Cameron  00:06

Welcome back to QAV. This is episode 607. We’re recording this on Valentine’s Day. Happy Valentine’s Day, TK. It’s 14th of February 2023, so we’ve got a lot of lag.

Tony  00:20

Happy Valentine’s Day to you, too, and our lovely wives.

Cameron  00:23

Thank you. Yes. I know I ask you this every year, but are you celebrating Valentine’s Day this year?

Tony  00:28

No. Jenny walked into the apartment yesterday with a bunch of red roses and I went “oh, they’re nice. What are they for?” I didn’t even think about it.

Cameron  00:37

They were from you? You had your people send them?

Tony  00:40

No, no, no, no. They were from her.

Cameron  00:42

To you?

Tony  00:43

I don’t know. To herself, I think. She’s pining away, got herself some flowers. And then about an hour later I walked in and went, “I got it! That’s why you got roses. I’m sorry I didn’t get you anything.” And she said, “that’s fine,” she said “I hate Valentine’s Day. I just saw these on the street and bought some because they look nice.”

Cameron  01:03

Right. Yeah, we don’t do Valentine’s Day.

Tony  01:06

So, she’s either being very diplomatic, which she does a lot. Or you’re right; we don’t celebrate Valentine’s Day. How about you?

Cameron  01:12

No, we don’t do it. We think it’s a crock of shit. And it was Chrissy’s birthday a week ago, so, you know, we did a lot of stuff then and we’re not gonna do more stuff. Took her to Hamilton. We went out, it was good time. I’ll talk about it later in after-hours. Won’t bore people with that. Let’s start off with maybe some portfolio updates, I think, Tony. Let people know what’s going on. Let’s have a look at the… Well, the dummy portfolio, the QAV dummy portfolio for new listeners, that’s been running since beginning of September 2019. According to Navexa, we are up 17.05% — that’s CAGR per annum — versus the benchmark, the STW, which is up about 7.93% per annum over the same period. So, that looks good still. Of course, for the financial year we’re still nowhere near the benchmark. We’re up 6.41% for the financial year versus the STW, which is pointing 21.2%. So, as we’ve been talking about, it’s having a corker year; a lot of money flowing back into the markets. It’s been kind of a crazy week, though: RBA. We mentioned on our show last week that the RBA was going to come out with a rates announcement, interest rate announcement, and they did. They pushed it up yet again, and the market was shocked, surprised by this apparently, Tony, because the market’s crashed.

Tony  02:42

Yeah. I think what they were shocked and surprised at is that they thought… I think 0.25% was probably expected, but it’s pretty difficult to tell what the RBA is doing, but the market kind of formed the opinion that we’re nowhere near the end of rate rises. Which is one of the things that the market had been reaching as a consensus earlier on this year, which is why the main indexes on the markets around the world have been going up; because they think inflation is being tamed and we’re getting close to the end of rate rises, and maybe even some rate cuts. So, that was a rude awakening last week to the share market.

Cameron  03:21

Rate cuts, really? They think we’re close to those.

Tony  03:25

In the US. I mean, remember that the share market is casting a long shadow, to use Roger Montgomery’s words, and is looking nine months in advance. There was a school of thought — and I don’t know if that’s still the case now after the last Fed rate rise — there was a school of thought which said that inflation was coming under control, we’re getting close to the end of interest rate rises, and if it looks like the American economy in particular is about to go into recession, there may even be an easing in rates. That’s not so strong as an opinion in the market at the moment, in the last week.

Cameron  04:00

Well, apparently the US market was up last night because the All Ords had a huge recovery this morning. It had been going downhill for the last three or four days and then spiked up this morning. Everyone got all excited, but it seems to have been coming back since then. So, at the moment, All Ords is trading at about 7633. A week ago, it was at 7734, closed yesterday around 7608, so it’s up a little bit but it’s kind of choppy. I had to trade a bunch of things last week after the RBA announcement came out. And you know, we’ve had commodities that are struggling as well on top of that, but I guess it’s just business as usual, really, isn’t it?

Tony  04:47

It is, yeah. And you know, a couple of points; I sent you an article today about the RBA Governor, I think there’s a bit of turmoil going on at the Reserve Bank. I suspect the PR spinners over there are trying to keep him away from microphones and cameras at the moment since he gave some guidance in the past which said interest rates wouldn’t rise until 2024, which has caused a lot of problems for him in particular, but perhaps for the economy as well. So, for the first time that I can think of after an RBA board meeting, he didn’t come out and speak to the public. Now, he said, “okay, I didn’t do it, but that’s because I’m going to to the Senate estimates committee this week, and all will be revealed during the questioning at the Senate’s Estimates Committee.” So, okay, that normally happens as well as the RBA fronting the media after a Bank meeting. The really strange thing, which I think will probably seal his tenure at the RBA as finishing this year, is that he didn’t front the media, but he went along to a meeting of all the big banks trading — what do they call it? Their treasury department, the treasury traders — and spoke to them behind closed doors. And, you know, that’s not a good look. The bond market moved after that meeting, even though he put out a press release saying he didn’t say anything more than what was said in the press release following the RBA meeting. But something was said or intimated or expressed or inferred at a closed-door meeting to move the bond market. So, I just don’t know what he’s thinking. I mean, again, all of these things and normal for an RBA governor; he wants to move the bond market. If he can do by what they call “jawboning”, talking to people like bond traders, then great; he doesn’t have to put up interest rates. So, I don’t know what’s going on and what the strategy is. It just strikes me, anyway, as an outside observer, that there’s a bit of panic going on over there.

Cameron  06:57

“I’ve come about the watch, mother, the watch,” is what he said.

Tony  07:02

Yeah, well the RBA is under review, so the fact is this is all playing into the hands of a change in potentially, you know, a big shake up at the RBA. Central banks around the world since about the inflationary shock of the late 70s have all had this driving mandate of independence. You can’t make them political because then governments can move interest rates to suit their own agendas, and I get that. But that argument is also true for every other department in the government. Every other department in the government has a public service bureaucracy administration under it providing expert advice, and it’s up to the politicians to decide how or when or what to do with that advice. Except for the RBA and interest rates. So, you know, I kind of like an independent expert panel setting interest rates for the economy. I think that’s not a bad model, but it only works as long as they’re competent, or appear to be competent. There’s been a few, a few twelve gauges to the foot in the last couple of years for the RBA. So, it may be that they get hauled into line and become a branch of the Department of Treasury, and then they’ll have a lot more influence from the treasurer on what interest rates are going to be.

Cameron  08:21

You think if the government was running it, it would be more competent?

Tony  08:24

No, not at all. I actually subscribe to the argument that an expert panel is a better way to run things than a bunch of politicians. But, you know, the risk in our particular political system is that eventually, you know, one government of the day is going to get sick of the expert panel either being incompetent or going against what the government wants, and they’re just gonna put their arm out and hook them back into being a branch of government. And I’m not saying it will happen, but it’s a potential outcome for the review.

Cameron  08:55

Well, speaking of reviews, there have been a lot of what do we say? Confessions coming out of confession season. Guidance downgrades I think is the terminology that gets used. Star Entertainment, Star Casino’s share price collapsed by 20.5% when they said that they’re probably going to have to cop an impairment charge for all of the dodgy shit that they’ve been doing. There was JB Hi-Fi.

Tony  09:23

Before we leave Star… I mean, first of all, it’s not on our buy list because it’s had a qualified audit for a while. So, that saved us from investing in it, because I think it probably would have been on our buy list otherwise even though sentiment’s been bad since the Royal Commission. But, yes, they’ve got an impairment charge, but I mean, how lucky are they not to wind up with stripe suits on in the big house? That’s not me talking, there was a judge I read in the Fin Review today who just said, “what the hell are you guys doing? You’re the government regulator looking after casinos. It’s taken a year now and you still haven’t started prosecution against them. Pull your finger out and get going.” So, I think there’s been a fair bit of regulatory capture when it comes to, you know, governments regulating casinos. And again, I’ll be careful of what I say, I don’t want to say much more than people have already said in the press. But you know, there’s a whole other reason for it, and a whole lot of reasons why it happens, and one of them, I suspect, is that they’ve been horribly underfunded. If the government of the day doesn’t want the government to regulate something, they put one guy in a, you know…

Cameron  10:31

In a broom closet.

Tony  10:33

In a shared workspace out in the western suburbs with a two hour commute every day, and that’s how they regulate things.

Cameron  10:41

That’s the same guy that was apparently running Robo debt calls. We don’t know who he was, can’t find him, no record of him. Sorry, what? “Minister, did you know what was going on?” “No. What, me? No, I didn’t pay any attention to that, it’s not my job. Not my job.” Wasn’t Scott Morrison’s job to do anything about the fires and wasn’t that guy’s job to know anything about Robo debt either. Anyway, back to confession season; JB Hi-Fi warned about slowing sales growth. Their share price took a 5.6% hit. Super Retail were down, Bapcor were down. Fletcher Building skidded 5.3% after issuing guidance downgrades. Orion Holdings was down 6.8% after guidance downgrades. So, it’s been a little bit choppy out there this week.

Tony  11:33

Yeah. So, I think it’s Aurizon Holdings which is the coal hauling company.

Cameron  11:38

Aurizon. I copied this from Ausbiz, Ausbiz had a typo in there then.

Tony  11:43

Yeah. Anyway, just to clarify that it’s Aurizon. I think the interesting one is JB Hi-Fi. It’s a really well-run company, and it was only last month that, you know, we were all saying, “look how great the results are going to be for retailers,” because all the retail traffic is up; probably on the back of people’s shopping more with COVID because they can’t go overseas and they’ve got more cash to spend. Now interest rates are biting and people are forming a different opinion as guidance is given. So, that all makes sense, but it does point to how rising interest rates are gonna bite in the economy. So, that’s going to be the feature of this reporting season, I think, and everyone’s going to very carefully watch supply chain increases in costs. If it’s a retail facing company, what’s the consumer doing? What’s foot traffic like? What’s like for like sales like? All that kind of stuff. Yeah, I mean, surprise, surprise, when interest rates go up, the economy slows. That’s why the RBA does it. Whether that’s going to solve inflation or not, I’m not sure, because as prices go up people also put in more demands for wage growth. So, that could just be a start of a cycle, too.

Cameron  12:52

Speaking of supply chain issues, I noted that the CEO of JB Hi-Fi, I believe it’s Mr Smart, said that they don’t have any supply chain issues anymore. Everything they want they can get. That’s all streamlined and running well now. I’m not sure if that’s true across all industries, but that was interesting to read this morning.

Tony  13:15

That’s a positive note, because if that’s the case I think that inflation will come down whether the RBA is right to raise interest rates or not, because that’s one of the problems. On the other hand, I did notice as well that OPEC have put the oil price up and Russia has followed suit, so at least that part of the economy is still going to get stung with higher prices for a while.

Cameron  13:36

After Joe Biden apparently fist bumped MBS and asked him not to put all prices up, he did it anyway.

Tony  13:46

Yeah, what’s the price of a fist bump these days amongst friends.

Cameron  13:50

Let’s talk about the thermal coal sell line. Darrell asked on Facebook what the sell price for thermal is. I plugged the numbers into the 3PTL calculator. I get $172.95 as the sell price, do you agree?

Tony  14:10

Yeah, I haven’t plugged it into the spreadsheet, but just using a line on the graph I got something just south of 200. I had a look again today, it was around 175-180, so, yes, I do agree. I think it’s about right.

Cameron  14:23

So, it’s been a bit bit rough for our thermal coal companies out there, NHC in particular. WHC, they’ve been taking a beating. YAL another one.

Tony  14:36

Yep. It’s an interesting graph. I did fudge it a couple of weeks ago, in which case it would just be a sell now. So, again, it’s one of those U-shaped bottoms to the graph. So, whether you take an 8% flat bottom or increase it a little bit more, it becomes material to where the sell line is. So, you’re right to say it’s in the mid 172 or whatever the number is, 180 as the sell price. But, you know, if that’s worrying people out there, they could fudge it. You’d get a sell price now if you change the flat bottom percentage little bit. But either way, I’m going to stick with the current sell price. I think there’s room for the coal prices to bottom out and come back up. I’ve got no real science for that, but that’s the whole reason for sticking with a commodity when it drops. It’s hard because the share price is going down for the mining stocks that you own, but you must be getting closer to the bottom every day it gets closer to that resistance line. I did read a report from Ord Minnett, so from Alex Hay’s firm of stockbrokers, on research into the coal price — and they do a lot of work on how much supply is in the system, which companies have what stockpiles, what’s driving demand, all that kind of stuff. And they said that they think the bottom of the coal price is going to be between $180 and $200. But you know, that’s their model and that’s their forecast, so who knows. But with a such a steep decline we should be getting to a bottom fairly soon I would have thought.

Cameron  16:07

Right, so you’re sticking with the current sell line. You’re not fudging it at this stage?

Tony  16:12

Yes. And I came close to a rule one sell with Whitehaven Coal last week, which was one of the reasons I was focusing on the coal price. But it has gone up again since then. So, you know, that’s the other thing to take into account, is that the share price of the miner should reflect the share price of what people think’s going to happen with coal. So, regardless of what Ord Minnett think or what we think is a three-point trend line sell, the share price of Whitehaven is still going up and someone or the market out there thinks that the price is going to rebound.

Cameron  16:42

Well, speaking of rebounding, I just want to remind people that dividend season, we are in. So, before you sell anything, just check the dividends. I got a sell on my alert today for VUK, Virgin Money, but luckily, I checked in it has gone ex-div on the 9th of February. Payment date is the 15th of March. When I plugged the dividend in it was no longer a sell, although I see it seems to have dropped again since then. Oh, it’s up 1% today, so it’s still pretty close to rule one for me, even with the dividend factored in. But just a reminder: check your dividends before you pull the trigger on any sells out there. You don’t want to shoot yourself in the foot with that.

Tony  17:39

No. It’s happened to me in the past over the years, and there’s nothing worse than selling because the price has dropped quickly and then two months later getting a dividend check and going, “oh shit. That’s why it dropped. Now I understand.” Yeah. So, add the dividend back to the current price and see if it still breaches the sell line for you. And even I tend to add back the franking credits, because they’re worth something as well.

Cameron  17:39

Yeah, I have that all built into my sheet now, that automatically calculates that for me because I tend to forget that, too. Let’s talk about CDM. I noticed CDM on the buy list this week, and when I looked into it, it’s a CDL. What? It’s an LIC. What the hell is a CDL? I don’t even know what that is. CDM is an LIC. I’m suffering from three letter acronym disease. Cadence Capital, CDM, got any idea why it might not be getting filtered out in our filters?

Tony  18:38

Well, it’s definitely an LIC, a Listed Investment Company. I think the reason why it’s not being filtered out is that the majority of LICs don’t get what’s called a GIC code, which is how the ASX allocates stocks to different industries. And we filter out all the ones that don’t have a GIC code. But I have noticed a couple get called diversified finances, so they get lumped in with the likes of Credit Corp and actual trading operational finance companies and sneak through on that basis. So, it should be removed. And just for a recap, we don’t like putting LICs on the buy list because one of our major metrics to decide whether to buy or sell a company is based on operating cash flow, and for ETFs and LICs that can be affected by other things besides the profitability of the underlying company. Like share redemption, share buys, etc.

Cameron  19:36

Stock Doctor even says, “CDM is a Listed Investment Company, and as such does not have a financial health rating. LICs are effectively managed funds and are not actual companies. We can only assess financial health and our growth and/or income Golden Rule criteria on an actual business, not a fund that simply holds investments.” So, similar sort of position to us, right?

Tony  19:57

Similar thing, yeah.

Cameron  19:59

So, just take note of that, folks. I’ll try and make a note on the buy list for next week to remember to remove CDM if it keeps cropping up.

Tony  20:10

And look, no disrespect to Cadence Capital. It’s been around for a long time, it’s, you know, a well-established Listed Investment Company. It just doesn’t fit the profile that we use to value companies, so we exclude them.

Cameron  20:23

What else have you got on the news of the week, TK?

Tony  20:26

Yeah, so, only gonna say that there was something else to talk about with Whitehaven Coal. I did notice last week that a large shareholder sold a stake, so that is perhaps why it did start to flirt with my rule one sell line apart from the fact that coal price is declining. And the fact that trade went through, and everything’s hunky dory might mean that’s why the share price has gone up this week even though the coal prices still declining. So, even though mining companies generally track the underlying commodity, there is other corporate activity which can change that. But generally, generally they do. So, that’s Whitehaven Coal. A couple of comments on the pulled pork. I did a pulled pork on Channel 7 recently, Seven Media I think it’s now called, and noticed in the last week that they, at least investment bankers, are floating the idea of a merger between HT&E and Seven, and the share price has gone up a little bit this week. So, the curse of the pulled pork might be in abeyance for that one. I’m gonna do a pulled pork on Fletcher Building, and luckily, it’s February 14 and not February 13, because they came out with a profit downgrade yesterday. So, maybe when someone requested a pull pork on FBU the market heard and sold the shares in between.

Cameron  21:42

Well, the share price for Seven West Media is not doing great either. A week ago, it was trading at 47.5 cents, it’s now trading at 43. It crashed down yesterday and today, so it was a delayed reaction to the pulled pork on that one.

Tony  21:57

The curse is alive and well, then.

Cameron  22:00

Yes, it is. And yeah, poor Fletcher Building.

Tony  22:04

In terms of Seven, I’m not surprised that there’s going to be some M&A activity. It’s an industry facing a lot of headwinds. Companies are just… I mean, every company looks for growth, and if you’re not getting it from your basic business another way to do it is to go and merge with someone or acquire them or be acquired. So, expect to see a lot more activity in the space. And speaking of that, I watched the Super Bowl yesterday and noticed that Elon Musk was in a box sitting next to Rupert Murdoch. And there’s a photo, actually, of it, in today’s Fin Review. So, they had the same idea I did. So, the first thing I thought of was MySpace. Well, the second thing I thought of was, you know, two peas in a pod. Two Bond villains getting together to rule the world. But yeah, you wonder why the owner of Twitter is talking with the owner of News Corp.

Cameron  22:56

I know you don’t watch Succession, but that’s like something straight out of succession. The old media guy meeting with the young whippersnapper billionaire, and they’re trying to figure out — this is the last season — trying to figure out who’s going to buy who and how it all fits together. They’re trying to figure out a merger and, you know, who’s going to end up on top, and who’s trying to crash the other ones share price so they can end up coming out on top of the merger and the acquisitions? So, yeah.

Tony  23:26

Exactly. And so, it’ll be interesting to see if anything happens. And also, who’s the smarter of the two. I mean, the last time we went around with the dotcom boom, News Corp bought Myspace and paid a lot and didn’t get anything for it. So, hopefully they’re once bitten and twice shy if you’re a News Corp shareholder, but watch this space.

Cameron  23:44

Yeah. But the flip side of that argument is Myspace was a potential threat to News Corp, and it’s not any more. So, a lot of these I remember from the days, I remember when the big retailers started buying companies like Wishlist and D Store, and then just, “oh, yeah, no, we’re not going to change” was Rupert’s old line whenever he would buy a newspaper. Like, “we’re not going to chat. We love what you’re doing. We’re not going to change the management, we’re not going to change the editors, the editorials. It’s all great, we just want to own it because it’s great.” And that would last six months to a year and then the Night of the Long Knives would come out. At least they would keep them on board, you know, but when the big corporates by the dotcoms they tend to just shut them down because they know the old world. They don’t know the new world, right?

Tony  24:40

Well, yeah, this is all speculation. I did also think that it’s interesting that one of the first things Elon did when he took over Twitter was to invite Donald Trump back on and to take all of the checks and barriers away from free speech and hate speech and things like that, or most of them anyway, on Twitter. Which would be right up Murdock’s alley, If he can recreate Fox News to the young kids on Twitter, that’s got to be attractive to him.

Cameron  25:08

Yeah. Elon allowed hate speech unless it was a hate against him. He was kicking people off.

Tony  25:18

Yeah. And he put out a quiz or survey saying, “should I run Twitter or not?” And everyone came back and said, “no, you’re an idiot.” And he’s still running.

Cameron  25:29

Yeah, opinions are only worth so much, really. Alright, so who are you going to do a pulled pork on today?

Tony  25:37

Quick. Grab your stockbrokers and get ready to sell: its Fletcher Building, FBU. And the only reason I’m doing this is because it was a request a week or so ago. So, thanks for the request. We were asked for two: Regis Resources or Fletcher Building, and I think Fletcher Building is more topical at the moment given their results are out tomorrow and there was a downgrade announcement out yesterday. So, we’ll talk about that. But also, too, it was still on the buy list. I’m not sure if Regis is on the buy list. So, I’m going to do Fletcher Building this week, and then I will do Regis next week.

Cameron  26:14

Good strategy to wait until the share price crashes, then do the pulled pork so we can’t get blamed for the share price crashing.

Tony  26:25

Well, it’s a good strategy if you have a company, you’re a bit worried about. Email us and say you want it to be done as a pulled poor, because then you’ve got at least a week to get out before we analyse it.

Cameron  26:35

Before we do it, yeah.

Tony  26:36

Let me just find my notes on FBY. But yeah, so Fletcher Building for anyone who doesn’t know is a large construction company. It’s New Zealand based, but it also operates in Australia. It’s one of New Zealand’s biggest companies, so it’s considered blue chip from that perspective. It also does retail building products, including concrete, but also things like Laminex and other, you know, building products that are used in building new apartments. And it also is a developer, so it does also sell into the housing markets, retail housing market. So, you do find if you have a look at their assets that they do land bank, and then they will build and then sell off developments into the residential space. And that’s been good and bad for them, but they’re pretty good at managing the cycle. One of the things that they spoke about during their confession season announcement yesterday was operating cash flow had been high in the last couple of years, because with a strong residential market due to all the money staying onshore during COVID and people working from home and wanting to buy bigger and better homes, they were quite savvy in releasing land into that market and developing residential lots and selling them on. They’re now announcing they’re going to reverse that and they’re going to start refreshing that land bank now that property prices are coming off in the residential space. So, that will be a drain on operating cash flow for the company going forward. And so that’s an interesting thing for us, because operating cash flow is a big driver of our valuations for companies. So, we’ll see what happens. The numbers I’m going to give you are based on numbers which are now six months old, and the new numbers are going to be announced tomorrow, even though there was some guidance given yesterday and the announcement. The guidance yesterday was mainly about six months hence, when the end of financial year numbers are released. So, the numbers released tomorrow are for the half, and they should be pretty good. As they say, it’s been a strong half for them. It’s only going forward that they think they’re going to have a slowdown, and part of that reasoning is because there’s been a lot of wet weather in New Zealand in particular, in Auckland, so, you know, my thoughts go out to our Kiwi mates that are doing it pretty tough over there with another rain — I wouldn’t call it a cyclone, but another rain depression hitting Auckland pretty hard in the last twenty four hours. So, that environments not great for construction companies, they obviously send everyone home on wet weather days, and so they can’t do much work and that affects their bottom line. Again, that’s probably temporary. So, you need to look through some of these things sometimes. It’s always hard to know what to do, so that’s why we focus on the numbers. I guess my recommendation out of all this is if you hold FBU, wait and see what the results are like when they come into Stock Doctor in a couple of days and then drop into our buy list. Have a look, see what the share price does. I’m doing this analysis today on February 14 2023. Share price is $4.43, and that’s only 20 cents above the three-point trend line sell. So, if the results come out tomorrow and they’re not received well, the share price could go below our sell line. So, that’s one thing to bear in mind. And it’s also currently a Josephine following the fact that it dropped I think about 7% yesterday after the announcement was released. So, you wouldn’t be buying it today anyway. But yet, might be one to watch as we come out of the new results when they drop. The reason why I say that is it’s a well-managed company, and the QAV score for quality is quite high with this. So, I’ll run through the numbers now. It’s a large cap stock; ADT is $2.6 million, so that should suit almost all retail investors who shouldn’t have any problems getting in, and more importantly getting out, with an ADT like that. The financial health of this company is satisfactory and steady, so that’s good for us. I do know that it’s satisfactory and not strong, but satisfactory still scores for us. But interesting to note when the results come out again, you know, if there is a deterioration that could become less than satisfactory which would reduce the score for us. This might be a problem in Stock Doctor, but I did know that there’s nothing recorded for directors owning any shares, which I find quite strange. Not even the MD or the chairperson has shares, which they usually get as part of their remuneration. So, could be the fact that information simply doesn’t make it through to the ASX, because this would be a dual listed company. So, you may have to dig around and find that out. But I would be surprised if there’s any owner-founder of this company, it’s been around for a long time. Typically, a big blue cap company like this will have, you know, corporate types running it now rather than founders. So, I’m not that worried that we’re not seeing in Stock Doctor. Pr/OpCaf for this company is currently 6.81, so it’s just within bounds for us. So, that’s again something else to look out for when results come out. If the share price does drop, however, that will help the Pr/OpCaf for this company. So, it may be one that we just watch for a while and wait for it to come back up again if it continues to drop. ROE is only 11.6, and that makes sense because this is a capital heavy business. And so, it does have a lot of assets and as I said a lot of land and equipment. So, you’re not going to get a great ROA off all that, and possibly not a great ROE. And plus, the construction business as well as being cyclical is also fairly low margins. Which is one of the reasons why large companies tend to dominate, because they can weather the storm and survive on thinner margins. The price is currently greater than IV 1 but less than IV 2, so it scores one for that. Interestingly enough, the company has a net equity per share of $4.34, so it’s trading close to its book price, and certainly less than book plus 30% which is $5.64. So, this looks like the kind of coffee shop, to use our analogy, that people want to buy based on the actual property rather than the underlying business. So, that’s interesting. But, you know, there are companies which are valued on their assets and companies which are valued on their discounted cash flow, and this is one of which appears to be trading around its book value. So, that’s a score for us on that basis. The other interesting thing about the current situation anyway, and it may change in a couple of days, is that the earnings per share growth is still in Stock Doctor to be forecast to grow 23% when the financial year concludes in June ’23. I suspect that will probably change, and the reason I say that the forecast growth is based on earnings per share, and we don’t have a guidance for earnings per share from the company in yesterday’s announcement. What we do have a guidance for is for EBIT, and the EBIT guidance was between 600 and 660 million. Six months ago, at the last financial year results it was 550 million, so that’s not a 23% increase in EBIT. And there’ll be some slight differences, but EBIT growth generally tracks earnings per share growth. So, we may see that forecast revised down. But at the moment, this company is yielding a high yield which is above the bank rate of 7.81%. So, interestingly enough, we have a high growth stock and a high yielding stock, which is kind of a nirvana for a company. I suspect one of those will change, and I suspect it’ll be the the forecast growth which will drop based on yesterday’s announcement and probably based on the numbers when they drop into the spreadsheet tomorrow. So, watch out for that. Something else that will change is that it’s still recording a one in our spreadsheet in our manually entered data because it was a new three-point trendline upturn after its last results, and it will lose that status most likely tomorrow unless the results are well received, and the share price ticks up again. I expect it to get back to a zero score for us going forward. All in all, though, the quality score for this company is 15 out of 16 items which is 94%, and the QAV score is 0.14, which puts it towards the bottom of our buy list, which means that it could well drop off the QAV buy list tomorrow when the results come out. But certainly, something to circle back and watch in the coming days. It’s not without its risks, and that will also be factored in by the analysts and the big funds who will be paying attention to Fletcher Construction as it’s now called. The risks are obviously rising interest rates, and they’ve been rising earlier and harder in New Zealand than they have in Australia from what I can see. So, the New Zealand housing market’s probably more subdued than in Australia, although I haven’t paid close attention to it. But anyway, rising interest rates means residential property is declining in value, and that’s one of the spokes to the wheel of this company. So, that part of the business will suffer. They do other work, of course, like I said; they supply concrete to commercial properties. People have probably seen Fletcher Construction or Fletcher Building on cranes around town, so they still will have that business. But interest rates will hurt a lot for this company. So, that’s a risk even though it’s, like I said, in a sweet spot of high growth and high yield. Let’s await the results, and let’s watch the sell lines and see what happens.


Cameron  1:37:30

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