Transcript #510

QAV 510 Club

Cameron  00:00

Hey every­one, Cameron here from QAV. As I’m sure most of you have heard over the last cou­ple of weeks, the guy who nor­mal­ly edits our show, Denis, is based in Ukraine and has obvi­ous­ly been dra­mat­i­cal­ly affect­ed by events of the last few weeks. He’s back at work, amaz­ing­ly, already. He’s in anoth­er city, he’s moved from Kharkiv where he was orig­i­nal­ly when the war broke out — any­way, and offered to get back to work this week and edit our episode which he has­n’t been able to do for a few weeks. And I asked him to record a lit­tle bit about his per­son­al expe­ri­ences over the last cou­ple of weeks, and he agreed to do that. So, a lit­tle bit dif­fer­ent. We’ll get into invest­ing in a minute, but I’m sure those of you that have been lis­ten­ing to the show for a while will appre­ci­ate hear­ing a lit­tle bit of our edi­tor’s sto­ry. So here’s five min­utes from Denis.

Den­nis  01:08

Hi, guys. Hi, Cam. Hi, TK. This is Denis, I’m the edi­tor of the pod­cast. I’m record­ing this on the phone, lit­er­al­ly, so sor­ry for any prob­lems with the audio qual­i­ty but I left my micro­phone at home. I live in Kharkiv, Ukraine, the city you prob­a­bly heard a lot about in the news late­ly. So, Cam sug­gest­ed I record a small talk for the pod­cast about what we’ve been going through here and I could­n’t resist. I would love to share some info first­hand, almost. First of all, I want to thank all of you guys. Thank you, Cam, and thank you, TK, for sup­port­ing us, for sup­port­ing us and rais­ing the funds. We received the mon­ey sev­er­al days ago, and this helped us a lot. I man­aged to evac­u­ate my moth­er and my small­er broth­er from our home in Kharkiv. They’re cur­rent­ly in Poland. We man­aged to evac­u­ate with my part­ner to Khmel­nyt­skyi. This is the safe region in Ukraine. So, we’re alive, we’re fine. I’m hap­py to get back to work. So, a lit­tle bit of our per­son­al sto­ries. I live on the north­ern edge of Kharkiv, the clos­est point to the Russ­ian bor­der is only about 45 kilo­me­tres from my home to Bel­grade, a Russ­ian city. So, the first explo­sions were real­ly close to me — like one or two kilo­me­tres away — and imme­di­ate­ly peo­ple start­ed run­ning out of their hous­es, jump­ing into their cars dri­ving away. Mas­sive jams on the road. And there was a fight, there was a fight, and I had a clear view from my win­dow — I live on the tenth floor. Like lit­er­al­ly in about two or three kilo­me­tres away from me there was a huge fight, the first attack on Kharkiv, and we spent I think about a week in our house in the city under con­stant shellings. It was hell. It was hell, it was very hard psy­cho­log­i­cal­ly, it was very hard phys­i­cal­ly, we could­n’t even eat because of stress. But yeah, we’re all right and we’re safe. Some of our rel­a­tives are still in Kharkiv, some man­aged to leave like my mom and broth­er, but it’s hard to con­vince peo­ple to leave their homes and my sis­ter and my father are still in the city. They don’t want to leave, they want to run away. My grand­moth­er is also in the city. And it’s almost impos­si­ble, almost impos­si­ble to con­vince peo­ple to leave. Some just want to wait it out, some are, some are stay­ing to help, and some just don’t want to leave their homes. For the old­er peo­ple it’s the sec­ond war in their lives, with the first one being the World War II. And for the young ones, this is the sec­ond time Rus­sia destroys their home as there are lots of refugees from Don­bas region in Kharkiv and they just have no place to go. They don’t want to run. They don’t want to run away from the war for the sec­ond time. So, lots of peo­ple stay there, lots of peo­ple evac­u­at­ed. This is, in short, our per­son­al sto­ry. As for the sit­u­a­tion over­all, well, every­one here we’re wait­ing for this right now. The whole world sees that Putin is out of his mind. We have been liv­ing with this mad­man at our bor­ders our whole life. Some of us lit­er­al­ly their whole life. Putin is 22 years in pow­er. And, after 2014 we knew this was going to hap­pen one day or anoth­er, so our mil­i­tary was like com­plete­ly ready for this event — for the inva­sion. And right now, Rus­si­a’s failed to cap­ture any major city, they’ve suf­fered great loss­es. They’re low morale, low food, low ammu­ni­tion, all they’re doing right now is just caus­ing ter­ror, caus­ing destruc­tion. They can’t real­ly do any­thing else, because the moment they get clos­er to the cities they get com­plete­ly blown away and imme­di­ate­ly pushed back. So, we hope that this won’t go on for too long. The city of Khakiv suf­fered, like, huge destruc­tion. I think my house was struck by mis­siles about three times. The last time I saw pho­tos of my apart­ment, there were no win­dows in it. It just was blown away. And the last time I saw pho­tos of my house on the inter­net, there were just, I think, three or four holes in the build­ing. It’s still stand­ing well, and right now I don’t know if it’s in one piece. The area, that area is con­stant­ly shelled from the Russ­ian ter­ri­to­ry and our army can’t real­ly fight back there. They can’t fire back because this will be con­sid­ered as an attack on Rus­sian’s ter­ri­to­ry. So, yeah, noth­ing we can real­ly do there. We just wait. We vol­un­teer. We work on the infor­ma­tion­al front­line, on the finan­cial front line, we’re donat­ing to our army. We’re help­ing every­one, like lit­er­al­ly the whole coun­try is vol­un­teer­ing, the whole coun­try is doing some­thing to sur­vive through this right now. And we stay unit­ed, we stay strong. With sup­port from you guys, with sup­port from your gov­ern­ments, from your coun­tries, we will def­i­nite­ly win this, this hor­ri­ble, unjus­ti­fied war. And I want to once again thank you all for the sup­port, for the direct finan­cial sup­port for me, and thank you all for sup­port­ing Ukraine.

Cameron  07:39

Wel­come to the show, Tony. Episode 510, record­ed this day 15th of March 2022. It’s cur­rent­ly 2:14pm Bris­bane time, 3:14pm Syd­ney time, and you are back in Syd­ney time. How does it feel to be back in the sky Palace after sev­er­al months away, TK?

Tony  08:04

Yeah, it feels strange. It real­ly does. Being in a busy urban envi­ron­ment again who’s real­ly pay­ing no atten­tion to mask wear­ing, social dis­tanc­ing, COVID at all, even though there’s still 13, 14, 15,000 new cas­es a day. Yeah, so, I’ll get used to that. But yeah, dif­fer­ent. Very dif­fer­ent. And it’s been rain­ing for weeks down here. It’s fine today, but it rained yes­ter­day. It’s due the rain every day next week. So, golf looks hard.

Cameron  08:34

Is the flood­ing abat­ing down there? 

Tony  08:37

Yeah. I mean, the rains only light now, but it’s just per­sis­tent. 

Cameron  08:40

Well, I’m glad that you’re back because we have good inter­net again. And you got my Christ­mas present. Have you tast­ed my Christ­mas present yet?

Tony  08:49

I haven’t yet, sor­ry. 

Cameron  08:51

Come on, man! I’ve been wait­ing months for you to taste it.

Tony  08:56

It’s truf­fle hot sauce, if any­one’s won­der­ing.

Cameron  08:59

Yeah: Truff, T‑R-U-F‑F. If you like your truf­fle and if you like your hot sauce. I want to see what you think. But we, like, ever since we dis­cov­ered it a few months ago, we eat it like every day. Not a day goes past we don’t have it on some­thing, like it’s one of the high­lights of our day is putting Truff on some­thing.

Cameron  09:16

Well, I haven’t cooked since I’ve been back. That’s one of the high­lights of being back, we can get get deliv­er­ies again. 

Cameron  09:21

Yeah, yeah, enjoy it. 

Tony  09:23

I’ve cooked every day for three months, so it was good to have a break.

Cameron  09:26

Well, this episode of QAV is brought to you by the graph­ic design team inside the Depart­ment of Prime Min­is­ter and cab­i­net’s Wom­en’s Net­work. I want to thank them for the huge amount of joy they’ve giv­en me today. Some­body is laugh­ing their ass off some­where inside there. Con­grat­u­la­tions to who­ev­er pulled that one off, so to speak.

Tony  09:49

Yeah, look it up peo­ple. It’s pret­ty ordi­nary.

Cameron  09:52

It’s all over the news today, you can’t escape it. Before we get into oth­er news, let’s talk about YAL, Yan­coal. Now, this gets back to what we were talk­ing about with gross­ing up div­i­dends last week. For peo­ple that own YAL you’ll note that it’s had a mas­sive drop off today. I think it’s down about 17–18% since last week. But when you go in and look at it, it went ex-div today and ex-spe­cial cash dis­tri­b­u­tion. I still don’t real­ly under­stand how that’s dif­fer­ent from a div­i­dend, but I guess there’s some tech­ni­cal rea­son why it’s not actu­al­ly a div­i­dend.

Tony  10:30

Yeah, gen­er­al­ly it’s an ad hoc rea­son. So, I’m not famil­iar with Yan­coal, but there’ll be a return of cash for some­thing, like they’ve sold an asset for exam­ple. So, it’s not going to be ongo­ing. If they’re pay­ing it out of prof­its it can be a div­i­dend but the expec­ta­tion is, at least from the from the own­ers, the share­hold­ers, is that that would be an ongo­ing thing. And they can get a frank­ing cred­it for it, the return of cash in most cas­es won’t have a frank­ing cred­it.

Cameron  10:53

Well, both of these were zero franked for some rea­son.

Tony  10:56

Well, that means that they haven’t paid any tax, so they can’t pass on the frank­ing cred­it for what­ev­er rea­son. Either the com­pa­ny is loss mak­ing, or poten­tial­ly their rev­enue’s all from over­seas or the prof­it’s all from over­seas so they haven’t paid any Aus­tralian tax to get a cred­it.

Cameron  11:10

Prob­a­bly would­n’t have been on our buy list last week if they had­n’t been mak­ing mon­ey, right? It’s pos­si­ble but unlike­ly. Any­way, if you fac­tor in‑I the think the div­i­dends 50 cents a share, the spe­cial cash is 20.4 cents a share, you fac­tor in that 70 cents back into the share price and it actu­al­ly has­n’t dropped. I think it’s down about 3% from where it was last week. So, it looks bad on the graph, but again, if you own it and you’re look­ing at that, well, by the time you hear this you prob­a­bly will have already done some­thing if you’re going to do it. But, you know, some­thing I have to keep‑I saw it drop today, went “holy shit” then pan­icked, and then remem­bered to check the div­i­dend and was like, “okay, it’s cool.” 

Tony  11:51

Espe­cial­ly at this time of year after the results sea­son peo­ple should be aware if you see things drop, check the div­i­dends.

Cameron  11:59

If you see some­thing, say some­thing, but don’t sell some­thing until you check the div­i­dend. Cop­per price today, Tony, have you had a look at where it’s at? Yes­ter­day when we were doing the check­list we looked at it, you said it’s touch­ing the sell line but it’s not quite a sell yet. Just won­der­ing if you’ve had a look since then?

Tony  12:18

No, not at all. I’ve just ignored it and gone on with life. Have you looked at it? 

Cameron  12:24

No, but I’m pulling it up now.

Tony  12:26

Cop­per’s crossed. It’s now a sell. 

Cameron  12:29

Oh, real­ly? Okay. 

Tony  12:32

It’s crossed down­wards. Yeah. I saw a com­ment you made — I think you made it — some­one made it on Face­book on the group say­ing that if cop­per was the major­i­ty of the rev­enues we take it out. But, I’ve been tak­ing it out if the cop­per is a sub­stan­tial part of the rev­enues, and usu­al­ly around sort of 30%.

Cameron  12:48

Oh, that’s new. 

Tony  12:50

No, we did that for BHP. We took out BHP when the cop­per price dropped last time.

Cameron  12:56

Oh. Because it was a big enough com­po­nent?

Tony  12:59

Yeah. And orig­i­nal­ly, I think the key one for us that start­ed that dis­cus­sion was, I’m think­ing Aeris Resources, AIS. I could have that wrong, but there was a copper/gold pro­duc­er and we left it in when the cop­per price went down, or I think it was the cop­per. Or the cop­per was up and the gold was down, one or the oth­er. And peo­ple asked the ques­tion when is it a mate­r­i­al enough per­cent­age of prof­it and sales before we take it out and we kind of set­tled on a third. But that was just a bit of a wet fin­ger test, real­ly. 

Cameron  13:29

There’s the title for the episode today, The Wet Fin­ger Test. Okay, so we’ll have to go through the QAV port­fo­lio and our indi­vid­ual port­fo­lios. Every­one, go through your port­fo­lios and check for cop­per stocks.

Tony  13:44

Yeah, and if you’re doing that, check the cop­per price first because it has been bounc­ing and zigzag­ging across the sell line in the last month or so. So, if you’re check­ing this a few days in the future — in our future, not your future, but our future — it may be back into a buy posi­tion again.

Cameron  14:00

And if you’re check­ing it a few days into your own future, tell us how you did that.

Tony  14:04

Yeah, and put a big bet on because you’ll know the result.

Cameron  14:07

Yeah. So, some of the stocks that we nor­mal­ly have in our buy list that this will affect are Aeris Resources, AIS, C6C, Cop­per Moun­tain, Sand­fire Resources, SFR, BHP. Any else come to mind?

Tony  14:25

No, they’re the main ones I would have said. 

Cameron  14:28

Alrighty. Con­struc­tion giants on the brink, Tony. We talked about major con­struc­tion com­pa­ny fail­ure the oth­er day, now anoth­er one, I see, in the Couri­er Mail this morn­ing: Con­dev. “Queens­land con­struc­tion firm hangs in the bal­ance with a bil­lion dol­lars and 125 jobs on the line.” 

Tony  14:49

Wow. Do you know the rea­son? 

Cameron  14:52

I do not know the rea­son, no.

Tony  14:55

It’s a canary in the coal mine, though, when prop­er­ty devel­op­ers start and builders start going under.

Cameron  15:00

Yeah, we had a QAV club mem­ber in the last week or so, I can’t remem­ber who it was-an esti­ma­tor, I think, said “no, con­struc­tion’s doing great. No need to wor­ry about it. Every­one’s busy,” every­one’s, you know, got more work than they can bite off/chew, some­thing. But, yeah, appar­ent­ly not Con­dev, they’ve got a prob­lem. So, that’s two big ones. Yeah.

Tony  15:25

it is. And there was an inter­est­ing write up by Steven Main talk­ing about the fact that, par­tic­u­lar­ly with the large con­struc­tion com­pa­nies oper­at­ing on gov­ern­ment con­tracts, they’re asked to ten­der for fixed price con­tracts on very, very small mar­gins. And he was kind of say­ing that it was inevitable that one day a big one would go under. I mean, they do, I know they do often lay off the risk and take out insur­ance poli­cies, but it is large sums of mon­ey on thin mar­gins and if some­thing goes south they can lose a lot of mon­ey.

Cameron  15:55

I’m just pulling up this Couri­er Mail arti­cle. It says “up to a bil­lion dol­lars’ worth of con­struc­tion projects in Queens­land are hang­ing in the bal­ance as con­struc­tion giant Con­dev calls on devel­op­ers to throw it a finan­cial life­line. There are grow­ing fears that Con­dev which has hun­dreds of mil­lions of dol­lars’ worth of projects under­way across South­east Queens­land could be the lat­est major build­ing com­pa­ny to fail, adding to the grow­ing woes in the sec­tor. Con­dev pre­sent­ed devel­op­ers with a pro­pos­al on Mon­day after­noon that will report­ed­ly involve help­ing the com­pa­ny off­set a per­fect storm of labour short­ages, floods and sup­ply chain issues that has seen con­struc­tion costs surge 25% over the past eigh­teen months.”

Tony  16:37

And that’s a prob­lem if they’re on fixed price con­tracts with their devel­op­ers. So, that’s the issue, right. 

Cameron  16:42

Yeah. And you would think that all of those three things would affect all builders try­ing to work in South­east Queens­land. So, we’ll see what hap­pens.

Cameron  16:53

And the flow on effect will be if the devel­op­ers do try and res­ur­rect these projects, they all go up by 25% right. So, then they start to get a squeeze if they’ve pre-sold, say, apart­ments for exam­ple at one price and they’re either fac­ing the project not going ahead, or pay­ing a high­er price to a new builder or even the cur­rent builder to keep them going. They can’t recov­er that mon­ey in the mar­ket, so the prob­lem becomes theirs and devel­op­ers start going bank­rupt, too. So, it has a flow on effect.

Cameron  17:18

Yeah. Dif­fi­cult times.

Tony  17:22

And you know, your esti­mate might be true, might be right in that if this is only a short-term thing because of COVID and because of sup­ply chain issues, and it will write itself in the next six months, then it won’t be an ongo­ing prob­lem. But, that’s the big ques­tion in the mar­ket, right? Is infla­tion here or is it tran­si­to­ry? So, it’s going to be a bumpy ride either way for indus­tries which oper­ate on razor thin mar­gins and have expo­sure, but if enough of those go broke and as flow on effects with peo­ple los­ing deposits on apart­ments, with sub­bies going bank­rupt, with build­ing work­ers going bank­rupt, it may not be a tran­si­to­ry prob­lem. 

Cameron  18:01

*“It is dif­fer­ent. Every time it’s always dif­fer­ent, Tony, it’s nev­er the same.”* Thank you, Alan. Let’s talk about the QAV port­fo­lio, Tony. Accord­ing to Navexa with their funky way of cal­cu­lat­ing it, soon accord­ing to secret emails that we have been privy to thanks to Steven Mabb, they will be intro­duc­ing a CAGR cal­cu­la­tion. So, thank you to all the QAV mem­bers who bar­rage them with emails say­ing we want CAGR, we want CAGR. Poor Navarre.

Tony  18:36

And they have a cash account now too, which is anoth­er big addi­tion for them, which is great. 

Cameron  18:40

Yeah. Explain to peo­ple how to use that.

Tony  18:44

I don’t know. I don’t know if it works auto­mat­i­cal­ly or not. But, it’s where, like, if you get a div­i­dend or you sell some­thing and don’t buy some­thing, that would just dis­ap­pear into the thin air as far as Navexa was con­cerned. Except that they did still, I think, use it in terms of your per­for­mance cal­cu­la­tions. But yeah, they should. I don’t know if you have to, I don’t know how it works. You have to man­u­al­ly go in and add those to the cash account now or does it hap­pen auto­mat­i­cal­ly?

Cameron  19:07

Yeah, to be seen. When I set them up last week, it ret­ro­spec­tive­ly went back through my div­i­dends that we had earned since a cer­tain peri­od of time that I could tell it, and it added up the div­i­dends and added them to it. Whether or not it does it auto­mat­i­cal­ly mov­ing for­wards, I don’t know. But, you can get instruc­tions from the Navexa guys if you’re using it, but I think you just go into your port­fo­lio, click on “add invest­ments”, select “cash account”, and it just appears there in your list of invest­ments.

Cameron  19:38

Yeah, so what we don’t know is whether it hap­pens auto­mat­i­cal­ly or whether we need to do it man­u­al­ly.

Cameron  19:42

Yeah. Look­ing at the port­fo­lio any­way for this finan­cial year, it says QAV is up 10.63% at the moment ver­sus the SPDR 200 up 2.21%. So, we’re about five times doing bet­ter than the 200. Since incep­tion, I looked at it ear­li­er, I think we’re up about 23% since incep­tion, which is begin­ning of Sep­tem­ber 2019 ver­sus about 7% for the 200. So, we’re about three times…

Tony  20:16

10, I think.

Cameron  20:18

10 since incep­tion?

Tony  20:20

I looked it up today, I got 23% for the QAV port­fo­lio and 10% for the, what­ev­er it’s called, STW 200.

Cameron  20:28

Real­ly? Okay. I’ll take your word on it. No, I’m not, I’m gonna look at it.

Tony  20:33

I know you would.

Cameron  20:36

Not that I doubt you Tony, because you’re always right, I’m always wrong in these things. Oh, 7.75.

Tony  20:44

Oh, so you’re right. Good thing you checked my home­work.

Cameron  20:48

Yeah, see, one of us has­n’t been in hol­i­day mode for the last cou­ple of months. 23.49% for QAV ver­sus 7.75. So, yeah, that’s pret­ty good. 

Tony  21:01

Yeah. And the oth­er one I looked up too was the last thir­ty days, which was pret­ty much flat for QAV; ‑0.28% ver­sus ‑1.5% for the STW 200.

Cameron  21:13

What’s not been going well for us in the last thir­ty days?

Cameron  21:16

Well, I think it has been going well. We’re flat and the mar­kets down 1.5%. I mean, there’s been a whole lot of things going on, par­tic­u­lar­ly today, actu­al­ly, that’s gonna hurt us-or, if it has­n’t already. But yeah, if I can talk about it for a minute, prob­a­bly the biggest issue is COVID out­breaks in Chi­na, they’re start­ing to lock down some of their big cities now. So, ana­lysts were already scram­bling to mark down the Chi­nese growth and fore­casts for iron ore imports and oth­er resource imports from Aus­tralia, and you can see that reflect­ed in today’s share price move­ments, which is the 15th of March. A lot of stocks are down 4 or 5% at least because of that. And we have resource stocks in our port­fo­lio, so that’s hit­ting us. A cou­ple of oth­er things which I’ll just dis­cuss now, I sup­pose. I can bring it up now, I was plan­ning to do it a lit­tle bit lat­er but any­way.  Obvi­ous­ly, every­one’s see­ing in the bows­er now what’s hap­pen­ing with the oil price. Like, I paid 2.25 a litre for diesel when I was dri­ving back from Wag­ga last week, which is quite high. And I’m start­ing to hear rum­blings of, you know, action by union­ists to raise wages. So, I expect if noth­ing’s done about infla­tion, if noth­ing’s done about ris­ing petrol prices, inter­est rates going up, we’ll start to see some mil­i­tant action, indus­tri­al action as unions try and recoup in wages the sort of mon­ey that’s going out the back door when they have to pay for petrol and mort­gages and all the rest of it. So, it’s kin­da going to be inter­est­ing back­drop to the fed­er­al elec­tion when it hap­pens, because I expect that will be the time when things will be at their most agi­tat­ed, I guess. And again, I’ve seen this before. And I remem­ber when I was at Coles Myer that, you know, Coles Myer was the biggest employ­er, pri­vate employ­er of peo­ple in Aus­tralia with some­thing like 100,000, or near near­ly 100,000 peo­ple work­ing at var­i­ous stores. And chat­ting with the IR man­ag­er who used to go into the Indus­tri­al Rela­tions Com­mis­sion almost every day and argue with one union or the oth­er over wage increas­es, he said that it took him a while to realise it but the men­tal­i­ty of the unions and par­tic­u­lar­ly their mem­bers, espe­cial­ly the blue col­lar ones — and they’re all blue col­lar for Coles Myer — they think in terms of a slab of VB or a car­ton of cig­a­rettes, right? So, if you gave them, I don’t know what a slab of VB’s worth these days, 60 bucks a week? If you gave them a $40 offer that would nev­er win. If you gave them a $70 offer that was too much, but $60 a week straight­away their mem­bers knew, “okay, that’s a slab of VB. I accept that, that’s good.” And I think it’ll be the same in this next round of mil­i­tan­cy; petrol prices are up, mort­gage repay­ments are up. But even­tu­al­ly it will flow through to things which are at them a lot, too, like food and liquor. So, I expect that we’ll say indus­tri­al action because of that. Because, like, the house­wife — I mean, the men­tal­i­ty is prob­a­bly dif­fer­ent these days, but in you know, twen­ty years ago when I was work­ing in Coles Myer and talk­ing to these guys — the men­tal­i­ty was the house­wife can com­plain that the gro­ceries are going up, but as soon as beer goes up they go out on strike, right? I don’t think that’s gonna be far behind.

Cameron  24:17

Can they go out and strike these days? Can they be mil­i­tant? Isn’t every­one locked down with enter­prise bar­gain­ing agree­ments? I mean, I don’t have a lot of expe­ri­ence because believe it or not in the pod­cast indus­try unions-you know, I’m a mem­ber of a union, but I’m also my own employ­er so I’m always nego­ti­at­ing with myself. And you know, I remem­ber Father, Father McEl­han­ney told me if I nego­ti­ate with myself too much, I’ll go blind. But you know, I’m not exact­ly sure how mil­i­tant most unions can be these days. My mom, Jan, was the head of her-she was like the union del­e­gate when she worked at Big W for twen­ty-five years. The feel­ing that I got was that their hands were tied. There was­n’t a great deal they could do.

Tony  24:59

Yeah, there’s a lot of that going on, but I think you’ll find that the mil­i­tant unions, par­tic­u­lar­ly in the con­struc­tion indus­try will lead the charge and then oth­ers will fol­low. Depends how bad things get, but if things do get bad the mem­ber­ship aren’t going to care what the law is, they’re just going to pull up stumps until they get paid more, right? So, we’ve seen that before with the dock work­ers strikes in the past and things like that, going back to the good or bad old days of the BLF. They did­n’t care what the law was, they just went out on strike. So, that’s going to be how it starts and it’ll prob­a­bly spread. But it may not get to that stage, it may be tem­po­rary. But, it’s start­ing to bite either way, it’ll be an issue. The oth­er thing putting pres­sure on the share mar­ket at the moment, get­ting back to the share mar­ket, is I’ve read today that the funds that Mag­el­lan in Aus­tralia have oper­at­ed have had huge out­flows this last month. So, around about now all the fund man­agers’ report their per­for­mance and oth­er per­ti­nent infor­ma­tion, and there’s a lot of mon­ey com­ing out of the Mag­el­lan funds. I think the fig­ure was some­thing like 7 or $8 bil­lion came out in the last month. So, peo­ple with­drew it from their funds which meant that they had to sell — pret­ty sure that the Mag­el­lan funds will be open end­ed, I’m not 100% sure, but I think they would be — which means they’re sell­ing for redemp­tions, which means its down­ward pres­sure on the share mar­ket. The only mit­i­gat­ing fac­tor is that I think the biggest major­i­ty of the Mag­el­lan invest­ments are over­seas in inter­na­tion­al shares. So, not all of that $8 bil­lion is going to affect this, but, and not every­one who takes the mon­ey out of Mag­el­lan does­n’t put it back into some­where else in the Aus­tralian share mar­ket. But, that much mon­ey being sloshed around and caus­ing sells in the mar­ket could be hav­ing a down­ward impact on us over the last few weeks as well. And the oth­er inter­est­ing arti­cle that I read today was that, it was in the Fin, that there’s a record num­ber of IPOs being pulled. So, that’s always a bad sign for the share mar­ket, when invest­ment banks just say “no, we’re just sit­ting on our mon­ey for a while. We won’t tap the mar­ket for any fundrais­ings, we’ll just wait for things to clear up.” So, there’s no con­fi­dence in the mar­ket at the moment. And every­one’s wait­ing to see‑I think the Fed, I think it was last night, they may have raised rates or they’re doing it tonight, so peo­ple are watch­ing that pret­ty seri­ous­ly to see which way bond yields goes as well. So, there’s a lot going on in the mar­ket at the moment, which is the mar­ket like cer­tain­ty and it’s a very uncer­tain time. So, all those things I think are hav­ing an effect on us. 

Cameron  27:11

Not to men­tion the war. 

Tony  27:13

Not to men­tion the war. Well, it’s pret­ty rare that the war gets tak­en off the front page, but it was because of petrol prices today. So, New Zealand led the charge; they’ve dropped their excise tax on fuel and their road user charges, so peo­ple are going to save 50 cents a litre in New Zealand and that raised the ques­tion of whether they should do it here. And peo­ple may or may not know that about, well, it’s not now, prob­a­bly only about 20% of the fuel price now is tax, but when it was back to a dol­lar a litre it was almost half tax. So, some­thing like 44 cents a litre is tax. And the ques­tion is, at $2.25 a litre, if you take 40 cents off it’s not mak­ing a big dif­fer­ence. So, the ques­tion is whether they do that or whether they do some­thing else to mit­i­gate that extra cost on peo­ple, like some kind of tax rebate dur­ing the bud­get or what­ev­er. But yeah, it will become a polit­i­cal issue. It’s cer­tain­ly start­ing to bite when the politi­cian starts to float the ideas of remov­ing tax­es, or low­er­ing tax­es. So, watch this space, I guess? 

Cameron  28:17

*“Don’t lis­ten. Don’t men­tion the war. I men­tioned it once but I think I got away with it all right. Now let’s hear no more about it. So, that’s two egg may­on­naise, a prawn Goebbels, a Her­mann Goer­ing, and four Colditz sal­ads.”* [John Cleese, Fawl­ty Tow­ers]

Tony  28:38

One of the clas­sic scenes. “Right, who’s this then? Who’s this then?”

Cameron  28:42

A visu­al joke for peo­ple lis­ten­ing at home. Our stocks of the week, REG and the BPT. I sent an email out, our club email went out today. Reg­is are an aged care and ser­vices provider across Aus­tralia with a nine thou­sand strong work­force. Sort of a small-cap stock, qual­i­ty score of 57%, QAV score of 0.13 on a Mon­day. Board earns a large per­cent­age of the stock, which is inter­est­ing. The oth­er one, BPT, every­one knows of course. Beach Ener­gy, that was the large-cap stock of the week to have a look at if you’re, if you’re look­ing for some­thing this week and you want to check out a cou­ple, do your own analy­sis on them, do your own research. But BPT, obvi­ous­ly oil prices are going gang­busters at the moment. It’s got a qual­i­ty score, based on the share price of $1.60, qual­i­ty score of 92% and a QAV score of 0.27. So, that’s the stocks of the week.

Tony  29:43

And a few oth­er moves on the buy list this week which were inter­est­ing. So, GMA has become a star stock in Stock Doc­tor, so that’s improved its score. And GMA has been going real­ly well for peo­ple since they retained that Com­mon­wealth Bank con­tract and RE’s pri­vate equi­ty firm from the US bought a stake in them as well. Myer — you’ll love this — Myer had good results and the share price has risen again. So, it’s get­ting pret­ty close to a buy, but last I looked had­n’t quite made it yet. But, that’s some­thing peo­ple might want to watch out for. On the flip side, Sand­fire was a sell. Even though that cop­per was a buy at the time, Sand­fire has been going back­wards so that was a sell. And what I want­ed to talk about in the pulled pork this week was ASG, Auto Sports Group, which joins the buy list. So, I could do that now if you’d like?

Cameron  30:31

You did­n’t see Jim’s request that you do a pulled pork on KRM?

Tony  30:35

I did. And I was going to get to that in the ques­tions, but if Jim can hold fire for a week, I start­ed to do my pulled pork on KRM but noticed that they release new results today. So, I’m going to wait till next week, promise to do it then when we have new num­bers in Stock Doc­tor hope­ful­ly. 

Cameron  30:52

Alright. So, who are you doing instead? 

Tony  30:55

ASG. It’s just joined the buy list this week, Auto Sports Group, and as they used to say in the old days when I was grow­ing up lis­ten­ing to the radio; it’s num­ber eight with a bul­let. It’s joined the buy list towards the top, so it’s way up there. But it’s a small-cap stock, it’s an ADT of $29,000 per day, so it’s not going to suit every­one but it’s a rea­son­able size. It’s a car retail­er, both new cars and used cars, and because of all the sup­ply chain con­straints around new cars in par­tic­u­lar, used car prices have been up a lot since COVID. And that’s led to some good num­bers when their results came out in the last cou­ple of weeks. Whether that will con­tin­ue or not, I’m not sure. The oth­er thing which dri­ves this com­pa­ny is that they’re on an acqui­si­tion strat­e­gy. So, they are a car deal­er­ship fran­chise, and they’re going out and buy­ing up oth­er car deal­er­ship fran­chis­es. So, this is what in the indus­try, in the stock mar­ket world, is called a roll up. And nor­mal­ly I’m not keen on roll ups, par­tic­u­lar­ly in the long-term. In the short-term they usu­al­ly do real­ly well because they’re grow­ing, grow­ing by acqui­si­tion. But in the long term, what often hap­pens is the high growth that they’ve had by acquir­ing oth­er com­pa­nies gives them a high PE, which in turn feeds their abil­i­ty to acquire oth­er com­pa­nies because they can raise eas­i­ly with a high PE. And then when the music stops and there’s no one left to acquire, or there’s a com­peti­tor out there also in the mar­ket acquir­ing things, sud­den­ly their growth slows and they’re on a high PE which drops like a stone. So, I’ve seen that movie before. But in this case, I’m a lit­tle bit drawn to it because their PE is only sev­en times, so that kind of high growth has­n’t fed through to their PE yet; may in the future so be wary of it, but at the moment it’s not there. And also, too, often­times it takes a num­ber of years for these roll ups to reach matu­ri­ty and then the share price plum­mets, so I would view a com­pa­ny like ASG as a poten­tial­ly good short term invest­ment, but you may not want to hold it for the rest of your life. Any­way, they have deal­er­ships for reg­u­lar cars that we’d all know; Maz­da, Sub­arus, Kias. They are tend­ing to focus on some of the pre­mi­um and Euro­pean brands when they’re acquir­ing new busi­ness, so they now have BMW deal­er­ships, Land Rover, Jag, Mini, etc. The share price that I did this analy­sis on is $1.90 which was the share price on the week­end, which is also less than then the con­sen­sus tar­get. And I might just pause there and point out that I put up a new spread­sheet, QAV mas­ter spread­sheet, last week which allowed peo­ple to down­load the date of the con­sen­sus tar­get and then it was going to cal­cu­late how many days that had tran­spired since that date was set. But, you know, got some feed­back say­ing that was­n’t work­ing for every­one so I’ve pulled it down again and I’ve asked Brett to have a look at it. He’s prob­a­bly much bet­ter than me at work­ing out why the date func­tion in Excel works dif­fer­ent­ly for dif­fer­ent ver­sions of Excel. But hope­ful­ly, hope­ful­ly have that one fixed up and put back. But at the moment this analy­sis does­n’t test for how old the tar­get date is. Anoth­er good thing about this com­pa­ny is it’s cur­rent­ly yield­ing 7.3%, so that’s a very high yield. Cer­tain­ly, high­er than the retail mort­gage rate that we spoke about last week. So, it gets a point for that. It gets a point for-two points for finan­cial health being strong and steady in Stock Doc­tor. Price to oper­at­ing cash flow, our key met­ric, is only three times‑3.2 times. And inter­est­ing­ly enough, price to oper­at­ing cash flow is three times, PE is a lit­tle over sev­en, so this is one of those stocks which has both low Pr/OpCaf and low PE. So, I haven’t done the research yet but I sus­pect that might be a good thing, but it’s some­thing I’m going to look into in the future. The price is greater than IV 1 but less than IV 2, which I cal­cu­late to be $4.66, and there­fore it’s also twice the share price. It’s still less than IV 2 so it gets an extra bonus In our cal­cu­la­tions for that. Net equi­ty per share is $2.13, and I’m just going to call out a dif­fer­ence here with the net tan­gi­ble assets as report­ed in Stock Doc­tor, which is basi­cal­ly zero. And I sus­pect — I haven’t done a deep dive — but I sus­pect the dif­fer­ence will be the good­will that deal­er­ship groups are pay­ing for new deal­ers. If I’m right, just to give a quick sum­ma­ry of that, what’s hap­pen­ing. If a car deal­er­ship, say the Syd­ney BMW deal­er­ship, is worth a mil­lion bucks and Auto Sports Group comes along and makes them an offer of a mil­lion bucks, and they say “no, we’re stay­ing, we don’t want to sell,” and they have to buy it for $2 mil­lion, then the dif­fer­ence between fair val­ue and what they paid is often classed as good­will and goes onto the bal­ance sheet as an asset, but not a net tan­gi­ble asset. So, it’s a tricky, or, I should­n’t say it’s tricky, there are account­ing rules around this. And it’s one of those sorts of fun­ny areas of eco­nom­ics or busi­ness account­ing where­by I’ve had to pay $2 mil­lion, Auto Sports Group had to pay $2 mil­lion to acquire this busi­ness, you could argue that’s the cost of the busi­ness. The busi­ness is worth what­ev­er some­one is pre­pared to pay. And yet, if under the account­ing rules they add up what the assets are of the Syd­ney BMW deal­er­ship — you know, the planned equip­ment, any prop­er­ty they hold, the inven­to­ry, the fit out, the hoist and the ser­vice bay, etc. — and come up with a mil­lion bucks and the oth­er mil­lion dol­lars goes in as an intan­gi­ble asset of good­will. Now, we’re try­ing to look at what the com­pa­ny’s worth if we had to break it up and sell it. Typ­i­cal­ly, my expe­ri­ence would be that if they’d been astute buy­ers then they’ll get that good­will back when they sell it, but often­times what hap­pens is they’ll get that or more for some of the prized assets, and they’ll get less than that for some of the dogs they’ve man­aged to acquire over the years. And every port­fo­lio has good and bad assets. So, you know, if the Syd­ney BMW deal­er­ship is the only deal­er­ship that is out­side of all the oth­er BMW deal­er­ships in Aus­tralia that are owned by the same per­son, that per­son is prob­a­bly going to pay up for the Syd­ney deal­er­ship. So, they’ll get their Google back. If, on the oth­er hand, the Kia deal­er­ship in Syd­ney has a good­will com­po­nent to it but there are a lot of Kia deal­er­ships in Syd­ney so you can’t get that recov­ered, there’ll be a write down. So, the account­ing rules are cor­rect here in that there’s net tan­gi­ble assets and there’s good­will, but it’s the ques­tion of whether you’ll get that good­will back in a breakup sell sit­u­a­tion which is always the dif­fi­cul­ty, but it was always pos­si­ble as well in cer­tain cas­es. And think­ing back to when all this became an issue back in the 80s and 90s, and a clas­sic case was Kel­log­g’s, who argued that corn­flakes was­n’t ever record­ed on their books at true val­ue was just on the books as an asset for the cost of the fac­to­ry and the wheat notes in the barn, wait­ing to go through and the cost of the card­board fac­to­ry and all that kind of stuff. But real­ly, if I had to sell the corn­flakes part of the busi­ness, they’d get a lot more for it than those assets, and so the dif­fer­ence was good­will. And so account­ing stan­dards change to allow good­will to be an asset and for good rea­son in that case, but it always has this sort of, I guess, dilem­ma between whether you book it as what the equi­ty shows, which includes good­will, or what the net tan­gi­bles show, which does­n’t include good­will. I use net equi­ty, I still think that’s a rea­son­able approach but there haven’t been cas­es where the good­will gets pumped up, and when the chick­ens come home to roost there’s a big write down. So, I think the answer lies some­where in between, and it’s one of the rea­sons why I don’t just use price to book as a pric­ing met­ric. It’s just one of the many things we look at sur­vey your com­pa­ny with. So, even if we get it wrong, it’s going to be a one-point dif­fer­ence to our score, it’s not going to make a huge dif­fer­ence. But I just call it out because I know some­one will say “oh, yeah, but net change­able assets is zero, why are you giv­ing it a score?” That’s my rea­son­ing. I’m using net equi­ty per share. Get­ting back to the scor­ing, the growth fore­cast in this com­pa­ny is 18% and the PE is low, so growth over PE is 2.25 which is a good thing. Our bench­mark is 1.5, so we get a point for that. Anoth­er inter­est­ing side, it has­n’t quite crossed the thresh­old, but it’s very close to the yield being high­er than the PE which I’ve found it to be a real­ly good met­ric for deep val­ue in the past. So, it has­n’t quite crossed that yet, but it’s some­thing to pay atten­tion to if the price drops a bit fur­ther. Inter­est­ing­ly, look­ing at direc­tors’ hold­ings, Stock Doc­tor says that two direc­tors own the entire com­pa­ny which can’t be the case, because it’s list­ed on the stock mar­ket, right? So, I did a bit of research into it. It looks like the direc­tor zone around 50% from what I can tell, so it cer­tain­ly scores a one on that met­ric; the founders own a large share­hold­ing in this com­pa­ny. I think the Stock Doc­tor num­bers are wrong though, so just be care­ful of that one. It’s a record low PE of the last six halves, so it gets a point there. It’s a new three-point upturns, so it gets a point there, but the net equi­ty has­n’t been con­sis­tent­ly increas­ing so it does­n’t score there. And all up, it’s a score of 17 over a pos­si­ble num­ber of things we tal­ly which is 15, which looks strange because the qual­i­ty score is 115%, but that’s because a cou­ple of them are get­ting twos. And that’s why we get more than 100%. And a QAV score of 0.35, so it came on the buy list this week high up, worth a look, but do your own research.

Cameron  40:18

Thanks, Tony. Regard­ing the director’s hold­ings, I actu­al­ly spoke to Vic­tor at Stock Doc­tor about that very issue a few weeks ago for anoth­er com­pa­ny. And it seems like the way it works is, let’s say you’ve got two direc­tors that are broth­ers, Bar­ry and Stan. Let’s say Bar­ry and Stan are both direc­tors of a com­pa­ny, and let’s say they hold their shares in a sep­a­rate com­pa­ny. So, Bar­ry and Stan, let’s say the com­pa­ny’s XYZ, their hold­ings of the com­pa­ny are in anoth­er com­pa­ny — ABC Pro­pri­etary Lim­it­ed. ABC Pro­pri­etary Lim­it­ed holds 50 mil­lion shares, and they’re both direc­tors of ABC. Stock Doc­tor will show that Bar­ry’s got 50 mil­lion shares and Stan has 50 mil­lion shares.

Tony  41:03

Well, that makes sense, because that’s what’s hap­pened in this case. There’re two broth­ers, the Pagent broth­ers, and they both own-well Stock Doc­tor’s say­ing half the share­hold­ing in each case, but sounds like togeth­er they own half the share­hold­ing which is what I came to when I looked at oth­er parts of Stock Doc­tor and added up things, so yeah.

Cameron  41:20

So, that’s how they do it. 

Tony  41:22

They should adjust it though, because it comes through on the fil­ter as being 100% share­hold­ing. That’s just wrong.

Cameron  41:27

Yeah, makes no sense. A cou­ple of oth­er things I want to chat about before we get into Q&A. The beta ver­sion of the first QAV course is now avail­able for peo­ple to beta test for me, if you would­n’t mind. You can get to it if you haven’t already seen the link on our Face­book group, go to the web­site and just type in, I think its back­slash cours­es, and just run through it. So, basi­cal­ly, what I’ve tried to do is take the Bible and all of the Get­ting Start­ed stuff that we talked about and break it down into like three to five-minute exer­cis­es or bits of read­ing with some quizzes at the end. So, you know, we often get feed­back from peo­ple say­ing that it’s like drink­ing from a fire­hose when they become club mem­bers, all this stuff to read and watch and lis­ten to and do. And so, I tried, with the help of Alex and Tay­lor, come up with a basic plan for peo­ple when you get start­ed. Step one step through, like, forty steps, each one should take you three to five min­utes to do so you can sit down and spend an hour or you can spend ten min­utes. You’ll see where you’re up to, if you come back to it the next day or a week lat­er, you’ll see where you got up to and you can revise, you can keep going. But I’d love for peo­ple to beta test it for me, give me some feed­back or ways to improve it. Its most­ly text based at the moment, there’s a bit of video, there’s a bit of audio, I want to enhance it as we go. But, hope­ful­ly for peo­ple that are just get­ting start­ed or for peo­ple that have been around for a while and think its good time to do a refresh­er on the basics, step through it. It’ll prob­a­bly all up take you a cou­ple of hours to go through the whole thing. Maybe if you’re famil­iar with it’ll take you less time, half an hour, maybe. But yeah, let me know what you think. Anoth­er thing that came up yes­ter­day, one of our QAV club mem­ber who’s been around a while called me up and said, “you know what I real­ly need is men­tor­ing. I need QAV coach­ing ses­sions, where once a week we can get togeth­er for an hour over Zoom or what­ev­er and I can just ask ques­tions. Because,” you know, he said, “I’m just find­ing that I’m mak­ing too many mis­takes. I’m not sell­ing what I should sell, I’m buy­ing with­out check­ing things. You know,” I think he said “my per­son­al­i­ty is too much, leads me to jump­ing the gun,” as does mine, so I get it. So, I’m think­ing about doing that. Either one on one coach­ing ses­sions if peo­ple want or we could do groups, like a week­ly group thing where we get togeth­er on Zoom and we just set aside an hour where peo­ple can ask ques­tions — sim­i­lar to the Zoom calls that you’ve done. And you know, we can get you involved in them from time to time if you’re avail­able. If not, I think I can take peo­ple through the 101 basics. If they have advanced ques­tions we might need to col­lect them all and get you to come in with your big brain, Tony, but I think I can take care of most of it. Any­way. So, let me know if you’re inter­est­ed in some­thing like that, drop me a line and put your hand up and we might see what we can put togeth­er.

Tony  44:34

Yeah, I mean, I’ve been think­ing about doing a Zoom call, but we have a lot of lis­ten­ers now. So, it might be, I don’t know if that would work with Zoom. But yeah, why don’t you go with what you’re doing and we’ll see if that works in a rea­son­able size. We can always pass ques­tions on, I guess, and then do anoth­er Zoom call or answer them on the show.

Cameron  44:51

Yeah. All right. Well, that’s all for me. You got any­thing else before we get into the Q&A?

Tony  44:56

No, I’m good. Thank you. 

Cameron  44:58

Alright. Reg is first: “if we need to buy, we do our analy­sis and down­load and we buy from the top of the list the stocks that have the high­est QAV score hav­ing done any oth­er checks, of course, sen­ti­ment, ADT, etc. So, we might buy a stock that has been on the buy list for a few weeks. I won­dered what the results might be if instead of this approach, we bought stocks that were new on the buy list that week, start­ing with those with the high­est QAV score. Has any­one tried this approach, and is there any com­ment as to how this pans out?” I went back and I asked Reg to walk me through the log­ic behind his think­ing, and he said “the log­ic, unre­searched and gut feel is that,” which is the oppo­site to log­ic, real­ly, Reg, I think gut feel and log­ic are at oppo­site ends of the spec­trum bud­dy, but fair enough, “is that maybe when a good stop first hits the buy list, it might be the start of a good run for that stock. Per­haps par­tic­u­lar­ly a com­mod­i­ty stock when the prospects for that com­mod­i­ty look promis­ing; for exam­ple, gold at present with all the uncer­tain­ty around it. Or, a fun­da­men­tal­ly sound stock that has suf­fered from bad one-off news, drops in price, and then hits the buy list. An exam­ple would be WPL. New on the last buy list, but halfway down the order. I think I’d rather buy WPL than TGA at the top with a high­er QAV score.” There’s some log­ic there. What do you think about Reg’s gut feel log­ic there, Tony?

Tony  46:29

I like it, I’ll do some research on that. I don’t have any expe­ri­ence of just buy­ing things when they’re new ver­sus buy­ing high­er up on the list. But bear in mind that the buy list does move with price, so if some­thing is still on the buy list high up, it prob­a­bly means it’s share price has­n’t moved dra­mat­i­cal­ly up yet. So, there is still time to get in. So, that’s the first com­ment I’d make. Where­as, if it appears on the buy list and drops, we don’t buy it. So, to that extent, Reg is prob­a­bly right. But, if some­thing comes on to the buy list and then takes off, we may not be able to buy it because it drops off the buy list quick­ly or drops down to buy list quick­ly. But, let me do some work. And just as an aside on that, I spent a bit of quite a bit of time over the last week or so pulling togeth­er data. I guess we now have, or I now have near­ly three years of buy lists, week­ly but lists in the form that we’re using now. So, I’m just play­ing around with putting that togeth­er in some form of data­base so we can run some analy­sis, at least on the last three years, to test out some­thing like this. So, I’ve been doing that for some work that Dylan has giv­en me some of his answers for. I just want to run it through and see what it looks like as a paper test using that three years’ worth of data. So, yeah, if I can spend some time knock­ing the spread­sheets into shape, it’s prob­a­bly some­thing we can either make avail­able to peo­ple or even put on out to ten­der to Fiv­er or what­ev­er and get some peo­ple in to ramp up the analy­sis is what I’m try­ing to say, so we can get these ques­tions answered quick­er. Because even though Dylan’s good, it’s just tak­ing a long time to use ten years’ worth of data to go through and do analy­sis on this. But if we can use the spread­sheets, that might speed things up.

Cameron  48:11

Dylan, for new lis­ten­ers, is one of our large team of interns that we have spread out across the globe. Like an octo­pus’ net­work-legs-thing. No. Any­way. Yes. Intern.

Tony  48:27

A net­work of suck­ers. Yeah, so any­way, so it’s prob­a­bly a good thought there, Reg, and I’ll do some research into it.

Cameron  48:39

Thank you, Reg. Paul asks: “MML, Medusa Min­ing. On the back of sig­nif­i­cant­ly reduced earn­ings, MML announced the ter­mi­na­tion of man­ag­ing direc­tor Andrew Teo with no expla­na­tion and the appoint­ment of a new MD. Is any­one aware of any media com­men­tary as to the rea­sons for the ter­mi­na­tion, and is it per­haps a red flag?”

Tony  49:01

Yeah, well, I don’t think so. The share price has been up strong­ly since they did that. Look, I’ve just done a bit of a desk top research, so I don’t know in detail. It looks like the MD who left was doing it on an inter­im basis even though I think they did appoint him per­ma­nent­ly, he had been act­ing in the role for six months pri­or to that and he had been a direc­tor pri­or to that. So, that is often the case; an MD leaves and they don’t have some­one lined up to replace them inter­nal­ly, a direc­tor might step down into the role for a while. It does seem like the new MD though, look­ing at his CV, is quite qual­i­fied for the role of being CEO of this kind of explo­ration and min­ing com­pa­ny. So, I think the mar­ket sees it that way as well.

Cameron  49:44

Well, you would hope so. 

Tony  49:45

Yeah. Well, that’s right. 

Cameron  49:46

You would hope they’re not appoint­ing some­body who’s not qual­i­fied, Tony. Do they think they can just go out on the street and just go eenie-mee­nie-miney-mo? What do you think?

Tony  49:55

I should say, more qual­i­fied. I think the direc­tor who stepped in does­n’t have as much expe­ri­ence in rais­ing cap­i­tal in the min­ing indus­try, in explo­ration, in acqui­si­tion, etc., etc. as the cur­rent one they’ve just appoint­ed. So, the mar­kets mark­ing up because of that.

Cameron  50:10

I don’t know, the share price has come down a bit since yes­ter­day, but I guess this hap­pened last week. Yeah, okay. 

Tony  50:19

Yeah. If you go into Stock Doc­tor, for peo­ple who don’t know and have access to Stock Doc­tor, and you look at the announce­ments, you can see how much the share price moved on the announce­ment and it was up like 4.38% when they announced the new MD.

Cameron  50:32

That’s got­ta suck, does­n’t it, if you’re the out­go­ing guy?

Tony  50:38

You’re cost­ing the com­pa­ny 4%.

Cameron  50:42

You get fired and the share price goes up. That’s got­ta, that’s got­ta hurt. 

Tony  50:47

Well, I don’t know if he was fired. I mean, it was poten­tial­ly always a case he was going to be replaced. He may just be the place­hold­er is the way I look at it. 

Cameron  50:54

Okay, the way that Paul phrased it, it was the ter­mi­na­tion of him. I did look it up at the time, I think it said his con­tract was ter­mi­nat­ed. Is that not dif­fer­ent-not the same as being fired?

Tony  51:09

Oh, no. Like I said, we don’t know what the rea­son is. My take on it, and that’s just a quick take on it, is that he was an inter­im CEO while they found some­one bet­ter. They could­n’t find some­one bet­ter, so they gave him the gig, and then they found some­one bet­ter, so they’ve prob­a­bly done a deal. “Sor­ry, mate. Let’s agree to dis­agree and off you go.” He may have returned to being a direc­tor, I was­n’t able to estab­lish that, but he may have just gone back to being a board mem­ber again.

Cameron  51:34

He was just a seat warmer. Alright, hope that helps, Paul. Alex says, “thanks for ask­ing TK on this week’s episode, Cameron.” This is a ques­tion about Josephine’s and ‘price change one month’. He says, “I final­ly got around to doing a com­par­i­son, and it seems like there is no cor­re­la­tion between the ‘is it a Josephine’ based on the Bret­ta­la­tor and ‘price change one month’ based on Stock Doc­tor. Did any­one else look into this and get the same or dif­fer­ent results?” Did you have a chance to do any analy­sis on that, Tony, your­self? No? 

Tony  52:11

No. 

Cameron  52:12

Well, thanks for fol­low­ing that up, Alex, and doing that work your­self. That’s what we want. Want to see peo­ple doing their own work and just telling us what they found. It’s good. Good job, Alex. So, no cor­re­la­tion between the way we cal­cu­lat­ed Josephine and ‘price change one month’ per­cent­age in Stock Doc­tor. Good to know. I’ll make a note of that, because no doubt some­one else will ask that ques­tion with­in the next few months. Kazi asks, “WGX announced cap­i­tal rais­ing. I under­stand this will dilute its val­ue. Should this be con­sid­ered a good, bad or neu­tral event if entered recent­ly?” 

Tony  52:51

Yeah. So, a cou­ple of things to note, and I don’t know whether WGX, well, what’s dri­ving the share price. So, there’s cer­tain­ly been dilu­tion, the cap­i­tal rais­ing was rough­ly 11% which is reflect­ed in the share price. As we’ve spo­ken about in the past, often­times the mar­ket straight­away will dis­count by the dilu­tion to the share, so it reach­es a new share price. But, how­ev­er, I noticed it was also removed as a Star Stock on the 4th of March, and there was a whole list of rea­sons for that around work­er short­ages. This com­pa­ny’s a WA min­er, West Aus­tralian min­er, and they’ve been hav­ing trou­ble get­ting staff because of the bor­der clo­sures. So, that prob­lem may abate now that the WA bor­der’s open. But there are some short term prob­lems which are also impact­ing the share price. By the by, I had a look at the cap­i­tal rais­ing, it’s one of the ones that Steven Main would frown upon because there’s been no retail com­po­nent. So, poor old Kazi has­n’t been able to take up shares, so he’s been dilut­ed as well, unfor­tu­nate­ly. The cap­i­tal rais­ing looks inter­est­ing, looks attrac­tive in terms of the peo­ple who took it up, but there’s a lit­tle-known rule that the ASX allows com­pa­nies to issue up to a cer­tain amount of their cap­i­tal every year with­out writ­ing a prospec­tive. And, I can’t recall whether it’s up to the com­pa­ny to set that in their Con­sti­tu­tion or whether it’s a flat rule that the ASX says. But any­way, in this case, WGX is allowed to raise 15% via place­ments to insti­tu­tion­al investors and pro­fes­sion­al investors. And that hap­pened pret­ty much over the week­end from what I can tell. It all got done, all got away. 100 mil­lion dol­lars raised, thank you very much. And then they tell the share mar­ket. So, it’s not very trans­par­ent, there’s no way for a retail share­hold­er to par­tic­i­pate unless they come out this week and say “we’re doing a fol­low up.” Usu­al­ly that hap­pens at the start, but I haven’t seen any­thing about it yet. So, Kazi might want to write to Steven Main and make him aware of this one and just say this is a bit of a bum deal for retail investors. So, unfor­tu­nate­ly, you can’t do much about it, Kazi. The price is down based on the extra shares that have been issued. That may turn out to be a short-term thing though, because the mon­ey that’s raised is going into devel­op­ing the cur­rent suite of mines that WGX has in WA. And who knows whether this is hype or not, but the plan is to grow their cur­rent pro­duc­tion of about 270,000 ounces a year up to 400,000 ounces a year. So, that’s a sig­nif­i­cant increase. If it comes off, you should see that reflect­ed in the share price and it will go up. So, unfor­tu­nate­ly, retail share­hold­ers are along for the ride on this one, and you don’t get to say whether you want to buy shares or not in a cap­i­tal rais­ing which is not good. But, it may still turn out well for you in the end.

Cameron  55:42

So Kaz­i’s ques­tion is it good, bad, or neu­tral. Sort of neu­tral, is that what you’re say­ing?

Tony  55:49

Short-term bad, I think long-term pos­si­bly good.

Cameron  55:51

You know what sur­pris­es me, Tony, is I know that WGX’s West­gold Resources. I remem­ber when we start­ed doing this, and you, I remem­ber being amazed that you knew all the com­pa­nies. I’d say a share code and you’d know what the com­pa­ny was. I was like, “how the hell do you do that?” And you were like, “yeah, I’ve just been doing this a long time.” I’ve been doing it for three years now, and I just go “yeah, I know this com­pa­ny. We’ve talked about these guys before.”

Tony  56:15

Yeah, they’ve been on the buy list, we did a deep dive on them, a pulled pork last year. I had looked today, they’re not a buy any­more, they’re just below. They’re about a QAV of 0.09, and I sus­pect when the dilu­tion takes place, they may drop even fur­ther. I sold my shares, I’m not sure, maybe two or three months ago, so they were a sell for us at some stage.

Cameron  56:39

Alright, anoth­er one from Kazi: “after a sell, does Tony imme­di­ate­ly spread the mon­ey to oth­er stocks in his port­fo­lio giv­en if he has noth­ing on the buy list that’s suit­able or new? Does he wait for a day or week or month? What’s worked well, in his expe­ri­ence?”

Tony  56:55

Yeah, well I don’t like sit­ting on cash, so my first reac­tion is to look for the next thing to buy on the buy list. And I’ve spo­ken about this before, my exe­cu­tion orders to my stock­bro­ker are almost always, prob­a­bly 99%, are sell this and buy that with the pro­ceeds. So, they just back to back the order. Yeah, that’s 99% of the case. You know, dur­ing the COVID cough when we were sell­ing out of things and not buy­ing back into things I did look at top­ping up, so I’d go around the port­fo­lio — because the port­fo­lio gets out of bal­ance, right? And if, you know, if I start off with an equal weight­ing in all shares when I buy them but some go up, some go down, I might top up those that have gone down if they’re still on the buy list and if they’re not a Josephine. So, it would only be if I can’t do that that I would sit on cash, which I did for a short time dur­ing the COVID cough.

Cameron  57:45

But they have to be on the buy list for you to do that. Yeah.

Tony  57:49

Yeah, so if I can’t find some­thing new to buy but I already own a Comm­bank or West­gold Resources, and it’s still on the buy list, it’s a buy, and it’s been going side­ways when every­thing else has been going up, I might top it up with that cash. So, buy more of it.

Cameron  58:05

Which I think some peo­ple would find coun­ter­in­tu­itive, to buy more of some­thing that’s been going side­ways.

Tony  58:10

Yeah, but if it’s still on the buy list and it’s a good score, I will hap­pi­ly buy some more.

Cameron  58:14

You’re just assum­ing it will still regress to the mean, but it’s just tak­ing some time. 

Tony  58:20

Yeah, cor­rect. 

Cameron  58:22

Alright Kazi, hope that helps. Mar­cus asks, “my per­son­al learn­ing for future buys is to ensure that there’s at least a 10% gap between my buy price and the sell price so I have some room to ride out short-term volatil­i­ty. I’m inter­est­ed in Tony’s opin­ion with this approach.”

Tony  58:41

It’s a real­ly good ques­tion, Mar­cus. I had­n’t thought about it before. But yeah, so if you’re going to buy a stock at $1, and the sell price is 99 cents, it won’t even get to be a rule 1If it drops to 98 cents, we’ll be sell­ing it straight away. So, I can see the log­ic in what you’re doing, give your­self some breath­ing room. I haven’t done it, but it might be worth doing some research on. I’ll cer­tain­ly have a think about it.

Cameron  59:03

Good stuff. Alright, good one, Mar­cus. Jere­my says “CAA has had a very bad week. Not sure if it’s just low liq­uid­i­ty or relat­ed to alu­mini­um prices and the Russ­ian inva­sion or spec­u­la­tion on its impacts for CAA. Will have to look into this. I do know there was a QAV pod­cast a few months ago where Tony thought a ris­ing alu­mini­um price was a good thing, but I think there was some debate over that.” This was about whether or not it was sell­ing alu­mini­um prod­ucts or alu­mini­um, right?

Tony  59:34

Whether they could pass on the price increas­es, yeah. You can take this with a grain of salt just based on what I’ve looked at and researched. Yeah, to get a good feel for this kind of ques­tion, you prob­a­bly have to go along to a pre­sen­ta­tion and ask a ques­tion of man­age­ment. But, just my look at it, I think the real dri­ver down­wards of the share price was they came out with a fore­cast in their-and you can see this in their full year results pre­sen­ta­tion where they said that they fore­cast pret­ty much a flat to slight­ly down fore­cast for earn­ings over the next twelve months. So, tak­ing into account all the things which are putting pres­sure on them like a ris­ing alu­mini­um price, and I know in past results when I’ve looked at them, they’ve said they’ve had effec­tive hedg­ing in place for that. So, whether that’s — they did­n’t men­tion hedg­ing in the lat­est results – so whether that’s now an issue for them or not, I’m not sure. But it comes down to, in this case, whether they can pass on alu­mini­um price ris­es, and I sus­pect they’ve been doing it well so far so they prob­a­bly can still keep doing it. But the oth­er issues which are affect­ing them are, of course, one of the biggest areas of oper­a­tion is the build­ing indus­try, and we just spoke about two builders that are going broke at the moment. So, if they’re stick­ing alu­mini­um on the sides of build­ings and that’s an area which is hit­ting a reces­sion, that might affect them. So, I noticed the con­sen­sus fore­cast in Stock Doc­tor is for a 13% reduc­tion this year on earn­ings per share. So, I sus­pect that’s what’s tak­ing the icing off the cake with the share price, and that’s why it’s dropped. Hav­ing said that, it’s not unusu­al for a com­pa­ny to under-promise and over-deliv­er, so, you know, six to 12 months out from when they have to report against these fig­ures they’d rather report against a low tar­get than a high tar­get. So, they may well upgrade dur­ing the year.

Cameron  1:01:17

Share price is down a lot; 20% In the last cou­ple of weeks.

Tony  1:01:21

Yeah. And if you’re fore­cast­ing, it’s not going to help *…* that’s going to hap­pen.

Cameron  1:01:26

I hope that helps, Jere­my. Here’s the last ques­tion, this one’s from Don­na. She says, “hi Cam and Tony. in review­ing this week’s buy list, it raised a ques­tion for me around how to eval­u­ate stocks that are rel­a­tive­ly recent entrants on the ASX, say with­in the last six to twelve months. Specif­i­cal­ly, ACL, Aus­tralian Clin­i­cal Labs, join­ing the ASX mid 2021 accord­ing to Stock Doc­tor, and on this week’s buy list for con­sid­er­a­tion. It does­n’t have a buy line on the Bret­te­la­tor and it does­n’t seem pos­si­ble to draw a buy line. I’m inter­est­ed in your thoughts on this stock in par­tic­u­lar, and also any gen­er­al guid­ance on apply­ing QAV method­ol­o­gy to stocks that are newish to the ASX.”

Tony  1:02:06

Yeah, so, good ques­tion. The Brettelator’s not call­ing it a buy, and the prob­lem is it can’t find an H2. There’s H1s in there, but then no H2. So, that’s the main rea­son. It did cross a sell line, so the Bret­te­la­tor is call­ing it a sell, and it has­n’t been able to draw a buy line since then. And that’s going to be the case, even though the sort of gen­er­al uptrend to this stock is going up, it has been zigzag­ging back and for­wards a bit. And until you can real­ly estab­lish a buy line, you prob­a­bly should­n’t buy it, I prob­a­bly would­n’t buy it. But I guess the implic­it-for the ques­tion implied in Don­na’s think­ing is can we can we trust the results? Or, can we trust six months’ worth of data with­out being able to go back and look at things like pri­or PEs and com­pare to the cur­rent one, etc. I have no prob­lem doing that. You can’t score it on every met­ric in the QAV check­list, but if I think back to Dusk last year, DSK, the can­dle store that was list­ed and was a buy for a while and it’s done okay. We did sell it out of the buy list at some stage. So, ACL will prob­a­bly come on as a buy and I’d rely on the fig­ures. But, I’m also think­ing back to the exam­ple of Coles when it was demerged from Wes­farm­ers going back, I think, about eigh­teen months ago, and I bought some and it did real­ly well. And it was only those first six months’ worth of fig­ures that enabled it to be on the QAV buy list because it came off the buy list after that. That’s the result of, I think, Wes­farm­ers try­ing to get the deal away so they sold it on a good price, which can hap­pen as well. Some­times things get float­ed on very high prices and they come back to Earth, and some­times, you know, they’re rea­son­ably priced, and the only time you can real­ly afford to buy into them on a QAV basis is when they first list. So, I have no prob­lems look­ing at new com­pa­nies, but you do have to get enough data on the share graph any­way to be able to draw an L1 and L2 and H1 and H2 to be able to get a buy sig­nal.

Cameron  1:03:58

So, I’m look­ing at the ACL chart. It has, so it looks like it list­ed at around about $3.57 and it’s been up as high as $6.20 end of last year. Looks like it list­ed in April, April-May, cur­rent­ly trad­ing at about $4.94. Gen­er­al­ly, the charts going up from bot­tom left to top right, but because we can’t draw an H1 and H2, you’d be like no.

Tony  1:04:33

Yeah, I think so. I mean, like, if Donna’s tempt­ed because it’s gen­er­al­ly going up, then sure, but the prob­lem is that you could be buy­ing it at six bucks or five bucks. So, that could be a mate­r­i­al impact on your prof­it for this one. So, I’m going to wait until I get a clear sig­nal to buy. But I have no trou­ble buy­ing things in the first six months as long as those sig­nals are there.

Cameron  1:04:53

What did we do for DSK last year? Because, I think it was on our buy list and we did buy it, but we had the same prob­lem.

Tony  1:04:59

Yeah. We did­n’t buy it, I think, until we had a cou­ple of months under our belt and we could see that there were peaks and troughs that we could draw some buy lines and sell lines through.

Cameron  1:05:08

Okay. Thank you, Tony. Thank you, Don­na. I think Don­na is com­ing to the Bris­bane din­ner tomor­row night with her part­ner, I think. We’ve got about a dozen peo­ple, I think, com­ing to the Bris­bane din­ner. No Tony this time, tried to twist his arm. He was like “pfft, Bris­bane.”

Tony  1:05:26

I just got back from three months away, so…

Cameron  1:05:30

But, I’m look­ing for­ward to it. It’s going to be fun. Always great to catch up with QAV folks. They’re smart, fun­ny peo­ple. It’s always a good night out. 

Cameron  1:22:07

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