QAV #652 — Depressive Realism

QAV 652 Club

[00:00:00] Cameron: Alright, let’s do this. Cam by him­self. Cam Solo. That’s my new name. Cam Solo. Episode 652 of QAV. My annu­al tra­di­tion, doing Christ­massy episodes with­out Tony. He’s chillax­ing, play­ing golf down at his Cape Schanck prop­er­ty. Give him a cou­ple of weeks off to de stress. I’m, uh, gonna do some­thing a lit­tle bit dif­fer­ent this time. Uh, in pre­vi­ous years, I’ve done com­pi­la­tions of things that I thought were inter­est­ing top­ics over the pre­vi­ous 12 months. This time, instead of me choos­ing the most inter­est­ing points, I’ve asked my new best friend, Chat­G­PT.

[00:01:07] Cameron: Chat­G­PT. com To come up with a list of the most inter­est­ing top­ics that we’ve dis­cussed this year. How did I do that? You might ask. Well, I’ll explain a lit­tle bit lat­er on. Also, in this episode and next week’s episode, we’ve got Pulled Porks from Tony that we pre record­ed last week. This week’s will be on ERoad, E R D.

[00:01:31] Cameron: That’s com­ing up soon. But, before I get into that, let’s talk about what’s hap­pened in the mar­ket, uh, since our last episode. Now, I’m record­ing this on Box­ing Day, Tues­day the 26th of Decem­ber, 2023. While my fam­i­ly is out doing fam­i­ly type things, I’ve tak­en the oppor­tu­ni­ty in a qui­et lit­tle house. Mer­ry Christ­mas, by the way.

[00:01:55] Cameron: Hap­py Fes­tivus for the rest of us. Uh, hope you had a safe Christ­mas. Did­n’t get caught up in the storms that hit the East Coast of Aus­tralia. Um, but the mar­ket’s closed. It was closed yes­ter­day, obvi­ous­ly, Christ­mas Day. It’s closed today. So there’s noth­ing real­ly to talk about. In terms of what’s hap­pen­ing this week yet, but last week we had a cou­ple of, uh, real­ly sort of seri­ous declines from stock.

[00:02:22] Cameron: Some that we own, some that we don’t keep­ing in trend. Tony asked me not to make fun of his, uh, pulled. Pork curs­es, but I got to men­tion Core Lithi­um, uh, because he said not to buy it, you know, because lithi­um was down, but not long after we put out the Core Lithi­um Pull Pork last week, it plunged 22 per­cent in a day after the com­pa­ny announced it was review­ing its busi­ness strat­e­gy with the lithi­um price tum­bling.

[00:02:49] Cameron: So Tony did say on the episode he would­n’t be buy­ing it right now, wait until the lithi­um price recov­ered. But there were some oth­er stocks that we do own that took a mas­sive hit last week when they men­tioned prof­it guid­ance. First one I’ll talk about is CLX. CTI Logis­tics. It said on the 21st of Decem­ber That it’s prof­it before tax for the half year to 31st of Decem­ber, 2023 is expect­ed to be approx­i­mate­ly 30 per­cent low­er when com­pared to the pre­vi­ous cor­re­spond­ing peri­od for the half year to the 31st of Decem­ber, 2022, quot­ing here from their let­ter.

[00:03:32] Cameron: As report­ed, the result for the pre­vi­ous cor­re­spond­ing peri­od ben­e­fit­ed from increased demand for pre­mi­um freight ser­vices due to sup­ply chain dis­rup­tions and nat­ur­al dis­as­ters, as well as cus­tomers incur­ring addi­tion­al trans­port and ware­house stor­age costs to ensure their prod­uct was clos­er to the point of sale.

[00:03:51] Cameron: The cur­rent half year report­ing peri­od has seen a nor­mal­iza­tion of cus­tomer sup­ply chains con­sis­tent with the half year to 30th of June 2023. With few­er sup­ply chain dis­rup­tions and less con­se­quent demand for pre­mi­um freight ser­vices. Which all sounds quite rea­son­able, I guess, but the share mar­ket did­n’t think so.

[00:04:14] Cameron: Share price took about a 7 per­cent hit the next day. Dropped from 1. 54 down to 1. 41, recov­ered a lit­tle bit to 1. 43 when it closed on Fri­day. We do hold it in the dum­my port­fo­lio and I near­ly had to sell it, but I think it’s a three point trend line is a 1. 36. Did­n’t quite go down that far. When it recov­ered, it’s now at a 4 per­cent prof­it for us.

[00:04:44] Cameron: We’ve held it since Novem­ber, 2022 in the dum­my port­fo­lio. It had been doing rather well. Now, not so well. We’ll see what hap­pens. One that I did have to sell was MTO, Motor­cy­cle Hold­ings. Same day, 21st of Decem­ber. They came out with under­ly­ing EBITDA guid­ance. Motor­cy­cle Hold­ings Lim­it­ed, one of Aus­trali­a’s lead­ing retail­ers, blah, blah, blah.

[00:05:07] Cameron: Today pro­vides an update in rela­tion to expect­ed earn­ings before inter­est, tax depre­ci­a­tion, and amor­ti­za­tion. For the six months end­ing the 31st of Decem­ber, 2023. They said they expect­ed to report an under­ly­ing EBITDA of between 14 mil­lion and 16 mil­lion for the six months. The whole­sale sales of farm vehi­cles are slow­ing with increased com­pe­ti­tion as stock lev­els for all dis­trib­u­tors nor­mal­ize.

[00:05:36] Cameron: The com­pet­i­tive envi­ron­ment is putting pres­sure on mar­gins. While retail unit sales of new motor­cy­cles remain strong. Wider eco­nom­ic con­di­tions are dri­ving mar­gin pres­sures affect­ing all areas of the busi­ness. It fell 28 per­cent when that news hit, recov­ered a lit­tle bit, but not enough to save it. We owned it in a cou­ple of port­fo­lios and I took a, between a 14 and a 16 per­cent loss by the time I woke up to how much it had fall­en.

[00:06:10] Cameron: Blew through our rule ones in all of those cas­es. The third instance last week was ASG. Not exact­ly sure what hap­pened to this one. Jonathan in the club chat men­tioned some­one in the mar­ket was sell­ing two large batch­es, 100, 000 shares and 200, 000 shares. Uh, but it, you know, on the 20th, it was trad­ing at 2.

[00:06:34] Cameron: 30. Before closed out rough­ly, it opened at 2. 23 and then con­tin­ued to 20 before recov­er­ing on the 22nd, Fri­day, fin­ished up about 2. 32, not far below where it was on Wednes­day, but we man­aged to avoid hav­ing to sell that one. We hold it in a num­ber of port­fo­lios. It’s up 6, 7, 8%, 9 per­cent across those port­fo­lios.

[00:07:01] Cameron: We bought around 2, some­where between 2. 18, depend­ing on the port­fo­lio back, uh, well, one of them actu­al­ly, since August 22, we bought it at 2. 15. So the oth­ers we bought ear­ly 2023, but it just goes to show you how quick­ly some of these stocks can change, par­tic­u­lar­ly when prof­it guid­ance comes along at the end of the year.

[00:07:23] Cameron: And some­times you just take a hit on them, but as my analy­sis showed when I did it a month or so ago, our rule ones and our three point trend line, uh, sell trig­gers tend to save us from any dis­as­ters. Some­times they go up after we sell them, uh, quick­ly. Some­times they go down even fur­ther after we sell them.

[00:07:46] Cameron: Like, um, well, I can’t think of any exam­ples recent­ly, but there’s been a few. Any­way, we will see how that pans out. One oth­er idea I had that I’m going to pur­sue over the course of 2024, but I’m going to start it today. There’s a, there’s an author, Mor­gan Housel, H O U S E L, that We’ve talked about a few times on the show, Steven Mabb, Chair­man Mabb, has, uh, men­tioned to, uh, men­tioned him to me a num­ber of times, a cou­ple of his books, that, uh, Steven’s a big fan of, Mor­gan is a part­ner at some­thing called the Col­lab­o­ra­tive Fund, for­mer colum­nist at the Mot­ley Fool and the Wall Street Jour­nal, And he’s writ­ten a num­ber of, uh, pop­u­lar books like The Psy­chol­o­gy of Mon­ey.

[00:08:34] Cameron: But I found, um, a blog post of his that I thought was kind of cool. 100 Lit­tle Ideas. This is a post from Feb­ru­ary 2020. He says, a list of ideas in no par­tic­u­lar order and from dif­fer­ent fields that help explain how the world works. Now, I thought this was inter­est­ing build­ing on top of the Char­lie Munger quotes that I had, uh, you know, Char­lie was a big fan of mod­els for under­stand­ing the world.

[00:09:00] Cameron: Per­haps coin­ci­den­tal­ly, he said that there was about a hun­dred mod­els that you need­ed to under­stand. I’m not sure if they’re the same hun­dred as Mor­gan’s hun­dred, but I thought each week I’d take one of these over the course of, well, I guess it’ll take me a cou­ple of years to get through them and we can just talk about one of them.

[00:09:16] Cameron: I’ll do it with TK when he’s on the show, but I found these inter­est­ing and I think you will too. So the first one. Is Depres­sive Real­ism. He says depressed peo­ple have a more accu­rate view of the world because they’re more real­is­tic about how risky and frag­ile life is. The oppo­site of bliss­ful­ly unaware.

[00:09:40] Cameron: Now, um, I don’t con­sid­er myself a depres­sive real­ist or a depressed per­son. I’m the oppo­site of that, very upbeat per­son, but I do con­sid­er myself a real­ist hav­ing had sev­er­al failed star­tups and mar­riages over the course of my life. I’m very real­is­tic about the chances of suc­cess for most things, but, um, I’m going to com­bine this with my lat­est par­ty trick.

[00:10:07] Cameron: I pulled this out at par­ties. I pulled it out for Tony when we caught up for a Christ­mas lunch with his fam­i­ly a few weeks ago when they were in Bris­bane. Um, it’s Demon­strat­ing Chat­G­PT 4 V. This is the ver­sion of Chat­G­PT 4 that you can get on your phone or your iPad. The V stands for Vision and or Voice.

[00:10:29] Cameron: This is the ver­sion that came out a few months ago where you can take pho­tos of things and it will tell you what’s in the pho­to. But you can also talk to it. And one of the things I’ve dis­cov­ered just around, you know, going to par­ties, Christ­mas time, that kind of stuff, sub­ject of AI, inevitably comes up because I intro­duce it into every con­ver­sa­tion.

[00:10:47] Cameron: Um, oh, that’s an inter­est­ing field of work you’re in. How’s AI going to impact that this year, do you think? And peo­ple usu­al­ly say the exact same thing, which, oh, it’s not going to have any impact at all. And which I laugh, and then I laugh and, uh, and say, real­ly? Wow. Okay. That’s, uh, very con­fi­dent of you.

[00:11:06] Cameron: You need a lit­tle bit more depres­sive real­ism, per­haps. Um, and I asked them if they’ve heard the lat­est ver­sion of it talk­ing to you. And, uh, inevitably they say they haven’t, and so I pull my phone out of my pock­et and I say, check this out. So, um, I’m going to start a con­ver­sa­tion with Chat­G­PT about Depres­sive Real­ism and let’s see what it has to say.

[00:11:28] Cameron: Tell me a lit­tle bit about the con­cept of Depres­sive Real­ism.

[00:11:32] Chat­G­PT: Depres­sive Real­ism is a fas­ci­nat­ing con­cept. It chal­lenges the com­mon belief that opti­mism equates to a more accu­rate view of real­i­ty. Essen­tial­ly. It sug­gests that peo­ple with mild to mod­er­ate depres­sion often have a more real­is­tic per­cep­tion of their abil­i­ties, out­comes, and con­trol over events, com­pared to non depressed indi­vid­u­als.

[00:11:52] Chat­G­PT: This idea was intro­duced in the late 1970s by psy­chol­o­gists Lau­ren Alloy and Lynn Yvonne Abram­son. They found that those with depres­sion made more accu­rate pre­dic­tions about their influ­ence in events, while non depressed indi­vid­u­als tend­ed to over­es­ti­mate their con­trol. It flips the script on how we usu­al­ly think about men­tal health and per­cep­tion.

[00:12:14] Chat­G­PT: Instead of assum­ing that depres­sion skews real­i­ty neg­a­tive­ly, it pro­pos­es that maybe depres­sion strips away the rose col­ored glass­es, reveal­ing the world more truth­ful­ly. But remem­ber, this does­n’t mean depres­sion is good or desir­able. It’s a com­plex and mul­ti­fac­eted con­di­tion, and depres­sive real­ism is just one

[00:12:33] Cameron: intrigu­ing aspect of it.

[00:12:35] Cameron: So for those of us that aren’t depressed, how might we apply the learn­ings of depres­sive real­ism in our every­day lives? Apply­ing the

[00:12:44] Chat­G­PT: prin­ci­ples of depres­sive real­ism in every­day life, espe­cial­ly for those who aren’t depressed, involves a care­ful bal­ance. You’re not look­ing to become pes­simistic, but rather to cul­ti­vate a more real­is­tic and per­haps slight­ly more skep­ti­cal view of the world.

[00:13:00] Chat­G­PT: Here’s how you might do it. One, ques­tion opti­mism bias. We often have an innate opti­mism bias, think­ing things will work out bet­ter for us than for oth­ers. Chal­lenge this by con­sid­er­ing real­is­tic out­comes and prepar­ing for them. Two, embrace uncer­tain­ty. Depres­sive real­ism sug­gests a bet­ter grasp of uncer­tain­ty.

[00:13:19] Chat­G­PT: Acknowl­edge that you can’t con­trol every­thing and be open to var­i­ous out­comes. Three, Reflect on self assess­ment. Some­times we over­es­ti­mate our abil­i­ties or influ­ence. Reflect on your strengths and weak­ness­es hon­est­ly, with­out the usu­al self enhance­ment bias. 4. Seek diverse per­spec­tives. Engage with view­points dif­fer­ent from your own, espe­cial­ly from peo­ple who might see the world less opti­misti­cal­ly.

[00:13:43] Chat­G­PT: This can pro­vide a more bal­anced per­spec­tive. 5. Mind­ful opti­mism. Main­tain a pos­i­tive out­look, but ground it in real­i­ty. It’s about hop­ing for the best while being pre­pared for less favor­able out­comes. Six, avoid extremes. Nei­ther extreme pes­simism nor extreme opti­mism is desir­able. Aim for a mid­dle ground where you’re hope­ful yet real­is­tic.

[00:14:05] Chat­G­PT: Remem­ber, the goal isn’t to adopt a depres­sive mind­set, but to incor­po­rate a more bal­anced, real­is­tic view of life’s uncer­tain­ties and our own capa­bil­i­ties. It’s about enhanc­ing deci­sion mak­ing and per­cep­tion with­out los­ing the ben­e­fits of a pos­i­tive

[00:14:20] Cameron: out­look. So there you go. Maybe I will call my mind­set bliss­ful real­ism as opposed to depressed real­ism.

[00:14:30] Cameron: Uh, I don’t know what you thought about that audio demon­stra­tion. There’s about half a dozen voic­es that you can pick with Chat­G­PTV. But the key thing is they all sound extreme­ly real­is­tic with paus­es, ums, and ahs. Those of you that lis­tened when I, the last time I used Chat­G­PT to do a fill in episode, which I think was about six months ago, I had to cre­ate my own text to speech gen­er­a­tor answers that were nowhere near as real­is­tic as the one that Ope­nAI came out with using their own tech a month or two ago.

[00:15:05] Cameron: So if that’s how good it is now, imag­ine how good it’s going to be a year from now. And it makes me laugh now when­ev­er I watch a sci­ence fic­tion film. When you hear robots talk­ing to peo­ple, and they all sound like this, how quick­ly, with the advent of AI, we’ve gone from that to uh, extreme­ly real­is­tic sound­ing, uh, voice inter­ac­tions.

[00:15:28] Cameron: Imag­ine that, uh, a year or two from now, in terms of tech sup­port. You do tele­phone tech sup­port, or web based tech sup­port, you’ll be able to have nat­ur­al lan­guage con­ver­sa­tions. With the web­site of the busi­ness that you’re try­ing to get sup­port from, it’ll be com­plete­ly plugged into all of their infor­ma­tion, all of your cus­tomer infor­ma­tion, every­thing about their side of the busi­ness, and it’ll be able to talk to you in just nat­ur­al lan­guage about what your need or require­ment is and what they can do to help you.

[00:15:58] Cameron: It’s going to be, I think, an amaz­ing­ly enhanced cus­tomer ser­vice expe­ri­ence across the board. Okay, well, let me throw to Tony now with his pulled pork on ERD. And then when I come back, I’ll do a cou­ple of high­lights from 2023 as select­ed by Chat­G­PT.

[00:16:16] Tony: Anoth­er request from Jim I can do now is E Road. This is a com­pa­ny I’m not famil­iar with.

[00:16:21] Tony: It does­n’t get much cov­er­age. Um, it’s a New Zealand com­pa­ny, so it does­n’t have real­ly have much of a pro­file in the Aus­tralian. Um, Ana­lyst Com­mu­ni­ty or Press, Finan­cial Press, inter­est­ing com­pa­ny though, and, and, um, was great fun to research. It’s a, I guess you could sum it up as being a trans­porta­tion tech­nol­o­gy com­pa­ny, um, or, or a fleet man­age­ment telem­at­ics com­pa­ny, but basi­cal­ly does a cou­ple of things, but one of the, one of the main ones, which seems to be get­ting legs in New Zealand and in roads into Aus­tralia and impor­tant­ly, North Amer­i­ca is they, they put, um, A lit­tle device in a truck or a car that’s part of a com­pa­ny’s fleet that trans­mits data back to soft­ware and the fleet man­ag­er can, you know, look at whether the fleet’s being opti­mized prop­er­ly and save on fuel usage and oth­er.

[00:17:16] Tony: Uti­liza­tion costs. So, inter­est­ing sort of com­pa­ny. I think this tech­nol­o­gy may have been pio­neered by the insur­ance com­pa­nies, because I know when I was in Cana­da, our insur­ance com­pa­ny sent me such a device to put in the car, and it was meant to send data back to the insur­ance com­pa­ny who would then decide whether, you know, they would risk based price my insur­ance based on how care­ful­ly I dri­ve or, or, Or not.

[00:17:41] Tony: So I put my price up if I was a red­head and put it down if I was safe. Um, we did­n’t stay in Cana­da long enough to get any data from that, but that was an inter­est­ing con­cept. Sim­i­lar one being used in, um, by this com­pa­ny. Looks like it may have had a his­to­ry in, uh, A par­tic­u­lar thing that hap­pens in New Zealand called road user charg­ing, which hap­pens in Aus­tralia too, but every­one pays for it through the BOWS or through the petrol price, which they do in New Zealand as well, but once the car, once the truck reach­es above a cer­tain ton­nage, which I think is about the 3.

[00:18:14] Tony: 5 tonnes, then, you know, they’re deemed to be a heavy user of the road, and some­times they’re seen as being a cause of pot­holes and more dam­age to the roads and small­er vehi­cles, and so they have to get a license called a road user charge, and um, You So it’s a cost per 1, 000 kilo­me­ters and they sort of buy them based on what they think they’ll need.

[00:18:37] Tony: Uh, and it’s all up in the, his­tor­i­cal­ly it’s been a man­u­al sys­tem. You go in and apply for a license based on what you think you’ll need. Pay a cost, stick a license on your win­dow and it can be mon­i­tored by, um, You know, trans­port author­i­ties, I guess, at Wey­bridges or some­thing like that to see, you know, what you’ve, how much you’ve trav­eled and, and if you paid the right license.

[00:18:57] Tony: Very man­u­al process and prob­a­bly not that effec­tive, I would­n’t have thought, um, but this com­pa­ny, uh, has been able to elect, elec­tron­i­cal­ly, um, improve that process of road user charg­ing and there are oth­er uses, so there are oth­er coun­tries in the world that do this and there are oth­er coun­tries that do things like You know, in the City of Lon­don, you pay a charge if you dri­ve your car into the CBD, that kind of thing.

[00:19:21] Tony: So there is oth­er appli­ca­tions for road user, elec­tron­ic road user charg­ing and tolling than just in Auck­land or in New Zealand. So this could be export­ed. But it seems like the main part of the busi­ness is in this fleet man­age­ment telem­at­ics, which is very inter­est­ing. Um, the com­pa­ny can report on things for a fleet man­ag­er as, for exam­ple, as to whether, or how often the vehi­cles go over, um, go over speed lim­its.

[00:19:50] Tony: Um, which is not just about avoid­ing fines, but if you think about it, that’s a heavy use of fuel if a truck is revving up to go over. Um, the speed lim­it and, and there’s been reports and case stud­ies show­ing that, uh, the fleet can save 20 per­cent in fuel costs by keep­ing the vehi­cles under the speed lim­it.

[00:20:07] Tony: Just get­ting infor­ma­tion about that. But also things like, um, whether the cold chain stor­age is being opti­mized, um, whether. You’re bet­ter load­ing trucks with the stuff already refrig­er­at­ed or pay­ing the cost to refrig­er­ate them by run­ning the motor heav­ier in the truck, that kind of thing. Um, and also to just uti­liza­tion.

[00:20:27] Tony: So are the dri­vers tak­ing the most, the opti­mal, um, direc­tions to their deliv­er­ies or, or not? So, yeah, I can see the ben­e­fit of this. Um, it’s start­ing to get some high pro­file users. So I think they list Bor­rell in Aus­tralia as one of their, um, One of the com­pa­nies that use it may have a fleet of cement trucks, anoth­er com­pa­ny in Aus­tralia called Pro­gram, which I think used to be called Pro­gram Main­te­nance and may have been list­ed on the ASX.

[00:20:54] Tony: They have a com­pa­ny called Cis­co in the U. S., which S Y S C O, not the router com­pa­ny, but the com­pa­ny that deliv­ers, um, Whole­sale food and, and equip­ment to restau­rants, which has a big fleet of vehi­cles in the U. S. So it’s, it’s gain­ing some trac­tion and grow­ing. They recent­ly did a cap­i­tal raise to, um, put them on a bit of finan­cial foot­ing, but also to help fund expan­sion.

[00:21:16] Tony: So, um, that may hap­pen again because, um, they’re, they’re pret­ty much run­ning at, uh, lease and, um, Break even, I guess. A lot of the costs in this com­pa­ny are in R& D to improve their telem­at­ics and their, they’ve recent­ly signed a part­ner­ship deal with Microsoft to use AI to troll through the data and give them oth­er insights that they can pass on to their fleet man­agers.

[00:21:40] Tony: So, cur­rent­ly, I think R& D was run­ning at about, um, 12 per­cent I think of sales. Uh, it’s, it’s, it’s high, but it’s shrink­ing as a per­cent­age of sales, um, which makes sense. And it looks like that’s where they’ve been putting their. Prof­its into, which also makes sense for a grow­ing com­pa­ny. So yeah, inter­est­ing com­pa­ny, inter­est­ing, um, what they’re doing.

[00:22:04] Tony: Uh, you can see def­i­nite uses, um, for it. Um, how­ev­er, still a small New Zealand com­pa­ny. I think it’s mar­ket caps around 180 mil­lion. ADT for this com­pa­ny is, is small. Um, just try and find that.

[00:22:22] Tony: ADT is 50, 748, so it’s not going to suit every­one, it’s a small com­pa­ny. It’s recent­ly gone across its 3PTL buy, so that’s a good thing. And what else can I say about the num­bers? It’s just the share price for the analy­sis is 97. 5 cents, which is just above con­sen­sus tar­get, um, and it does­n’t have an IV1 and IV2 because the cur­rent earn­ings per share was neg­a­tive, so we can’t cal­cu­late, does­n’t have a yield because every­thing’s going back into R& D.

[00:22:57] Tony: Um, Stock Doc­tor Finan­cial Health Haz­ard is ear­ly warn­ing and steady. Um, that makes sense, I guess, if it’s a grow­ing com­pa­ny and plow­ing mon­ey into its growth, it’s not going to have a strong finan­cial posi­tion. Um, I guess that’s reflect­ed in the cur­rent PE, which is 4, 000 times, and we can’t real­ly score it on that.

[00:23:16] Tony: Um, but how­ev­er, the Prop­Caf is 5. 7 times, so that sug­gests it’s, it is get­ting a lot of sales. They’re com­ing in but going back into grow­ing the busi­ness or R& D research. Net equi­ty per share, 1. 43, which is below its share price, so that’s good. NTA though, how­ev­er, is only 21 cents per share, so that usu­al­ly means that there’s a fair amount of good­will on the bal­ance sheet.

[00:23:44] Tony: And that’s prob­a­bly the case because I know this com­pa­ny has acquired a num­ber of com­pa­nies along the way and put them togeth­er into this sort of data man­age­ment, um, fleet man­age­ment com­pa­ny. So that, uh, even though we score it for being below net equi­ty per share, it is above net tan­gi­ble assets with its share price.

[00:24:04] Tony: Um, We don’t have a fore­cast growth avail­able, so I can’t score it on that, but man­age­ment are call­ing out growth. Obvi­ous­ly, they’re in growth mode, so I’d expect that to be the case, but we can’t, can’t score it. So our scor­ing is per­haps a lit­tle low. Um, Direc­tors only hold 2%, which I thought was inter­est­ing.

[00:24:23] Tony: Again, I would have thought to be an own­er founder in a com­pa­ny like this, but we’re not see­ing it, so we can’t score it for that. It’s a recent buy on the buy list, so we score it for that. Uh, it almost had con­sis­tent­ly increas­ing equi­ty, but I think there was one half where it went down slight­ly, so we can’t score it for that, but it was pret­ty close.

[00:24:40] Tony: So, all in all, qual­i­ty is 7 out of 15 or 47%. Um, but as I said, there could be a dif­fer­ence. A cou­ple of scores we could add back to that in time. QAV score is 0. 08. Uh, so just below again our cut­off of 0. 1, but um, would­n’t take much of a share price, you know, decline by a cent or two to bring it back onto the buy list, or you just wait for fur­ther results in the future.

[00:25:03] Tony: Um, Risks for this one, I think, you know, you’ve got to call out the fact that it’s a small com­pa­ny based in New Zealand and it’s grow­ing, so it’s going to find, it’s going to have all the nor­mal risks you have buy­ing these kinds of stocks, um, they may do anoth­er cap­i­tal raise for an acqui­si­tion or to fund work­ing cap­i­tal or what­ev­er, um, so that’s, that’s always on the card with these com­pa­nies, uh, it does seem like though that that’s been paid back because the share price is up, Since the raise was done, um, I think prob­a­bly the biggest risk that I can see for a com­pa­ny like this is bar­ri­er to entry.

[00:25:38] Tony: So, like I said, those, those vehi­cle mon­i­tor­ing units were being used by the insur­ance com­pa­nies in Cana­da and North Amer­i­ca. Uh, looks like it’s a sim­i­lar type unit that they’re sell­ing. So, if the units are read­i­ly avail­able, then it’s real­ly comes down to how good is their, um, fleet man­age­ment intel, I think.

[00:25:59] Tony: It does do oth­er things, like it does sell dash­board cams and allow, um, you know, inci­dent review. If there’s been an inci­dent, they can review the video record­ed from the dash­board cam. But again, they’re also read­i­ly avail­able in the mar­ket. So I think the real IP for this com­pa­ny is on how good its, um, fleet man­age­ment intel is.

[00:26:18] Tony: And, you know, you won­der how long it would take a U. S. com­pa­ny to reverse engi­neer that. Um, and go after that mar­ket as well. So that, I think that’s prob­a­bly the biggest risk for this com­pa­ny. Um, you know, if they are well estab­lished in the mar­ket and they are, they seem to be that they’re get­ting like a 90 per­cent plus, uh, re sign up from com­pa­nies that use their ser­vice.

[00:26:39] Tony: So that’s a good thing. But you won­der how long it would take for some­one else to come into the mar­ket with sim­i­lar sort of soft­ware, um, using units they can prob­a­bly buy cheap­ly and send out to cars and, uh, and fleet man­agers for their, for their cars and trucks. Uh, and then start to devel­op their own fleet man­age­ment Intel as well, per­haps using AI.

[00:26:58] Tony: So yeah, it’s cer­tain­ly worth look­ing at, but it has all the usu­al sort of small com­pa­ny risks asso­ci­at­ed with a grow­ing com­pa­ny like this. So that’s E Road.

[00:27:10] Cameron: How big their moat is, in oth­er words. Yeah, that’s right. How big is their moat? Thank you, Tony. Yeah, they’re, uh, been a good per­former, um, in my port­fo­lios.

[00:27:21] Cameron: I added them to one of the light port­fo­lios just on the 22nd of Novem­ber and it’s up 36%. Since then, a lit­tle bit less than a month, added them to anoth­er port­fo­lio on the 7th of, uh, Decem­ber. One of the Stock­o­pe­dia port­fo­lios, up 7 per­cent since then, but, um, yeah, yeah.

[00:27:41] Tony: And that’s why they’re prob­a­bly off the bot­tom of the buy list now, because the price has had a run.

[00:27:46] Cameron: Okay, back to me in the booth. And now I’m going to get into the best of clips from this year, as select­ed by my best friend, Chat­G­PT. This first clip is from ear­ly in the year, episode 604, and it’s me hav­ing a con­ver­sa­tion with Tony recap­ping his view on eth­i­cal invest­ing. It’s some­thing that comes up in the ques­tions or the com­ments at least once a year.

[00:28:10] Cameron: So let’s have anoth­er look at Tony’s view on eth­i­cal invest­ing. And for new lis­ten­ers, maybe we should just recap your per­son­al view on eth­i­cal invest­ing. We obvi­ous­ly talk about. Coal com­pa­nies, a lot on this show, we invest in a lot of coal com­pa­nies. I know that per­son­al­ly, you would be hap­py to see us move away from fos­sil fuels to a ful­ly green, sus­tain­able, you’re, you’re a, you’re a Labor vot­er, you’re an old lefty.

[00:28:41] Tony: I’m a swing vot­er, but yeah.

[00:28:43] Cameron: Are you? Do you swing? Yeah. Okay. Well, did­n’t you used to be, uh, should­n’t you used to be a union, uh, union leader, stu­dent union leader,

[00:28:52] Tony: Tony? I was. A stu­dent union leader, yeah. But I could­n’t bring myself to vote for some­one like Bill Short­en, so I vot­ed for the oth­er guys. But, um, yeah, I swing.

[00:29:00] Cameron: Okay, Tony’s the swinger, ladies and gen­tle­men, you have to

[00:29:03] Tony: go first. Around the cen­tre, I’m def­i­nite­ly, my pol­i­tics are def­i­nite­ly in the cen­tre. I make my mon­ey out of, out of being a cap­i­tal­ist and I try and do all I can for the, for uh, cer­tain caus­es, but um, but yeah, that’s my pol­i­tics. But

[00:29:18] Cameron: you invest in coal, explain for the new lis­ten­ers, if you would­n’t mind, just your, your moral eval­u­a­tion

[00:29:25] Tony: there.

[00:29:26] Tony: Yeah, well, my argu­ment on hold­ing coal shares is that, you know, if some­one can tell me how it ben­e­fits the envi­ron­ment for me not buy­ing coal shares, I could be swayed, but no one’s ever been able to pros­e­cute that argu­ment suc­cess­ful­ly with me. And chances are I’m buy­ing those, those shares from some­one who wants to sell them because they are per­suad­ed it’s uneth­i­cal.

[00:29:48] Tony: But it makes no damn dif­fer­ence to the envi­ron­ment whether we hold the shares or not. Because, uh, hold­ing the shares is mon­ey chang­ing hands between share­hold­ers. It’s not the mon­ey going to the com­pa­ny. Now, it’s dif­fer­ent if they did a rights issue and, and, you know, whether we took it up and helped them to buy a coal mine.

[00:30:03] Tony: You know, I might think twice about that. Prob­a­bly would. But yeah, I mean, I think cli­mate change, if we just focus on that par­tic­u­lar eth­i­cal issue, cli­mate change has to be a top down imposed solu­tion, a gov­ern­ment reg­u­lat­ed solu­tion, because it’s not going to be sold by the mar­ket. It’s a tragedy of the com­mons type issue where, you know, that clas­si­cal­ly was peo­ple over­graz­ing their sheep on the com­mon vil­lage land and the farm­ers were nev­er going to stop doing that, even though every year one less sheep could graze because they were eat­ing up all the grass and killing it.

[00:30:35] Tony: It had to be the, the Lord May­or came along and said, nah, nah. Enough time out, you know, there’s only going to be 50 sheep on this com­mon lawn from now on, um, we’ll decide who goes. So that’s how I think that plays out. But every­one has their own per­son­al ethics as well. Like I, I’m hap­py invest­ing in gam­bling com­pa­nies, even though I know that there are peo­ple who, you know, whose lives can be affect­ed by it, but, um, I gam­ble.

[00:30:59] Tony: So I’d, I’d feel a bit hyp­o­crit­i­cal not doing that. Um, so every­one’s got their own per­son­al eth­i­cal red lines. For me, that red line, I’d be. I would­n’t want to invest in a cig­a­rette com­pa­ny, for exam­ple, but I know that Buf­fett did at some stage and there are strong eco­nom­ic rea­sons for it. So I see my role as an investor, first of all, to pro­vide for my fam­i­ly’s future finan­cial needs.

[00:31:22] Tony: And even though I do think about the impacts of that and the ethics of it. It does­n’t stop me from buy­ing shares in coal com­pa­nies, for exam­ple, or oil com­pa­nies.

[00:31:33] Cameron: Because when the ocean lev­els rise by a cou­ple of meters, your fam­i­ly will need, uh, bunkers in New Zealand to go and hide in when the, uh, glob­al apoc­a­lypse hap­pens and, uh, with all the oth­er Davos peo­ple going and liv­ing in New

[00:31:47] Tony: Zealand.

[00:31:48] Tony: I found some bunkers in Tas­ma­nia when I was play­ing golf down there. Did you? Yeah, there you go. Good. Yeah, if the ocean ris­es, we’re up 38 floors here, so it’s not gonna be too bad. Yeah, you,

[00:31:58] Cameron: you won’t be able to get to your restau­rants to have din­ner, but they’ll be under­wa­ter unless they’re also on the 38th floor or some­thing.

[00:32:05] Cameron: Maybe you can just get the chefs to move in to the spare bed­room, cook

[00:32:08] Tony: for you. Yeah, but like, like I said, hav­ing said all that and joked about it, and I, and I agree with it, how does me not own­ing shares in White­haven Coal Stop it. Because the

[00:32:18] Cameron: shares, I mean, the mon­ey’s already been raised through the share issuance.

[00:32:22] Cameron: The shares are already being trad­ed in the mar­ket­place. If you buy a share, they don’t, the com­pa­ny does­n’t get any of that mon­ey. It’s the peo­ple, the indi­vid­ual or the fund or who­ev­er who’s sell­ing the share that you’re buy­ing it from that gets your mon­ey. Uh, the com­pa­ny does­n’t, the coal com­pa­ny does­n’t get your mon­ey to build new coal mines, et cetera, et cetera.

[00:32:42] Cameron: So

[00:32:43] Tony: That’s right. And you could make the argu­ment I’m liv­ing off the pro­ceeds of an uneth­i­cal com­pa­ny because I get div­i­dends from them and I accept that. Maybe I’ll put those div­i­dends and don’t give them Donate ’em to GRE to Thun­berg or some­thing. But that’s a dif­fer­ent argu­ment. Liv­ing off the pro­ceed is dif­fer­ent.

[00:32:57] Cameron: We’ve talked before about, well, if you wan­na real­ly drill into the ethics of every com­pa­ny, cor­rect. And you look at the amount of petrol that their trucks or their fleets of cars or their ships use and. The dam­age that the amount of elec­tric­i­ty that they use to run their build­ings and the tele­phones that they use that are built in sweat­shops and Chi­na.

[00:33:17] Cameron: And it’s a rab­bit hole once you get into that, which we did when we were writ­ing the book, you start to pick at these eth­i­cal issues and it’s, you know, it’s very, very, it’s going to be very, very hard to find any­thing that gets a clean bill of health that you can invest in. So then you need to start mak­ing deci­sions about, well, where’s the line.

[00:33:34] Cameron: What uneth­i­cal behav­iors am I will­ing to invest in ver­sus which ones am I not? And it’s a whole mine­field to get into. Not that peo­ple should­n’t do it if they feel mine­field.

[00:33:46] Tony: It is a whole mine­field. Yeah. I’m not, I’m not forc­ing any­body to do what I do. I’m out there try­ing to help peo­ple do it, you know, invest bet­ter in my opin­ion, or do it my way, but I’m not, not forc­ing them to do it.

[00:33:59] Tony: And yeah, I mean, like the kind of flip side of it is don’t invest because most com­pa­nies are going to have a, you know, some­thing out there, which is going to be a neg­a­tive in terms of the ethics of them, like you said. And so what do you do? Become a farmer. And then if your kids grow up and don’t get the edu­ca­tion or oppor­tu­ni­ties that they deserve, then is that uneth­i­cal?

[00:34:19] Tony: So there’s a real fine bal­ance here in how you, how you think about things and how you put them into prac­tice. Well,

[00:34:25] Cameron: you can’t be a farmer because your cows are fart­ing methane into the atmos­phere, which is bad. And then you should actu­al­ly be plant­i­ng trees on that land and not crops because the trees are absorb­ing the car­bon in the atmos­phere.

[00:34:37] Cameron: And so, you know, you can’t do that either. You just have to live on air, become one of those air peo­ple.

[00:34:43] Tony: Yeah, I would take the David Markham point of view that we should­n’t be hav­ing kids because mankind’s, man’s bad for the plan­et, which is, you know, there’s some sym­pa­thy for it, but I’m not gonna abide to it.

[00:34:54] Cameron: He seems to fly around the world a lot on planes that, uh, get start­ed on our friend David Markham. Alright, well the next clip that GPT select­ed is from episode 644. This is one that we record­ed, uh, the 31st of Octo­ber. So, only a cou­ple of months ago, and this is Tony’s pulled pork on DTL Data 3. Chat­G­PT said, this is an insight­ful idea with the explo­ration of the mer­its and risks asso­ci­at­ed with tech­nol­o­gy com­pa­nies, par­tic­u­lar­ly IT com­pa­nies in the invest­ment land­scape.

[00:35:34] Cameron: This top­ic is addressed through an in depth analy­sis of Data3 Lim­it­ed, a Bris­bane based IT com­pa­ny. The dis­cus­sion high­lights the unique chal­lenges and oppor­tu­ni­ties that IT com­pa­nies present for investors, such as high return on equi­ty, poten­tial growth in areas like AI and con­cerns over high pay­out ratios and the reli­a­bil­i­ty of oper­at­ing cash­flow as a met­ric in tech­nol­o­gy com­pa­nies.

[00:35:58] Cameron: So let’s jump to that and see what Tony had to say.

[00:36:02] Tony: So the pull pork today is on a com­pa­ny called. Data3, DTL, and it’s an inter­est­ing one. We don’t often get tech­nol­o­gy com­pa­nies on the buy list. Yeah. So that’s one of the rea­sons why it caught my eye, but it is a large ADT stock. It’s a Bris­bane based IT com­pa­ny that’s been around for a very long time.

[00:36:24] Tony: I think it was found­ed in 1977, list­ed on the ASX 20 years lat­er in 1997. And it’s one of the larg­er home­grown IT com­pa­nies. I mean, um, There’s a fair bit of it work being done by the big account­ing firms, the, um, PWCs, et cetera. But, uh, this is a ded­i­cat­ed large IT firm. Um, it cross­es the whole, um, water­front on it.

[00:36:49] Tony: It’s, uh, it, uh. offers cloud host­ing, uh, helps out com­pa­nies with IT secu­ri­ty and it does a lot of work on IT solu­tions. So con­sult­ing and sales, trans­for­ma­tion projects, uh, ser­vices, data ana­lyt­ics, et cetera, et cetera. Um, it’s a, it’s a large IDT, ADT stock. So it trades about, um, where’s my num­bers? 2. 49 mil­lion per day.

[00:37:17] Tony: So it’ll suit a lot of peo­ple. It’s not quite. Over at sec­ond buy line. So it’s a, it’s a tech­ni­cal­ly a Josephine at the moment, but it’s get­ting close to a buy. Um, and it’s way above it’s, uh, it’s buy. Uh, but it’s, it’s inter­est­ing. So I was kind of intrigued by it. Um, I have a IT back­ground, so it caught my atten­tion.

[00:37:39] Tony: Uh, Real­ly good num­bers. When I went to do some analy­sis on this, the FY23 results saw that the rev­enue was up 17%, gross prof­it was up 15%, MPAT was up 22%. Um, there’s lots of recur­ring rev­enue, so 65 per­cent of rev­enue is recur­ring. So that’s all real­ly good, and look­ing back over the last sort of, I think they put 6 years in their, in their, uh, infor­ma­tion, in their pack, uh, the growth has been con­sis­tent for the last 6 years, and the com­pa­ny claims to have, uh, increased rev­enue by 15.

[00:38:18] Tony: 3 per­cent CAGR over the last 6 years, so it’s, it’s, been a growth com­pa­ny, so it’s kind of sur­pris­ing to see it on the buy list because we don’t nor­mal­ly get this kind of com­pa­ny on the buy list. Um, going through the num­bers, it’s, uh, share price I did the analy­sis out of 6. 94, which is just slight­ly less than con­sen­sus tar­get.

[00:38:42] Tony: If peo­ple are inter­est­ed, the ROE on this com­pa­ny is 57%, so return on equi­ty is very, very high, which sug­gests that it’s main­ly a cap­i­tal light busi­ness, as a lot of IT com­pa­nies are. Often­times, they’re Biggest cost is peo­ple and there’s some 1, 400 staff work­ing for this com­pa­ny as well. Now, I, I was intrigued by the pay­out ratio on this com­pa­ny, which is, uh, 90, 91%, so most of the prof­its are being paid out in div­i­dends.

[00:39:10] Tony: How­ev­er, the yield is only a lit­tle over 3%, so we can’t score it for beat­ing the, the bank debt rate, um, or the mort­gage rate on that basis. Uh, And I’ll come, I might cir­cle back and come back to why that’s an inter­est­ing stat in itself. Uh, but it did, uh, did catch my eye. So I can’t score it for high yield, but I will talk about the pay­out ratio in a minute.

[00:39:32] Tony: Um, the PE is very high. It’s 29 times, which is, you know, way above what we nor­mal­ly see on the buy list. How­ev­er, it is the low­est PE for this com­pa­ny in three years. So it scores for that. Um, Stock Doc­tor Finan­cial Health is sat­is­fac­to­ry and recov­er­ing. So it gives, uh, Um, points for those two things.

[00:39:53] Tony: Recov­er­ing espe­cial­ly I like. Uh, but the Prop­Caf, sor­ry, the Prop­Caf for this com­pa­ny is 3. 69 times, which is a bit sur­pris­ing giv­en the PE is 29 times, but um, cer­tain­ly throw­ing off all the Prop­Caf, and I’ll come back to that one in a minute too. IV1 and IV2 are way below the share price. So IV1 is 1. 22, IV2 is 2.

[00:40:16] Tony: 67, and the share price is 6. 94. And like­wise, so is net equi­ty per share. It’s um, 0. 44, so it’s nowhere near the share price. So we can’t give it a score for that or for book plus 30%. Earn­ings per share growth fore­cast is 13 per­cent which I thought might be a bit con­ser­v­a­tive giv­en the growth the com­pa­ny’s been get­ting over the last five or six years but that’s what the ana­lysts are say­ing.

[00:40:42] Tony: But growth over P does­n’t meet our 1. 5 thresh­old so we can’t score it for that because the P is too high. I did think this might be an own­er founder com­pa­ny but it’s not. How­ev­er, direc­tors hold 3 per­cent which isn’t too bad. Inter­est­ing, um, inter­est­ing his­to­ry. Looks like the founders are out, um, they’re prob­a­bly going back to 77 when they found­ed the com­pa­ny.

[00:41:02] Tony: Just as an aside, it’s the his­to­ry of the com­pa­ny is it’s, um, uh, one of the orig­i­nal, I think, IBM resellers in Aus­tralia and it merged with a, I think, a type­writer. Vend­ing Com­pa­ny, so per­haps an IBM type­writer vend­ing com­pa­ny back in the 70s, and formed this com­pa­ny, and then they decid­ed to, uh, jazz up the name, because I think it was called PCA orig­i­nal­ly, or PCA Part­ners orig­i­nal­ly, and they called it Data Hash 3.

[00:41:32] Tony: Because, uh, that was the year, when they changed the name, that was the year that IBM released per­son­al com­put­ers that had a hash above the 3, so you pressed shift 3 and got a hash, and they thought that was the, a great, you know, great move for­ward in tech­nol­o­gy, and they’d show them­selves to be, uh, Uh, on the cut­ting edge of trends in the IT indus­try, and so they call them­selves Data3.

[00:41:55] Tony: Uh, yeah, inter­est­ing sto­ry. Any­way, um, in terms of man­u­al­ly entered data, it’s not a recent upturn. It’s been, been trav­el­ing quite nice­ly, as you’d expect with that sort of growth pat­tern over the last five years. It gets a zero for con­sis­tent­ly increas­ing equi­ty, although it was pret­ty close to, to six halves of increas­ing equi­ty, just slight­ly missed out on one.

[00:42:16] Tony: Um, all in all, qual­i­ty score is 10 over 15, so 67%. QAV score of 0. 18. How­ev­er, let me just run through some of the inter­est­ing parts and I put this in the risk sec­tion. The div­i­dend pay­out ratio is 91. 4 per­cent and I’m, it’s not on the check­list as a met­ric or it’s not a red flag, but it is a risk I think when a com­pa­ny’s pay­ing out such a high amount of prof­it as a div­i­dend, uh, I guess you can read it as a pos­i­tive or neg­a­tive, I tend to see it as a neg­a­tive because if they have a down­turn, if there is like a reces­sion next year and the prof­its go down, the div­i­dend goes down and if peo­ple are hold­ing the stock to obtain a div­i­dend, then they’ll sell it, which will depress the stock price even fur­ther.

[00:43:05] Tony: So, yeah. I think it’s an issue when a com­pa­ny pays out that much of its prof­it as div­i­dends. I guess they’re doing it because they don’t need to invest that much in the busi­ness. Some­times com­pa­nies in this sit­u­a­tion keep more on their books and then they look for M& A acqui­si­tions, so that’s Some­thing they per­haps could con­sid­er, but yeah, it’s, it’s a risk.

[00:43:28] Tony: And, and I’m remind­ed of the time many decades ago when Tel­stra was a blue chip com­pa­ny, or still is, I sup­pose, but was a, was a dar­ling because it was pay­ing a, uh, an above mar­ket div­i­dend yield, ful­ly frank, and peo­ple were buy­ing Tel­stra stock when they retired and liv­ing off the div­i­dends for years and years, not real­ly car­ing what hap­pened to the share price or who was run­ning the com­pa­ny or what it was get­ting into, um, but rely­ing on that div­i­dend.

[00:43:52] Tony: And even­tu­al­ly years. Tel­stra’s prof­it became more chal­lenged. The div­i­dend pay­out ratio had to keep climb­ing because prof­its were decreas­ing a lit­tle bit. Pay­out ratio was increas­ing to attract peo­ple to keep the share price up to buy the stock. Uh, and even­tu­al­ly it got into the com­i­cal sit­u­a­tion where Tel­stra was bor­row­ing mon­ey to pay their div­i­dend.

[00:44:12] Tony: So the prof­it was­n’t cov­er­ing the div­i­dend and obvi­ous­ly you can’t keep Doing that for­ev­er and even­tu­al­ly it all came to an unhap­py end and a bit of a mess. So when­ev­er I see a pay­out ratio so high, I’m a lit­tle bit skep­ti­cal and call it out as a risk. Um, the oth­er inter­est­ing thing about this com­pa­ny, and I guess, you know, my brain was picked by the fact that it’s a high PE com­pa­ny, um, but it’s com­ing up as good price to oper­ate in cash flow.

[00:44:40] Tony: Uh, And it’s, it’s fail­ing on the oth­er val­u­a­tion met­rics like IV1, IV2 and, and Net Equi­ty Per Share. So, some­thing was going on there and I did a bit of dig­ging. It looks like, in this case, oper­at­ing cash flows is often affect­ed quite a lot by sup­pli­er pay­ments. So, this com­pa­ny, I think, does about 2. 5 bil­lion worth of sales.

[00:45:05] Tony: I’ve done some back of the enve­lope analy­sis on some num­bers, so they may be out. But they’re sort of direc­tion­al­ly right. Looks like about two bil­lion of that comes from hard­ware. So they’re buy­ing equip­ment from IBM, et cetera, and then installing it and sell­ing it to com­pa­nies that they’re doing IT con­sult­ing work for, or oth­er IT work for.

[00:45:26] Tony: And so they’re mak­ing a very thin mar­gin on that. But depend­ing on the trad­ing terms, when they get the mon­ey from the client and to how long it takes for them to have to pay IBM, Uh, that can come look like oper­at­ing cash flow because it’s receipts from clients but it has­n’t been paid out to a sup­pli­er and I think that’s inflat­ing the oper­at­ing cash flow this par­tic­u­lar half because last, last half it was neg­a­tive 22 mil­lion dol­lars so, um, some, I’m not sure this is a QAV stock, I’m not sure we can rely, I don’t think we can rely on oper­at­ing cash flow in this case, uh, I’m not say­ing it’s a bad com­pa­ny or I’m not say­ing it’s um, it should­n’t be bored if peo­ple are inter­est­ed in a growth com­pa­ny.

[00:46:07] Tony: It’s got a rea­son­able qual­i­ty score but I think the oper­at­ing cash flow here is, is not what we intend it to be. In oth­er words, a good indi­ca­tion of how, how um, you know, cash gen­er­a­tive this busi­ness is. And dig­ging down a lit­tle bit fur­ther, it’s kind of two busi­ness­es and man­age­ment do call this out in their pre­sen­ta­tions and the busi­ness split is impor­tant how­ev­er the account­ing does­n’t.

[00:46:28] Tony: Split things into busi­ness units. It just oper­ates at the com­pa­ny lev­el. So, well, the statu­to­ry account­ing does any­way. It looks like, uh, like, like I said before, about 2 bil­lion of the 2. 5 bil­lion in sales is IT hard­ware. And they’re mak­ing about, you know, sort of a very low mar­gin on that, maybe 1 to 2%. Um, but the rest of the busi­ness, the oth­er, uh, sort of 350 to 500 mil­lion in sales, maybe 350, I think was the num­ber I pulled out of their fig­ures.

[00:46:55] Tony: Uh, looks like it’s. The peo­ple busi­ness. So the sort of busi­ness that, um, we like to see with IT com­pa­nies where, uh, there’s a low invest­ment, low cap­i­tal, um, high ROE and great mar­gins. And so, you know, if you try and split that up and take the prop calf from the con­sult­ing busi­ness and the, and the oth­er parts of the busi­ness, which aren’t it sales hard­ware, sales.

[00:47:20] Tony: And then the Prop­Caf blows out to be more like the PE, so I, again, I haven’t done the detailed num­ber crunch­ing, I would guess it’s going to be sort of in the 20 to 30 times ratio, sort of equiv­a­lent to what the PE is, which is 29. 4, so yeah, I don’t know. Look, I’m not going to say don’t buy this com­pa­ny.

[00:47:39] Tony: I’m not going to say buy it, which I nev­er do any­way. But this is one case where the Prop­Caf isn’t giv­ing us the whole pic­ture. Looks like it’s a good com­pa­ny. It’s had at least six years of con­stant growth. You’d be hap­py to know, Cam, that they’ve high­light­ed AI as being a par­tic­u­lar area of growth for them.

[00:47:58] Tony: And all of their clients are ask­ing them how can they use AI in their busi­ness in every sort of aspect. Secu­ri­ty, um, uh, net­work. Rout­ing, um, all sorts of dif­fer­ent things. So, uh, trans­for­ma­tion, busi­ness, um, busi­ness process flow, all that kind of thing. So, uh, I’ve got no rea­son to think the growth won’t con­tin­ue, but I’m just going to cau­tion peo­ple to, um, do a, do some research them­selves.

[00:48:24] Tony: I don’t think Prop­Caf is a good mea­sure for this com­pa­ny.

[00:48:29] Cameron: DTL. Thanks Tony. A friend of mine, a busi­ness part­ner of mine was like the mar­ket­ing direc­tor there for quite a few years. Okay. Yeah. They’re, they’re think­ing, cause I think they’re based up here, based in Bris­bane. They are. Yeah. Based

[00:48:46] Tony: in Toowong.

[00:48:47] Tony: Yeah.

[00:48:50] Cameron: Good stuff. Yeah. Well, I think, um, AI is going to have a dra­mat­ic impact on IT. Busi­ness­es and how clients use IT in par­tic­u­lar in the next few years, already start­ing to see that flow through. There was an arti­cle in the Finan­cial Review last week that I ref­er­enced in my Futur­is­tic Pod­cast on Fri­day, basi­cal­ly say­ing that it’s, uh, that AI and the impact of AI is one of the top three con­cerns in every board­room in Aus­tralia right now.

[00:49:21] Cameron: It’s what every CEO is think­ing about and talk­ing about. How do they nav­i­gate this? What this, what is the impact going to be on their busi­ness, et

[00:49:30] Tony: cetera, et cetera. Yeah, I think that’s impor­tant, but I take it with a grain of salt as well, because every year they pub­lish that kind of sur­vey, and what are the top three things that CEOs are think­ing about, and you know, one year it’s ESG, one year it’s Inter­net of Things, one year it’s After­pay, it’s like, buy­ing our pay­laters, there’s always some kind of fad they’re focused on.

[00:49:50] Tony:

[00:50:19] Tony: Um, mov­ing from the main­frame to small­er com­put­ers and, um, the appli­ca­tions were eas­i­er to code and main­tain and things. And we start­ed to see less cler­i­cal staff, for exam­ple. That was a, you know, kind of a, I guess an indi­ca­tor that it was actu­al­ly hav­ing an impact on busi­ness. Hmm.

[00:50:37] Cameron: Yeah, one of the things that every­one is pre­dict­ing as being one of the first casu­al­ties will actu­al­ly be devel­op­ers.

[00:50:45] Cameron: The abil­i­ty for Chat­G­PT and BARD to write code now is pret­ty impres­sive. It can write Mas­sive chunks of code, and you know, I’ve spent a lot of time get­ting it to write code for me over the last cou­ple of months. Um, it’s not per­fect, uh, and there’s a lot of debug­ging to be done and that kind of stuff, but I think it’s going to get bet­ter at those sorts of things.

[00:51:08] Cameron: I think its abil­i­ty to replace, uh, a lot of the work that coders do, whether or not it replaces coders, is anoth­er sto­ry, you know.

[00:51:19] Tony: Yeah. Yeah, I think that’s, it’s going to be a great pro­duc­tiv­i­ty tool, if noth­ing else, I think. Hmm.

[00:51:24] Cameron: Hmm. Hmm. And Tony will be hap­py for me to report that since he did that rec­om­men­da­tion, I, uh, did buy DTL, uh, a cou­ple of pack­ages, actu­al­ly.

[00:51:37] Cameron: First was at the begin­ning of, uh, Novem­ber, 8th of Novem­ber, sec­ond, uh, was in, uh, 27th of Novem­ber, and the third was on the 12th of Decem­ber. Any­way, the first one is up about 12 per­cent since we bought it at the begin­ning of Novem­ber. So, uh, yeah, DTL has turned out post pulled pork to do quite well, no com­plaints there.

[00:51:58] Cameron: Well, that is episode, what­ev­er this is, 652, I think, and, uh, I hope you enjoyed that. I’ll be back next week, first week of Jan­u­ary, with anoth­er best of episode, anoth­er pulled pork in there as well. I hope you all have a safe and hap­py New Year’s Eve. Stay out of the storms, don’t drink too much, don’t do your liv­er too much dam­age, and let’s hope that 2024 is a bet­ter year on the mar­kets than 2023 has been.

[00:52:30] Cameron: Take care, guys.

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