Transcript QAV 109

Episode Name: QAV 109 Club

File Length: 44:32

Cameron Reil­ly [0:02]: Well, “Wel­come back to QAV”, Kyno. Had a good week?

Tony Kynas­ton [0:07]: Hey! Cameron, yeah. It was East­er, been and gone. It is the Wednes­day after East­er today. 2019 and a big East­er had some friends stay­ing and very social time.

Cameron Reil­ly [0:19]: Very good. Did you get some golf in?

Tony Kynas­ton [0:21]: I did, I played on Mon­day.

Cameron Reil­ly [0:23]: What do you? What are you like as a golfer? Are you par, under par?

Tony Kynas­ton [0:28]: No, no, my 21 hand­i­cap­pers. So pret­ty aver­age brings down a bit low­er than that over the years but have not been able to play much this year with mov­ing coun­tries and all the rest of it. So keen to get back out there again,

Cameron Reil­ly [0:40]: Right, Last week on the show. We talked about Apol­lo Trav­el and Leisure we did a bit of analy­sis on them. The mak­ers of recre­ation­al vehi­cles RVs. mak­ers, renters’ sell­ers. How are the shares? The shares done since we talked about them. Like what was the QAV effect? On the share price? Tony,

Tony Kynas­ton [1:02]: We put the mock­er on them. I have gone down. So, I am just look­ing it up. Now. They are cur­rent­ly at 88.5 cents. And I think when we did our analy­sis they were at $1.

Cameron Reil­ly [1:14]: Yeah. So, when that hap­pens to you if you buy a share, and then it goes down? What do you do?

Tony Kynas­ton [1:22]: Well, first, I am patient. If you recall, we did dur­ing that dis­cus­sion, talk about the trend line, a three-point trend­line for the share, and we said it was get­ting close to a buy, it is retreat­ed from that. So, I will be watch­ing it. And just look­ing to see which way the trend lines going at this stage, the score for the com­pa­ny was pos­i­tive. So, it had lots of cash, good health. We iden­ti­fied maybe some risks in terms of was grow­ing over­seas and might be grow­ing too fast. And hav­ing some teething prob­lems. So, it’s hard to it’s hard to know from afar, whether that’s the case, we have to wait for some more fig­ures to come through. So, I’m look­ing for I’m hold­ing at this stage, and I’m look­ing for one of two things to hap­pen just that the trend line firm­ly reestab­lished itself one way or the oth­er. Or there’s some release of new infor­ma­tion in the mar­ket. I’m just hav­ing a look at the ASX releas­es and noth­ing since the fourth of March. So, there’s no new infor­ma­tion in the mar­ket to go on.

Cameron Reil­ly [2:23]: So, you would just sit on it like a watch­ing brief on it. And just keep an eye on news releas­es.

Tony Kynas­ton [2:31]: Yeah, that’s right. So, for some­thing that has had a move like this, I might watch it every week, or every cou­ple of weeks and just check it out. You are not want­i­ng to jump at shad­ows at these things because it’s just as like­ly to turn down and then turn up again as the oth­er way. So, you do not want to sort of watch it every day nec­es­sar­i­ly. And there is not much infor­ma­tion flow com­ing through. So, what you need every day is not going to real­ly help. But you have it starts to break even fur­ther down, I’d prob­a­bly look to sell.

Cameron Reil­ly [3:01]: Oh, at what point?

Tony Kynas­ton [3:02]: Yeah, good, good ques­tion. See, if I look at the three-point trend at the moment, it’s very close to being on the five-year month­ly trend, it’s very close to being a buy. So, if it starts to retreat too far from that line, and I’d be sell­ing, it’s and it’s nice, no sort of defin­i­tive met­rics around this, you’d real­ly just sort of use a bit of expe­ri­ence and judg­ment, I guess, and your appetite for risk. See how this fit into your appetite for risk. If I have a large port­fo­lio of lots of shares, if one starts to go down by 10%, I am not that wor­ried. But if for my wealth was in the one share, I might be you know, focused on it intent­ly and not pre­pared to take a 20 or 30% bath on it.

Cameron Reil­ly [3:40]: Right, but you have done the finan­cial analy­sis on it, we decid­ed that their finances looked good, look strong. With it with as you said, a few caveats. But it looked good. So, all things being equal, you would assume that that would play out well, over the course of the year?

Tony Kynas­ton [3:58]: Yes, you would think so. So, which makes you a hold­er at this

stage?

Cameron Reil­ly [4:03]: I would think you would say okay, well, lis­ten, I made a I made a ratio­nal deci­sion based on data. And I believe in that deci­sion. Unless new infor­ma­tion comes along. That means I should change my view on those things.

Tony Kynas­ton [4:19]: Yeah, that has well put. Exact­ly. Yeah, so and I guess this might be a good time to talk about some­thing else we thought we might men­tion, and that is the tim­ing of our pod­casts going to air. So, we did the analy­sis last week. And I’m not sure when the pod­cast got went for that episode went to where but it’s going to be at least prob­a­bly a week lat­er.

So, this price drop is pos­si­bly already hap­pened before peo­ple lis­tened to it. And by the very nature of pod­casts, peo­ple might not be lis­ten­ing to this until months and months and months down the track. And the whole sit­u­a­tion may have changed. So, I think it’s impor­tant to take note of if we do analy­sis when we do that analy­sis and whether it still applies or not. But I think even more impor­tant than that is, is to just encour­age peo­ple to do their own analy­sis. We are try­ing to give peo­ple the frame­work to do their own invest­ment, not provider, a tip sheet for peo­ple to go off and buy the stocks that we talk about.

Cameron Reil­ly [5:19]: Yeah, I think a cou­ple of good points num­ber one, if you are lis­ten­ing to this episode, at a great remove from the 24th of April 2019, stop, do not go and lis­ten to the recent episodes. You do not want to be lis­ten­ing to old episodes, maybe our first one or two episodes where we talk about Tony’s back­ground and the method­ol­o­gy and that kind of stuff. But yeah, there’s not a lot of val­ue hear­ing is talk­ing about out­dat­ed finan­cials for com­pa­nies. And B is, as you said, our goal with this show is to teach finan­cial lit­er­a­cy and make peo­ple bet­ter at com­ing up with their own invest­ments, not just pig­gy­back­ing off of your or my efforts.

Tony Kynas­ton [6:04]: Yeah, good point. And I very much see the check­list that we have been talk­ing about, has not some­thing carved in stone, it does not change very much, but it can change. And, and I would, you know, invite lis­ten­ers to give feed­back on the check­list if they think that there is a way of improv­ing it, or that there is some kind of met­ric you are not com­fort­able with. And we can inves­ti­gate it. That is the beau­ty of a check­list. And it is the beau­ty of things like Excel, you can go back in regres­sion test, a change in the check­list and just see whether it is, you know, bet­ter off the weight­ing one of the check list points or adding a new one.

Cameron Reil­ly [6:42]: The sci­en­tif­ic method, I love it.

Tony Kynas­ton [6:44]: Yes, exact­ly.

Cameron Reil­ly [6:45]: So, was there any oth­er news that you want­ed to talk about this week before we get into look­ing at some more finan­cials?

Tony Kynas­ton [6:52]: Yeah. So, one more, I mean, we spoke about Tel­stra, we spoke about bhp and we speak spo­ken about Apol­lo Tourism And Leisure now. And we have giv­en them scores. And I think, from mem­o­ry ITL. Apol­lo Tourism And Leisure is prob­a­bly the first one that we said, had a good QAV score, if I recall. So, I want­ed to talk about how this pod­cast will work in terms of the shares that I invest in, and the shares that we talk about. And it is, my goal, not to what is called front run­ner lis­ten­ers.

So, it has occurred in the past, not so much with pod­casts, but with tip sheets, or with peo­ple who ride out who write emails and send them out to peo­ple rec­om­mend­ing stocks, the sort of more scur­rilous end of the pool of peo­ple who do that have in the past been caught buy­ing a share, and then rec­om­mend­ing it to the sub­scribers after the fact. And then that gives the share a boost as their sub­scribers buys into it. And then the tip­ster will sell the share of the prof­it, and maybe not even tell his sub­scribers or, you know, say some­thing like, if only I could have got­ten to you quick­er, I would have told you about the use of this stock, which caused me to sell it.

So, I do not want to play that game here. So, I guess I am going to impose a cou­ple of rules on myself. And in terms of not front run­ning our lis­ten­ers. The first one is if we ana­lyze a stock is going to be one that I do not own, I may buy it after the pod­cast goes out, but I’m going to ana­lyze stocks that I don’t own. Now, I will declare that I do own a polo tourism leisure, I own a small, small part of my port­fo­lios in that stock. And it made me think about this issue after we ana­lyze that in the last pod­cast. So, from now on, I will not do that.

Cameron Reil­ly [8:42]: You did announce that on the last pod­cast to you, you said that you had bought it and sold it and bought back in.

Tony Kynas­ton [8:49]: Yeah. And look, I think there is the uni­verse of stocks that do well in the QAV, the check­list is enough there, espe­cial­ly at the small­er end of the mar­ket, to be able to ana­lyze them and give peo­ple a feel for how to use the check­list and what the scores look like. with­out them being stocks that I might hold. Because I tend to hav­ing a larg­er port­fo­lio, I tend to be lim­it­ed by the aver­age dai­ly trad­ing amount into what I can buy. And so, I am going to stick to the sort of larg­er ones, which I guess frees up the mar­ket for us to talk about the small­er ones and not be keep­ing stocks that I already own in the hope that the buy­ers the lis­ten­ers will buy them and enforce the price up.

Cameron Reil­ly [9:29]: Yeah, I get that. But to be hon­est, even with the larg­er ones, quan­ti­fy the amount of peo­ple that are going to lis­ten to this pod­cast and poten­tial­ly buy those stocks is going to have jack shit to do with their share price.

Tony Kynas­ton [9:40]: Yeah, what pos­si­ble human hunt for your pod­cast gets big enough so it does but pos­si­bly,

Cameron Reil­ly [9:45]: I don’t think it’s going to shift, you know, a major stock that much if a cou­ple of 100 pod­cast lis­ten­ers going, you know, invest mon­ey in it,

Tony Kynas­ton [9:56]: True, true.

Cameron Reil­ly [9:57]: But I think it is I look I think either way, it is good. Good that we are going to be upfront about this. And at the end of the day, we are not telling peo­ple to buy a stock or not buy a stock, we are just we just want to teach peo­ple how to ana­lyze the finan­cials for them­selves and make their own invest­ment deci­sions based on that.

Tony Kynas­ton [10:18]: Yeah, that is the key.

Cameron Reil­ly [10:20]: The val­ue propo­si­tion for me of the of this pod­cast has always been, you are a guy who has ded­i­cat­ed decades to becom­ing very good at under­stand­ing the finan­cials and what met­rics to look at. And it’s just you teach­ing us how to do that for our­selves, teach­ing a man to fish not teach him, give a man a fish. Remem­ber that? give a man a fish and you feed him for a day teach a man to fish and you will teach him how to fish and he can catch a shark? No, that is not it. Some­thing like that. And again,

Tony Kynas­ton [10:56]: And you are lis­ten­ing to the old man in the sea pod­cast, fish­ing sto­ries, For the unini­ti­at­ed.

Cameron Reil­ly [11:03]: It has been a long, long time since I’ve been fish­ing, obvi­ous­ly. Alright, so do you want to talk about any oth­er news or stuff? Before we get into our share analy­sis for today?

Tony Kynas­ton [11:16]: No, that is all I have got. That is enough, I think.

Cameron Reil­ly [11:19]: Okay, great. And, well, the com­pa­ny. So, we had an idea, actu­al­ly, I think it was one of my kids that sug­gest­ed that one of the one of the ways we could choose com­pa­nies to talk about those that are mak­ing oth­er lists, like the hot list on this side, or that side, or this news­pa­per, and just start pick­ing them a ran­dom and look­ing at their finan­cials for our­selves and see­ing whether or not we think they are finan­cial­ly healthy. And so, I think you went to the AFR’s list and picked one.

Tony Kynas­ton [11:55]: Yeah. So, I mean, that is exact­ly right. If it is not com­pa­ny report­ing sea­son, or com­pa­ny report­ing month, when you are get­ting, you know, mul­ti­ple com­pa­nies giv­ing you updat­ed data every day, there is no real way to save, you know, how do I how do I gen­er­ate some leads for the port­fo­lio, and your boys are right. The way I do it is I go to the Aus­tralian Finan­cial Review, and not every day, but maybe three or four times a week, they have their mar­ket per­for­mance tables, they include these just after the kind of mid­dle pages where they have all the stocks and their prices list­ed.

And the one I focus on is called the rolling year records. And they have two tables. One is the stocks mak­ing new 52-week highs. And the oth­er one is stocks mak­ing new 52-week lows. And since we do not want to be on a new 52-week low list, I go through the stocks that are on their record highs for the year. And quite quick­ly, I can tell from those stocks, which ones may be a good can­di­date for a QAV analy­sis. And I mean, over time, you start to get expe­ri­ence in which ones are just peren­ni­al­ly not going to be on the QAV List. Because Yeah, they are, they are grow­ing fast, but they do not have much cash flow, and a kind of inter­net type stocks, you.com type stocks, so lots of growth, but not much cash com­ing in. But you do sort of start to see names that are rec­og­niz­able as qual­i­ty stocks, and that they are worth doing a bit of research on.

So, to give you give the lis­ten­ers some exam­ples. I am look­ing at the Finan­cial Review for Wednes­day, 24th of April, and the first stock mak­ing its 52-week highs a stock called eight com­mon 8C). So, I know noth­ing about this stock, but it is the first one on the list and just kind of put it into stock doc­tor quick­ly. If I look at the front page of stock doc­tor, it is a sea of red num­bers. So, return on equi­ty is neg­a­tive 30%. net prof­it mar­gin is minus 63%. Rev­enue Growth is minus 39%. So just from those kind of quick glance at this at those kinds of num­bers, I am going to pret­ty much pass it by not say­ing it’s a bad com­pa­ny not say­ing it’s one that peo­ple should­n’t inves­ti­gate for them­selves, but just my expe­ri­ence is I want to see some green num­bers on that first page before I’ll do a detailed QAV check­list analy­sis on it. Yeah, makes sense. Yeah. Okay. Good.

All right. So, if I go down the list of it fur­ther, there is one called ASB, which is Austal. And if I open that one in stock doc­tor, I have got return on equi­ty of 7.26 net prof­it mar­gin 2.38 rev­enue growth 21% earn­ings per share growth 15.7%. So that is one that I would ana­lyze fur­ther and do a check­list for I am not going to in this case, because I bought the stock recent­ly. So, it is not one that I want to talk about today. Tell me oth­er than the own­er of it, it is reach­ing it is, it’s mak­ing a new high, which is a good sign as well. But one that I will talk about is Myer. Now, Myer is not on the table this week be the 24th of April, but it was on the last table, which came out just before East­er,

Cameron Reil­ly [15:19]: You’re talk­ing about the finan­cial reviews table?

Tony Kynas­ton [15:21]: That’s right. Yeah.

Cameron Reil­ly [15:22]: Yeah.

Tony Kynas­ton [15:22]: In fact, if you look at Myer on stock doc­tor, you still are see­ing some red num­bers on that first page, but they’re not big red num­bers. So, return and equi­ty is minus 1.3%. net prof­it mar­gin is minus point three 1%. Rev­enue Growth is minus just under 2%. So, they’re not big red num­bers. So, giv­en that, the next thing I would do is go to the finan­cial state­ments in stock doc­tor and go straight to the cash flow page. And on the cash flow page, I’m see­ing oper­at­ing cash flows of 117 mil­lion, that’s for the half end­ing Jan­u­ary 19. And stock doc­tors annu­al­ize that for me, that’s not a bad num­ber. So giv­en the fact, there is a lot of cash com­ing in, I would do an analy­sis on Myer. And I do not know if you want to go through that check­list on Myer, Cameron, or not?

Cameron Reil­ly [16:16]: Yeah, I do. Because I had a go at doing it myself this morn­ing and was still strug­gling over some bits of the work­sheet. So, I thought it would be good to go through it with you and make sure I am doing my num­bers, right.

:

Tony Kynas­ton [16:32]: Yeah, sure. Any oth­er I should say also to the oth­er rea­son why Myer would jumped out at me look­ing at that list is because I have owned Myer, in the past, bought and sold it. And I con­sid­ered buy­ing it when they were their half year­ly report num­bers came out but did not. And the rea­son why I did not was because they three-point trend­line was just trend­ing down, and con­sis­tent­ly and hor­ri­bly. But in the last few months, it is trend­ed up. So that is anoth­er rea­son to look into Myer bit fur­ther,

Cameron Reil­ly [16:59]: Any of your past employ­ment expe­ri­ence way into your deci­sions at all.

Tony Kynas­ton [17:05]: Tells my bias Myer has always suf­fered from its posi­tion in the mar­ket, in my opin­ion, in that like a lot of retail com­pa­nies in Aus­tralia, they, you know, at best grow­ing at the rate of pop­u­la­tion, or CPI, which is low at the moment, they are a mature com­pa­ny, there has been no sort of new for­mats brought to mar­ket by them. So, they are real­ly essen­tial­ly chug­ging along almost like a util­i­ty sword day in day out com­pa­ny, but not grow­ing very, very smart, or very strong, sor­ry. And of course, fac­ing stiffer and stiffer com­pe­ti­tion.

So, the big prob­lem over time for Myer and it goes, prob­a­bly the same for DJs. But for David Jones, for Tar­get, for big W, pos­si­bly Kmart is they are all play­ing in the same mar­ket. And so, they are all butting up against each oth­er for mar­ket share. So some­times in the past, Mey­er might go down mar­ket a lit­tle bit and start to eat Tar­gets lunch, or Tar­get might go up mar­ket a lit­tle bit and start to eat Myer lunch. And obvi­ous­ly, when that hap­pens, the oth­er one retal­i­ates. And so, there is a mar­ket share tus­sle going on, no one’s real­ly cracked a new for­mat to break out of that kind of strug­gle for mar­ket share and the Aus­tralian mar­ket, no one’s sort of gone over­seas, for exam­ple. That is because there is plen­ty of depart­ment stores already over­seas, and no one’s come up with new for­mats. I mean, we try that with my direct and my direct was a fair­ly sep­a­rate part of Coles Myer from the Myer depart­ment store busi­ness. So, there was not much over­lap there at all. But even then, in the ear­ly days of sell­ing online and cat­a­log sell­ing was a good busi­ness, but it was not big enough to real­ly, you know, move the nee­dle in the, in the depart­ment store mar­ket. And now, Myer of course is also fac­ing renewed threats from that cat­e­go­ry with Ama­zon com­ing into the mar­ket in the last year or so on Aus­tralia, and launch­ing their own plat­form.

Cameron Reil­ly [19:01]: So just when you say we tried it with Myer direct for peo­ple that have not lis­tened to that our first episode, you used to run Myer direct, but 20 years ago,

Tony Kynas­ton [19:08]: Yeah, that is right. Around 2000 for about three. Yeah.

Cameron Reil­ly [19:13]: Yeah.

Tony Kynas­ton [19:14]: Yeah.

Cameron Reil­ly [19:15]: Okay, so let’s go to the spread­sheet, I have stocked Dr. Open in front of me, because I signed up for their free tri­al to give it a go. Let’s see if I could fig­ure it out. It’s very nice site. I got to say, I’m very impressed. I have done it done a great job. So, the first ques­tion, well, it’s got net cash flow, but I did­n’t even both­er with that on the check­list because they already give you the cash per share fig­ure. Now the cash per share num­ber if I’m read­ing this right on the nine gold­en rules page, under­stand income cri­te­ria, free cash flow, is that what we’re look­ing for?

Tony Kynas­ton [19:51]: No. So that’s one lev­el down from what we’re look­ing at. So, we look at the oper­at­ing cash flow.

Cameron Reil­ly [19:57]: So, I want to go to the finan­cial state­ments page.

Tony Kynas­ton [20:00]: Yeah, we did.

Cameron Reil­ly [20:01]: Okay.

Tony Kynas­ton [20:02]: Yeah, look, and by the way, just on that the oper­at­ing cash flow is a good proxy for free cash flow, because free cash flow is basi­cal­ly oper­at­ing cash flow less capex. And some peo­ple also take less depre­ci­a­tion as well. So, you can get into debates about, you know, whether the com­pa­ny does is not using much capex now but may need some in the future and it gets a bit murky, so I just use the oper­at­ing cash flow line to make it a bit sim­pler. And I kind of raise the bar a bit on a score might apply to a free cash flow analy­sis.

Cameron Reil­ly [20:36]: Hey, just a quick note, for those of you who are fol­low­ing along with the work­sheet, make sure you have the lat­est ver­sion of the work­sheet, which you can down­load from qavpodcast.com.au because I’m updat­ing it as my under­stand­ing of Tony’s method­ol­o­gy improves, mak­ing slight mod­i­fi­ca­tions to it to the word­ing to what we’re high­light­ing, as you’ll see lat­er on, in this episode to some of the scores that he gives to cer­tain ele­ments that he thinks should be rat­ed high­er than oth­ers. So, make sure you down­load the lat­est ver­sion, when­ev­er you hear an episode, go up, down­load the lat­est ver­sion of the work­sheet and work from there.

Tony Kynas­ton [21:20]: So, I have gone into finan­cial state­ments oper­at­ing cash flow, can you see that?

Cameron Reil­ly [21:25]: Yep.

Tony Kynas­ton [21:26]:  Yeah. And so, for Jan­u­ary 19, the inter­im, you click the annu­al­ized but­ton, and you get $117.4 mil­lion.

Cameron Reil­ly [21:36]: Yep, that is what I have got.

Tony Kynas­ton [21:38]: And then we need the num­ber of shares,

Cameron Reil­ly [21:40]: Which I have got 829 four, 7 mil­lion. $820 mil­lion 47 thou­sand.

Tony Kynas­ton [21:46]: Yeah, cor­rect. That is right.

Cameron Reil­ly [21:47]: Yeah.

Tony Kynas­ton [21:48]: So, then we get oper­at­ing cash flow per share. I get point one, four, so 14 cents

Cameron Reil­ly [21:52]: Share price. Today is I got 0.71 571 and a half cents at about still

true. That is what it was this morn­ing.

Tony Kynas­ton [22:02]: Yes­ter­day, again, 2.7. Now 70 cents.

Cameron Reil­ly [22:05]: Okay, I will change that. Okay, which gives us a price per share to

cash per share ratio of 4.89.

Tony Kynas­ton [22:13]: Yep, that is right.

Cameron Reil­ly [22:14]: Okay. So, then we look at the sen­ti­ment share price graph going up over five years. Big No, on that one?

Tony Kynas­ton [22:22]: No, I think it’s actu­al­ly it is a three-point trend now.

Cameron Reil­ly [22:25]: Right. But going up over the last five years is no,

Tony Kynas­ton [22:29]: That’s right. Yeah. Well, it’s just kind of to go up and break that down­ward trend line.

Cameron Reil­ly [22:33]: Okay, so we are treat­ing that as dif­fer­ent from five years?

Tony Kynas­ton [22:40]: Yeah, so we are treat­ing that as being a poten­tial buy sig­nal.

Cameron Reil­ly [22:44]: Okay. But are we does that mean that we still going to write it on the five-year sen­ti­ment? Or?

Tony Kynas­ton [22:51]: No, I’m giv­ing you the one I’m giv­ing or two Actu­al­ly, I’m say­ing there’s a new three-point upturn.

Cameron Reil­ly [22:56]: Okay, on my work­sheet, though, I am look­ing at whether or not it has been going up over five years. So, there was so I going to ignore that and just look at the three-point trend?

Tony Kynas­ton [23:09]: Yeah, we’re just look­ing at the three-point trends. So, if you look at that share graph, there was a, there was a peak on the 29th of August in 2014. And then going down the trend line to the right of South­ern teacup again, back on the 30th of the 12th 2016. And it is trend­ed down. And now it’s turned up again, in the last month. And if you take the trend line through those past two peaks, I spoke about the new upturn has bro­ken through that trend line,

Cameron Reil­ly [23:42]: Right.

Tony Kynas­ton [23:43]: So that is a that is a buy sig­nal, and it gets a two on our score.

Cameron Reil­ly [23:46]: Inter­est­ing. Okay. So just to be clear on that, I am look­ing not look­ing at whether or not the price has been going up con­sis­tent­ly over five years. But what the trend line looks like, over the last five years,

Tony Kynas­ton [24:02]: Yes. Remem­ber the con­cept of the three-point trends. So, we are find­ing the two high­est peaks on the on the graph and we are going aligned, and see­ing whether we’re cross­ing it with the cur­rent share price, and we have

Cameron Reil­ly [24:14]: Okay.

Tony Kynas­ton [24:15]: So, it’s bro­ken through that trend, that down­trend trend, but I just use I use? Yeah, the five year month­ly and just eye­ball it usu­al­ly with a three-point trend.

Cameron Reil­ly [24:25]: All right. Good. Well, refin­ing my check­list there. So now I move on to div­i­dends. Look­ing at the div­i­dends.

Tony Kynas­ton [24:36]: I have got them pay­ing no div­i­dend for the last 12 months.

Cameron Reil­ly [24:38]: So, you are look­ing on the finan­cial state­ments page.

Tony Kynas­ton [24:41]: Now I am back on the front page. The share graph is so the nine gold­en rules page div­i­dend yields when I look at zero,

Cameron Reil­ly [24:48]: Some­body vac­u­um­ing behind.

Tony Kynas­ton [24:50]: Sor­ry, no. It will stop in a sec­ond.

Cameron Reil­ly [24:53]: What is it?

Tony Kynas­ton [24:56]: This is going to sound real­ly wacky, but there are some blinds that work for them. I have just come down to do that, I think three hours before sun­set to keep the sun off the, the food in the pantry.

Cameron Reil­ly [25:11]: And do you have, you know sharks with frickin lasers on their frickin heads as well Tony swim­ming around in your Dr. Evil lair? They are your auto­mat­ed blinds.

Tony Kynas­ton [25:21]: Yeah.

Cameron Reil­ly [25:21]: Oh my god. Okay, so div­i­dend yield, not div­i­dend. So, zero.

Tony Kynas­ton [25:30]: Yeah.

Cameron Reil­ly [25:30]: And then I want to look at the pre­vi­ous div­i­dends as well, right?

Tony Kynas­ton [25:34]: Yeah, we are look­ing for con­sis­tent yield. And it is con­sis­tent because I paid noth­ing for the last cou­ple of report­ing peri­ods. But it is, you know, does not score on your check­list.

Cameron Reil­ly [25:46]: Okay. But if you go back to 2016 2017, first half of 2018, they were pay­ing a div­i­dend.

Tony Kynas­ton [25:55]: Yep. That is right. And if you recall, the rea­son why we look at div­i­dend yield is because it is often a sign of when the div­i­dends cut that they are in finan­cial prob­lems. And Myer has been,

Cameron Reil­ly [26:05]: Right, then I have got the PE.

Tony Kynas­ton [26:08]: Okay. I have got there is no PE for Myer at the moment because it is lost mon­ey. So, its earn­ings per share is minus point nine four of a cent. So, there is no there is no you can’t do a PE ratio. If there is no earn­ings. It less mon­ey. If you look on that finan­cial state­ments tab, in stock Dr. Head­ing called val­ue and align called PE. And July 18. Actu­al annu­al sor­ry, was 11.63. And Jan­u­ary 19, Inter­im is blink

Cameron Reil­ly [26:40]: So, zero. Okay, so my next line is the grad­ing from the providers stock doc­tor.

Tony Kynas­ton [26:50]: And say on that finan­cial state­ments page, you can see the top line is called finan­cial health. And it has got strong, strong, strong, strong all the way across. So yes, it is con­sis­tent­ly strong. So that’s a score of one.

Cameron Reil­ly [27:00]: Yeah. NET equi­ty. I have got 617.56. Do you have the same?

Tony Kynas­ton [27:08]: Yeah, that is right.

Cameron Reil­ly [27:09]: Hey, I got one, right. And then I’m look­ing at the pre­vi­ous report­ing peri­ods as well. So, in minus one, I have got 583 99 and minus two 580. Oh, five and minus 3107 2.87. So, the net equi­ty is a lot low­er now than it was a cou­ple of report­ing peri­ods ago.

Tony Kynas­ton [27:29]: That’s right.

Cameron Reil­ly [27:30]: Okay.

Tony Kynas­ton [27:30]: It is not con­sis­tent­ly going up,

Cameron Reil­ly [27:32]: Which means my net equi­ty per share, tak­ing the 617, divid­ing it by the num­ber of shares on issue, I’ve got 0.75. And the price to book, so the share price divid­ed by the net equi­ty per share. I have got it 0.93

Tony Kynas­ton [27:53]: Yep, you are right. Cor­rect.

Cameron Reil­ly [27:54]: Okay, hur­dle rate. Now we do it. I have got the hur­dle, right. It is nine eight of a half earn­ings per share. Zero point a neg­a­tive point nine, four. Right. Because they are the last mon­ey in the last report­ing peri­od.

Tony Kynas­ton [28:11]: That’s right.

Cameron Reil­ly [28:12]: Now future earn­ings per share. I have got a four you got that.

Tony Kynas­ton [28:19]:        Yes. So, it is point oh, four. It is, we are going to have to keep over the units lined up here. So, it is four cents per share, which is in terms of dol­lars is point oh, point.

Cameron Reil­ly [28:29]: Oh, four. Yeah, good point. Okay. All right. So, my intrin­sic val­ue num­ber one cur­rent earn­ings per share, divid­ed by the 19 and a half per­cent hur­dle rate. I have got neg­a­tive 4.82. Okay, not great. intrin­sic val­ue. Noth­ing below noth­ing. Shit. You com­plete shit. Okay. But intrin­sic val­ue num­ber two future earn­ings per share. divid­ed by 7%. I have got it. 56.5 757 cents.

Tony Kynas­ton [29:06]: Okay. Yeah, so I divide by 7.5%. And I get .530

Cameron Reil­ly [29:11]: Okay, .75

Tony Kynas­ton [29:12]: Yeah. Yeah.

Cameron Reil­ly [29:15]: What do you do that again? Sev­en and a half? Not sev­en.

Tony Kynas­ton [29:17]: Yeah. So, it’s the if you remem­ber, it’s the cash rate plus six.

Cameron Reil­ly [29:21]: Okay.

Tony Kynas­ton [29:22]: 1.5%.

Cameron Reil­ly [29:23]: Okay, so .53. All right. Now I do the check­list. Now that I have got my data so is it a star stock on stock doc­tor? No, it is not. Is it “A” one or “B” two and share analy­sis? I do not know. You will have to tell me then.

Tony Kynas­ton [29:37]: No, it is not

Cameron Reil­ly [29:38]: Okay. So, it gets a zero on those is the share price beneath the stock doc­tor intrin­sic val­ue. Now I could not find the stock doc­tor intrin­sic val­ue. Where is that?

Tony Kynas­ton [29:49]: Okay, so stock Dock­er does­n’t have an intrin­sic val­ue for the share because it’s not a star stock. It does have a con­sen­sus val­ue and the con­sen­sus val­ue is .455, 45.5 cents, and that is based on eight bro­kers ana­lyz­ing the stock. Can you see that it is on the front page?

Cameron Reil­ly [30:07]: Just wait a sec­ond.

Tony Kynas­ton [30:09]: Nine gold­en rules

Cameron Reil­ly [30:10]: Why, why?

Tony Kynas­ton [30:10]: Nine gold­en rules.

Cameron Reil­ly [30:11]: Wait, wait, wait, wait, I am mak­ing notes. So, it does not have an intrin­sic val­ue because it’s not a start stock. What did you say next?

Tony Kynas­ton [30:20]: It does have a con­sen­sus val­u­a­tion.

Cameron Reil­ly [30:22]: Right.

Tony Kynas­ton [30:22]: Stock doc­tor has reports on the con­sen­sus val­u­a­tion. In this case, it tells you it’s get­ting that from eight dif­fer­ent bro­kers.

Cameron Reil­ly [30:30]: Where do you Where do you find that again?

Tony Kynas­ton [30:32]: Yeah, so the front page of stock doc­tor on the nine gold­en rules page, it is num­ber five. So about halfway down the right-hand side.

Cameron Reil­ly [30:40]: Okay. Got it. Yep. Yeah, fair val­ue is that we are look­ing at

Tony Kynas­ton [30:44]: A con­sen­sus val­u­a­tion

Cameron Reil­ly [30:45]: A con­sen­sus val­u­a­tion? Yeah. Which is in the mid­dle of that line graph there. So, .455. And is the share price beneath that? No, it is not?

Tony Kynas­ton [30:58]: No. So it is, it is I guess, the way I would do this is I do not score it. If it does not have a stock, Dr. IV. We can score it based on the con­sen­sus. Often­times fair­ly sim­i­lar.

Cameron Reil­ly [31:12]: Right. Okay. So, it gets a zero any­way.

Tony Kynas­ton [31:15]: Yeah, it gets to zero.

Cameron Reil­ly [31:17]: Is the share price beneath this share analy­sis? intrin­sic val­ue?

Tony Kynas­ton [31:21]: No, it is not. That is 18 cents since last time I looked.

Cameron Reil­ly [31:23]: Okay. Wow. Is it below my intrin­sic val­ue? If I use a 9.5% hur­dle rate, which came in at neg­a­tive 4.2? So no, it is not neg­a­tive 4.82. Below that? Can you get it? Can you get a neg­a­tive share price? Tony? Ever seen that?

Tony Kynas­ton [31:40]: No, no, no.

Cameron Reil­ly [31:41]: How would that work?

Tony Kynas­ton [31:43]: Well, if the com­pa­ny went bank­rupt, get paid out less than what you put in, I sup­pose. Yeah.

Cameron Reil­ly [31:50]: Is it below the fore­cast? No, sor­ry, is the fore­cast intrin­sic val­ue using a hur­dle rate of 7.5% below the share price. Now, the sec­ond intrin­sic val­ue num­ber I had was 53 cents. And that is below the cur­rent share price.

Tony Kynas­ton [32:08]: Cor­rect.

Cameron Reil­ly [32:09]: So, it gets a one? No, we’re look­ing for the share price to be below the intrin­sic val­ue.

Tony Kynas­ton [32:18]: We want to buy things for less than what we think they’re worth.

Cameron Reil­ly [32:20]: Real­ly. That’s how this works.

Tony Kynas­ton [32:23]: Yeah, lit­er­al­ly like.com. You just bought them any­way.

Cameron Reil­ly [32:27]: Yeah, one time I bought stocks. That is what I did.

Tony Kynas­ton [32:31]: You prob­a­bly make more mon­ey in the last 12 months than I have, but maybe not in the long term,

Cameron Reil­ly [32:35]: Maybe. All right. So, it is a zero for that one price to book is the share price less than 30% above the net equi­ty per share. And it is no, it was when I looked this morn­ing. Maybe that’s changed price to book.

Tony Kynas­ton [32:51]: We got equi­ty per share. 75 cents, I think.

Cameron Reil­ly [32:53]: Yeah,

Tony Kynas­ton [32:55]: Yeah. And the price is 70. So, it is below that. Yeah. So, it’s a one. It’s a score.

Cameron Reil­ly [32:59]: Yes. Hold on. Is the price to book is the share price less than 30%? above the net equi­ty per share, net equi­ty shares, point sev­en, five. Okay, yes. Good. Gets a one. Hmm, does the share price have a pos­i­tive trend? Now? This is your three-point trend­line. You’re say­ing a one. Now you said a two

Tony Kynas­ton [33:23]: A two. That is right.

Cameron Reil­ly [33:24]: Why a two?

Tony Kynas­ton [33:26]: Just because I want­ed to empha­size that in the check­list. So, I just want­ed, I just dou­bled it basi­cal­ly to give it more, more cur­ren­cy in the check­list more reval­ues, more of an impact.

Cameron Reil­ly [33:35]: Why?

Tony Kynas­ton [33:36]: Well, in the past, again, this has evolved in the past, I used to make it a hard rule that I would not buy some­thing unless it had a pos­i­tive trend. And, and Myer is a good exam­ple of this. Because back when I ana­lyzed it, when the results first came out ear­li­er this year, you can see if you are look­ing at stock would have been around in the Feb­ru­ary, ear­ly March. The share price was not mak­ing a new pos­i­tive trend. And so, in the past, I would have said, Okay, I’m not going to buy just black and white was­n’t mak­ing a pos­i­tive trend not going to buy, but you can see it’s gone up since then. So over time, I’ve said, Well, you know, because I’ve seen cas­es where the num­bers look good, the trends going down, haven’t bought it. And then next week, some­one goes, this is a real­ly cheap com­pa­ny, and I ought to take over on it. So, I have tak­en it from being a hard black and white rule to be some­thing which has an above aver­age impact on the check­list score.

Cameron Reil­ly [34:35]: Okay, so you do that for every com­pa­ny or just this one.

Tony Kynas­ton [34:39]: Not every com­pa­ny.

Cameron Reil­ly [34:40]: Okay, so a pos­i­tive gets a two. Alright. Is it the low­est PE in the last three years? No, it is not. So, it gets zero, cor­rect?

Tony Kynas­ton [34:49]: Yeah.

Cameron Reil­ly [34:50]: Okay.

Tony Kynas­ton [34:51]: I guess tech­ni­cal­ly this last PE because it’s neg­a­tive, but we’re look­ing for pos­i­tive.

Cameron Reil­ly [34:57]: Growth of earn­ings per share, divid­ed by PE. Now, I was not sure what to do with this one, where do I get the growth of the earn­ings per share?

Tony Kynas­ton [35:05]: I am get­ting it from the finan­cial state­ments page. I’m going into stock doc­tor. Okay, so the earn­ings per shares are on the finan­cial state­ment page at the moment, the cur­rent is minus .94 and pro­ject­ed to be 4 cents.

Cameron Reil­ly [35:20]: Okay, so the earn­ings per growth so then in my check­list, I’m want­i­ng to find out the growth of the earn­ings per share as a per­cent­age. So, I want to cre­ate a per­cent­age between four and neg­a­tive point nine four.

Tony Kynas­ton [35:36]: Yeah, which is a bit tricky because it’s, it’s you are start­ing off with a neg­a­tive. But to go one step fur­ther, we are then going to divide that by the PE, we do not have a PE, so it is a bit of a mean­ing­less exer­cise at the moment.

Cameron Reil­ly [35:46]: Okay, so we just do a zero for that one.

Tony Kynas­ton [35:49]: Yeah, or just leave a blank.

Cameron Reil­ly [35:52]: Okay. But that fucks up my final cal­cu­la­tion when I am in Excel, then I got to change shit and Excel, man. No, it is get­ting it screw them. That is, it does not mat­ter. Any­way, there is so many zeros in this thing. There are more zeros in this then

Tony Kynas­ton [36:08]: More zeros in your bank bal­ance.

Cameron Reil­ly [36:11]: As we speak about neg­a­tive num­bers. Does the com­pa­ny have a con­sis­tent­ly increas­ing equi­ty? No. Gets a zero. Is the PE less than the yield? Just zeros every­where.

Tony Kynas­ton [36:26]: Yeah, so I would not score that one.

Cameron Reil­ly [36:27]: But is the div­i­dend yield high­er than the mort­gage rate?

Tony Kynas­ton [36:31]: No, that has got no yields com­ing of div­i­dend.

Cameron Reil­ly [36:33]: Is the finan­cial health from the sub­scrip­tion ser­vices sta­ble or increas­ing? Yes.

Tony Kynas­ton [36:38]: Cor­rect.

Cameron Reil­ly [36:38]: Okay, good. So, one, is my fore­cast intrin­sic val­ue more than two times the share price, the cur­rent share price?

Tony Kynas­ton [36:45]: No, it is not.

Cameron Reil­ly [36:46]: Okay. Is it one of the top 10 ASX stocks? No. Is the price per share divid­ed by the cash per share less or equal than six? Yes.

Tony Kynas­ton [36:57]: Cor­rect.

Cameron Reil­ly [36:57]: Okay.

Tony Kynas­ton [36:58]: And this is anoth­er line, and I will give a score of two, two rather than one.

Cameron Reil­ly [37:04]: Okay, is the CEO and own­er or founder Not unless he is real­ly, real­ly old? intrin­sic val­ue going up in the future? So how do we cal­cu­late that one? I could not remem­ber how to do that.

Tony Kynas­ton [37:18]: Yeah, so we I am using shar­ing analy­sis for that. And it is

Cameron Reil­ly [37:21]: Oh, okay. Okay. So, you give it one?

Tony Kynas­ton [37:25]: I do Yeah.

Cameron Reil­ly [37:26]: Okay. Now, based on the advice of our lawyers, we are not going to tell you what the final QAV score is, for this stock. You have to do that your­self,

Tony Kynas­ton [37:35]: Or maybe like a pay our lawyer bill. And then we will email on what the score is.

Cameron Reil­ly [37:45]: I do not even want to tell them how much that was. Yeah, so we are not here to give finan­cial advi­sors we have said a mil­lion times. And appar­ent­ly, even if we give a share a writ­ing that it can be inferred as giv­ing advice. So, do it your­self, which was the inten­tion of the show, always, you have got a check­list, we tell you the num­bers that we think are impor­tant, Tony, that is think. And I think they are impor­tant, too, because Tony told me to think that way. So, go check them out, put the num­bers in, do it your­self, come up with your own cal­cu­la­tion, decide whether or not you think that stacks up. But there was a lot of zeros in there, Tony?

Tony Kynas­ton [38:32]: Yeah, they were, but it has a very good price to cash flow score. And if you recall, the next step, which we will not do is to com­bine the qual­i­ty score with the val­ue score, to give a final rat­ing, and then some­times it hap­pens that, you know, one does not score well on qual­i­ty with­out scores well on cash flow, and the over­all score is good. And some­times it’s the reverse and the over­all scores bad or what­ev­er. So, peo­ple will have to find that out for them­selves. And I think it’s good to get peo­ple to do that, not just to prac­tice the check­list, but also to because they may not lis­ten to this pod­cast for days, weeks, months, after the 24th of April when we’re record­ing it and the share price will have changed and quite poten­tial­ly, the check­list will have changed in that time peri­od as well.

Cameron Reil­ly [39:18]: Yeah. And as I said at the begin­ning if you are lis­ten­ing to this after April 2019 do not bet it is too late. Now, you have already lis­tened to it if you hear this bit so

Tony Kynas­ton [39:27]: There stuck right now.

Cameron Reil­ly [39:31]: Can we talk about liq­uid­i­ty?

Tony Kynas­ton [39:32]: Yeah. Okay. So, liq­uid­i­ty again on the stock Doc­tor page, the front one, aver­age dai­ly trans­ac­tions dai­ly val­ue trad­ed is $1.1 mil­lion.

Cameron Reil­ly [39:46]: Okay,

Tony Kynas­ton [39:46]: So, it is fair­ly it is fair­ly liq­uid.

Cameron Reil­ly [39:49]: I mean, okay, yeah, they have got a is fair­ly liq­uid here. So over 500,000 a day they are call­ing quite liq­uid.

Tony Kynas­ton [39:57]: Yeah, that is right. And if you recall, we as a safe­ty mea­sure, we divide that by 10 or 20. or rec­om­mend divid­ing it by 10 or 20. So we keep well below our posi­tion as well below the aver­age dai­ly trade. So, if you have to get out quick­ly, we got a bet­ter chance of doing that. And that is one of the rea­sons why I did not dive as well, because that is com­ing down to sort of a $50,000 bar, which is a bit small for me.

Cameron Reil­ly [40:23]: You did not get out of bed for that can of.

Tony Kynas­ton [40:28]: That is right I lay in bed watch­ing the blinds go up and down

Cameron Reil­ly [40:33]: Just think­ing about all the coal dig out of the ground to make that hap­pened and you are going. Yeah.

Tony Kynas­ton [40:42]: Yeah, and give it a price too, is it worth and what its intrin­sic val­ue.

Cameron Reil­ly [40:48]: You think­ing about all the share and the coal com­pa­nies you got, yeah.

Tony Kynas­ton [40:53]: Yeah.

Cameron Reil­ly [40:54]: Dig me more coal [inaudi­ble 40:56].

Tony Kynas­ton [40:57]: Let’s get some more blinds going up and down. Come on.

Cameron Reil­ly [40:59]: Yeah.

:

Tony Kynas­ton [40:59]: The pro­gram effect

Cameron Reil­ly [41:01]: Shit, you should run the elec­tion. Aus­tralia gets your blinds going up and down. Its good for the econ­o­my. That good, sur­prise that not one of Clave Palmer taglines

Tony Kynas­ton [41:10]: Prop­er­ly, he’s own coals mine or [inaudi­ble 41:13]

 

Cameron Reil­ly [41:14]: Coals Mine or [inaudi­ble 41:15]. Which one?

Tony Kynas­ton [41:16]: Coals Mine not Cole’s [inaudi­ble 41:17].

 

Cameron Reil­ly [41:18]: I do not know. I am not fol­low­ing. Alright that is it. Thanks for that. Thanks mate

Tony Kynas­ton [41:22]: Okay, Thanks You, see you.