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


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, 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 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 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.

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