­bined. It does have strong finan­cial health, as you’d expect, and it’s been steady for a while, so that’s, they’re both good things for our check­list. As I said before, it’s the low­est of the PEs for the big bank, it’s PE is 12 or 12.5. I think West­pac is just slight­ly high­er than that at around 13, but then Comm­Bank is up around 20. So, it’s, they’re good — both ANZ and West­pac are a long way behind Comm­Bank. And I think NAB has the high­est at the moment, but that’s prob­a­bly a bit anom­alous; its PE is well over 100, so it’s prob­a­bly just been going through some write-downs which are affect­ing its earn­ings, but I haven’t looked at NAB for a while, so I can’t real­ly say. The rea­son why it’s com­ing up well for us at the moment, though, is its prop cap is 1.81. So, it’s, it’s priced oper­at­ing cash flow is 1.81, which is very cheap. So, even though it’s qual­i­ty score’s only 64%, it scores well for us because of its val­ue dimen­sion. The cur­rent share price, how­ev­er, is greater than our IV1 but it’s less than our IV2, so it does score a point for that. It’s trad­ing around book val­ue, which is very inter­est­ing for a big com­pa­ny like this. So, net equi­ty per share is $22.81, and book plus 30 is $29.66, and with the share price in the sort of low 28s, we can buy this for less than 30% plus books. So, this would be some­thing on the War­ren Buf­fett radar screen if he was invest­ing in Aus­tralia I would think. On the neg­a­tive side of things, though, the ana­lysts are pre­dict­ing a decrease in earn­ings per share of 5% next year, so that scores a ‑1 for us. And again, that’s a pre­dic­tion so who knows how that will play out. But that’s what they’re pre­dict­ing. The yield as I said before is good, cer­tain­ly above the bank rate. It’s the old adage of invest­ing in Aus­tralia is “don’t put your mon­ey in the bank, buy their stock instead”, because the yield is much high­er than the, the term deposit rate from the bank itself. So, yield scores well for us. And it did, as I said, it did cross over on the week­end and gets a point for a new upturn. That’ll have to lose, we’ll lose that point though, if it does con­tin­ue to stay below its buy line, obvi­ous­ly. Equi­ty in the bank is not con­sis­tent­ly grow­ing, though, so it does­n’t score for that, and it’s not the low­est PE in the last three years so it does­n’t score for that either. And obvi­ous­ly, it does­n’t have an own­er-founder — the bank was found­ed over 100 years ago — so no score for that. So, qual­i­ty score is only 9/14, which is not the high­est but cer­tain­ly gets onto our buy list because of the price to oper­at­ing cash flow. So, that’s the num­bers for ANZ. A cou­ple of oth­er thoughts about the busi­ness itself, and again, this is get­ting into the sto­ry and the issues rather than the num­bers, but just for some thought starters for peo­ple who are think­ing of invest­ing, if you look at the share price graph for ANZ it’s pret­ty much com­plet­ed its recov­ery from the COVID cough and that’s where all the big gains were made in the Aus­tralian banks, and it’s back to sort of that same trend­line that was before the orig­i­nal COVID down­turn in March a cou­ple of years ago. And it’s on a sort of gen­tly slop­ing decline, so it’ll be inter­est­ing to see what the share price does from here, whether it sticks to that trend or whether it does con­tin­ue with its up, upturn. And Omi­cron obvi­ous­ly may still cause it prob­lems. I sus­pect with large increas­es in prop­er­ty prices, espe­cial­ly home prop­er­ty prices in the last 12 months or so, they should be reduc­ing stress on the loan book for ANZ. And you would think, you know, again, who knows with COVID what comes around the cor­ner, but you think that reduc­ing stress on the loan book is always a good thing for a bank and they’ll prob­a­bly take low­er pro­vi­sions for bad and doubt­ful debts, and poten­tial­ly even start to write some of those back from their cur­rent bal­ance sheet. So, we may see some improve­ment from here just based on that alone. So that’s, that’s ANZ bank, Cam.

Cameron  19:14

Alrighty. Yeah, well, I just checked the blog post I did for it on Mon­day, I did say that it could drop back below its sell line, not the buy line. But yeah, it’s dropped, I don’t know how far it is from its sell line today, but it was just above that, too. So…

Tony  19:30

Oh, okay, yeah, they’re pret­ty close. They’re both very sim­i­lar at the moment, in terms of price, yeah

Cameron  19:34

So, how did the pulled pork kibosh go on ANZ? Well, as I said, the 18th of Jan­u­ary it was trad­ing at $28.75. It imme­di­ate­ly crashed down to about $26.53 over the next week or two. So, that’s no good. Went back up to $28, dropped back down in March to $25, went back up to $28, and then, of course by the time the big mar­ket cor­rec­tion hap­pened in April, it start­ed to slide and went all the way down to $21.60 on the 15th of June. It has been, sort of, recov­er­ing slow­ly ever since. As of today, 20th Decem­ber, its at $23.81. So, you know, if you’d bought it at $28, you would have got rid of it. It did­n’t have a good year, ANZ. Not sure that’s com­plete­ly our fault, but, you know, we have an enor­mous amount of pow­er, of course, over the way that these stocks do, but you know, there’s also glob­al eco­nom­ic fac­tors that play into that as well. So, ANZ looked good on paper, has­n’t had a very good year on the stock mar­ket. Well, Episode 502 which came out a week lat­er — I think this one was about 18th/19th of Jan­u­ary, last one would have been a week ear­li­er — Tony did a pulled pork on Beach Energy/Beach Petro­le­um, what­ev­er it was called back then, BPT. Can’t remem­ber when it changed its name. Now BPT back at the end of Jan­u­ary, so the 18th of Jan­u­ary, was trad­ing at around about $1.45. So, let’s see what hap­pened after Tony did his mag­ic… 

Cameron  21:21

Beach ener­gy, BPT, anoth­er one that we’ve seen come and go on a reg­u­lar basis.

Tony  21:29

So, I’m going to make that my pulled pork, if I can do that now. So, as you allud­ed to, it’s been on the buy list in the past, and it’s back on now. The cou­ple of things, I guess, as back­ground for it. The oil price has been increas­ing recent­ly, and that’s not unusu­al this time of year because it’s the north­ern win­ter, so they’re kind of a flip side of what we are in sum­mer. So, in sum­mer, our pow­er sta­tions work around the clock because every­one’s turn­ing on their air­con units, but in win­ter, we don’t need much heat­ing. But in Europe, it’s the reverse. So, in win­ter, the pow­er sta­tions crank up because every­one’s try­ing to heat their homes and get­ting less and less these days but cer­tain­ly over the last cou­ple of decades, a lot of the homes were being heat­ed by burn­ing fuel oil, a type of oil, like a low-grade oil. And so, the oil prices in the north­ern win­ter gen­er­al­ly go up. So, it could be short term, but it’s also being sup­port­ed by anoth­er thing that’s going on, a macro trend, which is the fact that because oil is on the nose in terms of the ESG investors, and even to the point where they pres­sure the banks these days not to lend to oil com­pa­nies to try and reduce the car­bon foot­print of the world — and I’m not say­ing it’s a good thing or a bad thing — but there’s been less much less explo­ration in new oil dis­cov­er­ies in the last cou­ple of years than is nor­mal. And so, it’s one of the rea­sons why the oil price is going up because the exist­ing pro­duc­ers have less com­pe­ti­tion. A cou­ple of oth­er fac­tors too, like in the north­ern hemi­sphere win­ter, because oil is, when it’s being drilled, it often goes through reserves of water and pulls out water as well, it freezes, and the water if it freezes on the drilling rigs it can shut them down for long peri­ods of time. And so that’s hap­pen­ing. There was appar­ent­ly some kind of cold spell in Texas, which is unusu­al, but the oil rigs froze there, so they’ve been out of the mar­ket for a while. So, lots of things are going on to sort of keep the oil price ele­vat­ed, which all plays into a good sto­ry for stocks like Beach Ener­gy. They’re also a nat­ur­al gas explor­er and pro­duc­er. Nat­ur­al gas is a fun­ny one because it’s actu­al­ly bet­ter to pow­er a pow­er plant using nat­ur­al gas than it is to use coal, but the ESG peo­ple still say they’re both bad. But there has been a, there still is an ongo­ing con­ver­sion of coal pow­er plants to nat­ur­al gas, so that’s also sup­port­ing the price and, and often­times con­tracts for a gas are tied to the oil price, so they tend to go in lock­step. But both of those com­mod­i­ty graphs are going up. So, that’s the back­ground to Beach. A cou­ple of things about Beach Ener­gy. One of the rea­sons why it came off the buy list last time was because they had a sur­prise down­grade, they even­tu­al­ly got around to telling the mar­ket that they did­n’t have as much oil reserves under the ground and they’re oil fields as they’d stat­ed in the past, so that caused the price to crash. I guess that’s now baked into the share price, so the fact that it’s turn­ing up again is tak­ing that into account. A cou­ple of oth­er things, though. The MD resigned unex­pect­ed­ly at the end of last year, so we need to be cog­nisant of that. I don’t think they’ve appoint­ed any­one yet as an act­ing CFO, as an act­ing MD. So, that’s anoth­er risk, I guess, to the stock. The last sort of back­ground sto­ry to the stock is that the Stokes fam­i­ly through their Sev­en Group com­pa­ny own about 30% of the stock. That can be a good thing and a bad thing. If you look at what they did with Boral, I guess in the short term, it’s good. I don’t know how it’ll play out in the long term, but what they have a track record of doing with oth­er com­pa­nies as well is buy­ing a stake that gets them a seat on the board, and then using what’s called the Creek Pro­vi­sion to be able to buy more stock with­out launch­ing a takeover — a for­mal takeover. So, one of the prob­lems with a com­pa­ny like Beach, if it has a large share­hold­er on the base is that it makes it less attrac­tive for some­one to launch a takeover bid. So, even though the price crashed, and the fun­da­men­tals were still strong, and the oil price is ris­ing, and there has been merg­er and acqui­si­tion activ­i­ty going on in the Aus­tralian oil and gas scene, it makes it hard for some­one to launch a takeover bid for some­thing like Beach Ener­gy. So, that takes that kind of upswing in the share price poten­tial out of the stock. So, that’s an issue. And then if, if the Sev­en Group keeps creep­ing up on the reg­is­ter with­out launch­ing a takeover, then they’ll get to a stage where they’ll effec­tive­ly con­trol the com­pa­ny. That can be good and bad. There’s a case in the past where it’s been bad, where the Sev­en Group then use their con­trol to buy oth­er assets they owned at prices that were prob­a­bly unre­al­is­tic com­pared to what you get in the mar­ket and so the, the com­pa­ny became stuffed with assets, and even­tu­al­ly, I think it even­tu­al­ly went broke. I won’t talk about which com­pa­ny that was because I don’t want to be lit­i­gat­ed against, but that’s essen­tial­ly what hap­pened. And, but in the oth­er case of Boral, it seems to have worked out for share­hold­ers because they did exert enough pres­sure to turn around the com­pa­ny, and so that’s work­ing out there. So, it can be good or bad. So, I know I’m sit­ting on the fence with the Stokes own­ing 30% of Beach Ener­gy, but it is some­thing to watch and just be, be aware that it can have pos­i­tive and neg­a­tive impli­ca­tions for the com­pa­ny. That all aside, I guess we just go straight to num­bers, that’s pret­ty much it, I was going to talk about the oil price a bit fur­ther and say that as the oil price ris­es, there’s been some sto­ries in the press say­ing that some ana­lysts are say­ing or can reach $200 a bar­rel, it’s now sit­ting around 80 odd, in the 80s a bar­rel. So, along with a lot of upsides. And they’re bas­ing that analy­sis around the fact that, like I said before, less explo­ration going on, ESG squeez­ing on pro­duc­ers being able to explore and there­fore the exist­ing peo­ple should be able to com­mand a big­ger mar­gin for what’s left. And that’s, there’s some cer­tain truth about that. How­ev­er, in the last decade or so, both Rus­sia and the US have act­ed as kind of valves against the oil price going too high, because there are shale oil pro­duc­ers in the US who lie dor­mant until the oil price gets up around $100 a bar­rel, and then they come back on because they can make mon­ey at $100 a bar­rel. And so, they almost become like a pres­sure valve for the oil price get­ting too high. And Rus­sia is a bit the same. So, they’ve done a deal now with OPEC to throw in with the car­tel in terms of try­ing to reg­u­late the price and keep the mar­gin up, but they also have a his­to­ry of going rogue when they need to sell lots of oil, which brings mon­ey to them but drops the price in the mar­ket. So, they’re the two, I guess, issues around the oil price. To me, all that summed up says that I think $100 is about the nat­ur­al lim­it in this mar­ket to the oil price, but it’s a pre­dic­tion that could be wrong. Any­way, QAV by the num­bers are quite good for this com­pa­ny. I’m using a share price of $1.40, which is less than the con­sen­sus tar­get for Beach Ener­gy, so that’s a score of 1 for us. It is a low yield com­pa­ny, and I guess I ques­tion why it even has a yield — I think it’s about 1.5%. I expect the answer is so that they can release some of the frank­ing cred­its on the bal­ance sheet. They’ve been pay­ing tax on their earn­ings and like they can release some of that back as a cred­it to their share­hold­ers. They don’t want to pay a whole heap­ing yield because they do want to put mon­ey back into explor­ing for oil and devel­op­ing their own oil and gas fields. So, that’s prob­a­bly why it’s about 1.5%. Finan­cial health is strong and steady, Pr/OpCaf on this one cur­rent­ly is 4.2 times, so makes a good val­ue stock for us. The price is slight­ly high­er than IV1, less than IV2 and less than two times IV2, so it gets a cou­ple of points on the check­list for those things. Net equi­ty per share is around $1.35, and as I said before the share price is $1.40, so it’s trad­ing around its book price and cer­tain­ly less than book plus 30%, which is a good test for us in terms of val­ue, so it gets a point for that. The inter­est­ing thing is that the ana­lysts are fore­cast­ing earn­ings per share growth of 60% on this com­pa­ny, so they’re cer­tain­ly see­ing, I guess the ana­lysts are bull­ish on the oil price and they’re cer­tain­ly prob­a­bly also bull­ish on Beach Ener­gy get­ting it’s shit togeth­er. So, that’s prob­a­bly why it’s fore­cast growth’s so high. But it means it’s got the growth over PE met­ric that we look at, is quite strong, it’s greater than five times, which is very strong. Stock Doc­tor is stat­ing that direc­tors’ hold­ings are only 1.79%, which is a bit mis­lead­ing because the Stokes fam­i­ly have, as I said before, 30% via their Sev­en Group com­pa­ny. And the Sev­en Group com­pa­ny has at least one direc­tor on the board and maybe even two. So, that’s a bit mis­lead­ing. But if I over­ride the spread­sheet and give that 1 it does­n’t change the QAV score very much. So, I haven’t, I’ve left it, left it down. But peo­ple may want to do that. It gets a zero for the low­est PE of the last six halves. It’s, it’s almost that but it’s not. Gets a 1 for a new upturn, because as I said before, it was crash­ing last year, it’s just been turn­ing around since its last results were out. Gets a 1 for con­sis­tent­ly increas­ing equi­ty. So total score is 12 out of 14 for qual­i­ty, which is 86%, which is good. And if you add the Stokes share­hold­ing back, it’s 13 out of 14, which is even bet­ter. QAV score of 0.2, and 0.22 if you add the Stokes’ score back in. So yeah, for a large cap stock it’s cer­tain­ly scor­ing well for us.

Cameron  56:34

The QAV Pod­cast is a pro­duc­tion of Space­craft Pub­lish­ing Pro­pri­etary Lim­it­ed, autho­rised rep­re­sen­ta­tive of AFSL 520442, AFS rep­re­sen­ta­tive num­ber 001292718. Please don’t make any invest­ment deci­sions based sole­ly on lis­ten­ing to this pod­cast. This is pre­sent­ed as gen­er­al advice only, not per­son­al finan­cial advice. We don’t know your per­son­al finan­cial cir­cum­stances. Please see a finan­cial plan­ner before mak­ing any invest­ing deci­sions.