QAV America 007 — Tariffs, Towers, and the Telco Gamble in Africa

[00:00:00]
Cameron: Wel­come back to QAV Amer­i­ca. This is episode sev­en. We’re record­ing this on the 27th of May. My name is Cameron Riley. With me is Tony Kynas­ton. How are you? Tk?
TK: Very well. Thank you, cam, as the rain. Comes in
Cameron: Rain­ing in
TK: at Cape Shank.
Cameron: who’s
TK: It’s moved, actu­al­ly. It’s moved on now. It’s very Scot­tish down here at the moment.
Cameron: Speak­ing of which, I have a, a Scot­tish aunt who’s com­ing to a, or is in Aus­tralia actu­al­ly at the moment, but she’s com­ing to Bris­bane at the end of this week, who I’ve nev­er met before. One of my dad’s sis­ters, she’s com­ing to spend a week with us and Bris­sy. That’ll be nice.
TK: Oh, nice. Yeah.
Cameron: Um.
TK: you all the low down on your dad.
Cameron: Yeah, look­ing for­ward to
TK: Yeah.
Cameron: I think she was quite young when he left Scot­land, so I don’t think she actu­al­ly knew him very well at all. So I think ’cause they had like 12 kids in the fam­i­ly and I think, [00:01:00] uh, she’s one of the younger ones and he was the third eldest. So, and he left when he was like 18 or 19 and came to Aus­tralia.
So then, yeah, last time they saw him until he went
TK: That’s a.
Cameron: Not a year or so, but a year or two before he died.
TK: That’s a slid­ing doors moment. You could have wound up any­where in the world, could­n’t you, but till your father chose Aus­tralia.
Cameron: Well, no, my moth­er was here, so if he’d gone some­where else, I would­n’t be, would­n’t be me. It’d be some­one else.
TK: Yeah, true.
Cameron: Any­who,
TK: I.
Cameron: uh, let’s, uh, talk about our US port­fo­lio, Tony. It was down a lit­tle bit in the last sev­en days, down 1.3%, and the bench­mark was up. Quite a bit, 9.85%, uh, accord­ing to But then when I looked at the charts, that does­n’t make much sense ’cause the
TK: Yeah, it sounds like a lot.
Cameron: down for the week.
me just open up again and see if wrote that down [00:02:00] incor­rect­ly
in the last week. So that’s say May 19th. Yeah. Okay. Now it’s giv­en me a com­plete­ly, yeah, it’s, uh, it says it was down 1.93%. Okay.
TK: go.
Cameron: There you
TK: We need, we need some, uh, some tele­vi­sion hold music while you check things
Cameron: yeah, yeah.
TK: a lit­tle, lit­tle bit of Herb Albert and a Tijua­na Brass or some­thing in the back­ground.
Cameron: I just,
I just, edit­ed out of the show. It’s all right. No one knows
TK: Oh, okay. I’m refer­ring to some­thing which has­n’t hap­pened.
Cameron: Yeah, actu­al­ly. Okay, so look­ing at this now, it says we’re down 3.7% for the last sev­en days, and the s and p 500 was down 2.6% for the last sev­en days, so we were down a lit­tle bit more, but not by that much. So that sounds a lot more rea­son­able any­way
TK: Yeah,
Cameron: the num­bers I got ear­li­er.
TK: sounds with my, uh, men­tal pic­ture of what’s hap­pened in the US in the last week
Cameron: [00:03:00] Yeah.
TK: stock mar­ket. Hmm.
Cameron: But, uh, this Aus­tralian Finan­cial year, which is from the 1st of July through to today, our port­fo­lio is up about 25% ver­sus the s and p up about a lit­tle bit less than 6%. So. We’re still doing quite a bit bet­ter than the bench­mark, even though we’ve
TK: Mm-hmm.
Cameron: way since Trump start­ed doing his tar­iff busi­ness.
We’re still com­par­a­tive­ly doing quite well and can’t com­plain.
TK: Yeah, we don’t com­plain ’cause nobody lis­tens.
Cameron: Speak­ing of Trump’s tar­iffs, we talked about this on our Aus­tralian show, but he
TK: I.
Cameron: start­ed talk­ing more about throw­ing tar­iffs around, uh, willy-nil­ly this week, 50% to the EU, 25% on apples iPhones, if they’re not made in Amer­i­ca. [00:04:00] Uh, you know, and we talked about on the Aus­tralian show how it’s most­ly, I think just mis­di­rec­tion.
It’s just, uh, maybe a nego­ti­at­ing tac­tic, but I don’t think so real­ly. I think it’s just mis­di­rec­tion while they’re push­ing through the one big beau­ti­ful bridge bill uh, try­ing to rush that through and get a lot of. Project 2025 projects push through while peo­ple aren’t pay­ing atten­tion. That’s my take on it, but I know you think it might be an a gen­uine nego­ti­at­ing tac­tic.
TK: Oh, I think it’s prob­a­bly both Cam. It’s uh, it’s get­ting peo­ple to call Trump and start deal­ing. Um, the only lever­age he’s had, he has is to impose a big tar­iff and then pull it back. I guess if they start to deal. And like train­ing a dog, isn’t it? It’s like, um. beat­ing will stop when you come to heal. Uh, yeah, it is also, uh, because noth­ing, I don think there’s been any rene­go­ti­a­tions of tar­iffs or much rene­go­ti­a­tions of tar­iffs [00:05:00] yet. It may hap­pen, as you say, there’s been a big bill passed in the, uh.
Cameron: House.
TK: Alex, thank you. I was try­ing to think of the right term in the Amer­i­can Con­gress, um, and tak­en to the Sen­ate, so we’ll see what hap­pens with the big, beau­ti­ful bridge Bill. It’s a love­ly bridge.
Cameron: a love­ly bridge. It’s a beau­ti­ful bridge and it’s gonna be
TK: Okay.
Cameron: Don’t gimme those neg­a­tive waves. Uh, but I just wan­na point out for, for new lis­ten­ers, Amer­i­can lis­ten­ers, our approach to all of this sort of macro­eco­nom­ic tur­bu­lence that’s going on as we see each say each week in our show is basi­cal­ly to ignore it.
We pay much atten­tion to the noise, which is a War­ren Buf­fet and Char­lie Munger rule. Ignore the noise. We just focus on the busi­ness­es, look­ing for busi­ness­es that we wan­na invest in. know, we spend our time look­ing for busi­ness­es that are gen­er­at­ing a lot of cash for good his­to­ry of gen­er­at­ing cash see­ing if we can buy them at what we think is a [00:06:00] dis­count to their intrin­sic val­u­a­tion.
speak­ing of busi­ness­es, I’m gonna talk about one today. I’m gonna do a pulled pork on a com­pa­ny called IHS. one of the things that I love about. Dip­ping our toes in the Amer­i­can mar­ket, as I’ve said over recent episodes, is this. Lots of busi­ness­es that we don’t get to see in Aus­tralia. Lots of dif­fer­ent busi­ness­es with dif­fer­ent busi­ness mod­els in dif­fer­ent mar­kets, and I find it real­ly inter­est­ing to learn about these busi­ness­es and, and what they’re doing and how well they’re doing.
IHS is one of those, tick­er is our IHS. It’s IHS Hold­ing is the name of the com­pa­ny. on the New York Stock Exchange. This isn’t your typ­i­cal sort of Wall Street, dar­ling. It’s a tele­com tow­er pow­er­house that focus­es on emerg­ing mar­kets, and when you drill into it, there’s a lot of high stakes, big risks, big rewards as well.
[00:07:00] But there’s a lot of stuff going on here. So what does IHS hold­ing do? They’re lit­er­al­ly the nuts and bolts of the telecom­mu­ni­ca­tion sec­tor in Nige­ria, pri­mar­i­ly, com­pa­ny’s head­quar­ters are in Lon­don, but they are the world’s third largest inde­pen­dent own­er and oper­a­tor of tele­com tow­ers. Believe it or not, they have 39,000 sites.
And their focus is pre­dom­i­nant­ly on emerg­ing mar­kets. So Nige­ria is about two thirds of their rev­enue, but there’s also Sub-Saha­ran and Africa, Latin Amer­i­ca, and the Mid­dle East. So of course every time you make a phone call, every time you use a mobile, that sig­nal trav­els via a tow­er. IHS own the tow­ers and lease them out to telecom­mu­ni­ca­tions com­pa­nies.
So they, they, they focus on the crit­i­cal infra­struc­ture. Tele­coms [00:08:00] com­pa­nies, appar­ent­ly, I did­n’t know this, don’t run their own mobile tow­er infra­struc­ture. Often like IHS. That own them and oper­ate them, and then they lease them out with long-term leas­es, obvi­ous­ly, to mobile net­work oper­a­tors, long-term con­tracts, and in IH S’s case 95% of their rev­enue are long-term con­tracts.
And Nige­ria, as I said, is a mas­sive part of their busi­ness. About 60% of their rev­enue, and I don’t know if you know this, but Nige­ria has had a lit­tle bit of polit­i­cal insta­bil­i­ty and eco­nom­ic insta­bil­i­ty in recent years, so that’s all part of. So IH S’S chal­lenges, which I’ll get into. But before I do that, bit of back­ground on the com­pa­ny.
was found­ed in 2001 in Lagos by a guy called Sam Dar­wish, who was a tele­com [00:09:00] engi­neer, born in Beirut the Lebanese civ­il War. End­ed up start­ing his career with MCI Beirut. Then he end­ed up as the deputy man­ag­ing direc­tor of a com­pa­ny called Moaf Phone, which was Nige­ri­a’s first GSM oper­a­tor in 1998.
Then when the Niger­ian gov­ern­ment decid­ed to pri­va­tize their tele­coms in 2001, he set up IHS, he has been run­ning it for the last 24 years. He’s still the CEO and chair­man of the com­pa­ny. So we do like founder run busi­ness­es, and this is one of those, or those we’ll see lat­er. He does­n’t actu­al­ly own a huge amount of stock in it, but it is a founder led busi­ness float­ed on the New York Stock Exchange in 2021, it was the largest IPO.
Of a firm of Amer, of African, sor­ry, her­itage on the New York [00:10:00] Stock Exchange. They’ve come a long way since then. They’ve, as I said, they’ve got oper­a­tions in Peru, in Wai, well, they did have, but they’ve been prun­ing those back in the last cou­ple of years because of prob­lems with the Niger­ian econ­o­my.
Again, I knew noth­ing about this had­n’t been pay­ing atten­tion, but, uh, there was a big shock to the Naira. N‑A-I-R‑A, the Niger­ian dol­lar, the Niger­ian cur­ren­cy in 2023. Did you hear about this, Tony?
TK: I did not cam no.
Cameron: Well, um, one Naira is divid­ed into a hun­dred Cobo Tony. want you to pay atten­tion ’cause I’ll be you on this lat­er. Feb­ru­ary, 2023, there was a major, uh, deval­u­a­tion of the [00:11:00] Naira, eh, Pres­i­dent Bola Tin­ubu basi­cal­ly float­ed the dol­lar, uh, float­ed the Naira. The Cen­tral Bank had been prop­ping it up for.
And basi­cal­ly the offi­cial­ly US dol­lar was worth 460 but it was lim­it­ed as to who could access those buy­ing offi­cial dol­lar sources. But you could buy them on the black mar­ket for sev­en or 800 Naira. So there was a lot of black mar­ket cur­ren­cy trad­ing on. It was a bit of a joke. And when they basi­cal­ly float­ed it, every­one rushed in, grabbed it, and the price shot up.
The offi­cial price of the Nora shot up from, of the dol­lar shot up from 469 to over 700 in a sin­gle day and kept slid­ing. And this [00:12:00] had a mas­sive impact IHS, but also on the Niger­ian econ­o­my. Nige­ria earns dol­lars most­ly by sell­ing. Oil had­n’t been pump­ing much, so the freez­er was already half emp­ty ’cause they’ve had a lit­tle bit of polit­i­cal trou­ble over there.
And every­one want­ed dol­lars to buy stuff from abroad, so the cost of every­thing shot up. Uh, every­thing that they import, flower fuel, school, books, prices and shops jumped up. Infla­tion hit 30% Jan­u­ary, 2024, which was the worst in near­ly 30 years. And com­pa­nies that. Bor­rowed US dol­lars, obvi­ous­ly had a big prob­lem, and IHS was one of those.
They end­ed up with huge for­eign exchange loss­es. As a result of this, they had been bor­row­ing huge amounts of mon­ey of the US to fund their expan­sion of mobile phone tow­ers across dif­fer­ent [00:13:00] geo­gra­phies they were oper­at­ing in. And when, when this all hap­pened in 2023, it. Cre­at­ed huge prob­lems for IHS and they, uh, uh, took a bunch of loss­es.
But before I get onto that, just let­ting you know that the Cen­tral Bank in Nige­ria yanked inter­est rates up to 27% to try and make the Naira more attrac­tive. So for those of us here in Aus­tralia or the Unit­ed States that have thought, we’ve had high inter­est rates for the last cou­ple of years since COVID.
Take a moment to think about, uh, our friends in Nige­ria at the moment. May 20, 25, $1 hov­ers around 650 to 750 Naira. So rough­ly four times the old pre­tend rate of what it was back when they were. Um. [00:14:00] Uh, keep­ing it, uh, unsus­tain­able low, but the free fall seems to have stopped, uh, most­ly because mon­ey is super, super expen­sive to bor­row and the gov­ern­ment has promised not to fid­dle with the rate again.
when it cre­at­ed 70% of 2023 IHS end­ed up report­ing a US $1 bil­lion for­eign exchange loss. Which was a, a big issue for them. And they earn about 60% of their rev­enue in Nige­ria, as I said, most­ly in Naira, but it reports every­thing in US dol­lars. So when the NAIRA crashed, a hun­dred mil­lion NAIRA in Niger­ian rev­enue became worth way less when trans­lat­ed to USD.
Even if their Niger­ian tow­ers were still earn­ing the same rents local cur­ren­cy, you report the top [00:15:00] line in USD. It did­n’t look any­where near as impres­sive. And as I said, they bor­rowed bil­lions in US dol­lars. So now all of a sud­den their pay­ments in US dol­lars are gonna be way more expen­sive and it’s gonna be a big hit to the bot­tom line.
So they took, uh, they took a lot of hits a cou­ple of years ago, and they’ve done a lot of restruc­tur­ing since then. But the flip side to that is they have a lot of long-term con­tracts. the busi­ness is still it’s still doing well on one met­ric. If you just look at its, you look at its pure cash flow in Niger­ian dol­lars, it’s doing okay, but it took this big hit in for­eign exchange, the cost of, you know, for­eign exchange, uh, trans­la­tions.
by the way, it has a mar­ket cap of about $1.9 bil­lion [00:16:00] and has an aver­age dai­ly trad­ing vol­ume of around 600,000 shares. So it’s pret­ty liq­uid. So despite. some of the chal­lenges, they’ve got some com­pelling strengths. Accord­ing to Stock­o­pe­dia, IHS is a stock rank of 99, which is very, very high. Their qual­i­ty rank is also a sol­id 72 on Stock­o­pe­dia. Which is again, pret­ty high. Their F score is sev­en, is pret­ty sol­id.
Looks at their finan­cial sta­bil­i­ty and oper­a­tional effi­cien­cy. Their price to oper­at­ing cash flow is about 2.61, which is quite low. Um, you know, we often say that this is a that if you were get­ting paid out­ta their cash flow, it’d take about two and a half years for [00:17:00] the com­pa­ny’s oper­a­tions to gen­er­ate enough cash to cov­er the share price.
So that’s, that’s pret­ty low risk. The share price, how­ev­er, is below its book val­ue. that’s because the book val­ue is cur­rent­ly neg­a­tive 2024, it was, uh, neg­a­tive 1.36. It was pos­i­tive up until the for­eign exchange cri­sis in 2023. But the last, uh, year or two, it has been neg­a­tive. It does have a pos­i­tive recent upturn, pos­i­tive mar­ket at sen­ti­ment.
It’s got a recent upturn. It’s recent­ly gone above its buy list, uh, sor­ry. It’s recent­ly gone above its buy line and it’s above its sec­ond byline after com­ing back a lot in the last, uh, cou­ple of years, but there’s a lot of indus­try tail­winds over there. Data traf­fic in Africa is grow­ing at a com­pound annu­al growth of about 30%,
TK: True.
Cameron: Nige­ria.
So the, you know, if you [00:18:00] think about these devel­op­ing coun­tries, a lot of peo­ple to get mobile phones. There’s a, there’s a big need for data. A lot of inter­net being deliv­ered over cel­lu­lar net­works. They’re now a lot of peo­ple run­ning their own busi­ness­es over cel­lu­lar phones and mobile inter­net.
So. uh, a, a boom­ing mar­ket that these guys are a sig­nif­i­cant play­er in. They’re the num­ber one play­er in Nige­ria. They have about 45% mar­ket share, and as I said, they’ve been strate­gi­cal­ly sell­ing off assets in oth­er geo­gra­phies in order to fix up their bal­ance sheet. They have a $50 mil­lion share buy­back pro­gram in place.
About 12 mil­lion of that has been exe­cut­ed, and the CEO Sam Dar­wish him­self bought $3 mil­lion worth of shares on the open mar­ket in August, 2024. [00:19:00] Always a good sign when you see the CEO. Uh, pick­ing up stock like that, but I wan­na talk about the weak­ness­es and risks, uh, which go beyond the for­eign exchange thing that I men­tioned has a neg­a­tive PE ratio.
Uh, the earn­ings per share 2024 were neg­a­tive 4.90. The Alt­man Z score is a neg­a­tive two. The mea­sure of bank­rupt­cy. Obvi­ous­ly, uh, you know, we, we don’t real­ly pay a lot of atten­tion to that, but, you know, we do wan­na note that when a com­pa­ny is in finan­cial dis­tress that it’s a risk. But as you’ve said recent shows, we have trig­gers in place if, uh.
Some­thing goes wrong with a com­pa­ny to get out of it. They’ve racked up a cou­ple of years of net loss­es, uh, in the last cou­ple of years, most­ly due to for­eign exchange trans­la­tion loss­es, lot of depre­ci­a­tion and [00:20:00] amor­ti­za­tion, and then the inter­est expense from all of that debt. their cash­flow is strong and it had been grow­ing quite well up until 2023, 2018.
They did 462 mil­lion. By 2022, it was up to 907 mil­lion, so it dou­bled in that four year peri­od, but then it came back when the cri­sis hap­pened in 20 23, 20 24, it was down to 729 mil­lion, but real­ly, real­ly good. Very strong busi­ness before the finan­cial. Uh, cri­sis kicked in with the exchange rate. The com­pa­ny does­n’t pay a div­i­dend, so it has no yield.
The share price is, as I said before, below book. It’s all so above our, both of our intrin­sic val­ue cal­cu­la­tion, so I could­n’t score it on that. the inter­nal, [00:21:00] the exter­nal land­scape is where things get par­tic­u­lar­ly dicey. The Naira I men­tioned has been a big issue for it and. Diesel that’s impact­ed a lot of under­ly­ing issues there as well.
Like diesel prices are up, uh, their pow­er oper­at­ing expens­es are up lot of their under­ly­ing. Costs are up, but some of these are being cov­ered by pass through claus­es to the peo­ple they lease these things out to. So does­n’t all direct­ly hit their bot­tom line. But there’s trick­le through effects, I guess, with the car­ri­ers and their abil­i­ty to then cov­er all of these that you can.
You can have a 10 year con­tract in place, but if the car­ri­er starts to have finan­cial issues, uh, and they can’t pay their bills, then that can come back and bite you on the ass. But the oth­er one is region­al pow­er insta­bil­i­ty. I, you know, we’ve seen a bit of this in our Aus­tralian show with some [00:22:00] min­ing com­pa­nies.
I can’t remem­ber, was it MIUs resources we had, uh, six months ago where the CEO was, uh.
TK: Uh, don’t think it was Elia. It might Uh hmm. Might have been West African Resources
Cameron: That
TK: oper­ates in, in the area. Yeah. So there’s sov­er­eign risk.
Cameron: Might have been region resources, one of those, but we, we had a, I think it was a gold min­ing com­pa­ny that was oper­at­ing in
TK: Hmm.
Cameron: and their CEO got held, detained
TK: For dis­cus­sions,
Cameron: for dis­cus­sions about how much tax
TK: roy­al­ties.
Cameron: Yeah. And it sort of dou­bled and then he, uh, was released and decid­ed to retire back to Lon­don.
TK: Hmm
Cameron: We could­n’t real­ly blame him, you know, there’s, there’s a lot of region­al pow­er insta­bil­i­ty in that area, and there’s called the, the Sahel region. Uh, includes the South as the [00:23:00] Sahara across the West and Cen­tral Africa. It’s Mali, Burk­i­na Faso, Niger, Chad Sudan, parts of Nige­ria, Cameroon, Morana, and Sene­gal.
It’s, uh, very poor area, very polit­i­cal­ly un sta­ble, rid­dled with eth­nic and reli­gious ten­sions, and there have been six coups in the last four years in that region. Plus a bunch of failed attempts tens­es tran­si­tions every­where. You have groups like Boko Haram, ISIS, Al-Qae­da run­ning around in that area.
And of course, you know, this comes with. Issues. Just the gen­er­al health of the econ­o­my with issues about how much, uh, tax­es are you pay­ing? Mr. CEO come in and we’d like to throw a ban­quet in, your Hon­or. Why don’t you come to our offices and see how it goes?
TK: The ISIS [00:24:00] ban­quet.
Cameron: Yeah. There are
TK: Hmm.
Cameron: oth­er issues as well though, like obvi­ous­ly secu­ri­ty risks to infra­struc­ture.
Tow­ers can get attacked. can have a jihadist group that decides to
TK: Mm-hmm.
Cameron: trou­ble. They don’t want peo­ple talk­ing on the phone so they can blow up your tow­ers. Work­ers can’t get access to sites because there’s vio­lence in the area. Main­te­nance can be dis­rupt­ed. Ener­gy sup­ply gets cut off. IHS, as I said, have 39,000 tow­ers across Africa, and a lot of those are near these hotspots in the Sahel region.
And then you have regime change that comes with con­tract risk. New mil­i­tary regimes can wan­na rene­go­ti­ate, uh uh, uh, let’s put it nice­ly, revoke terms. Yeah. You have to assume that even if there’s regime change, the new regime wants the econ­o­my to be bustling. They want [00:25:00] peo­ple to have access to mobile tele­phones, and they want them to have access to the inter­net.
Usu­al­ly they may have fun­da­men­tal­ist rea­sons why they. Don’t want peo­ple to have access to it. But gen­er­al­ly, I imag­ine if you become the gov­ern­ment of a new coun­try, you want mon­ey to be flow­ing in. You need, you need the econ­o­my to be churn­ing to a cer­tain extent, but a state owned tel­cos too could, a lot of them are state owned.
Tel­cos can sud­den­ly stop pay­ing you if there’s a, a jun­ta that decides that they just don’t wan­na. Pay the bills. So there’s a lot of those issues in this, this region, cap­i­tal flight out of these coun­tries when peo­ple get ner­vous about jun­ta or regime risks. so there are a lot of risks asso­ci­at­ed with the busi­ness, basi­cal­ly.
then inter­nal­ly, they also have some issues. Their largest ten­ant. Com­pa­ny called MTN, who also [00:26:00] holds 26% of the stock of the com­pa­ny, but is lim­it­ed to 20% of the vot­ing rights. There’s a dual class share struc­ture in place, there’s been a lot of agi­ta­tion. I. Between MTN and the com­pa­ny law­suit threats, of proxy fights.
Uh, MTN walk­ing away from lease renewals, um, or threat­en­ing to, there’s been a lot of board churn as a result of that. the com­pa­ny’s got a lot of issues. I just wan­na flag that. But drilling down into their finan­cials a lit­tle bit, share price, when I looked at it, was at $5 38. The rev­enue, uh, over the last five years has to grow from 1.2 bil­lion to 2.1 bil­lion, uh, in 2023.
How­ev­er, as I said it, it dropped a lit­tle bit in the last cou­ple of years, [00:27:00] despite this, if you look at the com­pound annu­al growth from 2020 to 2024, it’s still 5%. Even with the. Issues com­ing out­ta 2023, but it’s los­ing mon­ey, as I said before. Some of that’s got to do with the for­eign exchange issues, and it did swing back into a prof­it in Q4 2024, that was I.
Large­ly to do with a brief ral­ly in the Naira. I think the, the under­ly­ing curr, the under­ly­ing cur­ren­cy, free cash flow is still neg­a­tive. Um, and the, but the com­pa­ny does have a lot of cash. got 500 mil­lion in unre­strict­ed cash and a $400 mil­lion revolv­ing. Cred­it facil­i­ty, which is cur­rent­ly not drawn upon, so it’s got access to funds if it needs it.
[00:28:00] But as I said, you know, very low price to oper­at­ing cash flow, which we score it well for. from the ana­lysts is actu­al­ly fair­ly pos­i­tive. Despite all of those risks that I’ve men­tioned, Um, out of sev­en ana­lysts cov­er­ing the stock, six are giv­ing it a buy and one is giv­ing it a hold. So even though it’s had a rough cou­ple of years and there’s a lot of region­al issues, seems to be fair­ly pos­i­tive prospects, and as I said before, you know, Stock­o­pe­dia own rank­ings for it are pret­ty high, so it has.
A oppor­tu­ni­ty in a growth indus­try, tele­com infra­struc­ture in these emerg­ing mar­kets. The CEO owns about 3.8% of the stock. The COO owns anoth­er per­cent, but. That’s not 10% that we like to see before we score it on an own­er founder, though I tend not to score US com­pa­nies, because it’s hard to [00:29:00] get those num­bers out­ta Stock­o­pe­dia, but I did drill down into it.
We would­n’t score it any­way. It’s a lot of volatil­i­ty with the for­eign exchange, a lot of volatil­i­ty with the mar­ket, but fun­da­men­tal­ly, think it’s a real­ly inter­est­ing busi­ness that has been doing real­ly, real­ly well up until some of these recent issues. It’s high risk, but also poten­tial­ly pret­ty high reward.
I think the man­age­ment has been doing a good job at not only grow­ing the busi­ness before the for­eign exchange cri­sis, but at. Uh, you know, doing this strate­gic review, offload­ing non-core assets to try and cov­er some of their for­eign exchange issues, to fix their bal­ance sheet prob­lems. And as I said before, if it.
Goes hairy. We have our cell trig­gers in place to get us out. I see lots of upside for it, but um, this is not finan­cial advice. Do your own due dili­gence. We don’t own it. [00:30:00] It’s not in our port­fo­lio, but it’s on the buy list that I did a week or two ago I thought it was, uh, an inter­est­ing com­pa­ny to take a look at.
So that is IHS. Tony, what do you think?
TK: Very inter­est­ing Cam. Thank you. You raised a lot of issues. Um, that, so if any­one wants to buy the stock, they can research, but, um, it remind­ed me of a cou­ple of years ago, Tel­stra, the big tel­co, biggest tel­co in Aus­tralia, does own its po, it’s tow­ers as well. It’s poles and wise, as they call it, was restruc­tured so that they could spin off the. part of the busi­ness, the infra­struc­ture part of the busi­ness, and it was hun­gri­ly by super funds and pen­sion funds because that kind of busi­ness is attrac­tive to them because it’s, it’s some­times called a bond proxy. So it’s basi­cal­ly, you know, you, you bor­row mon­ey, you build a tow­er, you have a [00:31:00] con­tract, there’s a mar­gin, and it just keeps. Rins­ing and repeat­ing real­ly, and pay­ing you a sort of steady income stream for that invest­ment, which is what a lot of, um, super funds like, or pen­sion funds like, because it’s, um, it’s gen­er­al­ly a assured income. Um, that spin­off did­n’t hap­pen, by the way, but it’s still in Tel­stra. Um, but that’s be my expe­ri­ence with this kind of busi­ness.
So what we’re see­ing in IHS is that kind of bond proxy. it’s also got growth because it’s, it’s based in the third world and the, the bricks, if you wan­na call them that or the third world, are, uh, evolv­ing and becom­ing. You know, mov­ing up the eco­nom­ic chain from third World to Sec­ond World, and then devel­op­ing mid­dle class­es, et cetera, et cetera. And some­thing I’ve known or I’ve heard about in, in these cas­es is that, um, I think it was par­tic­u­lar­ly the case in India the, [00:32:00] they basi­cal­ly skipped the gen­er­a­tion in terms of IT devel­op­ment. So the, you know, I’m talk­ing to you over a lap­top, but in a lot of these coun­tries, they don’t have lap­tops.
They just go straight to their phone. And they use, you know, they use spread­sheets and they use, um, what­ev­er over their phones, et cetera, to do bank­ing and or what­ev­er, um, where you and I would nat­u­ral­ly do it on a lap­top. So to, to say that’s hap­pen­ing is back­ing up what you are say­ing about the tel­cos grow­ing sub­stan­tial­ly faster in the third world than they are in. The first world that, that was one of my ques­tions. Why isn’t, why is this com­pa­ny on the third world and it’s because of the growth side of things? I think. So you’re get­ting a, a steady income stream and it’s grow­ing, which is a dimen­sion that you don’t get, in first world com­pa­nies like Tel­stra. But it comes with a price, which we’ve talked about a lot on the Aus­tralian QAV show. The risk is sov­er­eign risk. So [00:33:00] some­thing could go wrong, the gov­ern­ment could change, the cur­ren­cy could crash, the infla­tion could. Astro­nom­i­cal­ly go up Um, the ques­tion always is then are you being ade­quate­ly com­pen­sat­ed? And it’s when we’ve talked before about Aus­tralian min­ing com­pa­nies, like a cou­ple we men­tioned before, they gen­er­al­ly trade on a PE ratio or a price to oper­at­ing cash flow ratio, which is much low­er. Often­times half what their Aus­tralian coun­ter­part trades at because you’re tak­ing on the risk of some­thing going. Not wrong, but some­thing, the curve ball com­ing out, um, of where they oper­ate. And, uh, so the, the ques­tion is always, are you being com­pen­sat­ed for the risk? And that’s often why com­pa­nies with sov­er­eign risk come onto the QAV check­list because know, the trad­ing on a very low priced oper­at­ing cash flow to com­pen­sate you for the risk of invest­ing in them.
So you’re get­ting a com­pa­ny which has got [00:34:00] 30% growth. Um. And the sort of sta­ble busi­ness mod­el of I bor­row mon­ey, I build a tow­er, I get a con­tract, I make a mar­gin, and I do that again 39,000 times I can keep doing it for anoth­er 39,000 times you would’ve thought with the same kind of mod­el. it’s grow­ing at 30% and the mar­gins are good and is, can I buy it cheap enough that it com­pen­sates me for the risk of oper­at­ing in these kinds of, geopo­lit­i­cal areas. I. I’d have to do a deep dive to that, whether that’s a, ade­quate buffer, but the fact that it’s been going for 24 years. These kinds of issues aren’t new in Nige­ria or in Sub-Saha­ran Africa or in a lot of third world coun­tries. So the com­pa­ny is quite used to han­dling this risk. So I think that’s a tick. The fact that it’s been around for a long time, fact that they’ve been able to make it work through eight ES a year or what­ev­er, the regime [00:35:00] changes in that area of the world and all the risks that go with that, um, sug­gest to me that they have found a way of. Mit­i­gat­ing those kinds of dis­rup­tions that, um, that what they’re sell­ing is quite val­ued. Even though the regimes change, they still keep the tele­phone. I. Pow­ers, uh, tow­ers oper­at­ing, for what­ev­er rea­son. Uh, and, um, it’s a, it’s a rea­son­ably robust busi­ness mod­el. So, yeah, I quite like it. Cam, I haven’t done any sort of due dili­gence on it, but it’s a bond proxy with growth. It’s trad­ing on a low price, oper­at­ing cash flow to mit­i­gate the risk.
And, um, it’s, it’s. Get­ting some atten­tion again at shares are going, are get­ting momen­tum, which is some­thing I like to see as well before we buy. Um, got a it you said before it does­n’t have an own­er founder, but did you know what class of shares you were mea­sur­ing? The per­cent­age test? Because it had less than 10% of the shares, but [00:36:00] maybe they have extra vot­ing rights and so might be the equiv­a­lent of hav­ing con­trol of more than 10% of the com­pa­ny, in which case it would scare score for us.
Cameron: Yeah.
no, I did­n’t drill down that deep. And inter­est­ing­ly in Stock­o­pe­dia, when I go into major share­hold­ers, it has noth­ing. I
TK: I saw that.
Cameron: I had to go look­ing for anoth­er source to drill down on that. But I, I did­n’t go as deep as find­ing out what, you know, kind of pow­er these two guys have. I mean, he is an own­er, founder, he is been run­ning it.
24 years. So, and he’s got a lot of mon­ey wrapped up in the com­pa­ny, uh, through those shares. So, um,
TK: He is gonna want con­trol of some sort.
Cameron: yeah.
TK: Yeah. So I might, might, might score for us on the own­er founder if we have a look at what the class of shares are on their vot­ing rights. But in all, it’s a very inter­est­ing com­pa­ny and I, I think it’s worth, I. out fur­ther.
Cameron: You know, we were talk­ing about this a week or two ago. I was [00:37:00] talk­ing about some of these com­pa­nies that when I drill into the risks that the busi­ness­es face, I’m like, oh my God, there’s like a lot of
TK: Yeah.
Cameron: on, you kind of remind­ed me that we have, I. Get out mech­a­nisms in if things go hor­ri­bly wrong.
So it’s, if it seems to be a rel­a­tive­ly well run busi­ness, uh, with good track record man­age­ment, know what they’re doing, they’ve been gen­er­at­ing cash, um, I’m more inclined now that they’ll con­tin­ue to do the right thing. And if they don’t, we’ll get out.
TK: And let’s put it in per­spec­tive. We’re, we’re talk­ing about sov­er­eign risk in Sub-Saha­ran Africa and Nige­ria. There’s been a lot of sov­er­eign risk going on in the US in the last few months as well,
Cameron: Good
TK: and fluc­tu­a­tions, uh, due to the gov­ern­ment. So, you know, let’s, let’s not be the pop­corn, the ket­tle black here, be hon­est.
Cameron: Yeah, good point. Alright, well, as I said, do your own due dili­gence, [00:38:00] but if you’re look­ing for a val­ue invest­ment, have a look at IHS. It’s an inter­est­ing busi­ness.
TK: Thanks, cam.
Cameron: Well, that’s QAV Amer­i­ca for this week, Tony. Have a great week. We’ll be back next week.
TK: Thank you. Look for­ward to it. Hap­py MYSE. 

Cameron: [00:00:00] Wel­come to QAV Amer­i­ca, episode six. Tony Kynas­ton.

TK: I like the

Cameron: How are you?

TK: QAV Amer­i­ca, it’s like, like a cam­paign ad.

Cameron: You like that?

TK: it’s morn­ing in Amer­i­ca. It’s, it’s QAV in Amer­i­ca.

Cameron: Yeah, we are not in Amer­i­ca. uh, if you are lis­ten­ing to this in Amer­i­ca, hel­lo. Wel­come. Thank you for join­ing us.

TK: our tar­iffs.

Cameron: things? Yeah, we need the mon­ey. Pay our tar­iffs. We don’t get the mon­ey, but paid any­way. Well. Tony, um, I’m gonna do a pulled pork today, but, uh, a cou­ple of things I want­ed to cov­er off before we get into that. a cou­ple of, well, we don’t need to talk about Joe Biden’s prostate can­cer, although that’s some­thing that I’m sure are talk­ing about. One of the things that we track on QAV [00:01:00] for peo­ple that are new lis­ten­ers, who I assume most of you are. One of the things that we do each week when I do my buy lists is we look at the com­mod­i­ty prices and we, because the num­ber of par­tic­u­lar­ly in Aus­tralia that are quite often in their buy lists, that have an uh, are tied to com­modi­ties.

They’re min­ing com­pa­nies or their agri­cul­ture com­pa­nies or

else do we have? Most­ly min­ing and wheat

are the ones that we tend to look at

TK: coal. Yep.

Cameron: exact­ly. Um, So uh, one of the things that we’ve noticed in our uh, com­mod­i­ty

this week is that iron ore has just become a buy again. When we say it, it’s become a buy.

We track these com­modi­ties

the same way we track stocks. We put them on

a five year,

month­ly chart, and then we draw three point trend lines to

deter­mine the. Buy [00:02:00] trend­line

is, and the sell trend­line is, and we deter­mine whether or not the com­modi­ties are in a buy­er or a sell state from our per­spec­tive. and then if

we have a stock, say a min­ing com­pa­ny

let’s say a com­pa­ny that mines iron ore. If the iron ore itself, the com­mod­i­ty itself is in a sell state, we won’t

buy the stock regard­less of what we think about where the. Com­pa­nies finan­cials are at, and whether or not it’s in a buy state. Because what we’ve learned over the years is that. the share price of these min­ing com­pa­nies

lags, but it tends to fol­low the state of

the com­mod­i­ty, the under­ly­ing com­mod­i­ty. So with that in

mind, iron ore has just become a buy­er again after being in a sell state for

a cou­ple of years, more or less, I would haz­ard a guess.

TK: Yeah, at least a

Cameron: it’s been falling, I think. Okay. I could look it up ’cause I do track it, but I can’t be both­ered right now. [00:03:00] And wheat has just become a buy­er as well. Now in Aus­tralia, we have a pret­ty close, uh. Pret­ty, pret­ty good under­stand­ing. Let me say of which com­pa­nies affects in the US mar­ket, I don’t as much so, but the way it plays out usu­al­ly is if we hold stocks in our port­fo­lios that are tied to these under­ly­ing com­modi­ties, when one of them becomes a

sell, we will sell the stock. And if we have. If we’re look­ing at stocks to buy on our buy list and one of them is tied

to an under­ly­ing com­mod­i­ty, it can deter­mine whether or not We will or will not buy that stock. All else being equal. So just shout­ing that out for No, I, I did­n’t come across any­thing in my recent US buy list that would be

affect­ed by this.

I don’t real­ly know who the big on iron ore or wheat play­ers are in the us but if there is one on your buy list, [00:04:00] um, you might wan­na take note

of the fact that iron ore is now a buy and

wheat is now a buy from our per­spec­tive. Any­way,

TK: Wheat wheat’s

Cameron: I.

TK: a big thing for the us. For big com­pa­nies like ConA­gra, I’m guess­ing, well, I’m not that famil­iar with ConA­gra and big. Farm based com­pa­nies like that. So that might come onto our bio list. I, I, or I don’t think a lot of that’s mined in the us. Um, but the oth­er thing I’ll say about min­ing com­pa­nies is they often base them­selves on the Toron­to Stock Exchange, which is, um, a resource based coun­try in the same way Aus­tralia is.

So often­times US com­pa­nies may list there because it’s a, it’s a mar­ket which is more used to valu­ing. Min­ing stocks, um, the US mar­ket, but there there’ll still be com­mod­i­ty stocks on the US so your point’s valid. Um, you might want to edit this next bit out cam, but, and I’m not sure if it applies to, to wheat and iron ore, but, uh, we may have to, the grass we are using a might [00:05:00] be in Aus­tralian dol­lars and b might relate to Aus­tralian mar­kets.

So I don’t know if iron ore is, has a dif­fer­ent graph if it’s sold from the US or not, is I guess what I’m say­ing.

Cameron: Yeah, I, I, some of the stocks that I track are us. I know I do. I look at a US gold

TK: Right.

Cameron: price. Um, I’m not sure about the oth­ers, but it’s a good point. I just asked GPT, it said there are some pub­licly list­ed iron ore min­ing com­pa­nies in the us. I. Although it’s rel­a­tive­ly lim­it­ed, uh, com­pared to Aus­tralia, there’s Cleve­land Cliffs, which is tick­et code CLF. There’s the Unit­ed States Steel Cor­po­ra­tion, which has the tick­et code x. I won­der how much Musk, uh, Elon Musk has offered him for that. I bet you he’s, uh, may he, he might take over Unit­ed States Steel, which reminds me that line in the God­fa­ther, part two, when Hyman Roth says to Michael Coone, Michael. We are big­ger than US Steel, you know, I’m sure [00:06:00] Elon can say that now. And, uh, he might buy US Steel just to, just to get the, uh, share the tick­et code. And it says, uh, Mesabi Trust Tick­et code MSB is a roy­al­ty trust that receives income from iron ore min­ing oper­a­tions. US Steel owns and oper­ates the mintech and TAC mines in Min­neso­ta, pro­duc­ing iron ore pel­lets, pri­mar­i­ly for its own steel mak­ing oper­a­tions. With some com­pa­nies and US Steel is prob­a­bly one of those, I sus­pect would, would be involved in a num­ber of dif­fer­ent com­modi­ties that we would prob­a­bly look at. And then we tend to look at how much of their rev­enue is derived from each of the com­modi­ties and work out, you know, if one com­mod­i­ty’s in a buy state and one’s in a sell state, which is the most rel­e­vant for that com­pa­ny, et cetera, et cetera.

So as we go for­ward with the series, um, we will no doubt have spe­cif­ic exam­ples that we’ll be able to dive down into. Well, one of the oth­er things that I want­ed to talk about today, [00:07:00] we just done this on our Aus­tralian show, and I’m gonna, uh, throw it in here, um, is, uh, play some clips from an inter­view that was recent­ly on Tobias Carlisle’s pod­cast

So, I don’t know, uh, for folks out there, uh, who Dun­no, Tobias Carlisle, these are. I was gonna say for­mer Aus­tralian, still an Aus­tralian, he’s lived in Amer­i­ca for a long time, a cou­ple of funds, wrote a great book on val­ue invest­ing. He’s been on our show once or twice, is com­ing back on soon as I can lock him down. And he does a pod­cast called The Acquir­ers Pod­cast. It’s a val­ue invest­ing pod­cast. It’s real­ly great and I was lis­ten­ing to it. I don’t lis­ten to it very often, but, ’cause I don’t lis­ten to pod­casts very often. Too busy mak­ing the bloody things to lis­ten to them. But I was lis­ten­ing to one recent­ly, uh, recent episode, and he had a guy called Rich PZENA, uh, uh, is the founder and chief invest­ment offi­cer of PZENA Invest­ment Man­age­ment, a New York [00:08:00] based deep val­ue invest­ment firm with $34.9 bil­lion in assets under man­age­ment. And he got start­ed in the ear­ly eight­ies. Uh, peo­ple may recall, uh, peo­ple may know of Joel Green­blatt. I’m sure we’ve talked about him from time to time.

I think I actu­al­ly did reach out to him at one point, tried to get him on the show, but he is writ­ten a num­ber of great books, uh, about invest­ing, like the lit­tle book that beats the mar­ket and, uh, a bunch of oth­ers. Com­mon sense, uh, the investors, some­thing, some­thing, some­thing. He’s a suc­cess­ful val­ue investor over there. Uh, so he and Rich went to, I think it was Whar­ton, togeth­er School. And in 1981 they wrote a research paper how the small investor can beat the mar­ket. It was their mas­ter’s the­sis and they were try­ing to exam­ine the per­for­mance of secu­ri­ties that were trad­ing at or below [00:09:00] liq­ui­da­tion val­ue dur­ing the peri­od of 7 19 72 to 1978 in the us. Uh, I think they were kind of try­ing to update, uh, you know, the premise of Ben­jamin Gra­ham and, you know, try­ing to do some aca­d­e­m­ic analy­sis. Obvi­ous­ly, val­ue invest­ing was­n’t that pop­u­lar back then. Um, as it is still not that pop­u­lar now. Real­ly, I don’t think. But they,

TK: isn’t it?

Cameron: yeah. Yes. Although there were, I don’t know how many tens of thou­sands of peo­ple at the, uh, Berk­shire Hath­away, a GM the oth­er day, but, uh, they, they want­ed to, you know, put to test the the­o­ry that stocks that were trad­ing. Below their liq­uid at or below their liq­ui­da­tion val­ue with a low price to earn­ings ratio would whether or not they had out­per­formed the rest of the mar­ket. So they ran that, and fun­ni­ly enough, they decid­ed that it did, they did on aver­age, [00:10:00] beat the rest of the mar­ket. So it was a, um, study that ver­i­fied the basic premise that if they have a low price to earn­ings and they’re trad­ing around their intrin­sic val­ue that they tend to out­per­form.

TK: Does that

Cameron: So

TK: and I can go to Whar­ton Busi­ness School with the dum­my port­fo­lio and gain some MBAs?

Cameron: you, I think, uh, me, not so much unless I get an, I get,

TK: crib.

Cameron: it’s like I, the, uh, the, the award that Markham gave me in, in ino, my, my Napoleon­ic award, it was for not doing any actu­al research about Napoleon, just talk­ing about oth­er peo­ple’s research about That was all I got my, uh, Napoleon­ic medal for talk­ing about oth­er peo­ple’s hard work. Uh, so any­way, I want­ed to play, I’m gonna steal from this show, a cou­ple of clips ’cause I was lis­ten­ing to the whole thing going, oh, I wish Tony was here.

I wish I could tell, see what Tony thinks about that. And I thought, bug­ger it. I’ll just steal it. With full cred­it to Tobias Carlisle, he’s i’ll, I’ll con­fess to it when he comes on the [00:11:00] show uh, to Rich Pan­na. Um, hope­ful­ly these guys don’t get mind. I mean, it’s out there, it’s in the pub­lic. Oh, it’s not a pre­mi­um pod­cast or any­thing.

It’s freely avail­able on their YouTube. uh, let me play this first clip and I can’t remem­ber what this is about, but, uh, we’ll work it out as we go.

So I’ll tell you my, my sto­ry from 1999. um, we had start­ed in our busi­ness in 96 and we had a good first cou­ple years got to a break even and we were feel­ing good and then we went through this 10 straight quar­ters of mas­sive under under­per­for­mance com­pared to the broad mar­ket, and I had a. Client who came in, sat in our con­fer­ence room and she walks in the door and says to me, my grand­moth­er’s a bet­ter investor than you are, and all you have to do is buy Cis­co. [00:12:00] Every­body in the world has fig­ured this out except for you, and you’re just stub­born. Try to go through with her, with her. And I said, you real­ize that Cis­co is now at a half a tril­lion dol­lar val­u­a­tion first com­pa­ny to ever achieve that mark. Um, and you’re, you’re used to dou­ble dig­it returns. You, you, you would be unsat­is­fied with any­thing less than 15% a year. So if you bought that whole com­pa­ny for $500 bil­lion, they would have to earn $75 bil­lion a year for you to get your 15% return. And they earn one. don’t you think there’s some­thing wrong with that? And she just looked at me and said, you don’t get it, do you? To which I agree. I did­n’t get it. You’re right. I don’t get it. Um, and, you know, that was gonna be the back­bone of the inter­net. It was all just as excit­ing as, as it is today with arti­fi­cial intel­li­gence. Mm-hmm. Um, and so, was that a very [00:13:00] painful time for you, or was it like, it you just kind of rec­og­nize that, you know what, this is just crazi­ness and I know that the world will get back to real­i­ty at some point. No, I mean, when you’re, when you’re a strug­gling busi­ness that just treat prof­itabil­i­ty and now you, clients are telling you you’re an idiot and they start click­ing their accounts, we, we, um, weren’t sure we were gonna make it. And it, and in fact, Joel Green­blatt, who, who you men­tioned ear­li­er, that was my part­ner at Whar­ton in the, in our, in our lit­tle research project. Um, he was a backer, my backer in, in get­ting going in this busi­ness. And, um, we went in the red and I, and we got an offer from anoth­er firm to buy us. Mm-hmm. It would’ve got­ten all of us a job. Here was the deal. Joel could get his mon­ey back and we would all have a job. And I said, Joel, it sounds like a real­ly good deal. should take it. Um, and [00:14:00] Joel said, way. you need to make it through this peri­od, um, you have a blank check. Wow. That’s pret­ty much what he said. Incred­i­ble. Um, and he did­n’t ask for any incre­men­tal equi­ty in exchange for that. Now he must have real­ly pre­scient. ’cause that was in Feb­ru­ary of 2000 when that hap­pened. And 9th it turned around and he nev­er had to put anoth­er pen­ny. He nev­er had to put a pen­ny in.

I thought that was a great sto­ry. Like, uh, know, just reminds me, I was talk­ing to some­body the oth­er day, one of our QAV club mem­bers who got start­ed in ear­ly 2022 just as every­thing crashed with inter­est rate ris­es in Ukraine and you know, trade wars and all that kind of stuff. And um, and I was say­ing, yeah, look, from my lim­it­ed expe­ri­ence with this, but also look­ing at [00:15:00] Tony’s num­bers and lis­ten, read­ing buf­fet stuff over the years. Um. it works with QAV, I think, tell me if you dis­agree, but we have once every five to 10 years, have one real­ly, real­ly good year where we mas­sive­ly out­per­form the mar­ket. And then we have maybe anoth­er year that’s pret­ty good, but not as big as that one. Not like two, three times the mar­ket per­for­mance. three times, four times the mar­ket per­for­mance. And then the rest of the time it’s sort of a lit­tle bit bet­ter, lit­tle bit worse kind of, you know, aver­ages. Uh, aver­age per­for­mance, but you’ve got­ta be around for that one or two real­ly good years in the decade where the sys­tem real­ly out­per­forms and the rest of the time it’s sort of, you know, tracks along and, you know, does­n’t revert to the meme, but goes back, that’s where the aver­age 20% comes from. [00:16:00] Like in the six years we’ve been doing this, what­ev­er it is, we had that one real­ly good year, uh, dur­ing Covid real­ly kicked the num­bers up. And since then it’s been okay, like this year we’re up like, I don’t know, 30, 40% on the mar­ket. Cou­ple, you know, last cou­ple of years it’s been touch and go a lit­tle bit above, a lit­tle bit below, that one real­ly good year has put us in a good posi­tion for the long haul. it’s good. I, I like it when I hear guys like that are, they’re very suc­cess­ful, that had a cou­ple of real­ly, real­ly bad years, but they just stuck to the strat­e­gy and you know, luck­i­ly in their case, they did­n’t have to bail out green blatt. Back, Tim. Hard to say. Green Blat back back. Can you say green blatt back three times fast. You prob­a­bly can. ’cause you’re,

TK: black back three times fast.

Cameron: oh yeah. Very good. Yeah. Very clever.

TK: uh, yeah, no, I, I dun­no if I’ve ever thought about it that way. I just think of it as being volatile. Um, if you’re a val­ue investor, you’ve got huge [00:17:00] tail­winds. ’cause the, well, basi­cal­ly the way I look at it is the mar­ket tends to back growth stocks that’s when we tend to, some­times under­per­form or, or, i, I out­per­form a lit­tle bit, but it’s when the mar­ket goes, oh, okay, growth can’t go on for­ev­er.

That’s when the val­ue investors have a real­ly good run. So, yeah. Um, I dun­no if it’s every five years or six years, or two years or 10 years or what­ev­er, but, um, it’s more around things like the.com bub­bly burst­ing when, when the mar­ket wakes up to itself and comes to its sens­es, as, as Buf­fet used to say, when the tide goes out, can see who’s, you know, been swim­ming naked basi­cal­ly.

So it’s, it’s, that’s the. It’s it’s title. It’s like, it’s when the,

Cameron: Idol. Yeah,

TK: when the, when the tide goes out, when peo­ple say, hang on, you can’t, as that chap said on the, on the video, then you can’t, you can’t have a mar­ket cap of half a tril­lion dol­lars and make $1 bil­lion [00:18:00] year. That’s a very high price to earn­ings ratio.

May, may have been accept­able while you’re grow­ing, but as soon as you stop grow­ing, the mar­ket cap drops dra­mat­i­cal­ly to meet the earn­ings.

Cameron: I had­n’t, I had­n’t thought about Cis­co in years, but I can remem­ber when Cis­co was the gold­en child of the tech indus­try. I had friends who were work­ing there, peo­ple who would leave Microsoft and go to Cis­co, and they were pay­ing every­one through the nose, salaries and stock options, and it was insane.

TK: I remem­ber. Do you, you just remind­ed me. I remem­ber being at a din­ner par­ty once around that time

Cameron: I.

TK: peo­ple at a friend’s house, but they had their, some of their oth­er friends there. I did­n’t know the peo­ple, but one of them worked at, a cou­ple of them worked at Cis­co and uh, I, I remem­ber leav­ing a din­ner par­ty think­ing, how do they even get a job?

We’re just that bad.

Cameron: Yeah,

TK: Yeah. Any­way, so,

Cameron: I’m just,

TK: agreed

Cameron: look­ing, sor­ry. At [00:19:00] look­ing at Cis­co’s share price. August, 2000, it was trad­ing at $68. Then by Feb­ru­ary, 2001, it had dropped to $23 and it stayed there until, 2017. We got up to 37 and it’s now back up to 63 60 $4. But, uh, it’s tak­en 25 years to get back to where it was in August, 2000.

TK: And

Cameron: So con­grat­u­la­tions to those peo­ple who are nev­er sell investors.

TK: hope­ful­ly they got paid div­i­dends along the way, but prob­a­bly not. Hey, we should, I don’t know if we have it on our cof­fee cup. I don’t have it handy, but we should add, you don’t get it to our list of, uh, this time it’s dif­fer­ent quotes.

Cameron: You don’t get it. That’s right. He actu­al­ly, I’m not sure if [00:20:00] I’ve got it in my list of clips to play, but he does talk about volatil­i­ty at one point in this inter­view where he says, yeah, volatil­i­ty as val­ue, investors volatil­i­ty is our friend,

TK: Ooh.

Cameron: is some­thing I’ve heard you say. He goes, I like volatil­i­ty.

You know, does­n’t both­er me. It’s what it, what cre­ates oppor­tu­ni­ties for us as volatil­i­ty, right.

TK: Yeah.

Cameron: peo­ple they talked to at one point, and maybe in my clip, so I’ll just shut up and I’ll skip to the next clip,

We’re, we’re look­ing at are the met­ric we use one met­ric price com­pared to nor­mal­ized earn­ings and nor­mal­ized earn­ings. It, it’s a con­cept, but it’s not a com­plex con­cept. it’s what should the busi­ness earn over a long, over a full eco­nom­ic cycle.

Not the peak, not the trough, on aver­age, what’s the earn­ings pow­er of this busi­ness? Um, and you know, it’s informed by the his­to­ry of the busi­ness. It’s informed by the com­pet­i­tive posi­tion­ing. You know, if you look at, if you talk about sto­ries of things that you’ve invest­ed in that the, we were [00:21:00] talk­ing about the inter­net bub­ble. Well, COVID was anoth­er oppor­tu­ni­ty to buy things at, at crazy prices. And I will, and, and I’ll, we can save this for a lit­tle bit lat­er, but I don’t think we have the same oppor­tu­ni­ties today. um, but Covid we did, and our, we, our biggest hold­ing became in by the end of the sec­ond quar­ter of 2020. Um, you can’t imag­ine a worse busi­ness than ma build­ing jet engines, um, dur­ing covid. and it’s not only that trav­el was down, the num­ber of take­offs and la and land­ings were down 60%. The vol­ume of GEs busi­ness was down more than that because first of all, nobody was built buy­ing new air­planes, most of their rev­enues came from the repair and remod­el, the repair side of the busi­ness, the spare parts busi­ness, [00:22:00] um, ’cause that’s the high mar­gin busi­ness.

And, and so if you were park­ing air­planes, you would oper­ate your, what, the ones you weren’t parked until they had an over­haul date. And then you would park it and pull anoth­er one out and you would spend no mon­ey on main­te­nance. So their rev­enues were down 70%, sev­en, some­thing like that. And imag­ine a giant man­u­fac­tur­ing oper­a­tion with an r and d oper­a­tion with a 70% rev­enue decline, had had 20% mar­gins before that, or 22% mar­gins. That’s real oper­at­ing lever­age you start to see there, right? Yes. So they were, they’re, they’re their free cash flow rate. If I get my, if I’m remem­ber­ing my num­bers cor­rect­ly, and I think I’m pret­ty accu­rate. Was at neg­a­tive $7 bil­lion a year. Um, and the stock went down to $5 a share. And this was a stock that used to be the biggest com­pa­ny in the s and p 520 years ear­li­er, what at $70 a share. So you’re buy­ing it [00:23:00] down 90% from its high. Now grant­ed, a lot of stuff hap­pened in the inter­im, but when you vis­it­ed the com­pa­ny, don’t, they did­n’t know what was gonna hap­pen. All they knew was that, that they had to be focused on costs and sur­vival and liq­uid­i­ty. if you have $7 bil­lion neg­a­tive run rate, bet­ter do some­thing about it. Um, they also, I mean, what made us com­fort­able is they had 50 bil­lion of liq­uid­i­ty of cash and cred­it avail­abil­i­ty. meant they had sev­en years to fix the prob­lem. Hmm. And, and their. CEO was telling us that were gonna go 14,000 peo­ple and they were gonna get the costs down so that they could at least be break even with­out a rev­enue increase. And, and as we cal­cu­lat­ed it doing, I mean, I, with­out inside data, just try­ing to [00:24:00] get a sense of what this com­pa­ny would earn per­ma­nent­ly, trav­el nev­er recov­ered. And that was our down­side case. Um, and we are arith­metic and you can find flaw with it. It, but, but, but it was around cents a share of earn­ings, from a neg­a­tive $7 bil­lion run rate to a pos­i­tive, what­ev­er that was, that cre­at­ed 75 cents a share and the stock was five. So I said, so I could, I could, if the world does­n’t recov­er. I can lock in a 15% annu­al return. And if you lis­ten to, um, the new guy who had this his­to­ry of run­ning indus­tri­al com­pa­nies 30 plus per­cent mar­gins, he said, this should be one of those. That’s what he was telling us. This should be one of those.

It should­n’t have been a 20% mar­gin busi­ness. We’re gonna run it at 30%. When we [00:25:00] get back to nor­mal and 30% mar­gin, would’ve had, some­thing like $2 of earn­ings on a $5 stock. So you sort of say, wow, the down­side cas­es, I make 15% a year, and the upside cas­es I make 40% a year. What am I miss­ing? Um, and that was the kind of oppor­tu­ni­ty.

Now that was one of the extreme ones admit­ted­ly, but that was the kind of oppor­tu­ni­ty that was avail­able.

Yeah. And I assume he’s talk­ing about GE Aero­space there, this doc with the tick­et, ge, I can’t find it back in 2020 at $5, but I see it around about $30 a share. It’s now trad­ing at, uh, a share. Um, but it might be anoth­er com­pa­ny. I gonna, but just, I, I just like the, the basic idea of that in terms of, you know, oppor­tu­ni­ties, right?

That which is, as you say, title [00:26:00] cycli­cal, great busi­ness went through a real­ly tough time for rea­sons of its con­trol the share price col­lapsed. ’cause no one knew what was gonna hap­pen, but they came in and thought, no, no, this is a good busi­ness and the num­bers made sense to them. So it’s that kind of cycli­cal being, it’s like it gets back to what Buf­fet was say­ing, um, and who, who­ev­er was it. Greg, I think, um, in the last a GM about they do a lot of work, to be ready to move quick­ly when the right oppor­tu­ni­ty comes across their table.

TK: Well that is clas­sic buf­fet, isn’t it? He’s, he’s a, greedy when oth­ers are fear­ful. He’s buy­ing blood on the streets. I mean, it, he’s that same sort of par­a­digm that was just described in that clip is what Buf­fet’s been doing. His whole invest­ing career. There was the oil scan­dal at DERs Club and cetera, et cetera, et cetera.

And just, he, he, you know, uh, he thought Coke was over depre­ci­at­ing its assets and would write it [00:27:00] back. He just. know, with that same kind of insight­ful analy­sis, the, this is a, he calls it the moat. This is a com­pa­ny ge, which is prob­a­bly gonna with­stand some big shocks ’cause they’ve got a lot of cash.

It’s a well-known brand. It’s a big com­pa­ny. It’s when things are nor­mal. It oper­ates at 20% plus mar­gins he buys it when it’s ridicu­lous­ly cheap­er and wast­ed for it to get back to nor­mal.

Cameron: All right, so then I guess I can get into, my pulled pork on, unless you’ve got some­thing else

TK: I

Cameron: so the deep dive I’m gonna do this week, Tony is a com­pa­ny I nev­er expect­ed would be on, uh, our val­ue buy list, but in ret­ro­spect, it makes per­fect sense. It’s on our val­ue buy list. this is Ford Motor Com­pa­ny, uh, who has the tick­er f just almost as cool as Unit­ed.

TK: Comes,

Cameron: Unit­ed States Steel, uh, X. This one’s f

TK: us. [00:28:00] Steel in the alpha­bet. Maybe they’re big­ger than, they’re big­ger than US Steel.

Cameron: Yeah. So, you know, it, it, it’s obvi­ous­ly a very old, very large com­pa­ny. We don’t need to explain, uh, who Ford Motor Com­pa­ny is. I used to work for Ford Motor Com­pa­ny. Uh, one of the first jobs I had in my late teens was work­ing for Ford Cred­it.

TK: right.

Cameron: is, it turns out, one of the more prof­itable parts of the Ford Motor Com­pa­ny today. In fact, when I was doing my analy­sis on it, I had to. Decide whether or not I should be, um, uh, look­ing at the rev­enues and the prof­its, uh, of Ford Moog Com­pa­ny and set­ting aside Ford cred­it or not. But I decid­ed not to. And one of the rea­sons I want­ed to do this today is that I got the hee­bie-jee­bies a lit­tle bit about this, as I often do, par­tic­u­lar­ly when I’m look­ing at US com­pa­nies.

And after you talked me out of all of my hee­bies last week. [00:29:00] all of ’em, except for the one where the CEO sud­den­ly resigned. Um, I thought, all right, well, I’ll just throw this one out there and see what Tony thinks after we’ve talked about it a bit. Is it a val­ue buy­er or a val­ue trap, is the ques­tion I was ask­ing because a, it’s obvi­ous­ly a very large com­pa­ny, but it also has a lot of prob­lems, a lot of chal­lenges.

There’s a lot of risks, there’s a lot of issues. And speak­ing, when I am invest­ing using the QAV sys­tem, I don’t. Pay much atten­tion to any of those things because just look­ing at the num­bers. I’m not look­ing real­ly at the macro or micro lev­el sto­ries of these com­pa­nies as, as long as they’re not, you know, in deep doo­doo or any­thing like that, I, I pay, I look at ’em to a very, very high lev­el and make sure there’s noth­ing I should be aware of, but I’m, I don’t get unlike buf­fet. [00:30:00] Uh, we don’t get deep into the weeds of these com­pa­nies. We, we, you know, we are not full-time pro­fes­sion­al. Got noth­ing bet­ter to do than sit around read­ing finan­cial reports, sorts of investors we’re, get in, get out uh, get dou­ble mar­ket returns with as lit­tle effort as pos­si­ble. Val­ue investors.

TK: Yeah,

Cameron: Is that fair?

TK: won’t have expe­ri­enced the high lev­els of my lazi­ness ’cause if they haven’t lis­tened to the Aus­tralian show for the last five years, but

Cameron: Tony who devel­oped this sys­tem is extreme­ly, I won’t say lazy, golf over every­thing else. Tony does­n’t want to. He’s not buf­fet, he does­n’t wan­na sit around read­ing annu­al reports are day long. Does­n’t even wan­na reply to my emails. Most of the time. My text mes­sages. I sent Tony an email about a week ago about Wikipedi­a’s price to oper­at­ing cash flow cal­cu­la­tions.

He prob­a­bly [00:31:00] has­n’t even looked at it yet

TK: have looked at

Cameron: ’cause he’s okay. He’s got bet­ter things to do.

TK: That’s also

Cameron: But that’s, look for most peo­ple lis­ten­ing to this, unless you’re a full-time pro­fes­sion­al investor, you’ve got a life, you’ve got a job, you’ve got a busi­ness that you’re run­ning, you’ve got a fam­i­ly, you’ve got­ta go to kung fu 10 hours a week.

If you’re like me, you’ve got oth­er things to and QAV is designed to get you. The best pos­si­ble return with the low­est amount of effort and risk real­ly, uh, out­side of maybe buy­ing an ETF, you get bet­ter returns, but with slight­ly more effort, but not that much effort.

TK: Cor­rect.

Cameron: So Ford Motor Com­pa­ny. So when I do drill down into these busi­ness­es. When I, I’m not, I go, oh shit, I dun­no if I wan­na buy this. This is, this has got some big chal­lenges. Like maybe I should be of this, but then[00:32:00]

TK: Clas­sic sign

Cameron: not.

TK: of a val­ue stock. Isn’t it just like that

Cameron: Well,

TK: about,

Cameron: rich. Yeah. Yeah. Well maybe it is. But see, here’s the thing. Rich is very, very smart. Um, I’m not, so he’s able to assess. Whether or not, and all of his ana­lysts who work for him, et cetera, able to assess whether or not this is a good risk or a bad risk. I’m not that smart. so I just rely on the num­bers and the sys­tem, QAV to give me a score and a result.

And you know, at the end of the day, what I usu­al­ly fig­ure is. If it’s made it through the process of QAV and it’s on the buy list and there’s no, no flash­ing red lights, when I look at it at a high lev­el, it’s prob­a­bly good enough. And if it’s not and it goes wrong, then I sell it. ’cause our cell trig­gers will get trig­gered and I get out.

So real­ly,

TK: I just wan­na

Cameron: worst case [00:33:00] sce­nario, I sell it. Yeah. Sor­ry.

TK: I just wan­na add to that the Qav is kind of designed to auto­mate the process that we spoke about before, which is basi­cal­ly say­ing he’s find­ing a com­pa­ny which is very sol­id, has lots of cash to weath­er through the bad times, debt or lit­tle debt, has been oper­at­ing con­sis­tent­ly over a peri­od of time and has hit the skids for what­ev­er rea­son.

Eco­nom­ic, like it did macro. Side of things or, some­thing’s hap­pened with­in the com­pa­ny, which is, um. You know, cause the share price to drop for what­ev­er rea­son, and we have our red flags, like you allud­ed to before, the, the CEO resigns unex­pect­ed­ly, or the CFO or an inde­pen­dent direc­tor, then we don’t like that and we don’t buy it.

And if that’s caused the stock to the press, then we’ll pass. But if it’s the fact, and I, I, not fore­shad­ow­ing your for­ward analy­sis here, but if it’s the fact that it’s a big com­pa­ny that’s been around for a [00:34:00] long time, throws off lots of cash. And peo­ple are unsure about its future, we’re gonna take, the num­bers are gonna tell us you can buy this at a rea­son­ably cheap enough price that you get paid back quick­ly from its, um, cash flows.

so you’re tak­ing as lit­tle risk as pos­si­ble. Below our thresh­old for risk tol­er­ance, I guess is one way to put it. um, yeah. The way we mit­i­gate risk in the QIV sys­tem is we get paid back quick­ly, um, by

Cameron: Hmm.

TK: cash flow. Uh, and, um, you know, as the gen­tle­man in the clip before said he could buy GE when it was dur­ing covid and peo­ple weren’t get­ting their engines main­tained on the air­craft that they ser­viced, he knew that if things revert­ed back to the mean that he would be hand­some­ly reward­ed.

At the price he was pay­ing and that came to pass and it, it’s, it’s entire­ly pos­si­ble that Ford could fall over, fall over. Um, I think it’s high­ly unlike­ly, but it’s [00:35:00] pos­si­ble. And so we’re tak­ing some risk, but at the price we’re pay­ing, it’s an accept­able risk, um, based on his­to­ry of risk.

Cameron: Well said. let me get into it. Obvi­ous­ly, uh, as I said before, huge com­pa­ny, uh, 185 US bil­lion dol­lars in total rev­enue for 24, which is the cal­en­dar year end­ing 31st of Decem­ber, 2024, as Amer­i­cans will know. for any Aus­tralians lis­ten­ing to this, just remind­ing you of that. Aver­age dai­ly trade of $1.1 bil­lion.

So almost big enough for you to, uh, take a share in Tony. Uh, and it scores real­ly well on the QAV check­list. Uh, I, do wan­na point out, this is a check­list I did last week. I haven’t done one this week. So any­one’s con­sid­er­ing buy­ing it, uh, do your own analy­sis, do your own research on it. was on our check­list last week. The, uh, [00:36:00] price to oper­at­ing cash flow is 2.34, which is one of the rea­sons it’s doing real­ly well. So for new lis­ten­ers, uh, one of the rea­sons we look at price to oper­at­ing cash flow as opposed to price to earn­ings PE ratio, which is what a lot of investors look at, is Tony believes that. CEOs and CFOs have become a lit­tle bit clever about, uh, I won’t say fudg­ing, I’ll say manip­u­lat­ing. Price to earn­ings. Your earn­ings, there’s a lot of stuff that can be pulled in and out of earn­ings, and it can be hard to get a clear pic­ture of what’s going on unless you wan­na do a buf­fet and into the nit­ty gries of their num­bers. cash­flow is a lit­tle bit hard­er to manip­u­late. It’s a clean­er num­ber, and so we tend to focus on. as a met­ric, and it’s prob­a­bly [00:37:00] based on our regres­sion test­ing. The most impor­tant met­ric out of all of the met­rics that we score on is that, do you dis­agree with any­thing I just said? Tk?

TK: I just want to, um, say a kind word to the CEOs of US cor­po­rate

Cameron: I don’t.

TK: when I don’t believe that they will­ing­ly manip­u­late, um, bal­ance sheets and p and ls to their advan­tage, but. They are able to do that. And so we guard against that by going to the top of the state­ments, which is oper­at­ing cash flow.

That can still be manip­u­lat­ed. And when I say manip­u­late, what I’m real­ly say­ing is that there are a lot of that have to be made by man­age­ment and putting those, uh, num­bers togeth­er. it would be love­ly if all I did was go around to all the cash reg­is­ters, count the cash at on 31st of Decem­ber, it in the bank, and then say.

here’s our pay­roll and lease pay­ments. 31st of Decem­ber and take one from the oth­er. But there’s a [00:38:00] whole heap of and there’s all the account­ing rules have grown up to try and guide them on those assess­ments. But you know, how, how do you val­ue your stock in the ware­house on the 31st of Decem­ber?

Is it the last in or first out? Who’s it the first in or last in, you know, what is it the aver­age val­ue? Um, you know, how do you val­ue the deliv­er­ies you’ve made? You haven’t been paid for. There’s a whole. How do you, you know, um, pro­vide for doubt­ful debts, all that kind of thing. So there’s a whole heap of adjust­ments or assess­ments that man­age­ment have to make the finan­cial state­ments to be able to draw a line under the busi­ness on the 31st of Decem­ber last year and say, this is what our busi­ness looked like.

Here’s a, here’s a finan­cial snap­shot at that time. The, that sort of lee­way allows. Bad man­age­ment to assess­ments that look good for them, although that tends to be a short term game, but they can’t keep doing [00:39:00] it for­ev­er. And there are some signs to look at when you start see­ing com­pa­nies report nor­mal­ized earn­ings over time.

It’s because they haven’t been able to get away with the earn­ings. They’ve, they’ve tried to, um, declare or hide over time. but any­way, uh, bad man­age­ment can, can fudge the fig­ures, as you say. Bad man­age­ment can also make bad deci­sions about those num­bers and they’ve just pro­vid­ed the wrong amount for doubt­ful debt col­lec­tion or val­ue the stock in the ware­house incor­rect­ly.

that puts sand in the oils of the finan­cial state­ments and in the gear, sor­ry, the finan­cial state­ment. And that can, cause the num­ber­ing

come to the wrong result. So. I’ve just found over time that going to the top of the finan­cial state­ments, which is a very sim­ple oper­at­ing cash flow, which is very sim­ply, here’s the rev­enue we gath­ered and here’s the cost of col­lect­ing it and take one from the oth­er, and that’s your oper­at­ing cash flow.

And then you start wor­ry­ing about [00:40:00] inven­to­ry. You start wor­ry­ing about debtors. You start wor­ry­ing about pro­vi­sions. You start wor­ry­ing about all the things of how much you have to depre­ci­ate things, how much you have to cap­i­tal­ize. Put aside for replace­ment cap­i­tal in the future, how much you have to take as good­will, whether the good­will on your bal­ance sheet is still accu­rate, or whether it needs to be reval­ued, et cetera, et cetera, et cetera. Um, all of those things are assess­ments and all of those things, um, can be, you know, they’re a coin toss. I can go one way or the oth­er, but if it’s not done prop­er­ly, and if it’s not done with integri­ty, then they can be mis­rep­re­sent­ed at the, at the very bot­tom of the. P and l, which is where they cal­cu­late price to earn­ings ratios.

And, and I’ve just, and we’ll see it in our, in our buy list, that we’ll have stocks with real­ly good price to oper­ate in cash flow and rea­son­ably high PE ratios. That’s not a bad thing. It’s man­age­men­t’s being a bit con­ser­v­a­tive along the way, we focus on cash flow ’cause it’s, it’s the purest that we can get for to, to val­ue [00:41:00] com­pa­nies. And I know that lis­ten­ers to this will go, what about, what about, what about with the oper­at­ing cash flow? all I’ll say is that there are a lot more What abouts about the PE roha than there are about the oper­at­ing cash flow.

Cameron: Yeah, well said.

So.

back to Ford 2.34 is its price to oper­at­ing cash flow, which is

quite low, and, uh, trick­les through to the rest of our num­bers

now.

One of the tricky things here, but,

this is true with a lot of big com­pa­nies in the US, is they’ve sus­pend­ed their

guid­ance. They sus­pend­ed it on May 5th,

that with the tar­iffs in place, uh, made it impos­si­ble for them to fig­ure out what was gonna hap­pen.

This year,

has been a num­ber in one of their pre­sen­ta­tions, I saw that they.

I

believe that it would cost the com­pa­ny about two and a half bil­lion dol­lars in adjust­ed earn­ings before inter­est and tax­es this year.

But it’s such a mov­ing play­ing [00:42:00] field

no one knows what’s going on.

TK: Yeah.

Cameron: So a lot of their num­bers are kind of up in the air.

Uh, so

a lot, some of our scor­ing is based on pro­ject­ed num­bers.

A lot of it’s based on his­tor­i­cal, but some of it is like for­ward

fore­cast, EPS and things like that. So

that’s one of the caveats here

as it is with any US com­pa­ny right now, is the num­bers are all a lit­tle bit in flux as the tar­iff sit­u­a­tion.

Is clar­i­fied.

but

yeah, you wan­na say

TK: I was just gonna say that’s the I that again, that comes back to risk. We’re pay­ing, we’ll get paid back for our, the cur­rent pur­chase price of Ford with­in two years of it based on its oper­at­ing cash flow, um, based on that price to oper­at­ing cash flow. So that’s, to me, that’s tak­ing, um, some risk, but it’s tak­ing min­i­mal risk.

And if, it go bad for Ford and it takes [00:43:00] four or five years for them to repay our pur­chase price. may be okay, if things get sort­ed out in the, next six months or 12 months, um, and four goes back to where it was, then we get paid back hand­some­ly. that’s the

risk and reward using price, oper­at­ing cash flow.

as a way of mea­sur­ing it.

Cameron: Yes. I mean, that’s on the the­o­ret­i­cal basis that we were get­ting paid all of the mon­ey from the oper­at­ing cash flow for each share that we bought. Per share amount, which

obvi­ous­ly does­n’t

hap­pen. We don’t get all of that as a div­i­dend

TK: No, what I say get­ting, uh, well, what I mean is that we are pay­ing a price and the com­pa­ny gen­er­ates the cash to cov­er that price in two years, which is,

Cameron: Yes.

TK: Real­ly. Um, if we own that com­pa­ny a hun­dred per­cent, we could decide to pay our­selves a div­i­dend and of a hun­dred per­cent of the prof­its.

And in two years we’ve got our mon­ey back.

Cameron: Yes, but as investors buy­ing shares in it, we don’t know that that means that the share price is gonna go up that much in that amount of time. It’s, or that [00:44:00] we’re gonna get a div­i­dend to n neu­tral­ize the cost or any of those sorts of

TK: No, but what it does mean is that the mar­kets, know, tra­di­tion­al­ly I’m sure the price to oper­at­ing cash­flow is much high­er for Ford. Um, and So it’s dis­count­ed now ’cause of all the risk.

And um, if it regress­es back to the mean, then the share price. should fol­low. As you know, as Ben Gra­ham said, the mar­ket in the short term is a vot­ing machine in the long term.

It’s a weigh­ing machine. Do we think Ford’s gonna go under? Well, it’s a, it’s a risk, I think. I think it’s got some smart peo­ple, with smart con­tacts. Con­tacts who will prob­a­bly ensure it does­n’t go under.

Cameron: I don’t think the issue is whether or not it’s gonna go under, but whether or not it’s gonna bleed mon­ey and how much mon­ey it could pos­si­bly bleed and what that could do to its finan­cial prospects, its busi­ness. But any­way, I’ll take you through where the busi­ness is at, sort of the good. Let’s start with the good.

Um, their trucks and vans. So they obvi­ous­ly, what does [00:45:00] Ford do? They make cars and trucks and vans, and they have the cred­it arm. As I said before,

what’s doing well at the moment seems to be the F‑Series, the Bron­co and the Mav­er­ick, what they call the Ford Blue Buck­et,

ran at about 7% EBIT mar­gin in 2024.

the Ford Pro com­mer­cial arm grew rev­enue at 13%

post­ed an 11.6% mar­gin last quar­ter,

that’s where most of the cash is com­ing from with Ford is trucks and

trucks and vans.

They’re doing very well. They’ve got a

brand, obvi­ous­ly a

very loy­al cus­tomer base.

Prob­a­bly a lot of fleets that are run­ning them as well,

so they’re, they’re doing very well in that cash flow is.

juicy.

Con­sol­i­dat­ed. Oper­at­ing cash flow was 15.4 bil­lion in 2024,

about $3 90 per share, so

share price Today is [00:46:00] about $10 80.

You’re pay­ing, as I said before, rough­ly.

2.3, two and a half times,

um, oper­at­ing cash flow.

even if you strip out the finance arm, the Ford cred­it arm, it only goes up to about six times.

So still with, we have a cut­off of sev­en.

So even if you strip out the finance stuff, and a rea­son I say that is ’cause it’s.

As we know,

finance busi­ness­es, their

cash­flow

can be hard to track. It’s sort of

with, uh,

where, where the cred­it is and how the cred­it is man­aged and that sort of stuff.

So it’s a lit­tle bit sort of, um.

A lit­tle bit hard to fac­tor in nec­es­sar­i­ly where the oper­at­ing cash flow from the finance arm is ver­sus the,

the, the trucks and cars and tra­di­tion­al side of the busi­ness.

But again, at the end of the day, it’s all mon­ey com­ing into the

TK: Hmm. Mm-hmm.

Cameron: Uh, the div­i­dend looks [00:47:00] pret­ty good.

Uh, they have a four to 5% div­i­dend that they pay, and they’ve got free cash flow.

That seems high enough. I think

after CapEx, it ran about 5 bil­lion, so they should con­tin­ue to pay a div­i­dend, which is one of the things that we. Um, score them on. We like the fact if they’re pay­ing a nice high div­i­dend,

par­tic­u­lar­ly if the yield is high­er than the mort­gage rate, which it isn’t in this case, but we like com­pa­nies that pay a div­i­dend,

not because we nec­es­sar­i­ly want the div­i­dend, but we believe it’s one of the things that a lot of investors look at, and it tends to

pro­vide a lit­tle bit of, um,

uh, of a head­wind for stocks if they’re pay­ing a healthy div­i­dend.

At least that’s true in Aus­tralia.

Tail­wind, not a head­wind.

TK: Yeah, Slight­ly dif­fer­ent than Aus­tralia. So Aus­tralia, we get frank­ing cred­its on our div­i­dend, so that’s pre­ferred. tend to not val­ue the div­i­dend as much and pre­fer to see the mon­ey rein­vest­ed back in the com­pa­ny, [00:48:00] but I. the, the prin­ci­ple over­all I think is that if you get paid, if the com­pa­ny pays a div­i­dend, loathed to cut it because they only have to cut, they cut it in bad times to try and pre­serve cap­i­tal.

So the com­pa­ny’s pay­ing a div­i­dend, it’s a vote of con­fi­dence in the fact that the board sees the com­pa­ny is being able to con­tin­ue to oper­ate prof­itably going for­ward.

Cameron: So that’s the good news. The bad news is.

EV

divi­sion is bleed­ing

real­ly bad­ly. It’s called the Mod­el

and the Mod­el E Unit lost $5.1 bil­lion in 2024,

and.

Man­age­ment of fore­cast­ing it’s gonna lose anoth­er five to five and a half bil­lion dol­lars this year.

Kin­da reminds me

from that, that line in

Cit­i­zen Kane

where Aon Wells says to his trust fund [00:49:00] man­ag­er from when he was a kid,

you’re right, I did lose a mil­lion dol­lars

last year and I’m going to lose a mil­lion dol­lars this year.

And you know what?

prob­a­bly use a lose a mil­lion dol­lars next year and at the rate, if I keep going at that rate, I’ll be out of mon­ey

in 50 years.

Uh, yeah, so

a lit­tle bit of detail on this. Um,

so they did $3.9 bil­lion of EV rev­enue in 2024 and lost $5.1 bil­lion.

So it’s rough­ly about $50,000.

for every Mus­tang mark E or F‑150 Light­ning that they sell,

um, their

EBIT mar­gin ran at neg­a­tive 195% on,

so not going well. So the cash that they’re mak­ing, they’re gen­er­at­ing from the [00:50:00] sale of trucks and vans, et cetera, is just being torched

by the Mod­el E Divi­sion.

And they’ve gone through like Tes­la, sev­er­al rounds of.

Price cuts. There’s this price cut death spi­ral.

They keep dr. They keep cut­ting the prices on the mark E by sev­en to $8,000.

uh, low­er stick­er price obvi­ous­ly means low­er mar­gins,

the resale val­ues.

a punch too. So it’s, it’s kind of this

los­ing neg­a­tive spi­ral that they haven’t been able to turn around yet.

Uh, I don’t real­ly under­stand the rea­sons for that, but I know Tes­la’s bleed­ing as well. Tar­iffs prob­a­bly aren’t help­ing that.

so I dun­no what’s going on with the

EVs in the us but, um,

TK: Have you seen the front, front page of today’s Wall Street Jour­nal today being the 20th of

Cameron: because I could­n’t sub­scribe to it.

They would­n’t take my mon­ey when I tried to sub­scribe to it.

TK: Real­ly,

Cameron: it say?

Yeah, I told you that [00:51:00] sto­ry a few weeks ago

TK: uh, GM pushed EVs, but now aims to pull the plug on Cal­i­for­nia Rule is the head­line on the front page. Gen­er­al Motors went all in on elec­tric cars. Now it is rac­ing to reverse the nation’s most. Aggres­sive EV man­date. We need your help. GM said in an email, it recent­ly sent to thou­sands of its white col­lar employ­ees stan­dards that are not aligned with mar­ket real­i­ties pose a seri­ous threat to our busi­ness by under­min­ing con­sumer choice and vehi­cle afford­abil­i­ty. So they’re basi­cal­ly tak­ing issue with the Cal­i­for­nia mea­sure, which will ban the sale of petrol cars and trucks by the end of 2035, they’re ask­ing their employ­ees to lob­by there. Con­gress peo­ple to get that over­turned?

Cameron: What’s that got to do with EV cells though? Isn’t that a good thing for EV cells?

TK: Well, it’s basi­cal­ly they’re say­ing, well, a Cal­i­for­nia rulers, but it’s basi­cal­ly say­ing that DM does­n’t believe they’re gonna sell enough EVs, but when the man­date comes in, [00:52:00] um, they can do it prof­itably.

Cameron: Mm,

well, well back to Ford. Uh, labor costs are going up too. Appar­ent­ly the UAW just locked in, uh,

2023, locked in a 25% wage rise over four years.

Um, and appar­ent­ly some of Ford’s rivals and I think that. It means Tes­la don’t have sim­i­lar sort of issues. So they’ve got some prob­lems there. They’ve got some legal prob­lems from the Nation­al High­way Traf­fic Safe­ty Admin­is­tra­tion, the N‑H-T-S‑A.

They’ve got some prob­lems with, um, their blue crews. They had a cou­ple of

fatal mark e crash­es.

And they might have to do a recall of all of those, and I saw in the news yes­ter­day

they’re recall­ing 273,789 vehi­cles due to a loss of brake func­tion.

is in the [00:53:00] 2022 2024 Mod­el Nav­i­ga­tor and expe­di­tion

TK: Does, does the recall say, dri­ve it to your local deal­er, but don’t come in hot?

Cameron: luck.

Yeah.

Yeah, brake flu­id in the affect­ed vehi­cles may leak due to the front

brake lines

com­ing in con­tact with the engine air clean­er out­let pipe and get­ting dam­aged

and explod­ing. Now, it does­n’t say that, but it’s uh, not good when you brake fuel

pipeline is leak­ing.

But that’s like, I looked at the num­bers of that.

It’s kind of a mos­qui­to bite,

TK: Yeah.

Cameron: cost him like 20 mil­lion bucks maybe for a recall and some­thing like that. Not a big deal.

Um, but then of course there’s the tar­iffs. Um, and it’s, you know, it it, as we know,

a lot of these cars, I think we talked about this, I’m not sure if it was on this show, the Aus­tralian show, where we were talk­ing about [00:54:00] decou­pling from Chi­na, which appar­ent­ly the Trump admin­is­tra­tion and the uh, CCP now agree they don’t want it decou­ple

from their recent meet­ings.

They said no one wants to decou­ple.

We don’t wan­na decou­ple, we wan­na keep trad­ing. We want every­thing to be great.

all of your decou­pling fan­tasies are gone. Tony.

um, they, but we know that

auto­mo­bile man­u­fac­tur­ers like every­one else,

are sourc­ing

com­po­nents from hun­dreds of dif­fer­ent sup­pli­ers,

which are com­ing from all,

all over the world.

a lot of them com­ing from

TK: Mm-hmm.

Cameron: and the sort of tar­iffs that were being talked about are still being talked about. Even with the reduc­tion, there’s still mas­sive impact on mak­ing things like cars. So

how that’s gonna impact on,

you know, steel and alu­minum

and, uh, loan rates, et cetera.[00:55:00]

No one can real­ly see

TK: I think I saw.

Cameron: with that kin­da stuff

TK: I think I saw a pre­sen­ta­tion which said that a, Ford vehi­cle tra­verse the Cana­di­an bor­der 18 times dur­ing its con­struc­tion. So he would attract tar­iffs on each of those cross­ings for the parts that were in place at the time. So, I, I think it was Ford, um, scratch­ing their head say­ing, how do we even account for all the tar­iffs giv­en we’ve got plants across the whole of North Amer­i­ca.

Cameron: Yeah.

TK: Hmm.

Cameron: Kind of insan­i­ty. But,

uh, you know, it’s, it’s kind of an inter­est­ing from a val­ue play, right? So

TK: Yeah.

Cameron: um, it’s strug­gling, it’s got some issues, but, um,

still mak­ing a lot of

TK: Mm-hmm.

Cameron: when you look at the, um, impact of the, the,

um.

E

series prob­lems.

[00:56:00] Um, if they can fix the mod­el E loss­es or if bat­tery prices keep falling, which could affect their mar­gins there,

that could go straight to the bot­tom line.

Um, you know, whether or not

1. They can com­pete with a Tes­la or A BYD or any oth­er of the, um,

EVs that are hit­ting the mar­ket,

you know what the pric­ing of those is gonna be, you know,

with tar­iffs and all that sort of stuff. No one knows how that’s gonna play out, but I think we all.

Assume, at least I do, that

are gonna have a big future.

But again, it’s a bit like ai. We dun­no who’s gonna own that future and who’s gonna make the mon­ey out­ta that future. And

so whether or not it’s Ford, but they’ve been around a long time, they’re a big com­pa­ny. A lot of smart peo­ple who work there, chances are that they’ll play a role in it. Whether or not they dom­i­nate it or not, who knows,

TK: When I was, just as an aside, when I was trav­el­ing last week down the south coast of New South Wales, there [00:57:00] was a park with EV charges being put in. I think there’s about six EV charg­ing sta­tions. And I said to my mate, what are those big. Green box­es besides the EV charg­ing sta­tions they’re putting in. Turns out they’re diesel gen­er­a­tors to pow­er the EV charg­er. And I’m like, uh, that negate the ben­e­fit of an EV putting diesel onto the gen­er­a­tor to charge the car?

Cameron: And I don’t think it does. No,

TK: No,

Cameron: mean, no. I mean, look, the

EVs aren’t, uh, com­plete­ly, um, car­bon neu­tral or fos­sil fuel free. It’s about reduc­ing the car­bon foot­print, not com­plete­ly elim­i­nat­ing

the

car­bon foot­print. I mean, every­one knows, and

I get

Face­book.

sent by peo­ple all the time

about all of the fos­sil fuels that are used in the

TK: Hmm.

Cameron: You to make steel and alu­minum and, you know, to make the bat­ter­ies and the, the, the wiring and the [00:58:00] seats.

There are still

fos­sil fuels. There’s still,

uh, car­bon foot­print to make all of that, but

there’s been tons of stud­ies done on it. You’re still.

in with a mas­sive­ly small­er

foot­print if you dri­ve an EV

than you have, if you are dri­ving a fos­sil fuel based car, mas­sive like, like I don’t, I don’t remem­ber the num­bers, but it’s enor­mous, but it’s not com­plete­ly

car­bon neu­tral

or fos­sil fuel free, let’s say.

TK: Espe­cial­ly if you charge it a diesel gen­er­a­tor.

Cameron: Oh, Tony. Tony. Tony.

So look, if Ford, um, does look like a clas­sic deep val­ue play, great cash gen­er­a­tor in an old busi­ness, sort of an ugly sto­ry,

but a new shiny one in there, um, some­where as well.

the bleed­ing can stop before the bal­ance sheet does, you’re get­ting [00:59:00] paid.

To, uh, buy in ear­ly and let them fix that.

If not, some­times cheap is cheap for a rea­son and hence it’s a val­ue trap.

But if I look at, um, I’ll go through some of the num­bers

and show you where it comes out in the sys­tem.

TK: Ford have, by the way, just look­ing at stock. Edia Ford have $35 bil­lion worth of cash

Cameron: Yes.

TK: sit­ting on the bal­ance sheet, so it’s a long time before they bleed out.

Cameron: Yeah, and like Rich was say­ing about GE when they bought into that, and Covid a lot of cash,

buys you a lot of

TK: Mm-hmm.

Cameron: prob­lems, right?

TK: And to, and to pay politi­cians to lob­by for all the EV man­dates to change

Cameron: Well, yes. Um, or tar­iff things to

TK: Yes. Or tar­iff. Things to change, yeah.

Cameron: can change. Yeah.

TK: Hmm.

Cameron: So.

in, uh, stock

[01:00:00] edia, they have a qual­i­ty rank of 50. So not up in the high­er ech­e­lons, but not ter­ri­ble either.

Val­ue score of 95.

Telling us what we already know,

a momen­tum score of 64 and a stock rank of 85, which isn’t

ter­ri­ble, but we don’t, not high enough for us to score it on that

PE ratio of 9.5

earn­ings per share, growth of fore­cast of, um, neg­a­tive

30%.

So no one’s think­ing it’s gonna be a.

A great upcom­ing year for them for all of the rea­sons that we’ve men­tioned.

Um,

but

let me go down to my next, um,

sheet here.

So they’ve got an F score of six out of nine. That’s the health trend [01:01:00] in stock. Edia, which is pret­ty good. Finan­cial health, pret­ty strong.

Um, so we do like the look of that.

Their total rev­enue

has, has been going up. If you go back, so 2019, their total rev­enue was 155 bil­lion,

dropped in 2020 and 2021 for obvi­ous rea­sons. I. Back up to 158 in 2022. 176 bil­lion in 2023. 184 bil­lion in 2024, the fore­cast for this finan­cial year is 182 bil­lion. Or down 163. There’s sort of, um, cou­ple of dif­fer­ent num­bers.

The TTM is 182, but the 2025 fore­cast earn­ings is 163, which would be a drop back by a cou­ple of years. But again, obvi­ous things going on that are out­side of their con­trol, out­side of the EV stuff, all of the tar­iff issues, which [01:02:00] is going. Um, take a, yeah, make them take a hit, et cetera. Oper­at­ing prof­it is an inter­est­ing one.

I dun­no what hap­pened in 2019, but it was 519 mil­lion in 2019, dropped to

four and a half bil­lion in 2020. Again, for obvi­ous rea­sons, I. Rebound­ed to 2.8 bil­lion in 2021. 6 bil­lion in 20 22, 5 and a half in 23, 5 0.2 in 24. TTM is 4.3. So, uh, oper­at­ing prof­it and the net prof­it, uh, kind of tracks sim­i­lar to that, although in 2021 their net prof­it com­ing from a loss in the covid year 2021, their net prof­it was bil­lion.

Drop to neg­a­tive two in 2022, up to 4.3 in 20 23, 5 0.8 in 2024.

Their TTM this year is 5 bil­lion. In the

[01:03:00] fore­cast for 2025 is $4.2 bil­lion.

In net prof­it.

So, uh, obvi­ous­ly a lot of volatil­i­ty in their prof­it there over a cou­ple of years dur­ing and just after Covid.

I, but, uh, they’re mak­ing a ton of mon­ey,

sit­ting on a lot of cash, as you said, gen­er­at­ing a lot of cash.

So, um,

you know.

You’re gen­er­at­ing a lot of cash. There’s a lot of, a lot of moves you have to make. It’s, it is kind of busi­ness that we like to see,

TK: Yeah.

Cameron: a lot of cash and you can, you can get it cheap.

TK: Mm-hmm.

Cameron: Um,

TK: and to be fair, like the qual­i­ty score in Wikipedia was, was good, but not great. Um, so this is more at the val­ue end of QAV rather than the qual­i­ty end of QAV, but the fact that it has so much cash on the bal­ance sheet and can gen­er­ate cash in a sort of steady state. Process, even though there’s lots, all those issues you talk about, you flick back through [01:04:00] the annu­al reports we’re prob­a­bly going on in almost every year that Ford has been in busi­ness recalls and, new, new prod­uct

devel­op­ment and all those kinds of things. Um, so it kind of is in steady state at the moment, just a lit­tle bit volatile and tar­iffs. So, um,

yeah, we, we are buy­ing it cheap­ly to com­pen­sate for that risk.

Cameron: And yeah, as I said, it’s gen­er­at­ing a lot of cash. Uh, it’s a, an old bor­ing busi­ness in some ways that’s try­ing to get into the new age with the and is strug­gling, uh, sit­ting on a lot of cash, is gen­er­at­ing a lot of cash has a bit of run­way to. Work itself out and try and sur­vive the, uh, tur­moil of the cur­rent years.

TK: And it’s not alone in, in grap­pling with EVs as a lega­cy brand. I mean, um,

Cameron: Hmm.

TK: one of the big com­pa­nies will crack it, whether it’s Ford or GM or [01:05:00] or Daim­ler in Europe or Vol­vo seems to be doing a good, I. Mak­ing a good fist of their Polestar range. But I know that from read­ing arti­cles about Mer­cedes-Benz, they, they’re tak­ing a bath on their EV range, so it’s up, up and down for them all.

And of the rea­sons is Chi­na seems to be doing very well through Brad’s like BYD, um. And you know, that’s, I think it was BYDI could have that wrong. Uh, the CEO came out and said, we can charge an elec­tric vehi­cle now in under five min­utes. And if that’s true, and if that gets rolled out, then that gives ’em a mas­sive advan­tage in, in the mar­ket.

Cameron: Does it? Does he require a gaso­line gen­er­a­tor?

TK: Yeah. Big, big diesel gen­er­a­tor. Yeah.

Cameron: have to buy one with

TK: You tow it, you tow it, tow it into the ser­vice sta­tion, filled up with diesel and dri­ve it around, then charge the car. It’s a, it’s a, it’s a hybrid camp. [01:06:00]

Cameron: Before, before I get into the num­bers, this how we scored it. I did see this arti­cle that just came out. Uh, today. Ford’s, CEO, has a strong take on tar­iffs.

TK: I bet.

Cameron: Uh, yeah, Jim Far­ley is his name.

TK: Any rela­tion to Chris?

Cameron: Yes, he looks just

TK: Oh.

Cameron: He’s, uh, Chris’s, uh, younger broth­er maybe, or old­er broth­er.

Um,

ear­li­er this month, the com­pa­ny sus­pend­ed its guid­ance for the year due to uncer­tain­ty around tar­iffs, despite its pub­lic.

Cham­pi­oning them of them, cham­pi­on

cham­pi­oning of them.

Ford says it sup­ports the admin­is­tra­tion’s goal to strength­en the US econ­o­my by grow­ing man­u­fac­tur­ing.

How­ev­er, it also said it expects tar­iffs to eat one and a half bil­lion of its EBITDA this year

with an over­all two and a half bil­lion dol­lar head­wind.

One of the rea­sons Ford sup­ports the tar­iffs is that it already has a much stronger domes­tic pro­duc­tion [01:07:00] base than even its domes­tic com­peti­tors. Last year we assem­bled over. 300,000 more vehi­cles in the US than our clos­est com­peti­tor.

That includes 100% of our full-size trucks. CEO Jim Far­ley said dur­ing the com­pa­ny’s last earn­ings call,

this new envi­ron­ment, automak­ers with the largest US foot­print will have a big advan­tage.

And boy is that true for Ford. He added.

puts us in the poll posi­tion.

In March, the audio indus­try became the first major indus­try to get some relief from the tar­iffs. When the White House announced an exemp­tion for vehi­cles cov­ered by the Unit­ed States, Mex­i­co, Cana­da Agree­ment,

et cetera, et cetera, et cetera.

Far­ley has been very effu­sive about tar­iffs. Ford tru­ly believes in US man­u­fac­tur­ing, and if extra tar­iffs on for­eign built vehi­cles will help achieve that out­come, then so be it.

So they’re all for the tar­iffs appar­ent­ly. Because have US based man­u­fac­tur­ing.

TK: Okay.

Cameron: So any­way, if the tar­iffs Go [01:08:00] ahead, uh uh uh, could, you know, they stick to some of them

TK: So, so they’re all for the TA tar­iffs, but they’ve sus­pend­ed guid­ance on how tar­iffs will affect them,

Cameron: yeah. All for

TK: Yeah.

Cameron: but

TK: And,

Cameron: in the

their plan­ning into a lit­tle bit of a ray.

TK: and, and the oth­er ben­e­fit of we don’t have to guide the mar­ket on our prof­it going

Cameron: good. So I’m just gonna run through our scor­ing, uh, just quick­ly. Uh, so qual­i­ty rank of 51 on stock edia. As I said, we only give them a score if they’re

equal, uh, or above 60, so they don’t get a score for that. Stock rank is less than 90. I think I said it was 80, 85, some­thing like that. So we don’t score them on that either.

They do get a score for the F score being, uh, equal to or above four and a half. don’t get a score for the Zed score. Uh, the price is above both of our intrin­sic val­ue [01:09:00] cal­cu­la­tions, so we don’t score them on that. How­ev­er, it is below book price and of course also below Book plus 30 only. Just though I think the book price is about 11 bucks some­thing.

The price today is about. $10 80. It was about $10 50 when I did the analy­sis last week. But at $10 80, it’s still below book and book plus 30. It has a three point uptrend, but it also has a new three point uptrend, so it gets a score for that. Uh, the growth over PE is not greater than 1.5, so we actu­al­ly give it a neg­a­tive score for that.

Um, book val­ue growth is not pos­i­tive. PE is not less than the yield. The yield is not greater than the bank debt.

The, um,

IV

is not greater than twice the price. It’s not even cur­rent. IV is not greater than the, the fore­cast not greater than the cur­rent price. um, does­n’t get scores for any of those.

So it ends up [01:10:00] with. Sev­en OUTTA 15 gets a qual­i­ty score on our end of 47%, is inter­est­ing because that’s pret­ty to what it gets on. Uh, Wikipedi­a’s qual­i­ty rate too. They gave it a qual­i­ty of 50. We gave it a qual­i­ty of 47, so we’re pret­ty much on track with them. Uh, but it gets a QAV score of, uh, 0.2, so.

Again, as I said, uh, at least when I did the analy­sis last week, and I don’t think any­thing would’ve changed since then because the share price is only $10 80. As I said, it’s on our buy list and, uh. Inter­est­ing. Yeah, an inter­est­ing sort of clas­sic, clas­sic sort of a val­ue play. I think real­ly big com­pa­nies like that we usu­al­ly don’t expect to see on on QAV, but, uh, in this case, big com­pa­ny gen­er­ates a lot of [01:11:00] cash and has some strug­gles and the mar­ket isn’t, uh, giv­ing a lot of, uh, love right now.

TK: Did you give any con­sid­er­a­tion to the Ford fam­i­ly own­er­ship in terms of explor­ing it as an own­er, founder at all?

Cameron: I don’t, because as I said before, I’ve told you ear­li­er episodes, Wikipedia does­n’t let me down­load that in my spread­sheet.

TK: know.

Cameron: So yeah, I don’t go back and rescore

TK: okay.

Cameron: man­u­al­ly after­wards. I could, but know. But looked at it, have you looked at it

TK: So Stock Edia don’t show the Ford fam­i­ly own­er­ship, but if I Googled it

it said mem­bers of the Ford Fam­i­ly own Class B shares in Ford, which grant them sig­nif­i­cant vot­ing pow­er. Uh, even though the Ford fam­i­ly’s own­er­ship stake in the com­pa­ny decreased over time, they use these Class B shares to con­trol 40%. the com­pa­ny’s board of direc­tors, while the remain­ing 60% are elect­ed by hold­ers [01:12:00] of pub­licly trad­ed class A shares, this ensures the fam­i­ly retains oper­a­tional con­trol despite own­ing less than 50% of the com­pa­ny’s equi­ty. So they still have con­trol. I.

Cameron: And, um, so from your per­spec­tive, is that a good thing for us or a bad thing?

TK: A good thing?

I think. I mean, it’s not, obvi­ous­ly it’s not Hen­ry Ford still there, but mem­bers of the Ford fam­i­ly is still there and they would have a lot of expe­ri­ence in man­u­fac­tur­ing.

Cameron: So there you go. to look at. We don’t hold it in our US port­fo­lio. Um, but uh, it’s some, some­thing to look at. If you’re out there and you’re look­ing for a val­ue, buy, have a look at Ford,

TK: Inter­est­ing one. Thanks, cam. It’s not often we see big, big cor­po­ra­tions that have been around for a long time on the val­ue buy list.

Cameron: Hmm. That’s what I thought too. All right. Well, um, [01:13:00] after hours, Tony.

TK: Yes, cam.

Cameron: So for, uh, new lis­ten­ers, after we get through talk­ing about invest­ing, Tony and I usu­al­ly will do what we call after hours where we just get to talk about what we’ve been doing late­ly, what we’ve watched, what we’ve lis­tened to.

Tony has,

uh, very good taste in TV and film and music in books.

he has a lot of time to watch and read and lis­ten and play golf.

’cause that’s all he does.

Unlike some of us that work for a liv­ing.

Tony tried that. Did­n’t take, he goes, eh,

TK: No, it did take, I.

just got through it quick­ly.

Cameron: com­pressed

TK: Yeah. 20 years. Yeah, Cor­rect.

Cameron: Yeah,

TK: Yeah.

Cameron: We’re into after hours. Tony, we skipped it last week. Got any­thing good for me this week? Got any tips? Got any rec­om­men­da­tions?

TK: Well, haven’t watched much ’cause I’ve been trav­el­ing and play­ing golf and some fan­tas­tic golf cours­es in South­ern Coast of New South Wales. [01:14:00] peo­ple go and play Mol­ly­mook and Naru golf cours­es if you haven’t. Uh, they’re very good na rumor in par­tic­u­lar, right on the, um, right on the coast on cliffs.

You shoot over cliffs on at least one of the holes, which is, which is fun. but when I got back on the week­end, I watched a cou­ple of episodes of Mob Bland, caught up with that, it’s, it real­ly is stand­out. I high­ly rec­om­mend Mob Bland to

Cameron: I got­ta check that out. Mob Land?

TK: uh, Pierce Bros­nan and Helen Miran. All fan­tas­tic.

Cameron: Hmm. Okay. I do love a bit of Helen Maren.

TK: Ooh. She seems to be in every­thing at the moment, does­n’t she? She’s in, um, she’s in, com­ing out in the, what’s it called, the Thurs­day Detec­tives Mur­der Club, or what­ev­er it is. The books that Richard Osmond write, um, in, is 1823, the pre­quel to the pre­quel to, uh, Yel­low­stone. she’s in this, she must be in her sev­en­ties.

I mean, she’s, she’s

Cameron: Mm.

TK: [01:15:00] very active and doing great.

Cameron: But she will nev­er be in any­thing bet­ter than Caligu­la. Caligu­la chef’s kiss.

TK: Oh, Real­ly?

Cameron: Yeah. Oh yeah. The fact that she was most­ly naked run­ning around and it’s got noth­ing to do with it. But yeah. One of my favorite films, ULA love it. Love it. It’s a mas­ter­piece. It’s bonkers. Com­plete­ly bonkers. But, uh, that was kind of the point, right?

TK: All right.

Cameron: They’re try­ing, try­ing to depict near a, uh, not near a caligu­la’s reign as bonkers, which it’s prob­a­bly unfair to Coag­u­la. I think he’s been, uh, bad­ly treat­ed by his­to­ry. But, um. She was in her absolute prime in the ear­ly sev­en­ties. Dun­no how old she was, but prob­a­bly about the same age as uh, what’s his face?

Who was in it with her? Um,

TK: Mal­colm McDow­ell.

Cameron: yeah,

TK: Mal­colm McDow­ell. Any­way. McDow­ell?

Cameron: Mal­colm McDow­ell would’ve both been in there sort of mid to late twen­ties, I guess.

TK: Mm. [01:16:00] And Pierce?

Cameron: Uh,

TK: too. In mob land. Just he’s revert­ed back to his Irish accent. Does­n’t use any­more. Yeah.

Cameron: Right,

TK: Just that. Just the mob boss? The patri­arch of the fam­i­ly. Oh, Cameron, I told you I had to do that. You did­n’t do it when I told you you’ll do it now.

Cameron: because he still got the beard. He had to grow the beard to get away from bond. I think

TK: Oh, okay. Oh, I can’t recall. I don’t think so. Maybe. Can’t recall.

Cameron: every time I’ve seen him on chat shows he’s had beards.

TK: Okay.

Cameron: Well, I’ve been watch­ing, uh, a, a Black Mir­ror. I watched the first episode of the New Sea­son of Black Mir­ror. Have you seen that yet?

TK: No, still through the old ones.

Cameron: Oh, right this one. First episode of this one. Absolute­ly. Gut wrench­ing, ter­ri­fy­ing. Um, Chris­sy and I watched it the oth­er night. She was like, well, that was not the good thing to watch before I went to bed. That was hor­ri­ble.

TK: I may

Cameron: Um, yeah. [01:17:00] No, it’s good. I mean, it’s ter­ri­fy­ing. It’s basi­cal­ly about cor­po­ra­tions, uh, get­ting in. Yeah, I know. That’s, that’s what keeps you awake at night.

TK: Ter­ri­fy­ing.

Cameron: I. Yeah, should just be a Black Mir­ror episode elbow tax­ing, unre­al­ized gains One day in the future. start­ed watch­ing total when I was clean­ing the kitchen last night.

TK: you can’t do that. You got­ta lis­ten to me

Cameron: I start­ed watch­ing the, uh, the, the schwartzeneg­ger ver­sion of total recall from 1990. could have been a Philip take Philip k Dick. Short sto­ry, like one day in the future, gov­ern­ments will come for unre­al­ized gains the most dys. That’s your ver­sion of a dystopi­an

TK: k Dick­’s short sto­ry.

Cameron: com­ing for unre­al­ized gains.

TK: No, no. I can remem­ber. We can remem­ber it for you whole­sale. That was the

Cameron: Yeah, I’m say­ing that that could have been anoth­er book that Dick wrote was, in a dystopi­an [01:18:00] future, they come for your unre­al­ized gains.

TK: the coali­tion is split, the gov­ern­ment will come for your unre­al­ized gains and there’s no,

Cameron: I’m also. I’m also halfway through watch­ing Rashon for the first time. I’ve nev­er seen Rashon before.

TK: have I.

Cameron: Haven’t seen it. Hmm

TK: No,

Cameron: uh, good, real­ly good.

TK: the same or the same inci­dents repeat­ed by dif­fer­ent rec­ol­lec­tions,

Cameron: How do you know that if you’ve nev­er seen it?

TK: Oh, it’s part of the movie Folk­lore. And it was the basis for, what was the Rid­ley Scott movie I rec­om­mend­ed last year or the year before? I think it was on Net­flix with Matt Damon and Ben Affleck and, uh,

Cameron: Long as it was­n’t Napoleon?

TK: well, no, the lady from Killing Eve.

It was pri­or to Napoleon. based on Rima.

Cameron: Uh

TK: sto­ries of a rape, uh, as to, as

Cameron: oh.

TK: it.

Cameron: So rape ’em on? No.[01:19:00]

TK: She got a rash.

Cameron: Yeah, like it’s, it’s true. I mean, I’m halfway through it and I could­n’t watch it while I was clean­ing the kitchen because it’s all sub­ti­tled. So I need­ed to pay, need to pay atten­tion to it. So what I watch when I get home from kung fu, my body hurts and I have to lie there and stretch and mas­sage my mus­cles out. Um, oh, Fox had his kung fu grad­ing on the week­end. He got a new belt. Um, so he got his fourth belt. It’s his fourth grad­ing, no third grad­ing, fourth belt. ’cause he starts with a belt. Um, he did real­ly well. I was real­ly proud of him. He’s, he.

TK: col­or belt’s that.

Cameron: Uh, this is the mid­dle blue belt. So it’s the, there’s three blues.

It’s the sec­ond the three blues, and it’s, it’s a, there’s not many kids, that get that lev­el belt. You know, out of all the kids that we’ve seen in the four years that we’ve been there, many stick around long enough to get that. He’s been going three years now. So it’s, uh, not, not many kids last three years at kung fu, you know, [01:20:00] 10% maybe.

So, um, he’s doing real­ly well and it’s inter­est­ing to watch him slow­ly get­ting more seri­ous about it. You know, as he gets bet­ter and he starts to real­ize that he’s actu­al­ly get­ting pret­ty good spar­ring. He sparred with the adults after­wards. On Sat­ur­day, he gets in and joins our spar­ring match­es, and he holds his own man.

Like he’s, he’s got the, he’s got the instinct for it a lot of peo­ple, even adults in, in spar­ring, I mean, we got easy with the spar­ring, like no one’s try­ing to hurt each oth­er. It’s got gloves on or what­ev­er, mouth guards. But a lot of peo­ple, you throw a punch at them and they’ll turn their head, you know, an instinc­tive blink or shut their eyes.

Turn their head. Not fox man. He just comes in and starts, gets under­neath it and starts hit­ting me in the ribs and hit­ting me in the kid­neys. And he’s in the groin?

TK: You might, you might live to regret all this camp.

Cameron: Yeah. Prob­a­bly. Or not live to regret it ’cause he kills me in my sleep.

TK: bed­room for a [01:21:00] diary. I almost got dad at kung fu this week. I’m get­ting

Cameron: Yeah.

TK: now.

Cameron: Yeah. Count­down.

TK: Yeah.

Cameron: Um, I’ve got.

TK: the last jew­el was the Rid­ley Scott movie based on Rman.

Cameron: Oh, I’ve seen the last Jew­el. No, not the last Jew­el. No. I’m think­ing of his, Earl, his first film. What was his first one? The, the Dual­ist? Yeah, yeah, yeah. No, you remem­ber you telling me about this. Okay. Oh, Rid­ley. I can’t watch Rid­ley any­more. Rid­ley’s broke, broke my Heart with the Napoleon film. Um, I’m read­ing Tin­ker Tay­lor, sol­dier Spy,

TK: Yeah.

Good on you. Good book.

Cameron: it.

Yeah, I’m halfway through it or third of the way through it. Enjoy­ing that.

TK: There’s a great, ver­sion of it that came out 10 years ago or so with all the great British actors in it.

Cameron: Gary Alban in that one as Smi­ley.

TK: Yep.

Cameron: And then all [01:22:00] Guin­ness I think did played Smi­ley in the sev­en­ties ver­sion. I. Oh, cvs. Yeah. Right. I haven’t seen any of those. So it’s all, the sto­ry’s all new to me, but I’m enjoy­ing it. And, um, I’ve got a band for you if you’ve nev­er heard of them. Tin­der Sticks.

TK: Did you men­tion that last week? Is that the girl band?

Cameron: No, that was Teen Jesus in the Gene Teasers Eas­es

TK: Oh, I saw a clip recent­ly too, of, uh, Amal and the Snif­fers on, uh, one of the Tonight shows.

Cameron: bal­lon or some­thing. I haven’t, I haven’t seen that yet, but I’ve seen it pro­mot­ed. I real­ly wan­na dig it up and watch it. I’m so hap­py for them.

TK: Yeah.

Cameron: So hap­py for them to be get­ting this sort of US cov­er­age. Such a great Aus­tralian export.

TK: Fal­lon, right? It’s

Cameron: Yeah.

TK: all these Mid­west­ern farm­ers in New York going to Jim­my Fal­lon, whoop­ing and hol­ler­ing, and then this white girl from Aus­tralia gets up and jumps up around into a punk band. It’s fan­tas­tic.

Cameron: I guess it was­n’t one of the songs where she [01:23:00] swears a lot in it unless they just bleep the whole thing.

TK: say­ing, so

Cameron: Oh, right. Oh, I love Amil and the snif­fers just so much fun. Like I just, I’ve seen a cou­ple of their con­certs on YouTube and I just had this huge grin on my face through the whole thing. It’s just so, the joy of Eve in watch­ing them, it is just, it’s so great. No Tin­der sticks I just dis­cov­ered this morn­ing and it came through a Spo­ti­fy rec­om­men­da­tion based on, you know, you can say, you know, like a radio thing. It was based on Dirty three. I’d been lis­ten­ing to Dirty Three, cre­at­ed Dirty Three Radio and Tint Sticks came on. Tint Sticks is sort of a cross between Dirty Three and Nick Cave and Leonard Cohen, UK Trio start­ed in the mid nineties, drums and vio­lin. But you know, where Nick does his sort of meowy bal­la­dy stuff in the last 20 years, it’s kind of very much like that.

TK: Okay.

Cameron: lush, lot of strings, lot of piano. And the vocal­ist [01:24:00] is very Nicky in his mel­low. know, old­er, sort of, kind of Nick era.

TK: Yeah. Right.

Cameron: papa won’t leave you. Hen­ry, Nick and not the birth­day par­ty Nick, but ver­sion four, Nick, what­ev­er it is. Uh, but I’ve been lis­ten­ing to it while I was work­ing. It’s beau­ti­ful sort of atmos­pher­ic, ambi­ent kind of going on. It has lyrics, but it’s um, yeah. Nice. Chris­sy liked it too. I played it too in the car on the way to Kung Fu. So there you go. Tin­der sticks.

TK: Actu­al­ly, I had

Cameron: my music tip.

TK: wrote down a cou­ple of weeks ago to rec­om­mend to you on in that sim­i­lar vein, the veils, have you heard them?

Cameron: No,

TK: track called Sit Down by the Fire, which just, it could have been Nick Cave singing at it’s a, a Bal­lard like that too in that

Cameron: V‑E-I-L‑S. Oh yeah.

TK: right.

Cameron: Eng­lish New Zealand Indie rock band. Accord­ing to [01:25:00] Wikipedia.

TK: And sit down by the fire is the song I rec­om­mend of these.

Cameron: Sit down by the fire. Alright, well, there’s my lis­ten­ing for tonight. Thank you, tk.

TK: Yeah. Good.

Thanks Cam. have a good week.

Cameron: Thank you Tony. You too.