QAV AMERICA 005 — Cayman Schemes and Chilean Dreams

Edit­ed Copy of QAV U.S 5
[00:00:00]  Wel­come to QAV Amer­i­ca. This is episode five, I think, and we’re record­ing this on the 13th of May, Aus­tralian time. My name is Cameron Reil­ly. With me as always, my co-host who is on bad wifi in coun­try New South Wales today. Tony Kynas­ton. are you? TK  — Bate­man’s Bay is still in New South Wales, isn’t it?
TK: It is feels, with this wifi though, it feels like it’s in Africa, coun­try news, Zim­bab­we or some­thing, and, and I should­n’t be dis­re­spect­ful to Zim­bab­we’s wifi. It’s prob­a­bly bet­ter than Bate­man’s Bay’s.
Cameron: you don’t take your star­link con­sole with you when you go on the road.
TK: No, this should be too big. I could prob­a­bly strap it to the roof of the car, but.
Cameron: Alright, well let’s get into the show for today. So the big news overnight is that the Trump admin­is­tra­tion and the Chi­nese admin­is­tra­tion had their meet­ings about the tar­iff and the tar­iffs and the [00:01:00] trade war, and they’ve agreed to some sort of 90 day pause. The US are drop­ping their tar­iffs on Chi­na from the ones that remain any­way, down from 145% down to 30.
I think Chi­na’s dropped theirs from 125 down to 10. are still to be worked out. There will be more nego­ti­a­tions and if you ask me, it could have just start­ed with nego­ti­a­tions instead of all of the pos­tur­ing to begin with. But we’re back to where we are and the US mar­ket overnight spiked Aus­tralian mar­ket spiked as well, but.
You know that from my per­spec­tive, Tony, it’s still sort of a chaot­ic peri­od. I mean, the mar­ket jumps up, it jumps down based on the announce­ment of the day. But as we’ve talked about a num­ber of times on our shows over the last few months since all of this tar­iff trade, war non­sense start­ed, [00:02:00] it’s real­ly hard for any­one run­ning a busi­ness to pre­dict is gonna be hap­pen­ing in the econ­o­my.
A month from now, let alone a year or five years from now. It’s real­ly hard for any­one to do any long-term busi­ness plan­ning right now and invest­ing and bor­row­ing mon­ey and, and invest­ing for the long term. I, I can’t real­ly under­stand how any­one can be mak­ing those sorts of bets at this stage. It real­ly seems to be a day by day propo­si­tion.
TK: I, I agree with you. It’s a lot of com­pa­nies in the US have have stopped fore­cast­ing their earn­ings for that very rea­son. But in tar­iffs with Chi­na is for 90 days. But that does­n’t mean that in, in three months time, things aren’t gonna change again. So they prob­a­bly will. So it is hard. I, I guess, want to cau­tion you on, on the word bets. I don’t think as invest­ed, we’re mak­ing bets. We’re try­ing to make cal­cu­lat­ed deci­sions on which com­pa­nies to buy at the right price. [00:03:00] So pull you up there. hav­ing said all that, I’m still com­fort­able buy­ing shares. I know we are buy­ing, I’m buy­ing in Aus­tralia, but I’d be buy­ing com.
I’d be com­fort­able in the US as well. but yeah, we’ve got­ta, we’ve got­ta be more alert to move­ments and the share price that might trig­ger our three point trend line buys or sells than we nor­mal­ly would be. ’cause if we, there is a lot of volatil­i­ty and a lot of announce­ments dri­ving the mar­ket at the moment.
Cameron: Yeah, when I said invest­ment, I was­n’t talk­ing about stock investors. I was talk­ing about busi­ness­es. Bor­row­ing mon­ey to invest in fac­to­ries or stores or staff or infra­struc­ture, real­ly hard for them to know what’s gonna be hap­pen­ing in the mar­ket, down the track. I mean, you say it’s paused for 90 days, but who knows, it could be unpaused tomor­row.
There’s real­ly no log­i­cal rea­son or ratio­nale going on here. It’s just seems to be [00:04:00] cra crazy idea of the day. And, polit­i­cal the­ater of the day. I, I don’t see how any­one can make any sort of ratio­nal deci­sions, but as you right, full right­ly say, way that we invest is based on what we know today, what is real today, and we just take it day by day based on.
What’s hap­pen­ing with­out try­ing to fore­cast or pre­dict, and we let the rules of the QAV sys­tem gov­ern what we do. Speak­ing of which, I wan­na talk about some of the chal­lenges that I’ve had. I am gonna do a bit of a deep dive on a stock on this episode, but over the last cou­ple of days, I did a buy list for our US port­fo­lio.
On the week­end and then I start­ed look­ing at some of the stocks and it was, more dif­fi­cult I found to find some­thing to invest in, even after I’d gone through the num­bers and done [00:05:00] the buy list. You know, for peo­ple that are new to QAV, once we’ve run our check­list, we tend to just, we, we stack rank them based on the QAV score.
We tend to go from the top and work our way down. And I’ll start with the. Stock that has the high­est QAV. Score, and then I’ll usu­al­ly do a lit­tle bit of dig­ging into the stock. I’ll look at its lat­est news releas­es. I’ll do a bit of a new search on it just to make sure there’s not some major announce­ment that I need to be aware of that isn’t show­ing up in the num­bers.
But 99 times out of a hun­dred. There’s noth­ing there that’s gonna sur­prise me, that’s gonna stop me from buy­ing the stock. That’s what I’m deal­ing in Aus­tralia doing, deal­ing in the US. I find it a lot more, touch and go. So, for exam­ple, there was a stock called IVR Invest Go came up on our buy list, looked pret­ty good.
when [00:06:00] I, dug into it a lit­tle bit, it turns out that it’s a real estate invest­ment trust. And know, we haven’t real estate invest­ment trusts in Aus­tralia, and I know that we’ve talked about them over the years and whether or not they fit into our sys­tem, we. Strug­gle some­times with one of our main met­rics, price to oper­ate in cash flow.
Because of the nature of these busi­ness­es, these guys invest in and finance and man­age both res­i­den­tial and com­mer­cial mort­gage backed secu­ri­ties and oth­er mort­gage relat­ed assets. But the prop calf met­ric wor­ried me. They had a pret­ty good prop calf score price to oper­at­ing cash flow score. But then I dug into it a lit­tle bit more and saw that their busi­ness mod­el is one in which they pay back 90% of their prof­it as a div­i­dend instead of rein­vest­ing it back into the busi­ness.
Any­way, just the, the nature of the [00:07:00] real estate invest­ment trust and the ques­tion marks around the prop­caf met­ric. Gave me cau­tion on this one, Tony and I decid­ed against it. Remind me how you think about val­ue invest­ing in real estate invest­ment trusts and QAV.
TK: Well, the same way I think about oth­er com­pa­nies. I, I, it does­n’t both­er me that it’s a real estate invest­ment com­pa­ny or a real in estate trust that you’re talk­ing about, very rarely, I don’t think they ever, ever came on, come on, onto our buy list in Aus­tralia, because basi­cal­ly, as you say. The prof­its are paid out as div­i­dends and there­fore, you know, depend­ing on the div­i­dend yield, usu­al­ly div­i­dend yields from prop­er­ties are sort of three or 4%. There­fore, they’re usu­al­ly trad­ing on a prop calf of 50 of 20 times. You know, which, which would­n’t sur­prise me. And there­fore they nev­er get down to the lev­els of sort of below sev­en times that we, we look for.
So. inter­est­ing [00:08:00] you say that you’ve got one that’s on your list that meets our, our met­rics for prop cap for price to oper­ate in cash flow. Because gen­er­al­ly the yields in, in both com­mer­cial and retail real estate are such that you, and, and that fact that the prof­its are paid out means that they trade on the inverse of the yield means that the prop caps are quite high. So, but, but yeah, the fact that it’s pay­ing out 90% of its prof­its does­n’t wor­ry me. These com­pa­nies usu­al­ly oper­ate in one of two ways. They’ve set up a trust and a fund and raised cap­i­tal, and then invest­ed it, and then they have har­vest­ed the yield and paid it out as div­i­dends. And if they have anoth­er oppor­tu­ni­ty, they’ll set up anoth­er trust and, and buy anoth­er. Office build­ing, for exam­ple, and go again. Or if they have anoth­er oppor­tu­ni­ty to oppor­tu­ni­ty, they may raise cap­i­tal through the cur­rent trust. So even though they’re only putting, say 10% of their prof­its back into the com­pa­ny, they still can grow, but it tends to be [00:09:00] lumpy. so that’s, I guess, one issue. But yeah, the fact that there’s one appear­ing on the list is intrigu­ing.
Cameron: Yeah, so the prop calf that I cal­cu­lat­ed for them was a three, so any­way, there you go. I, they, they are on our buy list, but when I looked at it, I, I decid­ed. I was­n’t com­fort­able with that, so I moved on and I looked at the next com­pa­ny, which was XYF X Finan­cial.
Now this is a Chi­nese finance com­pa­ny
X finan­cial is a Chi­na based com­pa­ny, prin­ci­pal­ly engaged in the pro pro­vi­sion of tech­nol­o­gy dri­ven per­son­al finance ser­vices. The com­pa­ny’s prod­ucts pri­mar­i­ly include Card Loan and xo, ying Pre­ferred Loan. The com­pa­ny is also engaged in the pro­vi­sion of invest­ment oppor­tu­ni­ties to investors through its wealth man­age­ment plat­form.
[00:10:00] Xo, ying Wealth Man­age­ment, or Well and Good based in Shen­zhen Province in Chi­na. And then, but I, again, when I was sort of look­ing into it and I was talk­ing to Chachi PT about it, it says at three times earn­ings, net cash and dou­ble dig­it rev­enue growth. XYF is sta­tis­ti­cal­ly cheap. You’re being paid to under­write Bei­jing’s next move and the Chi­nese con­sumer’s sol­ven­cy.
If you can live with that polit­i­cal risk and you’re will­ing to accept zero gov­er­nance lever­age. It’s a deep val­ue bet with buy­back sup­port. I, I said, what do you mean zero gov­er­nance lever­age? says the founder still owns the steer­ing wheel. Justin Tang, hold­ing vehi­cles con­trol greater than 50% of the vote with a straight major­i­ty.
He can elect every direc­tor and ran through any share­hold­er res­o­lu­tion. No dual class optics. Just brew con­trol. But then it says, your. NYSE tick­er is a Cay­man shell [00:11:00] whose only asset is a con­tract with a Chi­nese oper­at­ing com­pa­ny. Chi­nese law does­n’t rec­og­nize you. Cay­man law gives you slim recourse. Try suing in Shen­zhen when things go pear shaped.
Good luck as so. It’s basi­cal­ly a shell com­pa­ny. That’s float­ed on the New York Stock Exchange and the assets are con­trolled by anoth­er com­pa­ny that the Shell Com­pa­ny has a con­tract with. It says bot­tom line. You can ana­lyze the num­bers, but you can’t influ­ence the out­come. You ride shot­gun and hope the dri­ver keeps it on the road.
If you don’t like where it’s head­ed, you jump out and sell. That’s zero gov­er­nance lever­age. And I don’t know. I just got, I got the shiv­ers, man. I was like, it’s, it’s a, it’s a dif­fer­ent ball do you feel about,
TK: I like this one.
Cameron: You do,
TK: Yeah, I love it. Well, because I, I, first of all, a Cay­man Shell, I’m, I’m learn­ing a lit­tle bit about, but, as I under­stand it, Amer­i­can com­pa­nies have dif­fi­cul­ty set­ting up co-op oper­a­tions in Chi­na and own­ing them as Amer­i­can com­pa­nies. So [00:12:00] they have to do some kind of. Either joint ven­ture own­er­ship or use some­thing like a an off­shore trust to set up the com­pa­ny. So the Cay­man shell side of things does­n’t wor­ry me, but with­out know­ing much about the legal sta­tus of either the Cay­man Shell or the Chi­nese oper­at­ing com­pa­ny it, look, I’m not in the busi­ness of launch­ing legal actions against com­pa­nies if. If the own­er wants to go a dif­fer­ent way, I’ll just sell the shares. So it does­n’t, it, I like the fact as an own­er founder with over 50% hold­ing, that’s great as far as I can tell. yes, he may decide to buy a cor­po­rate jet or a lux­u­ry yacht and I might not like that and I’ll sell the shares, but he. You know, be the next WeChat or the next Jack Ma. So I don’t have a prob­lem with that. From that side of things, the, the num­bers look fine and look great. Um, I would’ve thought pro­vid­ing [00:13:00] dig­i­tal finan­cial loans or what­ev­er he is doing in Chi­na has got­ta be a growth mar­ket. So it’s pick­ing all my box­es can it might have an unusu­al struc­ture allow­ing it to list in the US but oper­ate in Chi­na.
But that’s I think, the way things have to hap­pen in those cas­es.
Cameron: Inter­est­ing. Yeah, I, I guess in my mind, I still have a cer­tain amount of. Com­fort in know­ing that peo­ple who are run­ning a busi­ness let’s say in Aus­tralia or, or even if they’re based in the us. You know, there’s a cer­tain lev­el of over­sight. There’s a cer­tain amount of, rep­u­ta­tion­al over­head that goes along with doing things.
You wan­na do the right thing. You don’t want to get banned from being a direc­tor of a com­pa­ny, et cetera, et cetera. The peo­ple always get to do the right thing. We’ve, we’ve just recent­ly intro­duced like a gov­er­nance red flag for stocks in our Aus­tralian buy list. If they. Slip up on the gov­er­nance side of things, we decide we don’t wan­na take the [00:14:00] risk in invest­ing in the com­pa­nies.
Then I see some­thing like this that just seems like it’s a fly by night oper­a­tion. I don’t wan­na give that impres­sion, but the struc­ture is such that the the, com­pa­ny closed up shop and dis­ap­peared overnight, be much any­one could do about it. I don’t know. It just gives me the hee­bie-jee­bies.
TK: I do know from expe­ri­ence in oth­er areas that if a US com­pa­ny wants to invest off­shore, so say for exam­ple, it’s a fund man­age­ment com­pa­ny in the US rais­ing cap­i­tal, but they’re gonna invest in Aus­tralia. They do use those Cay­man, they’re called lim­it­ed part­ner­ships as a way of doing it. So they still have some con­trol over what’s hap­pen­ing in a, in Aus­tralia, even though there’s an Aus­tralian com­pa­ny actu­al­ly, um, exe­cut­ing the oper­a­tions day to day.
Cameron: Okay, to know. Well, I moved on from that. I passed on that last night. Then I looked at a com­pa­ny called Ener­flex Lim­it­ed. The tick­et code is [00:15:00] EFXT. Read­ing into that, and I found out that the CEO sud­den­ly resigned in March. I. And they’re still look­ing for a replace­ment CEO. sure­ly you’re gonna agree with me that that’s a red flag.
TK: Yeah, I think that prob­a­bly is about, this com­pa­ny was try­ing to find out why the. You know, done lim­it­ed research since you flagged you were gonna talk about this, but, I could­n’t find any­thing about the rea­son why the CEO left and he left. It sound­ed like he left with a notice, so that does sound strange.
Cameron: So that is for, for new lis­ten­ers, that is one of our red flags, a sud­den res­ig­na­tion by a CEO or a CFO. It’s one of what I call trou­ble at the mill uhoh. There’s trou­ble at the mill. I’m get­ting out before the chick­ens come home to roost. Might be noth­ing, but it might be some­thing.
So, or, or the, or audi­tors sud­den­ly resign. It’s anoth­er thing I don’t like to see.
TK: an inde­pen­dent.
Cameron: Or an inde­pen­dent direc­tor? Yes. Thank you. end­ed up set­tling on a com­pa­ny called [00:16:00] Enel Chile. ENIC is the tick­et code. They’re very, very large elec­tric­i­ty provider in Chile.
But before I get into that, I thought I should just do an update our US dum­my port­fo­lio since we start­ed it back in Sep­tem­ber, 2023. It’s cur­rent­ly up 52. 2% per annum ver­sus the s and p 500, up 31%. And the, this year to date so start­ing from Jan­u­ary, we’re down near­ly 19% the s and p is down a lit­tle bit more than half a per­cent year to date.
So we were up sort of around a hun­dred per­cent around about the time of the inau­gu­ra­tion or the elec­tion I think. And but it’s come back quite a lot, but still up 52%, not [00:17:00] bad for 18 months. I’m quite hap­py with that.
Got any com­ments on any­thing US relat­ed before I get into look­ing at this Chilean
TK: No, I don’t. I, I’ve been inter­est­ed to to watch the tar­iff nego­ti­a­tions, I think as every­one has, because we do have some ship­ping com­pa­nies in the port­fo­lio, but they seem to be doing okay though they, you know, there’s. Stock sit­ting on box because of tar­iff uncer­tain­ty, that might get cleared.
Now there’s 90 day pause. But I think, I think that’s very inter­est­ing and that’s, that’s kind some­times par of the course for a deep val­ue invest­ment. Peo­ple don’t want to invest in ship­ping com­pa­nies because they’re not sure what’s hap­pen­ing with the car­goes, but if the under­ly­ing com­pa­ny’s still good, they’ll ride through. Any short term prob­lems and then, peo­ple will jump on the band­wag­on after that. But if we buy them now, we’re buy­ing them cheap.
Cameron: And you know, the, the, one of the things that I like about [00:18:00] QAV is apart from get­ting the hee­bie-jee­bies, as I said ear­li­er, I tend not to get myself too caught, caught up in try­ing to pre­dict gonna hap­pen in the future. Just look at the num­bers and look at how well the busi­ness is run and see if we can get it at a dis­count to its intrin­sic val­u­a­tion.
And every­thing checks out, then. Off we go. And it’s a lit­tle bit like that with this com­pa­ny, this elec­tric­i­ty com­pa­ny in Chile has. You know, there are, there are some chal­lenges around the mar­ket, both for them domes­ti­cal­ly and also in terms of their rela­tion­ship with the US and debt and the exchange rate and lots of dif­fer­ent things.
But I was read­ing through it last night and you know, came to the con­clu­sion it’s not real­ly my busi­ness to work out whether or not they’re gonna be able to nav­i­gate all of these chal­lenges. look at the num­bers as they are today and how well the busi­ness­es seems to be run. Based on the finan­cials, the fun­da­men­tals, make a deci­sion [00:19:00] based off of that.
So accord­ing to their web­site, we are the most impor­tant elec­tric­i­ty hold­ing com­pa­ny in Chile. They say nl. So con­grat­u­la­tions on declar­ing your­self that they are part of a much larg­er inter­na­tion­al oper­a­tion called nl, and that’s ENEL NL SPA. They’re one of the world’s largest elec­tric­i­ty com­pa­nies orig­i­nal­ly out of Italy.
They’re Italy’s Nation­al Elec­tric Elec­tric­i­ty Board, orig­i­nal­ly found­ed in when the Ital­ians decid­ed to uni­fy near­ly all of the elec­tric­i­ty gen­er­a­tion. Today the par­ent com­pa­nies in 28 coun­tries across five con­ti­nents ener­gy with a man­aged capac­i­ty of 86.4 [00:20:00] gigawatts. For per­spec­tive, Aus­trali­a’s entire grid has a total installed capac­i­ty of about 65 gigawatts.
The UK is about a hun­dred gigawatts, so these guys pro­duce a lot of elec­tric­i­ty. The par­ent com­pa­ny, NL is the 59th largest com­pa­ny in the world by rev­enue and the sec­ond largest elec­tric­i­ty util­i­ty com­pa­ny in the world by rev­enue. After the state Grid Cor­po­ra­tion of Chi­na, they have about 69 mil­lion comp car cus­tomers around the world.
But the Chilean divi­sion, which was float­ed off on the New York Stock Exchange in 2016 to attract inter­na­tion­al investors so they could invest in more renew­able ener­gy projects with­in Chile. It’s nl, Chile sa, a major­i­ty owned by NL SPA. They own about 65% of it. The [00:21:00] Chilean firms main rev­enue streams are gen­er­a­tion and dis­tri­b­u­tion.
About 70% of their rev­enue comes from gen­er­a­tion and about 30% for dis­tri­b­u­tion. this out though in their doc­u­men­ta­tion, they say their pur­pose is to build the future through sus­tain­able pow­er. Now that’s sort of some­thing that I guess you would expect most elec­tric­i­ty com­pa­nies to say these days.
That’s sort of the polit­i­cal­ly cor­rect thing to say. But then you break down this Chilean com­pa­nies actu­al elec­tric­i­ty gen­er­a­tion. In 2024, 78% its gen­er­a­tive capac­i­ty was renew­ables. 78% was wind, solar, hydro, or bat­tery. That [00:22:00] blew my mind as of as by com­par­i­son, I think as of 2023, Aus­trali­a’s entire nation­al elec­tric­i­ty mix was still only about 35 to maybe 38% renew­ables, most­ly solar and wind.
So these folks in Chile are doing. that. So why are their renew­ables so high? Well, appar­ent­ly Chile, the gov­ern­ment has been push­ing mas­sive decar­boniza­tion pro­gram. They’re phas­ing out coal. They have a strong hydro base, excel­lent solar solar con­di­tions in the at Kar­ma and. NL Group glob­al­ly is one of the biggest renew­able investors now, I don’t think they mine a lot of coal in Chile, so they don’t have sort of that installed base.
That we do in Aus­tralia [00:23:00] for coal, for elec­tric­i­ty pro­duc­tion. I don’t think they have a lot of oil in Chile either. It’s sort of not clean slate, but they have a lot of run­way for ramp­ing up big renew­ables projects, which they have been doing over the last decade or so. And if you com­pare that to.
US util­i­ties. the biggest US renew­ables own­er is a com­pa­ny called Next Era Ener­gy. They’re about 45 to 50%, but most of the ener­gy com­pa­nies in the US are still very fos­sil fuel heavy. They’re down around 10%. I think the one that Berk­shire owns Pacif­ic Corp is about 30%. Xcel ener­gy is about 30 to 35%.
So there, there you go. The Chilean grid. Is very renew­ables heavy, which sur­prised me to learn that, but very [00:24:00] impres­sive. So a few oth­er things about Chile and the ener­gy mar­ket demand is pro­ject­ed to increase by 41% in the next 10 years. The pop­u­la­tion of Chile, by the way, is about 19 mil­lion.
And the Chilean econ­o­my, which is one of the, sort of the risk fac­tors, I guess for any busi­ness oper­at­ing in Chile, that it’s very. Min­ing cen­tric as is Aus­trali­a’s in their case, it’s pri­mar­i­ly Cop­per makes up, which is prob­a­bly good if you’re in the elec­tric­i­ty busi­ness. I guess. Cop­per makes up about 50% of Chile’s exports, and I read 20% of Chilean GDP, and 60% of exports.
out of cop­per. It’s also a, a big lithi­um min­er. Sec­ond glob­al­ly only to Aus­tralia, thanks to the at Kar­ma Salt Flats. Escon­di­da is the [00:25:00] largest cop­per mine in the world and pro­duces about 5% of glob­al sup­plies. Over­all, Chile pro­duces a third of the world’s cop­per, so if the cop­per price declines the Chilean econ­o­my.
a hit, for­tu­nate­ly for them, we know, because we do our com­mod­i­ty charts every week. Cop­per is boom­ing has been for some time. So that’s all I’ve got on the back­ground of the busi­ness. Before I get into the num­bers do you have any thoughts or com­ments on any of that, Tony?
TK: I don’t. Pret­ty amaz­ing the lev­el of renew­ables they have. I, I guess my ques­tion around that would be what do peo­ple pay for elec­tric­i­ty in Chile ver­sus the oth­er com­pa­ra­ble coun­tries, whether they’re hap­py to pay more for renew­ables or whether they’ve actu­al­ly man­aged to get renew­able elec­tric­i­ty down the same price as fos­sil fuel pow­ered.
But great [00:26:00] great result.
Cameron: Let me find out the answer for you.
Elec­tric­i­ty prices in Chile and Aus­tralia dif­fer sig­nif­i­cant­ly influ­enced by fac­tors like ener­gy mix, infra­struc­ture, and mar­ket dynam­ics, res­i­den­tial rates as of Sep­tem­ber, 2024, res­i­den­tial elec­tric­i­ty prices in Chile aver­aged USD 18.30 cents per kilo­watts in Aus­tralia. They range from 24 to 43 cents per kilo­watts, depend­ing on region.
I assume that that’s in USD.
TK: Yeah, Chile’s cheap­er and it’s a high­er pro­por­tion of renew­ables. Do you know if there’s gov­ern­ment sup­port in that pric­ing camp at all? As in is it a pol­i­cy of the gov­ern­ment to sup­port renew­ables?
Cameron: Oh, it’s not just, well, I dun­no about sup­port­ing them. I mean, it’s, it’s enforc­ing a move to renew­ables. I think they, I. Had a, a coun­try­wide goal to [00:27:00] be 70% renew­ables by 2050. And then recent­ly they dropped that down to 2030, which I believe they’re on track to do. sure if they’re sup­port­ing it eco­nom­i­cal­ly, but I know that they’re, it’s a big dri­ver across the coun­try that, there’s being, you know, the elec­tric­i­ty com­pa­nies there are being forced to abide by the moves towards major­i­ty renew­ables. So just back on the pric­ing thing, that Aus­tralian price is a round about. 25 cents per kilo­watt hour USD ver­sus 18.30 cents, in Chile, so sub­stan­tial­ly cheap­er Chile than it is in Aus­tralia.
TK: Yeah, that’s amaz­ing. Giv­en their renew­ables. Although, and I’m not, again, not famil­iar with Chile, it’s small­er than Aus­tralia, so it might be cheap­er for the grid to [00:28:00] be for the trans­mis­sion grid to be oper­at­ed. But who knows? But well done. It’s a good, good num­ber any­way, I.
Cameron: It is also a bonkers You know, it runs right down the left hand, the sort of west coast of South Amer­i­ca all the way down. It’s like the, I think, the south­ern most coun­try in the world and also the and skin­ni­est coun­try in the world too. So, yeah, dif­fer­ent, dif­fer­ent sit­u­a­tion in terms of the grid, but also very moun­tain­ous.
So prob­a­bly a lot of chal­lenges that per­spec­tive in Aus­tralia. But any­way,
TK: Yeah.
Cameron: hard to com­pare, but that’s a good job. So any­way, just going through the num­bers, they’re. Mar­ket cap is around about five and a half bil­lion USD. the earn­ings per share for the last 12 months is about 14 15 cents.
The fore­cast for the next year is about 38 cents, so that’s [00:29:00] pret­ty good. They, they do have some chal­lenges I did­n’t men­tion before, so they, they took a big hit. Real­ly, they’ve tak­en a cou­ple of big hits recent­ly to their prof­itabil­i­ty as a result of some par­tic­u­lar­ly bad weath­er events that they had in Chile.
And then also they had some exchange rate hits that they have a lot of debt in US dol­lars and the exchange rate hit took a toll on them. And, you know, a lot of the issues with com­mod­i­ty prizes and trade wars and all of that sort of stuff is a chal­lenge for them. But gen­er­al­ly the busi­ness seems to be doing quite well.
If you, if you fac­tor out some of those one-off things that have hap­pened in the last year, I think they had, there was like a 77 or 80% year on year prof­it drop, net prof­it drop. But if you fac­tor out sort of the one-off events, the busi­ness is actu­al­ly doing quite well. Look­ing at [00:30:00] the QAV scor­ing side of things they obvi­ous­ly do have a pos­i­tive uptrend.
price to oper­ate in cash flow is quite low. It’s about a three. So we score them for that. In Stock­o­pe­dia, Their stock rank is 93, which is pret­ty good. They get a val­ue score of 82, momen­tum score of 98, is inter­est­ing for a QAV stock, qual­i­ty score is quite low. It’s only 46. They get an. F score of five out of nine and the Z two score is actu­al­ly. around the, the edge of the dis­tress zone, we see with a of our com­pa­nies where we run them through stock edia, which I’ve learn to, not ignore, but we don’t take as seri­ous­ly as it looks on the chart because it does­n’t real­ly have a lot to do with the finan­cial health of the busi­ness.
So they get a [00:31:00] one for stock rank on our. Check­list, they get a one for their F score. Their price is not below our IV num­ber one or our IV num­ber two. IV one we have at 76 cents. IV num­ber two is at $3 66. Their cur­rent price is.
Is $3 94, they don’t fall below any of those, so we can’t score them for that. they don’t score for, IV two, being less than twice the share price either. Equi­ty per share is $3 75. Book plus 30 is $4 88. So we are not scor­ing them on the price being less than Book plus 30.
We don’t have a score in our US check­list for own­er­ship because it’s hard to get that as a down­load­able thing out of [00:32:00] Stock­o­pe­dia. But as I said before, this is owned by, the par­ent com­pa­ny. I think 65% of it or some­thing is owned by the par­ent com­pa­ny.
not real­ly an own­er founder though. Tony, how would you treat some­thing like that if you had to score it?
TK: The same way you have Cam, I agree with you. It’s some­thing that, that there would­n’t be an own­er, founder. You can see the share­hold­ings in opia if you call it up, but you know, they’re all the mutu­al insti­tu­tion­al funds you’d expect. Even back in Italy, I’d be sur­prised if there’s known a founder, ’cause the com­pa­ny was found­ed too long ago. So Yes, I’d I’d say it’s zero on our check­list.
Cameron: Yeah, you don’t, you don’t treat a par­ent com­pa­ny or anoth­er cor­po­rate enti­ty own­ing a large chunk of it as an own­er, founder.
TK: No, no, only the founders of peo­ple who, who know the indus­try real­ly well. Not nec­es­sar­i­ly cor­po­ra­tions who might have, you know all the kinds of cor­po­rate bag­gage that comes with gov­er­nance and com­mit­tees and all that kind of stuff, so, no.
Cameron: Yeah. Alright, [00:33:00] so they get nine OUTTA 13. For us, it’s a qual­i­ty score of 69% and a QAV score of 0.2. So I added them to, oh, by the way, the aver­age dai­ly trade is about 2.7 mil­lion. So big enough for most QAV investors. And that’s it. That’s ENIC in Chile. Yeah, I found it inter­est­ing to learn more about the renew­able stuff in Chile.
They’re, they’re killing it.
TK: Well done Cam. That was real­ly inter­est­ing. Yeah, and, and again, anoth­er unusu­al com­pa­ny that I would­n’t have come across except for the process, which is great.
Cameron: Yeah. And like, again, not a, not a par­tic­u­lar­ly sexy busi­ness, elec­tric­i­ty pro­vi­sion, but nec­es­sary and the world needs more elec­tric­i­ty. And I assume, you know, as we know Chile, they’re expect­ing 41% [00:34:00] increase in demand in the next 10 years. So. There’s a lot of upside for these guys. A lot of chal­lenges as well.
They do talk in their lat­est annu­al report about some of the chal­lenges with just scal­ing up elec­tric­i­ty gen­er­a­tion and dis­tri­b­u­tion. But well run busi­ness, so hope­ful­ly they’ll fig­ure it out. Well, that is it for me this week. final thoughts for QAV Amer­i­ca before we go?
TK: I don’t, but I could prob­a­bly use some bit of a pow­er boost here talk­ing of elec­tric­i­ty with the bad wifi I’ve got. So apolo­gies to peo­ple for the qual­i­ty of my end and video this week. Max­i­mize the band­width youth, but I’m tak­ing a, a break in a place called Bate­man’s Bay in Aus­tralia which has been love­ly, but I’m back on deck for a prop­er record­ing next week.
So apolo­gies if any­one’s had trou­ble [00:35:00] with this with They won’t. I’ll fix it up in edit­ing. It’ll sound per­fect. No one will know Tony. So you enjoy your golf. Don’t wor­ry about it.
Thank you. Thank you.
Cameron: Oh, and I put a shout, just a shout out for any­one in the, or, any­one any­where in the world lis­ten­ing to this. I did put a shout out on the val­ue invest­ing sub­red­dit the oth­er day, but the announce­ment of the retire­ment of War­ren Buf­fett. In the last week or so, thought it’d be a great oppor­tu­ni­ty for val­ue investors around the world to talk about.
You know, the, the, what we’ve learned from War­ren how he and Char­lie have informed your val­ue invest­ing. you dis­agree on some of the things that he said or is does, or preach­es. Maybe you can talk a lit­tle bit about that. But we wan­na advise you to be a guest to come on the show and talk about War­ren Buf­fet.
And talk about, I know he is, had a huge impact on Tony’s invest­ing and via Tony a huge impact on my invest­ing. [00:36:00] Sort of a, as we talked about last week, you know, one of the, the Tony’s men­tors and Tony’s one of my men­tors, so he’s had a big influ­ence. We know on of thou­sands, hun­dreds of thou­sands of investors around the world.
if you’d like to come on the show and talk about War­ren, good, bad, or indif­fer­ent. Shoot me an email [email protected] and offer your­self up. We’re gonna have some guests come on over com­ing weeks to share their thoughts on War­ren Buf­fett, and you’re invit­ed to come on and share yours as well. I’d love to hear from you.
Well, with that, Tony I know you’ve got a thing that you got­ta get out for, so I’ll let you go. Enjoy the rest of your golf and I’ll talk to you next week.
TK: have a good week and hap­py Nas­daq. Hap­py NYSE. Every­body will talk to you next week.
Cameron: Thanks, Tony. Hap­py tar­iffs.
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