Transcript QAV 110

File name: QAV 110 club

Dura­tion: 1:00:33

Cameron Reil­ly [00:02]: Wel­come back to the QAV pod­cast. My name is Cameron Reil­ly. If you’re lis­ten­ing to this for the first time. This is a show where I talk with my mate, Tony Kynas­ton about how to think like a mil­lion­aire Tony’s a very suc­cess­ful investor in Syd­ney. G’day Kyno.

Tony Kynas­ton [00:21]: Hey, how are you?

Cameron Reil­ly [00:22]: I’m good. I just thought at the begin­ning of the shows now we should do a bit of an intro so peo­ple know what’s going on if this is their first time lis­ten­ing. We’re going to talk about Tony’s invest­ment method­ol­o­gy. How he thinks about things. Tap into his brain. But one thing you should know, we say this in every show, you should not take any­thing you hear on this pod­cast as finan­cial advice. We’re not finan­cial advi­sors. Tony’s very very knowl­edge­able, very very good at what he does. He’s teach­ing me. I’m a com­plete idiot. He’s teach­ing me what he does, you get to lis­ten. But this isn’t finan­cial advice. If you want finan­cial advice go, see a finan­cial advi­sor. But this is more about finan­cial lit­er­a­cy, edu­ca­tion, learn­ing how to think. Like Tony thinks about invest­ing. Not about breed­ing race­hors­es because appar­ent­ly you still suck at that Tony.

Tony Kynas­ton [01:20]: I do. Yeah. But we have lots of fun. We went to Ade­laide on the week­end to watch our horse race in the Aus­tralasian Oaks, and a horse that’s called See What She Brings. And I think she ran 14th. She was ranked out­sider in terms of bid­ding, but we thought she might do well. But did­n’t hap­pen. So back to the draw­ing board for her. She’ll win some good races but not this time.

Cameron Reil­ly [01:42]: Well, let’s talk about pick­ing stocks, instead of pick­ing hors­es. A few weeks on the pod­cast. So what we do if you’re brand new is. We talk a lit­tle bit about finan­cial news in the mar­kets and then we get down and dirty and we take a com­pa­ny. Pret­ty much at ran­dom off the Aus­tralian Stock Exchange and we break down its finan­cials. Tony teach­es me what to look at. How to under­stand its finan­cials. And we put it through Tony’s check­lists, that he’s devel­oped over the years. And we decide whether or not we think it’s a good, sol­id bet as an invest­ment.

Not that you should fol­low what we do. But just to teach you how Tony thinks about it. A few weeks ago we looked at a com­pa­ny called Apol­lo Tourism and Leisure. They man­u­fac­ture, sell, and rent out recre­ation­al vehi­cles. RVs, camper vans, that kind of thing. Based here in Bris­bane, I think. And we just talked about how they were, that they were com­ing up. I think he’d said you’d own them then you sold them and then you bought back in. And we sort of set a bit of a watch­ing brief they were kind of bor­der­line, but I think they just got over the check­list. Turns out in the last cou­ple of weeks, they’ve had some new news and it has not been good for their share price.

Tony Kynas­ton [03:06]: No, that’s right. So, they did a prof­it down­grade last week. And to put it in con­text is what is known as con­ces­sion sea­son, at the moment. So I guess I was a bit brave in talk­ing about this stock. Going into con­ces­sion sea­son. Because it’s often when things can come out of the wood­work and sur­prise you. Par­tic­u­lar­ly on the down­side. So it has hap­pened before, to me that this kind of thing has hap­pened. We’re about three months out from the end of the finan­cial year. So it’s around the time when CEOs and boards are start­ing to get a feel for whether they’re going to achieve their declared tar­gets for the year. And because the ASX has rules on full dis­clo­sure. If they’re not going to meet their tar­gets mate­ri­al­ly, then they have to come out and make an announce­ment to that effect.

And that hap­pened with Apol­lo last Thurs­day, I think it was. Like today’s the sixth of May. So towards the end of April, the start of May. They came out and said they would­n’t  [inaudible04:08]. And specif­i­cal­ly, read­ing their announce­ment. What is drag­ging them down is the sale of new recre­ation­al vehi­cles. And they’re not the first sell­er of vehi­cles to come out and say that. Most of the were two list­ed car deal­er­ships on the ASX. They’ve both come out and said that they are down. This year com­pared to last year and pri­or years. And just also recent­ly, there’s a motor­cy­cle deal­er­ship which has come out and said the same thing.

So a lot of oth­er com­pa­nies in the game of sell­ing new vehi­cles are all hav­ing a down­turn at the moment. Some econ­o­mists and some mar­ket watch­ers say that could point to a reces­sion. It’s often­times the bell­wether or the canary in the coal mine for a down­turn in the econ­o­my. But you know we’ll see about that. In time, but there is a gen­er­al trend that’s come out in the last few weeks. That vehi­cle sell­ers are not doing good at the moment. And peo­ple are point­ing to, you know, down­turns in prop­er­ty prices. That peo­ple who own hous­es are not feel­ing as well to do, as they have in the past for prop­er­ty prices are ris­ing. And so they’re slow to replace their vehi­cles. And vehi­cles are, are rea­son­ably a dis­cre­tionary spend if things aren’t look­ing good for me finan­cial­ly. I might replace my car. Next year, rather than this year.

But if I’m feel­ing fair­ly bull­ish because my house is going up in val­ue, my shares are going up in val­ue or what­ev­er. Now I might bring that pur­chase for­ward and change my car over soon­er. So that’s the kind of con­text for that. I think, just in gen­er­al in terms of the QAV check­list, the check­list kind of good. We did it last time. And now we’ve had a down­grade the check­list, prob­a­bly won’t be as good. And what I nor­mal­ly do in these sit­u­a­tions is to sell the stock because the sen­ti­ment is going against it. And then to wait for the next or the finan­cial results to come out and I can do an assess­ment at that time.

Cameron Reil­ly [06:15]: Right. If I look at the three-point trend that, we often talk about when we’re doing the check­list. If I look at their graph and look at the three-point trend in their prices. Well, have tru­ly dropped below the three points of the low­est right.

Tony Kynas­ton [06:32]: Yeah, and I think when we did the check­list orig­i­nal­ly, we said it was, there was a bit of a hock­ey stick form­ing. That the sen­ti­ment over­all is going down. But it just picked up in the last lit­tle time. The last peri­od that we looked at. But that’s turned against us now with these down­grades. So it did­n’t keep going, unfor­tu­nate­ly. It’s unfor­tu­nate too that we’ve used this as one of our first analy­ses, to get a good score on the QAV check­list. One of the first. But to put that into con­text. If you have a port­fo­lio that should hold 10, 15 stocks at least. This one’s dropped 30 or 40% in the last week. That would work out as about, you know, a 3 or 4% impact on the over­all port­fo­lio. So it’s good to keep things in con­text with this exam­ple as well.

Cameron Reil­ly [07:18]: One of the things we talked about I think in our last episode. When we were already a lit­tle bit cau­tious about Apol­lo. I think in our last episode we’re say­ing that it was the share price has dropped a lit­tle bit. And so we will, you were going to be watch­ing it pret­ty close­ly. Is whether or not, you say okay well. This is just a blip, a glitch, and we’re going to hold for the long term. I remem­ber when we had Steve Sam­marti­no on. He was say­ing, he just does an aver­age, dol­lar cost aver­ag­ing over time. Whether the mar­kets up or the mar­kets down. That’s not what you would do in this sit­u­a­tion. I think you told us this last time. You would actu­al­ly sell if it’s in decline rather than just hold and say lis­ten it’ll come back and I’m in it for the long haul.

Tony Kynas­ton [08:02]: Yeah, that’s right. For a cou­ple of rea­sons. One because the long term can take a while for it to come back to the lev­el that we sold it at. And, gen­er­al­ly, you can use the, you can deploy the mon­ey in a bet­ter sit­u­a­tion while you’re wait­ing. So you still might come back into Apol­lo tourism leisure. But it will be when the sen­ti­ments turned up and we’ve got some more results to ana­lyze.

Cameron Reil­ly [08:25]: It just strikes me while I’m edit­ing this. That is prob­a­bly one of the rea­sons why Tony’s port­fo­lio out­per­formed Steve Sam­marti­no’s port­fo­lio. If you don’t know what I’m talk­ing about with Steve Sam­marti­no. He’s anoth­er mate of mine who is a very suc­cess­ful investor that we had on the show as a guest. Back around episode five or six or some­thing like that. His method­ol­o­gy is very dif­fer­ent from Tony’s. He just buys index funds and he’s been doing that for decades. With very good results. But Steve talks about his objec­tive is to achieve, about a 10% on aver­age per annum return, on his port­fo­lio.

Where­as Tony’s objec­tive if you’ve lis­tened to our first cou­ple of episodes is to achieve a 19 and a half per­cent aver­age annu­al return. So almost twice what Steve’s going for. Now Steve’s method is very hands-off. He just buys an index fund, and you can lis­ten to the inter­view and if you don’t know what that is. And he’ll explain it in more detail. It’s very hands-off he just buys it a month in month out. Don’t think about it. Buys it, holds it, pret­ty much for­ev­er. Good times, bad times. Feels like I should break into a song there. But he’s very hands-off with it. Because he did­n’t want to think about it too hard. Tony is more hands-on, and in doing so is able to achieve high­er results.

Tony Kynas­ton [09:51]: And in that inter­ven­ing peri­od. Hope­ful­ly, we’ll find some­thing else to put that mon­ey to work in. And be in a bet­ter posi­tion to rein­vest in ATL. If and when it gets an upturn. The oth­er thing that I’ve found too is that. Often­times the first down­grade is not the last down­grade. So, they’ve had a down­grade now, it’s, it’s before the results are out, I would­n’t be sur­prised at all. If they have some oth­er kind of down­grade in those results. But I don’t have a crys­tal ball I can’t fore­cast it. And we did men­tion too, and we’re doing the QAV check­list for ATL. That you got to be care­ful not to try and catch a falling off. And that’s the sit­u­a­tion we’re in at the moment. So I don’t know how far the share price will go down. So I’d rather wait for it to start com­ing back up. Before we decide to look at it again as an invest­ment.

Cameron Reil­ly [10:39]: Well, we did reach out to the direc­tors of Apol­lo after that last pod­cast. And invite them to come on and have a chat. They may not be feel­ing inclined to do so at the moment, but maybe they will. If they’re lis­ten­ing to this, we invite them to come on and chat about their busi­ness a lit­tle bit more. I think that’d be fun.

Tony Kynas­ton [10:57]: Yeah, I agree. It would be good. It’d be good for them to clar­i­fy how things are going, why issue the down­grade. How long do they think it’ll take before things turn around. And also, if they want to debate, my analy­sis or our analy­sis too. That’d be fine as well.

Cameron Reil­ly [11:15]: So, what else in terms of news, did you want to talk about this week, Tony. Before we get into our stock analy­sis.

Tony Kynas­ton [11:23]: Well the first thing is. We had spo­ken about Myer, I think in the last episode. So we need to keep our eye on that. Just to look at sen­ti­ment and to watch for any news com­ing out of Myer with this con­ces­sion sea­son. I think the shares are down slight­ly from when we looked at them last time. But not enough to be of con­cern at this stage. But yeah, let’s keep an eye on them. Two big things have hap­pened in the mar­ket in the last week as far as I’m con­cerned. The first one was Berk­shire Hath­away’s AGM as it’s often called Wood­stock for cap­i­tal­ists in Oma­ha, Nebras­ka.

Cameron Reil­ly [11:58]: Now, if this is your first episode, and you haven’t heard our ear­li­er episodes. And you’ve nev­er heard of Berk­shire Hath­away or War­ren Buf­fett, go check out episodes one and two of our QAV series. Where we talk about them in some detail, essen­tial­ly War­ren Buf­fett. One of the wealth­i­est peo­ple in the Unit­ed States. Very suc­cess­ful investor, he and his part­ner, Char­lie Munger have been build­ing their invest­ment com­pa­ny, Berk­shire Hath­away since I think the 50s or the 60s, I can’t remem­ber exact­ly. They are worth many, many, many, many 10s, hun­dreds of bil­lions. And Tony’s approach to invest­ment has been inspired to a large degree, by the sorts of prac­tices that War­ren Buf­fett teach­es.

Tony Kynas­ton [12:51]: I was very for­tu­nate enough to go along. I think about three years ago when it was the 50th anniver­sary AGM. And it is just a fan­tas­tic day, an amaz­ing day. It’s a real three-ring cir­cus, doors open, there’s a mad scram­ble to get into the sta­di­um. The sta­di­um holds about 30 to 40,000 peo­ple. Oma­ha Nebras­ka is not a big town. The sta­di­um there I think is for the col­lege bas­ket­ball side. Yes, I hold 30 to 40,000 peo­ple. It’s full with­in about 10 min­utes. And they have, if you don’t make it into the sta­di­um, they have an over­flow. They have over­flow rooms and all the hotels in town where you can watch a live feed. So luck­i­ly enough I made it in. You sort of mark your seat, and you know put a pro­gram or what­ev­er on the seat. But then you go back out­side into the Hall of in the hall.

Where War­ren Buf­fett and Bill Gates and oth­er peo­ple on the board are wan­der­ing around. They’re doing hold­ing con­tests like toss­ing news­pa­pers onto the front stoop of one of their kid’s homes. One of the com­pa­nies in Berk­shire Hath­away sta­ble owns. And so, you know, War­ren Buf­fett takes on all com­ers, because he used to be a paper where he was a kid. Rolls up news­pa­pers and throws them on the porch and you try and get clos­er to the front door than him. He takes on peo­ple, bridges and ping pong, and all sorts of things. So it’s a real­ly enter­tain­ing morn­ing. Then you go onto the whole. The first thing they do is show you this movie which they had made for them.

Because I think they own. They own ABC and I think they own one of the big stu­dios like Para­mount or some­thing like that. And so he gets all the top direc­tors and actors to pro­duce this film for him. And the one I saw, and it’s not broad­cast any­where else. It’s show­ing for 15 min­utes, 20 min­utes at the Berk­shire Hath­away AGM. And they burn the print basi­cal­ly. And this is, the one that I saw starred Jamie Lee Cur­tis. It was, it was try­ing to con­vince War­ren Buf­fett he should start invest­ing in tech stocks. And the run­ning gag was that she could­n’t con­vince him. But in the end, you see, Char­lie Munger lying in bed with a big smile on his face. And Jamie Lee is on the phone with War­ren. She’s got the sheet pulled up across her naked chest say­ing, War­ren I’ve con­vinced Char­lie. Now it’s over to you.

Cameron Reil­ly [15:09]: For peo­ple who lis­ten for the first time. We’ve talked about this before, but Char­lie Munger is how old?

Tony Kynas­ton [15:17]: 95

Cameron Reil­ly [15:19]: And Buf­fet­t’s. Not much younger than him, right? Late 80s.

Tony Kynas­ton [15:26]: It’s a very fun­ny show. And they had scenes with him. With War­ren Buf­fett going toe to toe with May­weath­er. Floyd May­weath­er the box­er. Yeah, because that was a big fight that was going on in Vegas at the time. So it a very very fun­ny show. And that goes straight into the AGM and, like the busi­ness part of the AGM takes five min­utes. When I say can we approve the min­utes from last year? And can we approve the remu­ner­a­tion for direc­tors and blah blah blah? That’s all over and done with.

And then there’s like five or six hours of ques­tion­ing. And if you want to ask a ques­tion, you line up behind one of the six or sev­en mics in the audi­to­ri­um. And you get a chance, and the ques­tions, you know, range from the, from the very sim­ple. Like how do I get a job with Berk­shire Hath­away too, you know, what’re your insights on Chi­na? And through to peo­ple who want to protest. You know, does Berk­shire Hath­away think it’s killing Amer­i­cans by own­ing Coca-Cola. Which is forc­ing sug­ar down the throats of con­sumers and things like that. So is very eclec­tic and Buf­fet and Munger are very good at answer­ing the ques­tions. And very thought­ful and insight­ful. It’s a great, great day to be there.

Cameron Reil­ly [16:41]: Did you ask a ques­tion?

Tony Kynas­ton [16:43]: I did­n’t no.

Cameron Reil­ly [16:44]: So I have two ques­tions for you. Num­ber one, what did you do to get there. What’s the cost of entry.

Tony Kynas­ton [16:52]: You got to buy a share in Berk­shire Hath­away. And so that’s expen­sive because their shares have nev­er been split so. [inaudible17:02] in Aus­tralian dol­lars,

there must be around $300,000 per share.

Cameron Reil­ly [17:06]: Just on the US mar­kets, Berk­shire Hath­away shares cur­rent­ly trad­ing on the New York Stock Exchange for $327,765 and 62 and a half cents, US. And on the last day, it went up by 1.1%. So three and a half $1,000 is the price fluc­tu­at­ed in a day. So if you bought it one day and sold it the next day, you pock­et­ed three and a half $1,000 in prof­it. That’s, not a bad day’s work. So 327,000 US dol­lars at the moment is still around [crosstalk 17:57]. $400,000 for a share. So my sec­ond ques­tion was, did you throw your panties on the stage. When you were there. Okay. Because I know, War­ren Buf­fet­t’s a lit­tle bit of a rock star for old white rich guys like you. He’s basi­cal­ly your John Lennon Right.

Tony Kynas­ton [18:19]: Yeah. Well, John Lennon is my John Lennon, but yeah, no he is, I know what you mean. And yeah, just a great day. And get­ting back to this year’s AGM. A cou­ple of things. I’ve had some prob­lems with a big share­hold­er in Kraft Heinz. I think we spoke about one of the episodes at Kraft Heinz val­u­a­tion that went down about 30% this year. Took a big write-down on its brand val­ues. And just explain­ing that com­pa­nies can take some good­will on their bal­ance sheet which equates to the ben­e­fits of own­ing their brands. Like Kraft & Heinz beans and Kraft ketchup and things like that. They’ve had to write those down because they haven’t been as prof­itable. In the last lit­tle while.

I think from mem­o­ry Berk­shire Hath­away owns about 30%, I think of Kraft Heinz. And so they’ve tak­en a hit. So the share price is actu­al­ly [inaudible19:17]. This year by about 7%. And that’s part­ly because of Kraft Heinz. But also part­ly because Berk­shire Hath­away is sit­ting on a huge pile of cash. Well, over 100 bil­lion dol­lars in cash. And Buf­fet­t’s always deny­ing the fact that he can’t find places to put it. But last week he did find the place to put some of it any­way. I think he put 10 bil­lion into a com­pa­ny called Occi­den­tal. Which is look­ing to take over anoth­er oil com­pa­ny.

Occi­den­tal is anoth­er oil com­pa­ny in the states. Look­ing to take over anoth­er oil com­pa­ny. And Buf­fet did a deal where he lent them some mon­ey, which has a high-inter­est rate I think 8%. And has the right to con­vert that into shares at today’s price. And so that’s pos­si­bly one of the rea­sons why the share price went up over the week­end. But it could also just be that peo­ple were enam­ored with the AGM as well.

Cameron Reil­ly [20:12]: I was read­ing some news about Buf­fett last week. And I found a cou­ple of quotes from him I don’t know how recent they are. But I thought they mapped well to what you’ve been talk­ing to us about on the show. Here’s the quote intel­li­gent invest­ing is not com­plex, though, that is far from say­ing that it is easy, what an investor need is the abil­i­ty to cor­rect­ly eval­u­ate select­ed busi­ness­es. Note that word select­ed. You don’t have to be an expert on every com­pa­ny or even many. You only have to be able to eval­u­ate com­pa­nies with­in your cir­cle of com­pe­tence.

This appar­ent­ly was a quote of his from 1996. His annu­al share­hold­er let­ter. The size of that cir­cle is not very impor­tant, know­ing its bound­aries, how­ev­er, is vital. Buf­fett said that maybe 5% of the com­pa­nies or 10% of the com­pa­nies. At most with­in an area inside of his cir­cle of com­pe­tence, they are some­thing I should be able to under­stand. Your goal as an investor should sim­ply be to pur­chase at a ratio­nal price. Upon inter­est in an eas­i­ly under­stand­able busi­ness whose earn­ings are vir­tu­al­ly cer­tain to be mate­ri­al­ly high­er, 5, 10, and 20, years from now, he said. That sounds very famil­iar.

Tony Kynas­ton [21:30]: It does but it does­n’t. I mean, ATL is a good exam­ple of, why we don’t fol­low that process. And it turned around and bit us. But cer­tain­ly, I have no cir­cle of com­pe­tence in recre­ation­al vehi­cles although sell­ing. My cir­cle of com­pe­tence, I think, is in using the check­lists. Is in using sta­tis­tics to find good com­pa­nies to inves­ti­gate and poten­tial­ly buy into. And that’s dif­fer­ent from Buf­fet­t’s. Buf­fett tends to stick to com­pa­nies that he sees as hav­ing a moat. So that’s some­thing which is a brand that is dif­fi­cult for com­peti­tors to lock­down. And I guess the best def­i­n­i­tion of a moat is that you can raise prices, even though the econ­o­my may not be ris­ing. So it’s the abil­i­ty to raise prices regard­less of whether the econ­o­my is going up or down.

And that’s because of the strength of the brand so his cir­cle of com­pe­tence is in buy­ing com­pa­nies like Kraft Heinz. They tried to take over I think Gillette dur­ing the year. But got rebuffed quite heav­i­ly by Gillette and they walked away. And if you look at the com­pa­nies that he does have big share­hold­ings in. They’re either insur­ance com­pa­nies or com­pa­nies that have a strong brand. In the retail space and some of them, some of the brands are known in Aus­tralia like see’s can­dy. But they’re pret­ty strong in the US. And I guess is the third leg to his cir­cle of com­pe­tence. He’s now, invest­ing heav­i­ly in infra­struc­ture. So a large part of Berk­shire Hath­away now owns rail­roads.

And also owns ener­gy com­pa­nies, which is, I guess, part­ly why he’s feel­ing com­fort­able lend­ing mon­ey to Occi­den­tal, which is an oil com­pa­ny. And he views his cir­cle of com­pe­tence in those ener­gy com­pa­nies in par­tic­u­lar in the ones that he already owns has been. He can add val­ue because of the Berk­shire Hath­away name because a lot of ener­gy com­pa­nies, par­tic­u­lar­ly pow­er com­pa­nies are reg­u­lat­ed by. They’re either state gov­ern­ments or fed­er­al gov­ern­ments, and they tend to view Berk­shire Hath­away as an own­er. As being a good oper­a­tor and some­one who cares about not tar­nish­ing their brand. And there­fore will do the right thing for their con­sumers. And so he sees that as being with­in his cir­cle of com­pe­tence as well.

Cameron Reil­ly [23:50]: Any­thing else you want to touch on before we get into the nit­ty-grit­ty.

Tony Kynas­ton [23:54]: Yeah, one last thing is to say that I think three of the major banks pos­si­bly four of them in the last any­way. Three in the last week have pro­duced results. I have had a look at them quick­ly. Dur­ing the QAV check­list across one of them. And it’s com­ing out very poor­ly at the moment in terms of scores. And that’s not unex­pect­ed because the banks are doing it tough. Both from the point of view of hav­ing to pay. Large hun­dreds of mil­lions of dol­lars back to cus­tomers for poor finan­cial advice in the past. And sec­ond­ly, because the prop­er­ty mar­ket is in decline in Aus­tralia at least and that’s rip­ping their incomes. And so their reports haven’t been very strong at all. This last sea­son.

And I just raised it because banks are a large part of the ASX in terms of mar­ket cap. I think there are at least two in the top 10 and prob­a­bly all four in the top 20. In terms of com­pa­nies by mar­ket cap. So they’re very impor­tant. I would think most peo­ple who have super­an­nu­a­tion or run their own super­an­nu­a­tion fund would have shares in banks by default. Because they’re a part of the index funds. Like some­one like Steve Sam­marti­no will be, will have a large part of his cap­i­tal tied up in banks, by virtue of the fact that he’s bought the index, and they’re not doing it very, very well at the moment. So, you know, I guess the oppor­tu­ni­ty is for us to con­tin­ue to watch them. And when they bot­tom out to buy-in. But also to steer clear of them and for the moment at least as far as I’m con­cerned. I mean they’re good com­pa­nies but they’re fac­ing lots of head­winds at the moment.

Cameron Reil­ly [25:33]: Yeah, okay good to know and I just want­ed to thank all of the peo­ple that sub­scribed to our show. In the last week. For those of you who aren’t brand new, you’ll know the last week we start­ed our pre­mi­um sub­scrip­tion ser­vice. So for peo­ple who real­ly want to get into the nit­ty-grit­ty of the finan­cials with us every week that’s the show for them and par­tic­u­lar­ly want to thank our very first sub­scriber who was Hamish from Christchurch. So thank you, Hamish for your sup­port. Thank you to every­one else who jumped in with their sup­port for the show, it’s going to be a fun ride, and I’m look­ing for­ward to it.

Tony Kynas­ton [26:13]: Thanks Hamish. Thanks. Thanks for being our first lis­ten­er and wel­come aboard.

Cameron Reil­ly [26:18]: Yes. Did­n’t you use to live in New Zealand? Where did you live when you’re over there?

Tony Kynas­ton [26:22]: In Welling­ton

Cameron Reil­ly [26:23]: Welling­ton is that far from Christchurch?

Tony Kynas­ton [26:25]: Oh, yeah, about an hour’s dri­ve.

Cameron Reil­ly [26:29]: Which one, which is the one that gets the earth­quakes?

Tony Kynas­ton [26:33]: Welling­ton ini­tial­ly, but Christchurch had the bad one, about three or four years ago, maybe six or sev­en years ago. Yeah. And of course, they had the mass shoot­ing. Just recent­ly, which was a ter­ri­ble thing.

Cameron Reil­ly [26:45]: A cou­ple of blows.

Tony Kynas­ton [26:48]: Yeah, but it’s a very pret­ty town, love­ly place. Christchurch, I real­ly liked it, real­ly enjoyed going there. It’s kind of, it’s what’s the biggest city on the south and the south is very very pret­ty. So if any­one ever wants to go to New Zealand, make sure you. Well, make sure you’re hir­ing Apol­lo Tourism & Leisure RV. And go for a dri­ve around the south, it’s real­ly good.

Cameron Reil­ly [27:09]: Yeah, Chris­sy and I keep talk­ing about going over there and just doing some hik­ing, but just don’t know.

Tony Kynas­ton [27:16]: I’ve nev­er done the [inaudible27:17] sound­track, but every­one kept rav­ing about it.

Cameron Reil­ly [27:19]: Alright well the com­pa­ny that we’re going to look at this week for our Pre­mi­um sub­scribers, so you picked this one. MSV is the share code on the stock exchange. Mitchell Ser­vices, I did do my research on them. The inter­est­ing com­pa­ny they’re min­ing. This is what the web­site says Mitchell Ser­vices is a lead­ing provider of drilling ser­vices to the glob­al explo­ration min­ing and ener­gy indus­tries. These ser­vices extend across three key drilling divi­sions explo­ration, mind ser­vices, and under­ground. Mitchel­l’s proud his­to­ry dates back to 1969, since its incep­tion. We have built a rep­u­ta­tion for deliv­er­ing safe, effi­cient, and proac­tive drilling ser­vices in over 12 coun­tries. Our state-of-the-art fleet is cur­rent­ly posi­tioned in key explo­ration and min­ing cen­ters around Aus­tralia. Includ­ing Queens­land, New South Wales, South Aus­tralia, and West­ern Aus­tralia. From these regions, we can mobi­lize to all cor­ners of Aus­tralia. As well as inter­na­tion­al­ly, and they’re based here in Queens­land. So, why did you choose MSV to look at this way, Tony?

Tony Kynas­ton [28:32]: Yeah, so we spoke about the way I find leads, in terms of new com­pa­nies that can inves­ti­gate. I haven’t inves­ti­gat­ed Mitchell Ser­vices until last week. It’s, but they have just cropped up on the Aus­tralian Finan­cial Review 52-week high list. Which gets print­ed in the paper every week. And they were mak­ing a new 52 week high. And that’s some­thing which I look for and then need to do some analy­sis on them. I think also too, we should men­tion that. Again, we’re not rec­om­mend­ing stocks on this pod­cast. And some of our lis­ten­ers, not all of them. But some of them will also have a desire to invest in eth­i­cal com­pa­nies, regard­less of what their def­i­n­i­tion is of eth­i­cal. So we should. At the out­set side of a com­pa­ny like Mitchell Ser­vices. Is inher­ent­ly involved in the min­ing indus­try. And I think from mem­o­ry, they also do drilling for cost­ing gas com­pa­nies as well as coal com­pa­nies. So MSV you might want to do some inves­ti­ga­tion fur­ther. If you are into eth­i­cal invest­ing.

Cameron Reil­ly [29:44]: Yeah, we should do an episode of how to approach that at some point.

Tony Kynas­ton [29:49]: Sure. Okay so giv­en that we found them. And we start­ed to inves­ti­gate them. Do you want to go through the check­list?

Cameron Reil­ly [29:54]:  Yeah, well I guess I’ll just say at this junc­ture that this is where the free pod­cast episode ends. We’re going to get into the real nit­ty-grit­ty stuff now going through the check­list. That’s for pre­mi­um sub­scribers. If you’re lis­ten­ing to the free feed and you won’t lis­ten to the pre­mi­um feed. Just go up to QAV podcast.com. Then you click on the Reg­is­ter but­ton and you can sign up for the pre­mi­um fee. We’ll also be send­ing out a week­ly newslet­ter with some of the stuff that we talked about on the pod­cast. And a cou­ple of times a year, when Tony’s in town, or down the east coast. We’ll prob­a­bly do lit­tle events for our Pre­mi­um sub­scribers. Maybe some drinks, maybe some din­ner, a chance to catch up and have a chat. So that’s the plan for the QAV club, as I’m call­ing it. I hope that’s okay with you. I did­n’t ask if you’re okay to have din­ner with sub­scribers, Tony. But I just dumped you in.

Tony Kynas­ton [30:46]: Of course.

Cameron Reil­ly [30:48]: I know you like a din­ner and a drink, so I fig­ure, you know. It would­n’t be too hard to twist your arm for that. Okay, so get­ting into this. Now, my free 14-day tri­al of stock doc­tor expired. I did expect them to reach out to me on the basis of this pod­cast and say hey lis­ten we’ll give you a VIP account, they did­n’t. But yet, but it’s good though because I had to go back and try and find these num­bers using some of the oth­er meth­ods. Using Reuters and Yahoo Finance that we had dis­cussed sev­er­al weeks ago. But it was tricky. It was a lit­tle bit hard. So I’m inter­est­ed to com­pare my num­bers to your num­bers and see how much they com­pare. Speak­ing of num­bers I just want to issue a cor­rec­tion for our last episode when we were doing the finan­cials on Mey­er hold­ings.

Our very first sub­scriber Haymitch emailed us yes­ter­day and point­ed out that around the 20-minute mark, where we were doing the price per share to cash per share ratio. We came up with a fig­ure of about 2.65. When it should have been around about five, I think 4.89. He said, how did you come up with that we looked at? We looked at our spread­sheets and we are nowhere there, and it’s prob­a­bly wrong. I think I actu­al­ly, in ret­ro­spect, pulled that out-of-stock doc­tor. And it may have been some old data and it did­n’t map to the data, rest of the data we were using in the check­list. Tony con­firmed it at the time. But I think he was look­ing at the wrong fig­ure as well. The wrong col­umn.

For­tu­nate­ly, when you get through to the part of the check­list where you cre­ate a score. Based on that par­tic­u­lar fig­ure, it would­n’t have made any dif­fer­ence to how Mey­er turned out in the end. Which by the way was pos­i­tive if you did­n’t flow it through. We end­ed up giv­ing it a pos­i­tive rat­ing. So any­way, just want­ed to issue that cor­rec­tion. I’ll if you go back and down­load that episode now. I’ll have fixed it. I’ve gone in and did a lit­tle bit of clever post-pro­duc­tion, edit­ing to fix that. So we don’t con­fuse peo­ple, just in case you’ve already lis­tened to it and you’re like hey, where did that num­ber come from? You can thank Haymitch. We are human, we will make mis­takes. But if you point them out to us, we will also cor­rect them at the soon­est oppor­tu­ni­ty. So any­way, back to MSV, Mitchell Ser­vices.

Tony Kynas­ton [33:28]: Sure. I mean it’s a small com­pa­ny. Its mar­ket cap is cur­rent­ly 160 mil­lion and giv­en its share price has prob­a­bly dou­bled in the last year, last two years. Some of the reports you’re look­ing at. Are for a com­pa­ny worth about 50 or 60 mil­lion dol­lars. You’re not going to find a whole heap of infor­ma­tion. Gen­er­al­ly avail­able for them.

Cameron Reil­ly [33:51]: Right. Well, I did go up to also they’ve got their annu­al report. And try to inter­pret it as best I could. So let’s com­pare some num­bers. So the first data item that I have on my list is net cash flow. I have neg­a­tive 1.274318 mil­lion.

Tony Kynas­ton [34:11]: Yeah, that’s the full year, June 18 annu­al result num­ber. The half-year num­ber for Decem­ber is 16.32551 mil­lion.

Cameron Reil­ly [34:24]: Right, so you’re using the most recent num­bers then.

Tony Kynas­ton [34:30]: Yeah. Half-year num­bers. And that’s the rea­son why I would think that the big rise in the share price, it’s gone from hav­ing neg­a­tive cash flow to 16 mil­lion cash flow in 6 months.

Cameron Reil­ly [34:41]: So, you annu­al­ize that then. Using the last half of the last annu­al report?

Tony Kynas­ton [34:47]: Oh yeah, that 16 mil­lion num­ber is an annu­al­ized num­ber.

Cameron Reil­ly [34:50]: Okay, so give me that full num­ber again.

Tony Kynas­ton [34:54]: 16.32551.

Cameron Reil­ly [34:58]: All right, well, I will put that in my spread­sheet, that’s going to make a huge dif­fer­ence to my num­bers. I assume, right. Yeah. No, I could have got that even with­out stock doc­tor, right. I could have prob­a­bly got that off their web­sites. They would have to put out a half-year­ly report, right?

Tony Kynas­ton [35:19]: They would yeah. I mean I haven’t gone through and checked it. But it should have the cash flow for the half. And then get back to the annu­al report and get the sec­ond half cash flow. Yeah.

Cameron Reil­ly [35:31]: Yeah. Well, I’ve got on a finan­cial report. I’ve only got annu­al reports here. Here we have, I did find it. It’s under pre­sen­ta­tions on their web­site. Investor pre­sen­ta­tions not under finan­cial reports. Okay, well, let’s move along, then the next data point I’ve got is the num­ber of shares on issue. Now, this might also change I’ve got rough­ly 1.7 bil­lion.

Tony Kynas­ton [36:00]: Yes, I do too 1738.

Cameron Reil­ly [36:04]: I’ve got 1735. It’s not going to make a huge amount of dif­fer­ence I imag­ine.

Tony Kynas­ton [36:11]: No it won’t.

Cameron Reil­ly [36:13]: Cash per share. Well, based on these new num­bers. I now come in at point 09 cents. Point 00 $9. And then the share price when I was doing this last night was point 067. That’s what I’m using, which means my next data point share price, divid­ed by cash per share comes in at $7.12.

Tony Kynas­ton [36:40]: Yeah, so I get 7.03 is that what you have?

Cameron Reil­ly [36:41]: 7.03 is close to 7.12. So the next line I’ve got here is look­ing at the sen­ti­ment the share price graph, three-point trend line, look­ing pos­i­tive. To me.

Tony Kynas­ton [36:54]: It is very much so.

Cameron Reil­ly [36:56]: Now, div­i­dend yield and again this was com­ing off the last annu­al report. I had zero, no div­i­dends ever. Have you got some­thing dif­fer­ent? No. Okay. No div­i­dends and I also had a price-to-earn­ings ratio of zero. Get­ting that off of Reuters and Yahoo Finance.

Tony Kynas­ton [37:14]: Just let me check that one.

Cameron Reil­ly [37:16]: Well I prob­a­bly put zero because they were mak­ing, they were los­ing mon­ey, they had zero net cash flow. I just assumed that.

Tony Kynas­ton [37:24]: Your right. But in the half and they had pos­i­tive cash flow. The PE report­ing with 6.06 it’s cur­rent­ly 11.49.

Cameron Reil­ly [37:34]: Right I had 11.06 com­ing up on Reuters and I was like. How the hell can that be right. They’re los­ing mon­ey, by not know­ing, not real­iz­ing that I had to look at the half-year num­ber. That did­n’t change so much. Okay, so I’m going to. That’s TTM trail­ing 12 months. Is that all right to use?

Tony Kynas­ton [37:54]: Yeah. that’s fine.

Cameron Reil­ly [37:56]: Okay, but it was zero before that. Okay. Okay, we’ll do the grad­ing of the soft­ware providers lat­er on. Net, equi­ty. now again my num­bers might be adding. Because I’m get­ting it from the annu­al report. I had net equi­ty of just over 21 mil­lion.

Tony Kynas­ton [38:18]: Yeah, it’s gone up, it’s 33.17343 at the half.

Cameron Reil­ly [38:24]: And minus one, that 21 mil­lion in minus 214 and a half mil­lion. So it’s grow­ing.

Tony Kynas­ton [38:31]: Yeah, but it’s been grow­ing up and down so if I put the half. So the stock doc­tor has the six-month­ly equi­ty. So going back to Decem­ber 15, it was 20.8, then it drops to 17.9. Then again rose to 18.3 then dropped to 14.6, then 22, then back to 21 and now it’s 33. So it’s up and down.

Cameron Reil­ly [38:54]: But you’re look­ing at where it is half by half or annu­al by annu­al?

Tony Kynas­ton [39:00]: Yes, half by half. But even if I look at annu­al by annu­al. June 2016, it was 17.9. June 2017 was 14.6. And then June 18 was 2103.

Cameron Reil­ly [39:17]: Yeah now 33. So, okay, I see, so the one before the 14.6 was high. I get what you’re say­ing, yeah.

Tony Kynas­ton [39:24]: Yeah so, it’s not con­sis­tent.

Cameron Reil­ly [39:27]: Okay. Net equi­ty per share, I now have as 0.012.

Tony Kynas­ton [39:37]: Okay, I’ve got 0.019 but that could just be a dif­fer­ence in our fig­ures slight­ly, but one-two is fine.

Cameron Reil­ly [39:43]: Yeah, one cent basi­cal­ly. Rough­ly one cent a lit­tle bit, one to two cents. So now I’ve got the price to book ratio. The share price is divid­ed by that net equi­ty per share num­ber. I’m get­ting about $5.53.

Tony Kynas­ton [40:00]: Yeah, I’ve got the equi­ty per share, the share price has been 225% over.

Cameron Reil­ly [40:06]: Okay, so let me stop the pro­ceed­ings there and just explain that we then spent about 10 min­utes work­ing out why my fig­ures were dif­fer­ent from Tony’s fig­ures. At this junc­ture, and basi­cal­ly, what it comes down to, I think, is this line in the check­list. I have been mis­un­der­stand­ing for the last month. I’m miss­ing a cal­cu­la­tion. I don’t know how we got this far with­out pick­ing that up, but we have. So, there’s an extra step in com­ing up with this price-to-book ratio. Where­as pre­vi­ous­ly I was doing the price divid­ed by the net. The net equi­ty per share that we cal­cu­lat­ed in the pre­vi­ous step. The new cal­cu­la­tion, so go up and get the new check­list, off of or just this line of the check­list at least. Off of the web­site to the pod­cast are com­ing to you.

The new cal­cu­la­tion here is the share price minus the net equi­ty per share. You sub­tract the net equi­ty per share from the share price, then divide that result. Again, by the net equi­ty per share. And that gives us a num­ber, which is a ratio of how many times the first fig­ure. The dif­fer­ence basi­cal­ly between the price and the net equi­ty per share, the ratio between that and the net equi­ty per share. Okay so learn­ing as we go peo­ple if that’s con­fus­ing for you join the club. But we’re try­ing to find a ratio fig­ure here let me try. I’ll try and explain it one more time.

If you’re smarter than me skip ahead 30 sec­onds. We’re try­ing to find a ratio here between the book val­ue I guess the net equi­ty per share and the price. And we’re doing that by find­ing out the dif­fer­ence first of all between the price of the net good and net equi­ty per share. And then divid­ing that by the net equi­ty per share. Any­way, I’ve done the cal­cu­la­tion I’ve done the Excel for you, it’s up in the new spread­sheet. And that’ll hope­ful­ly help us get more accu­rate results. When we get to the end of the check­list. Okay. Now, earn­ings per share. Now my annu­al report num­bers are going to be off here obvi­ous­ly as well. So Reuters, I already had not­ed here, Reuters said, 288 mil­lion, trad­ing 12 months. What are you show­ing there?

Tony Kynas­ton [42:36]: So you’ve got the earn­ings there. Rather than earn­ings per share. Earn­ings per share of point five-eight, which would be.

Cameron Reil­ly [42:46]: So the earn­ings is the cash flow or actu­al income?

Tony Kynas­ton [42:50]: Actu­al income. It’s the net income per share.

Cameron Reil­ly [42:56]: Okay, first half, 2019 rev­enue of 63.29 mil­lion.

Tony Kynas­ton [43:03]: Where did you get the num­ber from?

Cameron Reil­ly [43:05]: Their half-year­ly report.

Tony Kynas­ton [43:07]: What is that? Is that EBIT or impact?

Cameron Reil­ly [43:12]: Rev­enues it says, first-year rev­enue.

Tony Kynas­ton [43:16]: Yep, rev­enue okay.

Cameron Reil­ly [43:19]: Yep, is that we’re using your net income?

Tony Kynas­ton [43:20]: No rev­enues just sales.

Cameron Reil­ly [43:22]: Yeah, so you want net income here.

Tony Kynas­ton [43:25]: Yeah, I was try­ing to look through their report and see what they’re giv­ing us. It’s either going to be EBIT or NPAT.

Cameron Reil­ly [43:31]: They’ve got EBITDA, which is 14.2 for the first half.

Tony Kynas­ton [43:37]: I think that would be the num­ber they’re going to use prob­a­bly. Let me just check that against stock doc­tor. It’s dif­fer­ent from the stock doc­tor but okay I’m get­ting 10.5 as net prof­it after tax, that’s the num­ber that we need. So I don’t know, it’s in stock doc­tor as net prof­it after tax. I can’t see it in the half-year reports.

Cameron Reil­ly [43:57]: Yeah, this EBITDA. On the page, 12 cash flow sum­ma­ry it’s got income tax paid. But no oth­er tax­es maybe.

Tony Kynas­ton [44:07]: On the p&l.

Cameron Reil­ly [44:09]: Prof­it and loss is page 10.

Tony Kynas­ton [44:10]: Page 10 yeah. That’s what we want. And see the impact num­ber there. That’s the one that the earn­ings per share are based on. So net prof­it after tax is 11.728. And if we divide that by the num­ber of shares which was 1.7. bil­lion. Then that ties back to the stock doc­tor num­ber of point five eight earn­ings per share. So it rec­on­ciles, so make sense.

Cameron Reil­ly [44:44]: Yep, let me just do my earn­ings per share. That divid­ed by that. 0.1. What have you got?

Tony Kynas­ton [44:59]: That’s about half a cent. It’s I’ve got 0.58

Cameron Reil­ly [45:07]: So 0.68 I’ve got.

Tony Kynas­ton [45:09]: So it should be a 10.5 NPAT?

Cameron Reil­ly [45:13]: The NPAT is 11.7. [cross talk 45:18]

Tony Kynas­ton [45:18]: Okay, it’s dif­fer­ent to stock doc­tors. I’m not sure what that dif­fer­ence is.

Cameron Reil­ly [45:21]: It’s prob­a­bly not going to make a huge dif­fer­ence.

Tony Kynas­ton [45:24]: No, it won’t. And I’m not sure what the dif­fer­ence is.

Cameron Reil­ly [45:33]: Okay. So earn­ings per share, rough­ly point 005, 006 half a cent. Point 06, some­thing like that. So, return on equi­ty, then is earn­ings, divid­ed by equi­ty. I’ve got point, 557.

Tony Kynas­ton [45:53]: I’ve got 30.39%.

Cameron Reil­ly [45:59]: Per­cent?

Tony Kynas­ton [45:59]: Yeah.

Cameron Reil­ly [45:59]: Yeah. So anoth­er change to the work­sheet there folks. Down I think right about row num­ber 40. Chang­ing return on equi­ty. Return on equi­ty to a per­cent­age. Cal­cu­la­tion actu­al­ly has­n’t changed, and I was using fig­ures from dif­fer­ent earn­ings ear­li­er in the spread­sheet. But any­way change that to a per­cent­age so again when you’re updat­ing your work­sheet, make sure you prob­a­bly just grab the whole thing or at least pay atten­tion to the return on equi­ty row. Okay.

Tony Kynas­ton [46:36]: It’s the earn­ings per share divid­ed by the equi­ty.

Cameron Reil­ly [46:40]: Of the 35%. That’ll do. Future earn­ings per share, Reuters are say­ing 70 cents.

Tony Kynas­ton [46:48]: Real­ly, I don’t have one in the stock doc­tor. I haven’t includ­ed a pro­jec­tion.

Cameron Reil­ly [46:52]: Sor­ry. so anoth­er post-pro­duc­tion note here, we then got con­fused for quite a while about this fig­ure in Reuters. Whether it was 70 cents or point sev­en of a cent. Or sev­en cents. Reuters did­n’t real­ly give us. Did­n’t real­ly explain what frac­tion of the cur­ren­cy, we were look­ing at here. So, we sort of shook our heads and scratched our heads for a while. We end­ed up decid­ing that it was point sev­en of a cent. So $.007. Which sort of maps fair­ly close­ly to what the cur­rent earn­ings per share are. The cur­rent earn­ings per share are point 0068. And that meant that the fore­cast was a lit­tle bit above that Tony. And right­ful­ly fig­ured that going from point 00, going from point 0068 cents to 70 cents, was a huge fore­cast increase. So that’s how we fig­ured Reuters was prob­a­bly writ­ing it. Not obvi­ous if you look at Reuters though, it just says 0.70, which looks like 70 cents but with point sev­en of a cent, not point sev­en of $1.

Tony Kynas­ton [48:31]: I think if it was 70 cents it just looks real­is­tic to me. And they’re

Cameron Reil­ly [48:37]: They’re expect­ing to have mas­sive growth. And they’re not a min­ing com­pa­ny. They sell min­ing ser­vices. So then it’s not like oh they’ve just hit the jack­pot and dis­cov­ered a new gold­mine and they’re going to make $10 bil­lion next year.

Tony Kynas­ton [48:54]: That’s right. Yeah, that’s one of the good things about a com­pa­ny like this is that the old adage of sell­ing picks and shov­els in a gold rush is the way to make mon­ey. It’s what they’re doing, they’re not going to be wor­ried about who finds what where. They just going to sell them some drilling ser­vices. I think that’s point sev­en cents per share.

Cameron Reil­ly [49:14]: Okay, well, you’re the, you’re the expert point 00 $7.

Tony Kynas­ton [49:21]: Yes. That’s right.

Cameron Reil­ly [49:22]: Which means the intrin­sic val­ue num­ber two is 0.09 ver­sus the intrin­sic phase. Num­ber one is 0.03. So, is it a star stock on stock Dr. Tony?

Tony Kynas­ton [49:37]: No.

Cameron Reil­ly [49:37]: Is it an A one B two and share analy­sis?

Tony Kynas­ton [49:40]: No.

Cameron Reil­ly [49:41]: Is the share price beneath the stock doc­tor intrin­sic val­ue?

Tony Kynas­ton [49:46]: We don’t have one.

Cameron Reil­ly [49:49]: Okay, well,

Tony Kynas­ton [49:50]: I was giv­en a score of zero out of zero. A score of zero. But there’s no poten­tial for scor­ing above zero. Because we don’t have a score.

Cameron Reil­ly [50:00]: Is it below my intrin­sic val­ue. If I use a 19 and a half per­cent hur­dle rate. Well, my intrin­sic val­ue num­ber one came out at three cents. It’s cur­rent­ly trad­ing at six cents, six to sev­en cents. So, it gets a zero there. Is the share price below the fore­cast intrin­sic val­ue num­ber two? Yes, it is.

Tony Kynas­ton [50:31]: Yeah.

Cameron Reil­ly [50:31]: So we’ll give it a one or two for that. Just a one.

Tony Kynas­ton [50:34]: Just the one.

Cameron Reil­ly [50:37]: Okay. Is the share price, less than 30% above the net equi­ty per share, I have the equi­ty per share at one cent, and the share price at sev­en cents. So, no. It’s mas­sive it’s sev­en times, the 700% big­ger. Does the share price have a pos­i­tive trend, a pos­i­tive gets a two. And yes, it does.

Tony Kynas­ton  [51:06]: Yes.

Cameron Reil­ly [51:06]: Is it the low­est PE in three years? Well, I have to change this. because I said yes. Because I had zero PE. But now it’s no. It’s got the first PE it’s ever had.

Tony Kynas­ton [51:19]: Yeah, so again it’s a score of zero, but a poten­tial score of 0, so 00.

Cameron Reil­ly [51:24]: Real­ly?

Tony Kynas­ton [51:24]: Yeah, well you’re going to have five or six PEs before you get a trend.

Cameron Reil­ly [51:29]: Okay. The fact that they nev­er paid one before and they’re now pay­ing one before, does­n’t give them a point?

Tony Kynas­ton [51:35]: No

Cameron Reil­ly [51:35]: Okay. Growth of earn­ings per share, as a per­cent­age over PE as a num­ber. So my EPS is right as well, right based on my num­bers point 0067 future EPS is point 007, the growth is point 00024. So that as a per­cent­age is 4%.

Tony Kynas­ton [51:58]: Okay. And the dif­fer­ence is. As you say I had point 0058 as the cur­rent EPS from stock doc­tor. Okay.

Cameron Reil­ly [52:05]: Right, now I need to. Now I want to divide that by the PE. Gives me point 003, you’ve prob­a­bly got a dif­fer­ent num­ber, but either way, it’s not high­er than 1.5.

Tony Kynas­ton [52:23]: Yeah, my num­ber is, but I’m hap­py to use yours.

Cameron Reil­ly [52:25]: What?

Tony Kynas­ton [52:26]: Yeah, I get 1.8 because I.

Cameron Reil­ly [52:28]: Real­ly?

Tony Kynas­ton [52:28]: Well I had 21% as the growth.

Cameron Reil­ly [52:31]: Yeah, right.

Tony Kynas­ton  [52:33]: Yeah, and then putting it out, 11 as a PE. You’re get­ting up around 20. Yeah,

Cameron Reil­ly [52:37]: So the dif­fer­ence between, you’ve got an impact of 10 and a half mil. I’ve got an impact of 11.7. That amount of dif­fer­ence changes that num­ber, that high­ly.

Tony Kynas­ton [52:49]: Yeah, that’s right. It chances the growth num­ber high­ly, yeah.

Cameron Reil­ly [52:51]: So a mil­lion dol­lars. Wow.

Tony Kynas­ton [52:54]: But we’re talk­ing small num­bers, with this com­pa­ny.

Cameron Reil­ly [53:00]: Yeah. You know, if we don’t have a stock doc­tor and we’re using num­bers based on their half-year­ly report. We’re get­ting a dif­fer­ent result.

Tony Kynas­ton [53:06]: So I think you should go with your num­bers. Because they are the ones that are gen­er­al­ly avail­able. And I haven’t rec­on­ciled stock doc­tor back to that pre­sen­ta­tion peck­ing. When I had a look just before I could­n’t say, chances are, because behind these pre­sen­ta­tion pecks. They’ll be all the finan­cial p&ls, etc. So I’m guess­ing there’ll be some­thing that mil­lion dol­lars will be abnor­mal or some­thing like that. Which they haven’t called out in the pre­sen­ta­tion peck.

Cameron Reil­ly [53:33]: Well let’s drill down and see what we get here at the end of the day. See, if your result dif­fers from mine. So I want to do, the next one I have is, does the com­pa­ny have con­sis­tent­ly increas­ing equi­ty? I know that we said before though that, it did­n’t. Well, so we’ll give it a zero for that. Is the PE less than the yield? Let me find my PE here.

Tony Kynas­ton [54:06]: Well, there’s no yield, so zero.

Cameron Reil­ly [54:07]: Still no yield so zero. Does the div­i­dend yield high­er than the mort­gage rate? Well, zero is not going to be high­er, so zero. Is the finan­cial help from the sub­scrip­tion ser­vices sta­ble or increas­ing, Tony?

Tony Kynas­ton [54:18]: So it’s increas­ing, in the stock doc­tor. It’s going from what they call mar­gin­al to strong.

Cameron Reil­ly [54:23]: You going to give that a one or a two?

Tony Kynas­ton [54:25]: A two. If it was con­sis­tent. I’ll give it a one, but it’s going up. So I’m giv­ing it a two.

Cameron Reil­ly [54:30]: Is my fore­cast intrin­sic val­ue more than two times the cur­rent share price? No,

Tony Kynas­ton [54:38]: No. Cor­rect. We say the fore­cast was nine, and cur­rent­ly is in the six­es.

Cameron Reil­ly [54:44]: Yeah, six to sev­en. It’s not one of the top 10 ASX stocks. So we’re going to just nul­li­fy that 1. 0 out of 0.

Tony Kynas­ton [54:53]: Yep, that’s right.

Cameron Reil­ly [54:53]: Is the price per share, divid­ed by the cost per share, less to or equal. Less than or equal to six. I’ve got 7.12.

Tony Kynas­ton [55:04]: Yep, so do I. So it’s a 0.

Cameron Reil­ly [55:07]: It’s a zero. Now are the CEO and own­er founders? No, but the chair­man is the son of the founder, I gave it a one.

Tony Kynas­ton [55:16]: I give it a two.

Cameron Reil­ly [55:17]: A two?

Tony Kynas­ton [55:18]: Yeah, so it’s an own­er founder. Like the fam­i­ly, the chair­man’s fine. If some­one’s on the board and they have a large share­hold­ing and been around for a long time that’s a two.

Cameron Reil­ly [55:31]: Last one, intrin­sic val­ue going up in the future, share analy­sis.

Tony Kynas­ton [55:36]: We don’t have an IV share analy­sis. So it’s a 0 from 0.

Cameron Reil­ly [55:40]: So we’re nul­li­fy­ing that one. Okay, so I’ve got four that we nulled. Which means instead of 19. I’m cal­cu­lat­ing my score on 15. For some of the scores, I’ve got a sev­en. Yep. And I’m going to divide that by 15. I get 47% any­ways by score.

Tony Kynas­ton [56:09]: Okay. My hedge is slight­ly high­er. I had 71%. I’ve got a score for the quo­ta, the PE. Yeah, And I think you have more items on your check­list than I do.

Cameron Reil­ly [56:25]: Yeah, okay, but I think we worked out that it should­n’t get out that stuff. But I think you gave that one, a two. And I gave it a zero. So you have 47%, we want it to be high­er than 75%. So it’s not and then if I take the check­list score, divide it by, price to cash flow. I’m get­ting point 07, which is not greater than 0.1. So it’s not hit­ting my check­list. Did it come out okay in yours in the end?

Tony Kynas­ton [56:59]: Yeah, it comes out at point one on mine. But I did­n’t have if I back out that future EPS. Which I did­n’t have when I did my check­list orig­i­nal­ly last week. I also got point O sev­en. And the rea­son why I want­ed to do this one was because. If we have got­ten on to the share price, ear­li­er. We would have got­ten up to point one. So the things which have knocked us down. Are you know about com­par­ing the share price to the IVs for exam­ple. So the share price has got­ten away from us quick­ly. Giv­en that it has and its point O sev­en. It’s still worth being on our watch list, and if the share price retreats. I want to look at it again.

Cameron Reil­ly [57:37]: Right, okay. All right, so we should put that in as on the watch list. Yeah, wait­ing for the share price to fall.

Tony Kynas­ton [57:48]: Or alter­na­tive­ly, when we get the next oth­er num­bers, we can have a look at it again.

Cameron Reil­ly [57:53]: Our next results. Okay, I’ll add that to my lit­tle dum­my port­fo­lio. Sort of a watch­list sec­tion so we can just quick­ly have a look at where the prices are. Okay. Well, thanks, thanks mate, good one.

Tony Kynas­ton [58:06]: Yeah, no good, thank you. Thanks for that and let me know what you’re doing next week.

Cameron Reil­ly [58:10]: Yeah, just for our sub­scribers to know, next week, I’m sup­posed to, I might be on jury duty for the next cou­ple of weeks.

Tony Kynas­ton [58:19]: Can you imag­ine being on like a his­to­ry teacher who’s upon a mur­der­er rap. You’ll be the point of order, your hon­or.

Cameron Reil­ly [58:28]: Yeah, yeah, look, you just said that Alexan­der the Great died in 325 BCE. It was actu­al­ly 323 BCE. And we know that because in Ari­an… Any­way, so we will still do a show, it may be a day or two lat­er than nor­mal depend­ing on whether or not I get impan­eled. So it’s full dis­clo­sure, but we will be back next week. Trust us on that. And thanks for sub­scrib­ing and thanks for lis­ten­ing. Thanks for your input, Tony.

Tony Kynas­ton [58:59]: Thank you Cam and good luck with your jury duty.

Cameron Reil­ly [59:00]: Yeah, thanks. And just to wrap up, just to remind you, don’t take any­thing you hear on this pod­cast as finan­cial advice. If you need finan­cial advice if you’re think­ing about invest­ing, please go see a licensed finan­cial advi­sor. Nei­ther Tony nor I are finan­cial advi­sors. The show’s real­ly just about finan­cial lit­er­a­cy and edu­ca­tion, learn­ing how a mil­lion­aire suc­cess­ful investor. Like Tony thinks about the process of invest­ing what he looks for, this is edu­ca­tion, not advice. Even with the dum­my port­fo­lio, you know, we’re keep­ing track of that just so we can see how fol­low­ing the method­ol­o­gy works.

But you should be tak­ing that as a list of stocks to invest in. You know you should be doing your own research and your work or get­ting some advice. Please do that. If you want to lis­ten to any oth­er pod­casts, go check out pod­cast network.com. If you want to con­tact Tony and myself, you can find our con­tact details on the web­site QAVpodcast.com.au. Would love to hear from you. Love to hear what you think about the show. Love to get sug­ges­tions from you, on how we can make it more use­ful, more engag­ing. And be nice to each oth­er, we’ll talk to you next time.