QAV America 009 — Blame It on the Boogie

 

[00:00:00]

Cameron: Wel­come back to QAV Amer­i­ca, Tony, 9 0 0 9. License to talk about invest­ing.

Tony Kynas­ton: Well, we are.

Cameron: It’s not, not sexy like oh sev­en is a license to Kill oh oh nine is a license just to talk about invest­ing and we don’t have a license to talk about it.

Tony Kynas­ton: oh 0 in one of the movies, was­n’t it? I think from mem­o­ry.

Cameron: he was, yeah, yeah, yeah.

Yeah. so Tony this week on QAV Amer­i­ca, I mean, lots of chaos hap­pen­ing again over just in the US mar­ket. knows we don’t need to talk about that again. I do have a pulled pork to do this week on a com­pa­ny called Jack­son Finan­cial. Uh, this is appar­ent­ly, um, Tito and uh, the rest of the Jack­sons after Michael died.

They. Turn them­selves into a, um, annu­ities, uh, busi­ness. [00:01:00] Yeah.

Tony Kynas­ton: him.

Cameron: yeah. Can you feel it is the, uh, mot­to of the com­pa­ny. Have you got any­thing else though before I get into Jack­son’s? Uh, do you got any­thing else you wan­na talk about Tony?

Tony Kynas­ton: well, I, we just talked off air quick­ly about it. I’ll just men­tion in case there are any over­seas investors lis­ten­ing to this, that part of the big beau­ti­ful bridge bill that’s going to the Sen­ate being passed by the low­er house, there is a 5% tax on div­i­dends and inter­est if you’re an over­seas investor you come from a coun­try that, uh, Amer­i­ca does­n’t like, um, and Aus­tralia is one of those.

Because

Cameron: Which is all of them pret­ty much at the moment, I think. Yeah.

Tony Kynas­ton: yeah. Um, uh, it ris­es by 5% for the next four years, every year for the next four years until it gets to 20%. So, um, just be aware of

Cameron: on div­i­dends?

Tony Kynas­ton: Mm. There, there

Cameron: no.

Tony Kynas­ton: [00:02:00] Appar­ent­ly there are a lot of peo­ple upset about this in the US, in in the insti­tu­tion­al area who are lob­by­ing like crazy, uh, lob­by­ing their sen­a­tors like crazy.

They have that bit tak­en out, but may well get passed. And if you think about all the peo­ple who are for­eign investors in the us, it’s a large chunk of the us. Um. Econ­o­my and mar­ket com­pa­nies like Shell, who I used to work for, um, you know, are domi­ciled in the Hague and in the UK and they’re, uh, invest­ing and oper­at­ing in the us So they’ll be, by this, if they pay a div­i­dend back, if they pay a div­i­dend exam­ple, or receive div­i­dends from invest­ments.

Um, then you think about all the big. Invest­ment banks, um, HSBC, for exam­ple. in the oth­er Euro­pean ones, they’ll be fac­ing prob­lems. And of course the Aus­tralian super indus­try is try­ing to work out what to do. ’cause they have large invest­ments in the US the, in the Mag sev­en. And um, I know they don’t always pay div­i­dends, but if they div­i­dends and they’ll be taxed as well.

So they’re try­ing to work out what to do. [00:03:00] So, um, I’m mere­ly rais­ing it for peo­ple to be aware of it if they’re invest­ing in the us if that bill gets passed.

Cameron: I did see that talked about in the finan­cial review, the Aus­tralian uh, finance news­pa­per,

Tony Kynas­ton: Mm-hmm.

Cameron: lots of gnash­ing, his teeth and lots of dif­fer­ent fronts with the big beau­ti­ful bridge Bill I.

Tony Kynas­ton: We should say to our US who may not have been along the jour­ney with us that we’re refer­ring to Kel­ly’s Heroes. When we talk about the big, beau­ti­ful bridge,

Cameron: I fig­ure that

Tony Kynas­ton: out and

Cameron: any, yeah, like any, any­one who is uh, cool,

Tony Kynas­ton: Hmm.

Cameron: what we’re talk­ing about there, and if they don’t

Tony Kynas­ton: we, we talked

Cameron: God was­n’t cool. You made me cool so ear­ly in the. Think that bridge will be there. Mm-hmm. And it’ll be there. It’s a moth­er beau­ti­ful bridge it’s gonna be there. There you go. RIP, [00:04:00] Don­ald Suther­land. So, so the Jack­sons, let me get into the Jack­sons. Tony and I have ques­tions for you in, uh, this pulled pork because best, as much as I tried to get my head around this and think it through

Tony Kynas­ton: ques­tions for you as well.

Cameron: Oh, you’re point­ing at some­thing. Oh, okay. You have ques­tions for me? I won­der if they’re the same ques­tions.

Tony Kynas­ton: Sor­ry, just before we start on that, did you wan­na do a per­for­mance update quick­ly? I.

Cameron: Oh yeah. Port­fo­lio report. Thank you for remind­ing me. So, uh, let me talk about our US port­fo­lio. I had a look at it this morn­ing. Uh, our US port­fo­lio for the last sev­en days was up around 4.65% ver­sus the s and p 500, which was up 1.18% for the last. Uh, 11 months, which is the Aus­tralian Finan­cial Year. Our [00:05:00] US port­fo­lio is up about 28% ver­sus the s and p up about 10%. And since incep­tion, which is Sep­tem­ber, 2023, our US port­fo­lio is up 54% ver­sus the s and p 500, up 35% You know, that’s a lit­tle bit over a year and a half.

Tony Kynas­ton: Hmm.

Cameron: 35% is insane. I mean, our 54% is, is bet­ter, but e even 35% for the s and p 500. Now I know a lot of that, well, I dun­no how much of that is Maga MAGA sev­en?

The MAGA sev­en as I call them now. but, uh, a big chunk of it would be that none of ours is MAGA sev­en though. I wan­na point that out. It’s all bor­ing ship­ping and finan­cial stocks most­ly.

Tony Kynas­ton: Yeah. Cat­a­logue retail­ers.

Cameron: By the way, I also want­ed to say, men­tion to you, um, some­body on our [00:06:00] YouTube chan­nel, uh, ques­tioned, uh, last time we, we did a pulled pork on this cou­ple of weeks ago.

I talked about Ford Motor Com­pa­ny and some­body took issue with that on our YouTube chan­nel and talked about the amount of debt that Ford is car­ry­ing and how he did­n’t think Ford was a good invest­ment because of the amount of debt that they’re car­ry­ing. And I said, well, look, you know, if that’s a con­cern to you, then you should­n’t invest in it.

But said that, from my per­spec­tive, usu­al­ly look at debt lev­els. We don’t real­ly look at debt to equi­ty lev­els or any­thing like that. And just to, I want­ed to check this with you, but my think­ing on debt for com­pa­nies like that is we look, we have a bunch of met­rics that we do pay atten­tion to where debt is part of it, they finan­cial health and those sorts of things. But at the end of the day, I fig­ure that if it’s a well run busi­ness and has been well run for some time, and the man­age­ment seem to know what they’re doing and a lot of [00:07:00] our met­rics com­pa­nies based on things like that, I. Then, uh, they know what to do with debt. They’re gonna man­age that debt well, debt is a tool that can be used to grow a busi­ness if it’s used strate­gi­cal­ly and tac­ti­cal­ly know how to use it wise­ly.

Um, and so I, I’m not real­ly con­cerned about that as a major fac­tor. I mean, it’s one of the things that we’re gonna score a busi­ness on, but I don’t get caught up. In how much debt they’re car­ry­ing as a busi­ness. Uh, what would you have to say about debt and fraud?

Tony Kynas­ton: Yeah. Well, I, I agree with every­thing you’ve said. It’s part of our check­list in terms of the qual­i­ty met­rics that we use. I can’t com­ment on the debt with fall. I nev­er looked at it, um, by itself, but the com­ment I’ll make. Is that for be on our buy list, it must be throw­ing off truck­loads of cash, par­don the pun.

And um, the biggest down you dote to debt is cash. So as long as they’re throw­ing off cash, they can [00:08:00] usu­al­ly ser­vice a lot of debt. So, um, that would be my com­ment

Cameron: been a great, where were you two weeks ago?

Tony Kynas­ton: Ford.

Cameron: would’ve been a, that would’ve been a great name for that episode. Truck­loads of cash. ’cause it is com­ing out­ta the trucks divi­sion from mem­o­ry is where their cash is. Yeah. All right. Let’s talk about the Jack­sons. Um, Jack­son Finan­cial is a life insur­ance com­pa­ny in the Unit­ed States.

They’re the sev­enth. life insur­ance com­pa­ny ranked by total statu­to­ry assets. for like me who dun­no what a statu­to­ry asset is, it’s uh, you know, all the, sort of the assets that they report under their account­ing rules, bond stocks, real estate, cash loans, recov­er­ables, uh, et cetera, et cetera. So they’re pret­ty big mar­ket caps around about 6 bil­lion. USD [00:09:00] rev­enue is about sev­en and a half bil­lion USD. They, um, they’re a a siz­able busi­ness. They’ve been around a long time. I. But here’s my first ques­tion before we get into the his­to­ry and all that kind of stuff. The prop calf, the price to oper­at­ing cash flow for these guys is real­ly low.

It’s a one,

Tony Kynas­ton: Wow.

Cameron: which is pret­ty low in our met­rics, but I know you and I have talked over the years about. Pr/OpCaf and banks and finance com­pa­nies, and I’m sure we’ve even talked about it on a US show, but they’re not, like when you’re look­ing at price to oper­at­ing cash flow with a finan­cial ser­vices com­pa­ny because they’re, their cash flow is sort of, uh, copy often and they’re fi if they’re doing refi­nanc­ing or depend­ing on what kind of busi­ness they’re in, it can go up and down. Uh, and I know with insur­ance com­pa­nies and pre­mi­ums and poli­cies and how they [00:10:00] invest and how they bor­row, it can be up and down. Um, is Pr/OpCaf some­thing that we should be scor­ing it on, or how would you be think­ing about Pr/OpCaf with a life insur­ance com­pa­ny?

Tony Kynas­ton: Yeah, good ques­tion. I mean, um, I. I don’t think I have any life insur­ances in my port­fo­lio. QBE, Aus­tralian Aus­tralian stock, which oper­ates a lot in Amer­i­ca, is basi­cal­ly prop­er­ty and casu­al­ty, but um, their prop cap is gonna be like any oth­er prop cap. It’s gonna be the dif­fer­ence between, um, the pre­mi­ums that they gen­er­ate.

Um, I guess in the life insur­ance case, it would be any under­ly­ing prof­it from the float as War­ren Buf­fet calls it. Um, less the cost of. Pro­vid­ing that. So I think it’s prob­a­bly okay. Um, I did have a ques­tion about, about that issue though myself, because I know that stock Edia give it a low rank­ing for qual­i­ty it often is the case with, um, with the finan­cial ser­vices [00:11:00] com­pa­nies that, uh, the, the met­rics are seen dif­fer­ent­ly to indus­tri­als.

So, I, I, I dun­no the com­pa­ny well enough to say any more than that, but I, I would­n’t have a prob­lem using. The prop calf from a life insur­ance busi­ness. But I agree with your com­ments that they can be lumpy depend­ing on, know, what their invest­ments are and, what, uh, you know, what they’re pay­ing out at the time.

Cameron: Right. I mean, I asked GPT to sort of ana­lyze it for me when, when I was talk­ing to it about Jack­son Finan­cial had a long con­ver­sa­tion and it said. Jack­son’s cash flow from ops includes changes in reserves, big swings based on actu­ar­i­al assump­tions, and rein­sur­ance bal­ances, unre­al­ized gains or loss­es on annu­ity lia­bil­i­ties, deriv­a­tives, cash flows, and tim­ing effects on pre­mi­um flows, which means oper­at­ing cash flow can be mas­sive­ly dis­tort­ed by [00:12:00] non-recur­ring or account­ing dri­ven line items. It’s not like a wid­get com­pa­ny sell­ing 10,000 units a month, and then it talks about. Mod­i­fied co-insur­ance mod co deals rein­sur­ance costs. says what mat­ters when you’re look­ing at an insur­er is statu­to­ry sur­plus and free cash flow. Cap­i­tal gen­er­a­tion after reserve changes and RBC ratio main­te­nance Jack­son’s is 585%, which is strong. But gap cash flow used in Pr/OpCaf does­n’t tell you how much cash they can return to share­hold­ers. So it’s not a good stand­alone val­u­a­tion met­ric. I know. Well, this is, this is above my pay grade, so I’m not even gonna try and pre­tend that I under­stand how all this works. And Pr/OpCaf is only one thing that we score these busi­ness­es on.

I mean, we, we know that it’s a pret­ty impor­tant one that we score them on tra­di­tion­al­ly. But going through this busi­ness it, it scores well [00:13:00] on quite a few met­rics in terms of val­ue for us. So I decid­ed I would, you know, do a Paul, we don’t own it. I’ll say that upfront. It’s not in any of our port­fo­lios, but it is. I ran a new US buy list yes­ter­day and it did turn up at it, so talk about it any­way. And peo­ple could make their own deci­sions. So the nature of their busi­ness, uh, they spe­cial­ize in retire­ment ser­vices, uh, sell­ing annu­ity prod­ucts, vari­able, fixed, indexed, and fixed annu­ities. in 1961 in Jack­son, Michi­gan, which is 65 miles east of Kala­ma­zoo, Tony, which I learned is a real place.

Um, I thought it was a. Um, a, a, a wind instru­ment that you played with your mouth that made a twang­ing noise, but I, I guess that’s else. Um, miles west of Detroit. was orig­i­nal­ly called [00:14:00] Bron­son the founder of the town, Titus Bron­son. And hon­est­ly, I’m not sure which is a cool­er name, Kala­ma­zoo or Bron­son.

I mean, they’re both pret­ty cool names, but I, com­ing from Bron­son, it’s pret­ty badass com­ing. I, I live in Kala­ma­zoo. It does­n’t, it sounds more like a Looney Tunes char­ac­ter. It comes from Kala­ma­zoo. I dun­no if I could take that seri­ous­ly. Appar­ent­ly the name Kala­ma­zoo comes from a. Word that first found in a British report in 1772.

So there you go. Native Amer­i­can name, Kala­ma­zoo,

Tony Kynas­ton: They weren’t think­ing about Bron­son

Cameron: think. No, but I think all cities should be, um, talked about based on how far away they are from Kala­ma­zoo. So I worked it out Bris­bane, where I live approx­i­mate­ly 14,900 kilo­me­ters or 9,260 miles for our Amer­i­can lis­ten­ers, uh, by air. From [00:15:00] Kala­ma­zoo. So there, you know, that’s where I live is 9,260 miles away from Kala­ma­zoo.

About half a plan­et away from Kala­ma­zoo. Rough­ly speak­ing,

Tony Kynas­ton: you can’t get a direct flight from Bris­bane to Kala­ma­zoo either. So that’s prob­a­bly a lit­tle bit longer than that. A bit fur­ther,

Cameron: not yet, but we’re work­ing on it.

Tony Kynas­ton: I.

Cameron: Um, Jack­son, the, uh. of where this place was found­ed. This com­pa­ny was found­ed, it was named after act. Andrew Jack­son, the sev­enth pres­i­dent of the Unit­ed States States best known for being a racist and sign­ing the Indi­an Removal Act of 1830. Which has been described as eth­nic cleans­ing, dis­plac­ing tens of thou­sands of Native Amer­i­cans from their ances­tral home­lands east of the Mis­sis­sip­pi, and result­ed in thou­sands of death from what has become known as the Trail of Tears.

Tony Kynas­ton: Hmm.

Cameron: there you go. Bron­son, and Kala­ma­zoo Jack­son is also [00:16:00] his­tor­i­cal­ly regard­ed as the birth­place of the Repub­li­can par­ty. Because a meet­ing was held there in 1854 dur­ing which polit­i­cal fig­ures gath­ered to oppose the expan­sion of slav­ery, and that was the begin­ning of the Repub­li­can par­ty. Uh, more inter­est­ing things about Jack­son, the town.

It was a big ear­ly cen­ter for the car man­u­fac­tur­ing busi­ness before it all moved to Detroit. And it was the cen­ter for corset man­u­fac­tur­ing. Dun­no if those two things were in any way, but, uh, rail­ways had a lot to do with the corset man­u­fac­tur­ing busi­ness being based there. I, uh, I learned because you could, you could ship corsets out from any­where.

And so some­body decid­ed, yep, there was like 20 dif­fer­ent corset man­u­fac­tur­ers in Jack­son at one stage. Any­way, none of this has any­thing to do with Jack­son Finan­cial, [00:17:00] which unfor­tu­nate­ly I’m sad to say, has got noth­ing to do with the Jack­son Five or the Jack­sons or any­thing like that, which is, in my opin­ion, a sad mis­sion.

3. Uh, it’s, it’s, uh, they should have done some sort of, you know, brand spon­sor­ship deal with the Jack­son fam­i­ly. Um, I want you back, could be one of their cam­paign com­mer­cials, a, B, C, uh, o of, of annu­ity busi­ness. Easy as 1, 2, 3. Like it just writes itself. If they had done, if they had merged with the Jack­son.

Five, just untold oppor­tu­ni­ties for mar­ket­ing here.

Tony Kynas­ton: that why you picked Jack­son to talk about today? Did you think there was a link?

Cameron: is. I did, I thought I was gonna be talk­ing about the Jack­sons and, uh, I was great­ly dis­ap­point­ed. gonna reach out to Lau­ra pre corn, who is the pres­i­dent and CEO, and sug­gest to her that have this great idea of what they, where they, she should take [00:18:00] the com­pa­ny next. She’s been with the com­pa­ny for 30 years and.

Tony Kynas­ton: Wow.

Cameron: tell me she has at least once or twice thought about should we do an alliance with the Jack­sons? Would­n’t, would that make sense? Would that be a good idea?

Tony Kynas­ton: And if she

Cameron: was run­ning her mar­ket­ing,

Tony Kynas­ton: if she

Cameron: be putting that.

Tony Kynas­ton: does she ever say, I blame it on the moon­light?

Cameron: You can’t blame it on the sun­shine. You can’t blame it on the moon­light. Tony, that’s the rule num­ber one of Jack­son Finan­cial. blame it on the Boo­gie. Every time I. the finan­cial com­pa­ny appar­ent­ly, as I said, been around since 1961. They were an ear­ly adopter of what is known as the inde­pen­dent dis­tri­b­u­tion mod­el.

They got rid of their agency sales force in 1970 and start­ed sell­ing their prod­ucts through inde­pen­dent agents. By 1984, they’d grown to a bil­lion dol­lar in assets, and then in 1986 they got acquired by [00:19:00] Pru­den­tial, PLC, of the Unit­ed King­dom. And then by the ear­ly 2020s, a deci­sion was made that the Pru­den­tial busi­ness, which was more focused on high growth, high mar­gin insur­ance in Asia and Africa, real­ly fit well with a stodgy life insur­ance busi­ness out of the us. So they spun it out in 2021 and it list­ed on the New York Stock Exchange. So it’s only been, you know, uh, pub­licly list­ed for the last, uh, four years. I. And activist investors and ana­lysts had been push­ing Pru­den­tial to do this for a long time. They said it was under­val­ued, mis­aligned with Pru­den­tial’s oth­er sto­ry. So they announced in Jan­u­ary, 2021 that they were gonna demerge [00:20:00] and it float­ed in Sep­tem­ber, 2021. And, um. It is done. Okay. It iPod at $31 in Sep­tem­ber, 2021. Cur­rent­ly trad­ing around $83. if you got in on the float, that’s not bad. Near­ly 200% in four years, I’d take that. Not, not bad at all. Um, in terms of the busi­ness, so this is anoth­er ques­tion I want­ed to. Pick your brain on. ’cause I try and get my, I tried to get my head around it this morn­ing and uh, most­ly ’cause I was tired from kung fu and, uh, and I just to get my brain to work and not enough cof­fee, too much kung fu this morn­ing. One of the, one of the risks, uh, uh, Chat­G­PT was talk­ing to me about with a busi­ness like this is fluc­tu­at­ing inter­est rates.

Tony Kynas­ton: Mm-hmm.

Cameron: And how that [00:21:00] impact a busi­ness that’s involved in sell­ing annu­ities. And I, I tried to drill down into it and could­n’t get my head around it. So I under­stand that when some­body buys an annu­ity, they give the com­pa­ny mon­ey. You have a lump sum of mon­ey, you give it to a com­pa­ny and they guar­an­tee you they’re gonna pay you X amount of mon­ey. Every year for 10 years, 20 years, 30 years, takes that mon­ey then they invest it in a bond or a range of secu­ri­ties, but pri­mar­i­ly, I guess a large per­cent­age of it would go into bonds. I. And I under­stand that then, you know, they’re, the com­pa­ny’s try­ing to sur­vive on the mar­gin between what they’re pay­ing the cus­tomer and what they’re able to make by invest­ing it in a bond. But Chate was telling me, but you know, inter­est rates go up and go down and that can cre­ate risk. And, and I was like, but hold on a sec­ond. If, if you give me a hun­dred thou­sand dol­lars and [00:22:00] I say I’m gonna pay you on that, and then I can go. Invest it and get 4% on it, and I buy some­thing that’s locked in for 20 years. Uh, and, uh, isn’t that secure? Uh, and it is like, yeah, it’s not that easy. And if, if inter­est rates are low and some­body’s get­ting 3%, they can get out of their annu­ity prod­uct, there’ll be a penal­ty fee. But I might say, well, inter­est rates have gone up to 7%. Now I want to get more. So I can get out of that and go buy some­thing that’ll pay me a high­er annu­ity and I’ll, it’s worth pay­ing the penal­ty because it’ll, gonna make more mon­ey out of it.

And then the com­pa­ny’s a bit screwed because they’re locked in and they can’t get out as easy. know a lot more about how these things work than me. Can you explain it to me in terms that I asked Chachi Tee to dub it down for me? It could­n’t dumb it down enough. I said, real­ly, I need to go to the orig­i­nal Chachi PT Tony.

Tony Kynas­ton: Oh, look, I, I did a lit­tle bit of research on this [00:23:00] com­pa­ny before. Um. We record­ed. So first thing to say is it’s, a fair­ly com­plex busi­ness, so annu­ities are sim­ple. Tra­di­tion­al­ly, you, as you say, you take, you take some­one’s mon­ey for 20 or 30 years while they’re work­ing and then pay them a guar­an­teed income when they retire you back to back the pay­ment with an asset that pro­duces more.

So whether that’s a bond or the stock mar­ket or com­mer­cial prop­er­ty is, is, um. In the mix, I guess. There’s a com­pa­ny in Aus­tralia, um, called Chal­lenger Finan­cial, which has done that for many years. And um, over time I think they’ve put, they’ve worked out, if they put more of their, um, invest­ments in com­mer­cial prop­er­ty, they can, um, get a less volatile yield, which is enough to cov­er the promis­es they make to peo­ple.

I think look­ing at this com­pa­ny, from what I can tell, it looks more like the super­an­nu­a­tion. Sys­tem in Aus­tralia or super­an­nu­a­tion fund in Aus­tralia. So there are some [00:24:00] tax rules which are being used by investors or peo­ple who take out these prod­ucts, um, which come into the mix. So it looks like the way it works, um, if peo­ple take advan­tage of the tax laws in the States as you can con­tribute or, It’s a bit like a life insur­ance pol­i­cy. You are, you are pay­ing, mak­ing a pay­ment your work­ing life, pay­ing no tax on the prof­its of that pay­ment, but then pay­ing tax when you start to draw down in retire­ment. I. And, and look­ing at, at, um, var­i­ous prod­uct offer­ings. And there are lots and lots and lots of annu­ities that they offer.

there are some which are fixed, so you, you guar­an­teed 4% a year or what­ev­er for 20 years after a, after a retire­ment date. And I think from mem­o­ry, the tax law was after 59 and a half, you can start to, draw down with­out penal­ty or, or start to pay. Um, you, you can’t, I think, make tax free con­tri­bu­tions after that.

Any­way, that [00:25:00] was so the six­ties about, is about the mag­ic num­ber. Um, or you can, um. Put your mon­ey into some oth­er funds that oper­ate more like an index fund or more like a bond fund or, or you can put mon­ey into a whole blend of funds and then use that to fund your retire­ment. But that’s a vari­able type annu­ity.

So yes, you are receiv­ing a pay­ment when you retire, but it is going to fluc­tu­ate depend­ing on the under­ly­ing invest­ments. so when I have a look at, at, um, Jack­son, it seems like it’s much more like a fund man­ag­er. So, there are. Dozens and dozens and dozens of funds, um, oper­at­ed by dif­fer­ent man­agers on behalf of Jack­son.

some in con­junc­tion with Jack­son. And um, I guess they have them prod­ucts on top, which can give you a blend of all those dif­fer­ent things. So you kind of have like an index type fund across dif­fer­ent assets as well. Uh, and I guess that they have peo­ple who advise you on, on what your blend should be, whether you should be get­ting more of inter.[00:26:00]

Gold or less to com­mer­cial prop­er­ty or what­ev­er. So it’s a bit of a, a bit of both. So I’m not sure whether inter­est rates are going to, they will have effects on all of those prod­ucts. If it’s pure­ly a bond fund, as the inter­est rates go up, then it’s eas­i­er for Jack­son to pay out a fixed annu­ity if the rate is low­er than the inter­est rate.

Um. It, I could­n’t see too many of those style funds in what I saw. So it’s more like­ly that as inter­est rates go up, it tends to have a neg­a­tive cor­re­la­tion with com­pa­nies who have to pay more for bor­row­ings and there­fore the stock mar­ket. Um, and, and it, and as inter­est rates go up, funds can often get divert­ed from buy­ing shares to buy­ing.

Bonds because of the, the guar­an­teed high return in a bond as the inter­est rates are high ver­sus the risky high­er return in the stock mar­ket. And the dif­fer­ence is called the risk pre­mi­um. Um, it, it can have a neg­a­tive effect on the fund. So it’s kind of a, that’s a con­vo­lut­ed answer, but yes, ris­ing inter­est rates will impact [00:27:00] this com­pa­ny, can be good, can be bad.

um, it’s, it’s a mixed sort of result I would think.

Cameron: So it comes down to their abil­i­ty to all of that and still make a prof­it.

Tony Kynas­ton: Yeah. And look, you know, I’m gonna make a very glib sort of state­ment. Um, the com­pa­ny’s been around for a long time doing a good job. But again, if you look, when I looked across all their funds and var­i­ous offer­ings, if you took the aver­age of all of those, and I’m, you know, I think I. Peo­ple would tend to buy some of each fund rather than going all in on one.

Um, which is kind of the wise thing to do in the long term. You’re get­ting a kind of index like return. So then you ques­tion whether you should be just putting your mon­ey into an index fund or whether you should be, going with these peo­ple. And that’s a fair­ly super­fi­cial analy­sis because, um. You know, they’re gonna guar­an­tee a pay­ment for a peri­od of time.

So, uh, that’s got­ta be tak­en into the mix. And like I said, there are tax ben­e­fits and con­tribut­ing to them over your work­ing life. So that’s got­ta be tak­en into the mix as to what you do. But yeah, [00:28:00] um, if I looked at. You know, my sort of high lev­el assess­ment was maybe you as a cus­tomer, you might con­sid­er putting mon­ey into an index fund rather than mon­ey into these kinds of prod­ucts.

But, but you know, they’re big, they’re suc­cess­ful. There’s prob­a­bly some­thing more to it than that, but, um, that was my over­all sort of take­out from look­ing at this com­pa­ny.

Cameron: Yeah, and we know that, you know, peo­ple don’t always make the most ratio­nal deci­sion when it comes to invest­ing, and par­tic­u­lar­ly if they have a. Finan­cial ser­vices provider, to them, who’s get­ting paid a com­mis­sion on sell­ing them this prod­uct or that prod­uct, you know?

Tony Kynas­ton: but def­i­nite­ly, um, yeah, the, the, I guess the caveat for all of that is, you know, if you are close to retire­ment, you don’t want to be all in on an index fund if the mar­ket drops 30 or 40%. Um, so there are some where it is much more suit­able to be in this kind of prod­uct.

Cameron: Yeah, it’s more pru­dent. [00:29:00] Well, um, well, that’s, you know, my lev­el of under­stand­ing of their busi­ness. I did note in their Q1. 2025 report, they not­ed they had a loss, net income loss 35 mil­lion or 48 cents per dilut­ed share, par­tial­ly dri­ven by a loss on rein­sured busi­ness. And I don’t under­stand what that means.

So I tried to get my head around how rein­sur­ance works. GPT tried to explain it to me and um, I spent a long time try­ing to get my head around it. I under­stand the con­cept. That they, the insur­ance com­pa­ny insur­ance on their insur­ance it’s rein­sur­ance. And, uh, they sort of offload some of the risk, uh, to anoth­er com­pa­ny and they share the pre­mi­ums and the claims, how that works out as a loss for them.

In the first quar­ter. I could­n’t [00:30:00] kin­da get my head around that, so I gave up try­ing after a while, and again, it was one of those things that’s way beyond my pay grade. But what GPT assured me is. Don’t it? It’s just, it’s a paper thing. It’s an account­ing thing, it’s an on paper thing. It does­n’t real­ly have any impact on the day to day of their busi­ness and how well or not that they’re doing.

It’s just, it’s just account­ing stuff. For­get, don’t, don’t get caught up in it. So I did­n’t.

Tony Kynas­ton: Yeah, look. This, I guess goes back to your first ques­tion about oper­at­ing cash­flow. Look, there’s a lot of, um, assump­tions and, and paper write ups up some write downs that go into these, uh, deci­sions. So I agree. It’s a, it’s a very con­vo­lut­ed, thing to try and work out the, the cash prof­it of a insur­ance com­pa­ny.

Um. It should be sim­ple. It should just be, I’ve charged these pre­mi­ums and I’ve made these pay­outs. But then of course the insur­ance com­pa­ny looks great in the ear­ly years when it’s get­ting mon­ey in and not pay­ing out until peo­ple reach [00:31:00] cer­tain age when they’re mak­ing claims. Um, but you for com­pa­nies that have been around for a long time, it should be in the wash.

It should be at a stage where you kind of as a steady state where get­ting pre­mi­ums in, but you’re also pay­ing out ’cause you’ve got cus­tomers who’ve been around for a long time. So it should be a sim­ple thing, Con­vo­lut­ed with, um, the asset val­u­a­tions and then the rein­sur­ance risks that you are tak­ing out, um, which should just be a cost of doing busi­ness real­ly.

Um, get­ting less of the income, but I’m pay­ing ’cause I’m pay­ing a pre­mi­um to anoth­er insur­ance com­pa­ny to go joint­ly with me into this sit­u­a­tion. So, but again, um, there are actu­ar­i­als involved in, I’m tak­ing out this pol­i­cy for 10 years and sud­den­ly that area looks real­ly then you know, I’ve got­ta write it down.

So I under­stand that, but it gets con­vo­lut­ed.

Cameron: You know, one of the things I like about doing these pulled porks is it gives me, uh, an excuse or an oppor­tu­ni­ty to learn a lit­tle bit about busi­ness­es that I dun­no much about and how they work. And, [00:32:00] at at this one I go, yeah, this is way too com­pli­cat­ed me for me to under­stand how, how this stuff’s going on in the back­ground. just ’cause I know you’re, you, you’ve got­ta go soon. So I’ve got­ta rush through this. Not much to report in terms of gov­ern­ment gov­er­nance and lead­er­ship. As I said, the pres­i­dent, CEO has been there for 30 years, not in that role. She’s worked at dif­fer­ent roles in the busi­ness, but lots of sta­bil­i­ty there

Tony Kynas­ton: She start­ed

Cameron: with the,

Tony Kynas­ton: She was the organ­ist and then the, bass play­er. Yep.

Cameron: Back­up dancer?

Tony Kynas­ton: Yeah.

Cameron: yeah, no, noth­ing in terms of audit prob­lems or trans­paren­cy issues. Noth­ing real­ly excit­ing in cor­po­rate activ­i­ty, apart from the fact that they demerged from Pru­den­tial four years ago did announce a big share buy back Last year, 2024, they announced $125 mil­lion share buy­back as part of a $300 mil­lion repur­chase pro­gram. Bro­ker cov­er­age is sort of a con­sen­sus of hold. Price tar­gets range from a low of [00:33:00] 80 to a high of 108. As I said, it’s about 83 at the moment. The aver­age, uh, bro­ker price tar­get is around $94 80, so you know quite a bit of, uh, upside from where it is at the moment. In terms of the risks, uh, fluc­tu­at­ing rates that can impact all of these things that I don’t under­stand, but appar­ent­ly that’s a thing. Reg­u­la­to­ry changes, again, which I’m not gonna pre­tend to under­stand, and volatil­i­ty, which I under­stand eco­nom­ic down­turns can reduce demand for retire­ment prod­ucts and things like that, as peo­ple aren’t real­ly sure what’s going on. And of course I would add to that AI and robots are gonna eat the world in the next few years, and who the hell knows what that means?

But that’s true for every busi­ness on the plan­et these days. So I can’t score it on that. I. In terms of the scor­ing, uh, let me run through the num­bers quick­ly. The aver­age dai­ly trade’s about 74 mil­lion, [00:34:00] so it’s pret­ty big. As you men­tioned before, the qual­i­ty rank from stock edia is pret­ty low. It’s a 52. Our qual­i­ty rank is a bit high­er. But, uh, stock edia is is pret­ty low, so I could­n’t score it on qual­i­ty rank. We score it if it’s over 60 or 60 or bet­ter, it did­n’t get a score for that. The stock rank in stock Edia is 72. We only scored if it’s 90 or bet­ter, so it did­n’t get a score for that either. How­ev­er, it did get a score for its F score. Its actu­al F score is six. We scored if it’s four and. 4.5 or bet­ter. And that’s its finan­cial health score. So get­ting back to the prop calf and its ins and outs and all that kin­da stuff, it has a pret­ty good F score. So, um, I was com­fort­able with that. Now here’s anoth­er one for you.

Um, IV one our, in our intrin­sic val­ue num­ber one is $5 26. [00:35:00] The share price is $83. Um, so um, the cur­rent EPS, the earn­ings per share, TTM is 1.03. So that’s why ’cause our, for. Uh, $1 0.03. Yeah. So our, our for­mu­la for our first intrin­sic val­ue is the cur­rent EPS over the hur­dle rate, which we have at 19.5%. So our IV one is quite low when you do it on a $1 earn­ings per share. Now, the earn­ings per share nor­mal­ized for 2025. Um, expect­ed is actu­al­ly 19.6. When you do the, if I do the IV one based. If I do the, well, I, I think it’s because of the, the way that they state their earn­ings and it goes up and down.

It’s all over the place. [00:36:00] you look at that first quar­ter, it was for the TTM, right? It was, they lost mon­ey in the first quar­ter. If you look at it over the course of the year, it’s gonna be a lot high­er. So if I, if I’d done the IV one based on uh, antic­i­pat­ed EPS for the year, it would be more like a hun­dred bucks, which into our IV num­ber two, our sec­ond intrin­sic val­ue, which uses the future EPS. If I take the 2025 future EPS, um, it’s pos­i­tive. If I take the 2026. Earn­ings per share, which is actu­al­ly $21. Um, uh, it comes out at, uh, our hur­dle rate for IV two is the cash rate plus 6%, so it’s about 10.33% IV two comes out at. $189. So the price is cur­rent­ly less than our sec­ond intrin­sic val­ue, and it’s less than dou­ble our sec­ond intrin­sic [00:37:00] val­ue.

So, uh, we score it for that as well. So it’s, um. You know, it’s, it’s pret­ty good. Um, if you look at the full earn­ing in both of those, it would’ve scored for the first one as well, if I looked at the full 2025 EPS, but not at that first quar­ter. Any­way, um, mov­ing right along. The book price is 136. $6 equi­ty per equi­ty per share, $136. again, the price is $83. So I did give it a score for price being, um, less than book. I wrote high­er than book here. Less than book. And uh, it’s obvi­ous­ly less than book plus 32. Um. So, uh, what else have I got it? Ha does have a three point uptrend. It’s been in a three point uptrend for quite some time.

It passed its byline back in [00:38:00] 2023, but it has. Been had a falling share price since late 2025, but it’s just gone over its sec­ond byline as well. So I, I, it did­n’t score it for a new upturn, but it, um, has just gone above its sec­ond byline, so it’s bro­ken through that seems to be turn­ing around. Growth over PE is greater than 1.5.

So I scored it for that book. Val­ue growth is not con­sis­tent though, um, and it, but it’s like, it’s one of these weird ones. If you look at Wikipedia, it’s got book val­ue going back to 2019, but it only got spun out from Pru­den­tial in 2021. That was, its sort of peak year for its book val­ue at around, uh, 10 and a half bil­lion.

It’s gone to, [00:39:00] uh. 9.7. Now it’s gone up and down over the last five years, four or five years since it got float­ed out. Could­n’t score it for that. PE is not less than the yield. The yield­’s 3.47 PE is 4.13. The yield is not greater than the bank rate, which I’ve got at 6.9 in the us. But as I said before, I did score it for prop calf being less than sev­en ’cause the prop calf is one um, num­ber of items I could score it on was 14.

It got a score of 11. Qual­i­ty score from our per­spec­tive was a 79%. But under­stand­ing that the prop calf is, is maybe applic­a­ble, maybe not. I went with it any­way. Um, uh, ver­sus the edia qual­i­ty rank of 52, end­ed up with a QAV score of 0.79 at the end of the day. So

Tony Kynas­ton: Yep.

Cameron: [00:40:00] it is high, although not for our US. Well our us, a lot of our US buy list stocks have quite high QAV scores com­pared to Aus­tralian QAV scores. Um, and prob­a­bly ’cause a lot of them are kind of weird prop calfs to I think a lot of the finan­cial ser­vices com­pa­nies that end up on our buy list. But I’ve done very well. Again, Willis Lease Finance Com­pa­ny. The, what you’re talk­ing about Willis. It goes with the Jack­sons. Um. I mean, it’s still up 200% since I bought it

Tony Kynas­ton: Yeah, right.

Cameron: a year or two ago, 18 months ago.

So it, uh, I, I dun­no what its prop calf was at the time. I can’t remem­ber, but it was prob­a­bly a weird one at the time as well.

Tony Kynas­ton: Yeah. But p if times earn­ings, so even if the prop cap is lumpy, um, or based on uh, you know, r up some write downs that the. And the PE will have that [00:41:00] same issue, but four, still very low a pe.

Cameron: Yeah, very low pe. and you know, there’s oth­er met­rics like it’s f score is good, but it’s, uh, like the IVs good. Um, you know, it’s price is less than the book. Um. So it, it stacks up well on the val­ue side of things, qual­i­ty side of things, maybe not as great as we would want some­times, but we, you know, it’s a, it’s a bal­anc­ing act for us usu­al­ly, right?

Com­bi­na­tion of qual­i­ty and a com­bi­na­tion of val­ue, which is why Q QAV

Tony Kynas­ton: Yep. And momen­tum

Cameron: that is JXN. Do your own research. Um. Com­plain on YouTube if you think it’s got too much debt or some­thing or what­ev­er. But, um, score well on our buy list,

Tony Kynas­ton: if you’re an

Cameron: we don’t own it because

Tony Kynas­ton: spe­cial­ist or an insur­ance ana­lyst, come on the show and tell us about Prop C for an [00:42:00] insur­er so we can learn.

Cameron: Please, please do. All right. Well that’s QAV Amer­i­ca for this week, Tony.

Tony Kynas­ton: Thank you, cam. invest­ing every­one.

Cameron: Izzy.

Tony Kynas­ton: Yes,

Cameron: Izzy. Every­one.

Tony Kynas­ton: yeah,

Cameron: Hap­py MAGA sev­en come. If you’re liv­ing in la, stay safe.

Tony Kynas­ton: please.

Cameron: I was telling Tony in our last show, my son who lives in LA these days is back in Bris­bane at the moment, and I’m try­ing to con­vince him not to go back. He’s sup­posed to go back to LA at the end of this week, and I’m try­ing to con­vince him not to do that until we know which way the wind is blow­ing in la I don’t like the looks of things there at the moment, but, uh, if you are in LA stay safe and stay calm.

Tony Kynas­ton: Yeah.

Yeah. Thanks Cam. Talk to you next week.

Cameron: Thanks, Tony.