QAV AU 832 — The Business of Barnyard Medicine

Full AU AUDIO 832

[00:00:00]

Cameron: Wel­come back to QAV Aus­tralia, Tony Kynas­ton. This is episode 8 3 2. The date is the 12th of August, 2025, just after 1:00 PM East Coast time. RBA is uh, gonna come out with some­thing to Tony. You’re excit­ed. What’s your prog­nos­ti­ca­tion this time? You got it wrong. Last month. What’s your prog­nos­ti­ca­tion this time?

Tony Kynas­ton: Well, since I’m wrong, I’m gonna say they’re gonna keep braces on. Hold in, in the hope that they’ll define me and, and cut them. Uh, it’s, it was inter­est­ing, the last, last meet­ing and all the back. Back­wash after that. And uh, you know, after think­ing about it, I think the RBA is just stamp­ing its author­i­ty on the bond mar­ket.

It’s like you don’t tell us what to do, we tell you what to do. So, uh, you know, like you do it again. Who knows? We’ll wait and see.

Cameron: Well, I guess we’ll have to tell peo­ple next [00:01:00] week what hap­pened with the RBA, but um.

Tony Kynas­ton: We might get it one, one, usu­al­ly about two 30. I.

Cameron: Well, let’s, uh, move on with some of the, uh, sto­ries, new sto­ries for this week, Tony. Um. You’ve got the wrong TPG is the head­line in the arti­cle that I saw. ASX shares plum­met after embar­rass­ing stuff ups. you’ve had a field day fun of, uh, the ASX over the last cou­ple of years looks like their woes are not behind them. arti­cle from the 7th of August shares in stock mar­ket oper­a­tor ASX Lim­it­ed, have tak­en a beat­ing after it said it will cop extra costs of up to. $35 mil­lion with the bad news com­ing on the heels of an of an embar­rass­ing $400 mil­lion mis­take involv­ing TPG Tele­com and the Labor gov­ern­ment gov­ern­ment open­ing the door for a chal­lenger to [00:02:00] set up shop. So the TPG sto­ry is that a pri­vate equi­ty firm called uh, TPG Cap­i­tal. Was, uh, involved in some sto­ry last week, uh, and it mis­tak­en­ly, the ASX linked the news to TPG Tele­com, com­plete­ly dif­fer­ent com­pa­ny, uh, the shares for TPG Tele­com crashed as a result. This issue arose from an inad­ver­tent human error and I rec­og­nize that it has caused dis­rup­tion for TPG Tele­com and its investors.

Upon dis­cov­ery of the error, it was esca­lat­ed to me and I will be apol­o­giz­ing direct­ly to the team. At TPG Tele­com said a SS Chief Exec­u­tive, no ASX group, exec­u­tive Mar­kets and List­ings. Dar­ren Yip. [00:03:00] So look, mis­takes hap­pen, but it’s a pret­ty bad mis­take for,

Tony Kynas­ton: Hmm.

Cameron: per­son who runs the stock mar­ket to make. So this news about,

Tony Kynas­ton: Hmm.

Cameron: gov­ern­ment bring­ing in a, uh, com­pet­i­tive plat­form, Amer­i­can Giant, CBOE, is it, do, do Bowie? Is that how they print out? Do you know? What is it? The Coke, Coke.

Tony Kynas­ton: I dun­no how it’s pro­nounced.

Cameron: Kibo Chi­bo.

Tony Kynas­ton: No dun­no. Yeah. There, there is a com­peti­tors for the ASX already. Um, there’s a sec­ond exchange for gen­er­al­ly small­er cap com­pa­nies. Um, yeah. So there’s noth­ing it, it’s. There’s noth­ing stop­ping anoth­er one com­ing in except for the gov­ern­ment approvals required, you know, to make sure that they’ve got the right, uh, the right, uh, abil­i­ty to run a, an order­ly mar­ket.

But giv­en that the ASX can’t do that, um, it’s prob­a­bly, it’s prob­a­bly a low [00:04:00] bar­ri­er at the moment. And look, I feel, I feel sor­ry for the ASX now they’re being bat­tered on law fronts. They came out and said that. I think the amount was like $21 mil­lion or $25 mil­lion was the cost of now com com­ply­ing with gov­ern­ment, uh, inquiries into, uh, their, uh, their abil­i­ty to run the mar­ket.

So it’s cost­ing them in the, in the prof­it depart­ment as well. I feel sor­ry for the prob­a­bly very junior staff mem­ber who pushed the but­ton on the wrong TPG. Uh. Arti­cle, um, announce­ment. I think the, I think the back­ground was that TPG cap­i­tal were buy­ing some­thing, and then, uh, when it was attrib­uted to TPG Tele­com, the mar­ket went to a fren­zy say­ing, why are you buy­ing this for, why are you spend­ing our mon­ey doing that?

And the shares came down, uh, and the ASX made good. They unw all the shares, reversed, all the shares, paid back the mon­ey. So, um, it’s, you know, been cleared up. But, uh, look. I think it all stems from [00:05:00] the chest replace­ment sys­tem deba­cle, which we’ve spo­ken about at length when, uh, a pri­or CEO want­ed to bring in blockchain as the basis for record­ing.

Yes, are record­ing trans­ac­tions between share­hold­ers, uh, on the ASX. That still has­n’t hap­pened. There were write downs. There were, um, the, the stock­bro­kers would­n’t, did­n’t real­ly want to be involved in it. Um, it, it, you know, when it’s, I think it’s a fine­ly been scrapped or it’s been, um. I amend­ed dra­mat­i­cal­ly, but it still has­n’t hap­pened.

So we’re still get­ting through the snail mail updates on paper of our share­hold­ings. Um, which, you know, for me, and per­haps you does­n’t mean much ’cause we don’t trade much, but, you know, if I was a big fund man­ag­er once a once a quar­ter to get­ting a list­ing of, uh, all the trades I’d made, it’d be a real headache, where­as it should be done elec­tron­i­cal­ly.

Um, but ASX has­n’t seemed to have been able to man­age that, and because of that, they seem to be focused [00:06:00] on. Get­ting out­ta that hole and not dig­ging any deep­er. And then some of the basic stuff, there’s bit gets, gets left behind. There was an out­age in the mar­ket last year, um, and that sort of stuff just should­n’t real­ly hap­pen, uh, these days.

Um, if you think about the net­works out there which oper­ate online real time. 24 7 like ATMs and oth­er bank­ing sys­tems. Sure they have the occa­sion­al out­age, but, uh, it’s does­n’t seem to be that dis­rup­tive to my life. But, um, good old A CX oper­ates between 10 and four and, uh, still has out­ages, which shut the busi­ness for a while.

So, um, yeah, it’s, it’s. I dun­no what the answer is besides, you know, cut­ting out some slack and let­ting them raise some cap­i­tal to replace chess quick­ly and then get back to man­ag­ing the mar­ket the way they should. We spoke at length last report­ing sea­son about them not, uh, keep­ing their eye on dis­clo­sures because stocks moved dra­mat­i­cal­ly once they.

Release their announce­ments more so than I’ve [00:07:00] ever seen. Um, we’ll see what hap­pens this report­ing sea­son. There’s cer­tain­ly been a cou­ple that we’ll talk about already that have report­ed. Uh, but yeah, the ASX just, just on all fronts seems to be drop­ping the ball.

Cameron: And their own share price dropped about 10%. Uh,

Tony Kynas­ton: Mm-hmm.

Cameron: hap­pens. So that’s not good. But that aside, the mar­ket is boom­ing. Mar­kets here and in the US are boom­ing pret­ty much at or near record highs. mar­ket came back a lit­tle bit last night, but it’s still up there around record highs. port­fo­lio is, uh, hav­ing a great month.

The dum­my port­fo­lio is up near­ly 7% in the last 30 days ver­sus the bench­mark, the SPDR 200, which is up about 3%. And, um, let’s see, over the last one year, the dum­my port­fo­lio is up 27%. [00:08:00] Ver­sus the bench­mark up 18 and a half, like good year for the mar­ket in gen­er­al, we’re doing quite a bit bet­ter. Um, and, uh, yeah, that’s, that’s that.

Now, Tony, last week the show, you some com­men­tary on neg­a­tive gear­ing. Some­one on Tik­Tok, uh, by the name of user, 5 3 2 4 6 3 5 9 8 3 5 0 2. I dun­no if you know them per­son­al­ly or not.

Tony Kynas­ton: What, what pro­noun do they use? I.

Cameron: Ada, I think is, uh, what they use. You have missed the point entire­ly. Get­ting rid of neg­a­tive gear­ing is sup­posed to dis­in­cen­tivize peo­ple using hous­ing as an invest­ment. Hous­ing should first and fore­most be about hous­ing, not a way for you or any­one else to make mon­ey. If you wan­na make mon­ey, invest in shares or start a busi­ness, don’t expect the tax­pay­ers to [00:09:00] sub­si­dize the most lazy form of invest­ment known to mankind. I thought that was Bit­coin, but okay. Mov­ing right along. Do not use an, an essen­tial resource that peo­ple need to live for your wealth cre­ation. It’s dis­gust­ing rebut­tal,

Tony Kynas­ton: Oh yeah, dear. Dis­gust­ed. Um, yeah, so, uh, cou­ple, well, a whole num­ber of points on this. Um, uh, I don’t think, you know, straight out­ta the gate, I don’t think any gov­ern­men­t’s gonna remove neg­a­tive gear­ing in Aus­tralia. Full stop. Bill Short­en. Ran a cam­paign, uh, which, uh, he lost when he ran for Prime Min­is­ter last time.

Um, should have prob­a­bly, should have been a bit of a lay down Mabb air to, um, to defeat, uh, the Scott Mor­ri­son gov­ern­ment. But he, um, he did­n’t, and he said he was going to remove neg­a­tive gear­ing. And the fact is it’s just too entrenched in the mar­ket now that, uh, that the vot­ers will nev­er allow it, I don’t think.

Um, not [00:10:00] say­ing we should­n’t exam­ine it and change it if, if, um. User 5 3 2 4 6, 5 11 or what­ev­er has an idea, but to, to ful­ly remove it, um, I think has a neg­a­tive con­se­quence of, uh, pret­ty much well dec­i­mat­ing the rental mar­ket. I would’ve thought, uh, there would cer­tain­ly be some peo­ple out there who will rent out a prop­er­ty, um, if there’s no neg­a­tive gear­ing, because cir­cum­stances mean that’s prob­a­bly the best option for them.

But, um, you know, the whole. Basis behind neg­a­tive, neg­a­tive gear­ing is that you or I buy a prop­er­ty or some­one buys a prop­er­ty. The yield in Aus­trali­a’s on rentals is about 3%, if you’re lucky. And, uh, it’s high­er in the coun­try areas, but in the cities it’s around three or low­er. And, uh. Which means that if you have a mort­gage, which is cur­rent­ly six plus some­thing per­cent, or around 6%, you are under­wa­ter from the rental.

Um, so you’re, you know, you just like a busi­ness, if it, [00:11:00] um, has a cost, it can deduct it. The gov­ern­ment says, well, you are in the busi­ness of rent­ing out so you can deduct it too. And that’s. So that’s the first thing. So I think point num­ber one, take away neg­a­tive gear­ing. Real­ly reduce the num­ber of prop­er­ties in Aus­tralia avail­able for rental.

Point num­ber two is that if you reduce neg­a­tive gear­ing and peo­ple still want to rent out, um, in a mar­ket which offers a 3% yield, uh, then they’re prob­a­bly gonna change the struc­ture in which they do it. They’ll start own­ing hous­es in busi­ness­es, buy it in a busi­ness name, um, which is not a bad idea because, uh, rental prop­er­ties.

When they’re sold, uh, charge cap­i­tal gains tax. And if you’re run­ning a small busi­ness, that rate is low­er than the rate it would be in your own per­son­al name. Um, even though there’s a 25%, uh, 50% dis­count for more being held more than a year, it’s still, you know, depend­ing on the cor­po­rate struc­tures. I think cor­po­rate tax rates are small, busi­ness­es now are about 25%.

Um, if you’re on the top mar­gin­al rate, then yeah, it’s, [00:12:00] it’s line balls to whether you should do it in the busi­ness. But if you do it in the busi­ness, you can claim the loss as a tax deduc­tion and then off off­set it. So, um. Remove neg­a­tive gear­ing, open up oth­er struc­tures that to buy hous­es and rent them out.

Um, and that’s what I saw in New Zealand when I lived there. They did­n’t have neg­a­tive gear­ing in the same way we did, but they had some kind of loop­hole and I for­get what the exact details were around truss. So a lot of the peo­ple I knew there rent­ed their own were rent­ing the house they lived in because their trust owned anoth­er prop­er­ty they were rent­ing out to some­body else.

And that was the most tax effec­tive way of doing things in New Zealand. So. It’s, it’s some­times dif­fi­cult to try and change a mar­ket, um, because you do, um, have sec­ondary con­se­quences which aren’t planned. So that’s, that’s anoth­er argu­ment against it. Um, but, you know, turn this, turn it round and say, okay, let’s, let’s remove it.

What will prob­a­bly hap­pen apart from the rental side of things going down is hous­ing will, will drop in [00:13:00] val­ue because there’s less peo­ple try­ing to buy hous­es, uh, and oth­er, and there are mod­el­ing out there as to say what the effect would be and. I’m gonna pick a num­ber out­ta the air and say, let’s say it drops 20 to 30% in terms of house prices across the board.

Uh, that makes hous­ing more afford­able, which means more peo­ple start to buy again. And so house prices go up. So it’s not going to stop at 30%. We’ll prob­a­bly set­tle some­where in between. So let’s say hous­es drop 15 to 20%. That’s not. It’s a reduc­tion for sure, but it’s not, it’s not gonna open the flood­gates for young peo­ple being able to buy prop­er­ty.

If a prop­er­ty drops from 700,000 to 600,000 or from a mil­lion to 800,000, there’s still the same prob­lems now that peo­ple have sav­ing up for a deposit, being able to afford the mort­gage, et cetera. So I don’t see remov­ing neg­a­tive gear­ing as the solu­tion. To this, and the whole point of my com­ments last week, which were I guess addressed at the pro­duc­tiv­i­ty round [00:14:00] table that’s com­ing up is I don’t, I think it’s nev­er a good thing if we’re in the chop of the pool, the lad­der up.

And what I mean by that is, you know, I got my estab­lish­ment. By buy­ing prop­er­ties and neg­a­tive­ly gear­ing them, um, way back when I was a young per­son, uh, before I even invest­ed in the stock mar­ket. And it’s a good way for young peo­ple to get into the mar­ket because it costs them a heck of a lot less than not being able to deduct the mort­gage, um, against the in.

Uh, so I think it’s a mis­take to take away the lad­ders that are used and that peo­ple of my age have used to estab­lish them­selves in the mar­ket. Uh, just makes it hard­er for younger peo­ple to get to where we are in the same time­frame. Uh, that’s my over­rid­ing risk, over­rid­ing point.

Cameron: I was think­ing about that after our show last week. It does­n’t have to be either or though, right? You could have neg­a­tive gear­ing for peo­ple, for younger peo­ple, or say peo­ple under a cer­tain total net wealth. [00:15:00] Um, under a cer­tain thresh­old who are try­ing to build their wealth, leave it for them.

And for the peo­ple with a cer­tain lev­el of net wealth where they’ve already estab­lished them­selves, they can’t take advan­tage of neg­a­tive gear­ing. So if you net wealth is over a few mil­lion bucks, you don’t get to neg­a­tive gear prop­er­ties. But if you’re that, then you do get to do it. There are ways of engi­neer­ing it so younger peo­ple can lever­age it and, uh, wealth­i­er peo­ple can’t.

Tony Kynas­ton: Um, yeah, and per­haps that’s the solu­tion cam. Again, those kinds of rules will even­tu­al­ly be got­ten round as well. And you know, like for exam­ple, super­an­nu­a­tion. Was set up for peo­ple to save for their retire­ment, but now there’s peo­ple there with $500 mil­lion bal­ances get­ting it tax free. So, um, but you know, I, I’m not say­ing don’t look at the neg­a­tive gear­ing rules and maybe tweak them.

That’s, that’s fine. Yeah. Bear in mind that the, every time a law gets writ­ten in Can­ber­ra, there are 50 lawyers who try to pull it apart. So, um, they’ve [00:16:00] prob­a­bly begot­ten around. The oth­er point I want­ed to make too was I think. From my ex own per­son­al expe­ri­ence, neg­a­tive gear­ing is good, up to a point. So, uh, it was good when I was buy­ing my first prop­er­ty, it allowed me to get into the mar­ket quick­er and, um, helped save for the sec­ond prop­er­ty, which I then lived in.

Um, but even­tu­al­ly, you know, I stop neg­a­tive gear­ing prop­er­ties because it’s, it’s not a great invest­ment. Um, well, I, I should say that in the, in a dif­fer­ent way. Being invest­ed in the stock mar­ket is a bet­ter invest­ment. So, um, you know, prop­er­ties go up maybe 10% a year. Um, you can neg­a­tive gear to, to sort of lever­age into it.

You can regear and put it into the stock mar­ket, which is not a bad idea. Um, but even­tu­al­ly the has­sles of rent­ing out prop­er­ty just became too much for me. The fact that it all, the main­te­nance costs, all the tax­es that went with it. The rates, um, pay­ing, you know, [00:17:00] pay­ing prop­er­ty man­agers to look after the place.

Um, being, you know, you know, I had a, I had some ten­ants in a, um. Well, I thought it was a real­ly nice prop­er­ty in Clifton Hill that crashed the place. And then try­ing to get them out, required vis­its to VCAT and all kinds of rig­ma­role you just don’t get when you’re in the share mar­ket. Um, not with­stand­ing the fact that if I want, if I don’t wan­na be invest­ed in the share mar­ket, I can sell every­thing today.

With­in two days I had my mon­ey. You can’t do that with a, um, a prop­er­ty port­fo­lio. It can take, uh, you know, um. 60 to 90 days to list and yet, and then it can take, you know, six months to set­tle or what­ev­er. So, um, or at least three months to set­tle so it’s not liq­uid. So, yeah, so there are con­straints from being in the prop­er­ty mar­ket.

So I, you know, you do hear sto­ries of peo­ple own­ing 10 prop­er­ties and 20 prop­er­ties and how they’ve done it well. Um, but they’re pret­ty rare. I think most peo­ple after a while, as they amass wealth, will, will find oth­er ways to use it.

Cameron: [00:18:00] All right. Well, mov­ing right along, Tony, what else have you got on your list of news items to talk about this week before we get

Tony Kynas­ton: I have a few.

Cameron: In a Paul pork?

Tony Kynas­ton: We are get­ting into com­pa­ny report­ing sea­son. So first cab off off the rank to talk about, which is usu­al­ly first cab off the rank is, is cred­it court. For some rea­son they always like to get in ear­ly. Uh, not a bad strat­e­gy actu­al­ly. ’cause report­ing sea­son in the mid­dle can be just full of.

This news com­ing out on the same day, but, um, they’re not in the buy list any­more, but you know, they have been in the past and they have been a peren­ni­al favor. Man­age­men­t’s been a peren­ni­al favorite of mine. Uh, but they were up 17% on their results announce­ment, so I just, so they’d throw that one in. Um, they’re kind of rebound­ing.

They went down a lot. I think we sold them out of the, out of our port­fo­lios, but, uh, they’re back.

Cameron: And I think I tried real­ly hard to avoid sell­ing them because the way we know that they, uh, usu­al­ly under­state things and go down and come back up [00:19:00] and see­ing

Tony Kynas­ton: Rick,

Cameron: them last. I sold them last in Decem­ber last year. Ran about 18 bucks. What are they now? 1742. So, you know,

Tony Kynas­ton: get back in if you want.

Cameron: uh, we did it. Hold on.

No, I bought ’em around 18 bucks. I sold ’em at 16 bucks. So they’re up a lit­tle bit since

Tony Kynas­ton: Yeah.

Cameron: ’ em eight, nine months ago. But not a great deal.

Tony Kynas­ton: Yep. And they’re not on the buy list now. I just, I just, uh, fol­low them out of a bit of nos­tal­gia for the com­pa­ny. Um, anoth­er one that, uh, I don’t think is on the buy list any­more, but has been in the past was Austal ASB’s the tick­er code.

Cameron: Mm-hmm.

Tony Kynas­ton: Uh, and, um. I think they were around the sort of two to $3 range when they were, when I owned them myself a few years ago.

They’re now $7 37, uh, as of last, uh, last week when I had a look at them. And, um, I [00:20:00] sort of was remind­ed of them by a cou­ple of arti­cles in the AFR last week. Uh. The first one was head­lined. The ASX small defense sec­tor is on file. Investors have nev­er seen any­thing like it. Well, it’s a bit of hyper­bole from the AFR and I think we have seen things like it.

But any­way, uh, the arti­cle goes on. The ASX is hottest cap, large cap this year, defense stock Austal the ship builder. And that was Shun to Clear, uh, August 5th, and then in anoth­er, uh, arti­cle, uh, they go on to say Austal has land­ed bil­lions of dol­lars in work, includ­ing the con­struc­tion of dozens of new ves­sels for the defense depart­ment with the fed­er­al gov­ern­ment des­ig­nat­ing the coun­try’s only list­ed ship builder as a strate­gic asset and mak­ing it more d.

To takeover Tar­get for over­seas buy­ers in a deal announced to investors on Tues­day. That’s Tues­day Last week, the com­pa­ny said it would estab­lish a new sub­sidiary known as Austal Defense Aus­tralia, and hand the gov­ern­ment a sin­gle [00:21:00] so-called sov­er­eign share. If a takeover bid was made for Austal, the agree­ment would give the gov­ern­ment the option of acquir­ing the entire sub­sidiary.

Ship­yard in Perth. And that’s inter­est­ing because I think when I did a pulled pork on this com­pa­ny a year or so ago, it was when, uh, a South Kore­an com­pa­ny called anoth­er ship builder, uh, pro­posed, uh, a takeover of Austal. They, they had acquired 9.9% of the com­pa­ny in March of last year. At the time it said it had no inten­tion of sub­mit­ting a con­trol pro­pos­al or mak­ing a takeover bid for the com­pa­ny at this time.

But. Asked for for­eign invest­ment review board approval to lift their state to 19.9%. That would require the green light, but only from FIRB, but from trea­sur­er Jim Chalmers, who has indi­cat­ed he will decide next month. Chalmers had pre­vi­ous­ly described the approval as sig­nif­i­cant and sen­si­tive, and that was by Luke Kin­sel­la, August the fifth last week.

So defense stocks were on the tear, was on the buy list, and now it’s [00:22:00] shoot­ing the lights out.

Cameron: Last sold them out of our port­fo­lio around, uh, August last year, about a year ago, $2 37. They’re now just, just south of sev­en bucks today.

Tony Kynas­ton: Okay,

Cameron: So that’s

Tony Kynas­ton: well tim­ing.

Cameron: a

Tony Kynas­ton: Tim­ing is every­thing.

Cameron: lose some.

Tony Kynas­ton: Yep. Both the time. We did­n’t see prop com­ing and uh. Pres­sure to increase, improve. Well, you should have boil a pres­sure to improve defense spend­ing any­way.

Cameron: the rules, Tony.

Tony Kynas­ton: Yeah.

Cameron: trend line sell,

Tony Kynas­ton: Yep, I did too.

Cameron: Hmm.

Tony Kynas­ton: Cor­rect. Uh, last week’s Pulled pork was on a com­pa­ny called Vault, which was a, um, a gold min­er from mem­o­ry.

And, uh, there were a cou­ple of, uh, arti­cles about it last week. And the AFR again, uh, one around the upcom­ing rebal­anc­ing of the. Index and that that’s [00:23:00] due to be announced on Sep­tem­ber five. So that’s always a bit of a date that peo­ple focus on, uh, the arti­cle said last week, the ASX 200 is most wide­ly fol­lowed when rebal­ances take place each quar­ter.

Giv­en that most pas­sive flows are bench­marked to that index, since 2007 com­pa­nies that have been added to the ASX 200 have pro­duced pos­i­tive returns on the day the rebal­ance is announced, and between the announce­ment and imple­men­ta­tion and an ana­lysts by Mor­gan Stan­ley showed. Returns were best for the peri­od from 20 days pri­or to announce­ment up to imple­men­ta­tion, said Mor­gan Stan­ley, equi­ty strate­gist Antho­ny Con­te.

After imple­men­ta­tion, the alpha gen­er­at­ed from addi­tions falls, but oppor­tu­ni­ties rise from com­pa­nies removed from the index. Mor­gan Stan­ley assigned a high­er prob­a­bil­i­ty that phar­ma­ceu­ti­cal dis­trib­u­tor, Ebos group and infra­struc­ture com­pa­ny, Del Rim­ple Bay, would join the ASX 200 and a low­er [00:24:00] prob­a­bil­i­ty to Gold Pro­duc­er, cat­a­lyst, met­als and Min­ing Ser­vices Com­pa­ny, Par­en­ti.

They also talked about in the arti­cles think­ing that Vault, um, could pos­si­bly be, uh, added to the, uh, ASX 200 as well. Um, and then sep­a­rate­ly, uh. In the same day, August 5th, anoth­er arti­cle about the Dig­ger and Deal­ers Con­fer­ence, the big min­ing con­fer­ence in Kal­go­or­lie reports Belle­vue Gold and Vault Min­er­als gained over 6%.

Both have been not­ed as poten­tial takeover tar­gets with rail fin­lays, ands, Gen­e­sis Min­er­als, rumored to have its eye on vault that says, mark, we in the AFR last week. So watch the space for Vault, um, and Par­en­ti, I guess if it goes into the ASX 200. Per­en­ti has cer­tain­ly been going up to stock I own.

Cameron: Yeah, Perenti’s been a win­ner for lots of us up 80, 90%, some of our port­fo­lios.

Tony Kynas­ton: Mm-hmm.

Anoth­er one from com­pa­ny report­ing [00:25:00] sea­son erode, small com­pa­ny that’s been on the buy list. I think I did a pulled pork on it a year or two ago. Um, but I, it, uh, it picked my inter­est again recent­ly. ’cause, um, even just yes­ter­day I was hear­ing noise again about, uh.

Bring­ing a road user charge into Aus­tralia. And this is around the fact that at the moment, peo­ple who fuel their cars with petrol, um, uh. A what’s called the petrol excise tax, and that goes into road main­te­nance and road build­ing in Aus­tralia. Uh, and, uh, now that the EV fleet is get­ting big­ger, they’re not pay­ing any petrol excise.

And so, um, the gov­ern­ments are start­ing to think about an alter­na­tive way of rais­ing that rev­enue to fix roads on a, on a e, uh, equal basis. Uh, and as is often the case, New Zealand has beat us to it. So, um. Uh, erode released on the 6th of August that they wel­come the [00:26:00] Trans­port Min­is­ter of New Zealand.

Chris Bish­op’s announce­ment at the Infra­struc­ture New Zealand con­fer­ence where he unveiled the gov­ern­men­t’s plan to tran­si­tion all New Zealand vehi­cles to elec­tron­ic road user charg­ing. Or ROC for sure. The move to ROC rep­re­sents a smarter, fair­er, and more sus­tain­able approach to road fund­ing. And Eero believes that it’s a sys­tem already well used by com­mer­cial fleets and the right approach for New Zealand to take.

So as New Zealand tran­si­tions away from fuel excise tax­es, ER offers a future ready and proven solu­tion that reflects how we actu­al­ly use our roads at Mar­ti­ni Co CEO of Eero. It’s a sys­tem that not only. Is more equi­table, but also more effi­cient and bet­ter aligned with our cli­mate and infra­struc­ture goals. So that was, uh, from an erode release on the sixth of the eighth. Uh, so. I, I think it’s prob­a­bly only a mat­ter of time that some­thing sim­i­lar comes in here. peo­ple might remem­ber, E Road puts like e tags in cars, but, um, not [00:27:00] just to pay tolls, but also to track their move­ments. To allow fleet man­agers to the effi­cien­cy of their dri­vers, um, also to enable some. User charges in New Zealand, uh, where they charge heavy vehi­cles for using roads already. They’re now gonna move. Looks like they’re charg­ing all vehi­cles. So they, uh, else­where. The gov­ern­ment in New Zealand have said that they’re open to using pri­vate, uh. Com­pa­nies to facil­i­tate the of, um, And so, uh, it’s pos­si­ble it could come in here as well, which would be a big boost for, um, uh, Eero if they pick up that con­tract even­tu­al­ly. But also too, in, um, the last, a lit­tle while, so the 26th of May, Eero announced, uh, their. results and they’re all very good. So, um, improve­ment in free cash flow rose to 16 mil­lion com­pared with one, uh, 1.3 mil­lion in FY 2024. Uh, what else? Uh, [00:28:00] rev­enue climbed, um, to one 94 mil­lion from one 82 mil­lion. and. Impact increased, uh, by 2.2 mil­lion, uh, from a neg­a­tive $800,000 in FY 2024. So since then the end of May, the stock price has more than dou­bled. So, um, Eros are doing well for any­one who still owns it.

Cameron: I added them to a cou­ple of our port­fo­lios on the 31st of July, so 12 days ago, and they’re up, they’re up 34% since then.

Tony Kynas­ton: I

Cameron: Wow.

Tony Kynas­ton: on the, um, the E road or the, uh, ER announce­ments in New Zealand. Then, uh, the last com­pa­ny I want­ed to

Cameron: Hmm.

Tony Kynas­ton: Kor­vest. I think, um, you’ve had this for a while, but, uh, they’ve,

Cameron: Hmm.

Tony Kynas­ton: they’ve announced their results as well and they con­tin­ue the climb. It’s a mag­nif­i­cent share graft to look at Corvee.

Um. Uh, five year graph. But, [00:29:00] um, just to sum­ma­rize, uh, sales, uh, for June, this is June 25 com­pared to June 24, mil­lion ver­sus 102 mil­lion ebit, 18.9 mil­lion ver­sus 15.8 npa, 13 mil­lion ver­sus 11. Cash flow oper­at­ing cash flow 18.6 ver­sus 10.3. per share, a dol­lar 12 ver­sus nine 94 cents and div­i­dends 75 cents ver­sus 65 cents.

So, uh, more upside from Kor­vest.

Cameron: Who are a man­u­fac­tur­er of cables and pipes and gal­va­nized steel prod­ucts. Uh, and I’ve had them in our dum­my port­fo­lio since. April, 2020 ’cause a COVID buy as the mar­ket start­ed to sta­bi­lize. I think ear­ly COVID, they’re up 305%. [00:30:00] Since then, also have them in a light port­fo­lio since Novem­ber 23. There are only up 77% since then.

But, uh, yeah, I, I see that one. You know, we, we’ve had these ques­tions from time to time from peo­ple about should you sell some­thing when it, you know, you get a hun­dred per­cent gain from it. Should you rebal­ance your port­fo­lio? And you always say,

Tony Kynas­ton: be

Cameron: why would you bench Michael Jor­dan? So, yeah, core Vest is a Michael Jor­dan.

Tony Kynas­ton: Yeah, I did do some research after last week’s mus­ing about, um, if a, if a stock or a com­mod­i­ty got to be than a hun­dred per­cent of the sell price and I could find cas­es for and against, so. I’m not going to use

Cameron: Right.

Tony Kynas­ton: seem to be

Cameron: Right.

Tony Kynas­ton: Yeah.

Cameron: Okay. Yeah. Well that’s great. Great job, Kor­vest. They’re on a win­ner.

Tony Kynas­ton: Yeah. So

Cameron: I.

Tony Kynas­ton: me. Um, back to your ques­tions, I guess.

Cameron: I got a few good ques­tions this week. [00:31:00] First one’s from Scott. A cou­ple of peo­ple sent, uh, this one in actu­al­ly. Any thoughts on Ing­hams? The a TO has accused high pro­file poul­try pro­duc­er Ing­hams. Of short chang­ing tax­pay­ers as a long run­ning dis­pute over research and devel­op­ment tax off­set stretch­es into its sixth year.

At the heart of the stand­off is more than $50 mil­lion in r and d claims. The com­pa­ny’s finan­cial accounts remain under review, but EMS insists it has done noth­ing wrong and says it will vig­or­ous­ly defend its posi­tion. As a share­hold­er, what would you think about that? We do own Ing­hams, I should say, in a cou­ple of port­fo­lios.

Um. Since April. I’ve had it in one of the live port­fo­lios, but it’s only up like 4%, so, yeah.

Tony Kynas­ton: Yeah, so Ham was the, the chick­en mak­ers, um, or Chick­en, chick­en farm­ers, uh, inter­est­ing arti­cle and tried to do some research on this. I could only find the arti­cle [00:32:00] men­tioned once or the, uh, the news sto­ry men­tioned in the a PC. An

Cameron: Hmm.

Tony Kynas­ton: Could­n’t find it in the AFR, could­n’t find it, um, any­where else, which is, you know, could be just my bad research.

But, uh, that was an inter­est­ing, um, thing in itself that was­n’t receiv­ing much wider atten­tion. I dun­no what that means, but, um, I’ll just throw it out there. Um. does note else­where in the arti­cle that, uh, the, claim goes back to the start of this r and d pro­gram. Um, and Ing­ham put, put in three years worth of claims and then stopped doing it when the a TO start­ed ques­tion­ing them. Uh, Ing­hams are say­ing they’ve still got more claims to sub­mit for sub­se­quent years, but they’re not doing it until the a TO resolves what­ev­er’s going on. This just seems real­ly strange to me. I mean, it’s now five or six years since. Ing­ham’s put their first claim in, and the a TO still has­n’t a deter­mi­na­tion one way or the oth­er. [00:33:00] Um, know, that’s again, one for the pro­duc­tiv­i­ty com­mis­sion. Um, the gov­ern­ment should get its own act order. You, you can’t have com­pa­nies in lim­bo like this for five or six years because the a TA dither around this is a legit­i­mate claim or not, just tell them. And if, if Ingham’s. Fight you and court them, fight them. Just, just, you know, sit­ting on their accounts for five or six years, I think is, um, well, I think it’s rep­re­hen­si­ble myself. and with­out know­ing all the facts, uh, but it does seem strange. The oth­er thing which I pulled out­ta this arti­cle as an aside, is that quot­ed the OECD coun­try spends on research as a per­cent­age of GDP and the aver­age is 2.7%, um, spent of, uh, GDP on research. only at 1.7%. So, you know, to have an r and d. Grant [00:34:00] pro­gram or tax rebate pro­gram, which is caus­ing com­pa­nies not to know whether they’ve the grants or not. It’s not real­ly a facil­i­ta­tor of pro­duc­tiv­i­ty. Um, uh. The US spends 3.5%, for exam­ple, on r and d. So again, one for the pro­duc­tiv­i­ty round­table, this is woe­ful absolute­ly atro­cious that we spend, know, half of what the US does on r and d and that the a TO can’t get us act into gear to, uh, make a deci­sion on whether some­thing’s a legit­i­mate claim or not in a rea­son­able time­frame. Um, so they’re, they’re the things I’ve noticed about it. I could­n’t see whether ING had tak­en a pro­vi­sion. In case they, um, can’t claim this. So I would expect that they would have some­where raised the pro­vi­sion in case they can’t claim the $50 mil­lion um, Uh, so yeah, so, if they were smart, they’ve done that, which means if they don’t get it and there aren’t. Puni­tive dam­ages, and I would­n’t expect that they would, if they’ve made a sub­mis­sion in good [00:35:00] faith, uh, then it will have almost no effect on, in Ingham’s bot­tom blind or just sim­ply trans­fer out of pro­vi­sions and they’ll pay the tax office back the tax­es they’ve claimed. Um, and, you know, my, my inter­face with the scheme year or two ago. Uh, when I was hir­ing peo­ple and incur­ring expens­es to do research for QAV, I, um, put a sub­mis­sion in myself to claim this is a tax, uh, um, off­set. And, uh, say, you know, pos­i­tive­ly that, um. The process was rea­son­ably quick. Um, they actu­al­ly have some kind of pan­el of peo­ple who are experts in this area who vet your sub­mis­sion and, um, give it the thumbs down in my case, which I was a bit sur­prised at.

But there are, you know, there are blan­ket carve outs in terms of doing, I don’t think they’ll allow r and d expens­es by finan­cial ser­vices com­pa­ny, which is what, um, killed me. uh, but I did speak to a cou­ple of lawyers about it and they said, look, the whole. Um, r and d [00:36:00] pro­vi­sion has been pret­ty much a cut and paste of the patents process, and there­fore you’ve got­ta have some­thing extreme­ly unique, to, it would be patentable would also receive an r and d, um, like­ly to receive an r and d grant from the gov­ern­ment.

So I’ll just put some con­text around how dif­fi­cult I found it to be, to receive, um, a, a tax, uh, um, rebate on this, uh, on this item.

Cameron: You should have been inno­vat­ing in chick­ens. Tony, there’s so much upside. You should see these chick­ens they’re push­ing out at Ing­hams. Man, you would not believe these chick­ens. They’re the great­est chick­ens you’ve ever seen.

Tony Kynas­ton: Well,

Cameron: Amaz­ing chick­ens. Beau­ti­ful, beau­ti­ful chick­ens.

Tony Kynas­ton: every­body says, so I think the, um, I, I think that, do they have tiny hands? I think the, um, tiny wings, I think the, uh, r and d they were claim­ing was in some kind of unique feed that they were pro­duc­ing to, uh, uh, make the chick­ens, um, grow fast or some­thing, which sounds legit­i­mate to

Cameron: I [00:37:00] looked it.

Tony Kynas­ton: more detail.

Cameron: I looked it up. Ing­ham’s reg­is­tered activ­i­ties include opti­miz­ing shed clean­ing process­es. Run­ning poul­try feed tri­als and test­ing water qual­i­ty pro­to­cols and the a TO has ruled that these activ­i­ties weren’t exper­i­men­tal enough. You just got Jim­my from out the back to dip his mop in v vine­gar instead of bleach.

That’s not, no, you can’t do that. I dun­no what they did.

Tony Kynas­ton: So, if I got it wrong, had the a TO already ruled?

Cameron: Well, that was why they’ve been dis­put­ing it. The, the dis­pute is the a TO said, no, we don’t think that’s inno­v­a­tive enough. And I think Ing­ham was a push him back. And, uh, it’s sort of caught up in that kind of a back­wards and for­wards thing, I think.

Tony Kynas­ton: I take it to court end­ing. So [00:38:00] it’s, you can’t spend years tied up on these things.

Cameron: Hmm. Well, it’s an, the, uh, admin­is­tra­tive Appeals Tri­bunal came down against Ing­ham’s. Uh, but it’s under review or some­thing. Any who? Yeah. Chick­ens.

Tony Kynas­ton: Ens. All right. Well, so that’s, that’s my sum­ma­ry. I think, um, I think, uh, well, I, I could­n’t con­firm whether they’ve tak­en a pro­vi­sion or not, but I sus­pect they have, would be my guess.

Cameron: So as an investor, if you owned Ing­ham’s, you know, how would this impact your thoughts about Ing­ham’s?

Tony Kynas­ton: Uh, it, it would­n’t, and I

Cameron: Right.

Tony Kynas­ton: think they’re more cre­ative than I would think a nor­mal chick­en farmer is, but, um, that’s got­ta be a good thing.

Cameron: I. Do we want cre­ative think­ing in chick­en farms? Tony,

Tony Kynas­ton: course we do. We want pro­duc­tiv­i­ty.

Cameron: do we?

Tony Kynas­ton: inno­va­tion.

Cameron: Oh, do we?

Tony Kynas­ton: [00:39:00] We should be the

Cameron: Right.

Tony Kynas­ton: cap­i­tal of chick­en farms.

Cameron: Should we?

Tony Kynas­ton: We should be.

Cameron: Mm.

Tony Kynas­ton: be,

Cameron: Okay. Could be

Tony Kynas­ton: yeah.

Cameron: cut­ting edge

Tony Kynas­ton: used to ride in the sheep­’s pack. There’s no rea­son they can’t ride on the chick­ens back.

Cameron: as tar­iff. Put. Has tar­iff, has Trump put tar­iffs on their chick­ens

Tony Kynas­ton: Ooh, well,

Cameron: or just their beef?

Tony Kynas­ton: we don’t have to sell ’em to the us. We could sell them to, uh,

Cameron: Uh,

Tony Kynas­ton: France, Asia.

Cameron: hmm.

Tony Kynas­ton: They, they like a

Cameron: Next ques­tion. Next ques­tion is from James. I’m not touch­ing that. Uh, does any­one know what hap­pened with IDA dropped by 50% Yes­ter­day he asked on Face­book, Trent replied, cap­i­tal return of 5 cents went x enti­tle­ment yes­ter­day. That could have been it.

Tony Kynas­ton: I think it was so, um, Indi­ana Resources. I, I actu­al­ly con­sid­ered doing a pulled pork on it. Um, but, uh, I haven’t, and one of the rea­sons is it’s, it’s [00:40:00] prob­a­bly a lot of work to work out where they are. But what’s, what’s the back­ground to all this is that, um, uh, this com­pa­ny looks like had, uh, one of their minds tak­en over by the gov­ern­ment. In, uh, was it tan And then, uh, a court ruled that, uh, that was ille­gal and the gov­ern­ment had to pay them $90 mil­lion and hand the mine back, or I should­n’t say that they may have had to pay them $90 mil­lion to keep the mine. And, um, that went through the legal process and even­tu­al­ly received some pay­ments. Um. I think they got the whole 90 mil­lion. I could be wrong on that, but the last tranche was 30 mil­lion Uh, I think it was paid in that last tranche because the, the gov­ern­ment in Tan­za­nia was try­ing to charge them tax on the pay­out, which was 30%, rough­ly. So they were try­ing to keep the last tranche for them­selves.

And I [00:41:00] think that they are either in the process of hav­ing that over­turned or has been over­turned. com­pa­ny received a, any­way, the upshot is this com­pa­ny received a large, Cash injec­tion from the Tan­zan­ian gov­ern­ment, which they’re now return­ing to share­hold­ers way of a cap­i­tal return, which is why they got, uh, investors got 5 cents a share back. Bit like the stock we talked about last week. We did a cap­i­tal return and it fell. The shock price and reflect­ed that and went back through sell line. Uh, the mon­ey’s not received for a week or so. So, um, I’d be watch­ing what hap­pens to. The graph over the next week or per­haps even the end of the month, um, I think this cap­i­tal return will either form a UL two, which will give this, which will reduce the cell line, uh, or it’ll keep drop­ping, in which case it’s a cell any­way.

So, um, least wait until the mon­ey gets into your pock­et. Um. And then Toby. Is it Toby? Yeah. And then, um, [00:42:00] I’m not giv­ing per­son­al advice. What I would do is to watch the graph to see if a new cell line’s cre­at­ed by the cap­i­tal return, then make a deci­sion from there.

Cameron: Right. So just to be clear, when he says it dropped five 50%, it was trad­ing around eight or 9 cents and dropped down to four. It’s still trad­ing around there a few days lat­er. So that’s why the 5 cent, 5 cent

Tony Kynas­ton: Yeah.

Bernard: Q A V is a check­list-based sys­tem of val­ue invest­ing devel­oped by Tony Khigh­ne­ston over 25 years. To learn more about how it works and how you can learn the sys­tem, vis­it our web­site, Q A V Pod­cast dot com dot A U.

This pod­cast is an infor­ma­tion provider and in giv­ing you prod­uct infor­ma­tion we are not mak­ing any sug­ges­tion or rec­om­men­da­tion about a par­tic­u­lar prod­uct. The infor­ma­tion has been pre­pared with­out tak­ing into account your indi­vid­ual invest­ment objec­tives, finan­cial cir­cum­stances or needs. Before you decide whether or not to acquire a par­tic­u­lar finan­cial prod­uct you should assess whether it is appro­pri­ate for you in the light of your own per­son­al cir­cum­stances, [01:15:00] hav­ing regard to your own objec­tives, finan­cial sit­u­a­tion and needs. You may wish to obtain finan­cial advice from a suit­ably qual­i­fied advis­er before mak­ing any deci­sion to acquire a finan­cial prod­uct. Please note that all infor­ma­tion about per­for­mance returns is his­tor­i­cal. Past per­for­mance should not be relied upon as an indi­ca­tor of future per­for­mance; unit prices and the val­ue of your invest­ment may fall as well as rise. The results are gen­er­al advice only and not per­son­al prod­uct advice.

Trans­paren­cy is impor­tant to us. We will always be very open and hon­est about the stocks we own. We will also always give our audi­ence advance notice when we intend to buy or sell a stock that we are going to talk about on the pod­cast. This is so we can nev­er be accused of pump­ing a stock to our own advan­tage. If we talk about a stock we cur­rent­ly own, we will make it known that we own it.

This email is autho­rised by Antho­ny Khigh­ne­ston Autho­rised [01:16:00] Rep­re­sen­ta­tive Num­ber zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Man­age­ment Pro­pri­etary Lim­it­ed (A F S L five 2 zero 4 4 2).
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