Transcript QAV 112

Episode Name: QAV 112 CLUB

Audio Length: 57:35

 

Tony Kynaston [00:01]: Good hello, how are you Cam? Forgot We had this late night FM music over the phone .

Cameron Reilly  [00:16]: QAV, call now. Welcome to the QAV podcast. My name is Cameron Reilly with me getting his keys wrong is Tony Kynaston still down at Cape Schanck. Obviously too much golfing got in the way of his remembering how to do a podcast. How are you, Tony?

Tony Kynaston [00:34]: I’m good. Do you remember those double five ads that came on late at night on TV back in the eighties?

Cameron Reilly [00:39]: Yeah, that’s exactly what this is all about, man. This is a call Cameron and Tony for a good time. Well, me for a good time.

Tony Kynaston [00:52]: That soundtrack it’s so funny.

Cameron Reilly  [00:56]: I know right? So just to remind everyone, thanks for tuning in if this is your first time listening to the show, don’t take anything you hear on here as financial advice, we’re not financial advisors, go get a financial advisor before you do any investment. We’re just trying to teach a bit of financial literacy. Tony is a professional investor with decades of experience, self-made millionaire, very good at what he does, he’s developed a methodology over decades that works. And the purpose of this podcast is, Tony is teaching me a complete idiot, how he does what he does and you get to listen in. So it’s about financial literacy, it’s not financial advice. What we do typically is we talk a little bit about sort of financial industry news that Tony has been paying attention to and then later on, particularly for the premium episodes, the QAV club members will do a deep dive into the financials of a company that’s listed on the Australian Stock Exchange and run it through Tony’s system. So with all of that out of the way we should give a shout out Tony to people joining us from Alan Kohler’s weekend updates for about a week ago, how did that come about?

Tony Kynaston [02:16]: Well I’ve been a long-term subscriber time, tailwinds, various different emails. I think the first one was called “The Eureka Report” and then that was bought by I think, News Corp and he left and started up another one called “The Constant Investor”, which I also subscribed to and then that was bought out recently by “Invest Masters”, so that’s where he now resides. So I’ve been a long-term listener to his podcast and also reading his emails and he puts out a really good email every Saturday morning on what’s happened in the week and his take on the economy or even politics sometimes and investment trends or business news. And at the end of that, he always includes a list of things he’s found during the week and he calls it something like research and diversions, and he might put some music clips in there, or some film clips or interesting articles about technology or whatever. And yeah, so I wrote to him and say, look, we started a podcast, have a listen and if you wouldn’t mind include it in your research and diversions, and he was very so very happy to have that happen for us and really blown away by his generosity to do it for us and also blown away by his generosity to come on and be interviewed next week with us as well.

Cameron Reilly [03:39]: Yeah, that’s great. I’m looking forward to having a chat with him.

Tony Kynaston [03:42]: Yes.

Cameron Reilly [03:42]: Are you recording in New York, Kevin, this living room again?

Tony Kynaston [03:49]: Dining room.

Cameron Reilly [03:50]: Dining room. Should have got you to get a towel. You what the thing is, you get a bath towel and you put it over your head and over the mic

Tony Kynaston [04:02]: And what, breathe in some Vicks.

Cameron Reilly [04:05]: You can do that at the same time. Well, dampen the, it sounds like you’re sitting on the iron throne in Westeros right now.

Tony Kynaston [04:13]: Well, how do you know it or not? This is an audio recorder.

Cameron Reilly [04:16]: Yeah. Maybe you are the winner of the game of Thrones. We’ll get to the final episode this week and it’ll be, “Tony Kynaston sitting on the iron throne”.

Tony Kynaston [04:27]: Yeah. Well, don’t give me any spoilers because I haven’t been able to watch the last couple since I’ve been down here.

Cameron Reilly  [04:31]: You haven’t missed much, its been terrible.

Tony Kynaston [04:35]: Oh really? That’s a shame.

Cameron Reilly [04:36]: Terrible.

Tony Kynaston [04:36]: That’s a shame .

Cameron Reilly [04:37]: Yeah. The writing’s completely fallen off this week. This season is just silly, anyway

Tony Kynaston [04:45]: George RR Martin, I guess, is like deviated from his script haven’t they? So maybe that’s the reason.

Cameron Reilly [04:51]: Yeah. Anyway, people didn’t tune in to listen to, I was talking about Game of Thrones. Let’s talk about game of coal, Tony.

Tony Kynaston [04:58]: Yeah. So what are the shares or stocks that I want us to analyze is called STEM or cold? And it’s obviously a coal company. And I thought given that we’re going to analyze a coal company and the share price has been going up. So it’s been a good investment and perhaps we’ll be going forward. I thought we should spend this time on this episode talking about ethical investing and I thought I can talk about it from my point of view.

I wondered whether you had any questions, first of all, about ethical investing and maybe I’d like to know what you think ethical investing means

Cameron Reilly [05:36]: When I’m thinking about investing. My priority is obviously to build an investment portfolio for myself and my family, but at the same time, I want to be able to do that in a way that’s consistent with my ethics and values and I think that would mean I want to invest in companies because investing, I’m taking an ownership or part ownership in that company. In companies that are not doing undue harm to the environment, to the community, to people that have a good ethical track record but at the same time, I think, wow, how do I even do that? It’s going to be difficult to navigate. It would be nice if there was some sort of a guide or indicators or some sort of a filtering mechanism that would make that it’s hard enough for me to sit down and go through all of these financials to find a company that is a good investment, according to your methodology, let alone to also have to go and figure out who is ethically, morally responsible and has integrity or not. So I would be hoping that there’s some sort of a benchmark that I would be able to look at that would make that easy for me.

Tony Kynaston [06:54]: Yeah. I haven’t come across the benchmark. I don’t think there is on that. There are certainly ethical investors out there and they publish their own benchmarks or their own screening processes, so you could perhaps use that. I think the key point for me is, and you said that it’s different for different people. So I have owned coal stocks in the past, I don’t think I only now and I have owned it up until recently. And my feelings on coal is that it’s undeniably contributed to climate change and therefore you got to be very careful about what you invest in, but I also don’t want to be hypocritical because coal comes into two varieties. One is used for powering power stations and that’s called thermal coal, and that’s probably the bigger polluter. And the other one is called coking coal, which is used to make steel. So, they’re both polluters but I think I’d have to probably do some more research, but I think the thermal side is probably worse than the coping side in terms of pollution. if I could have that role, but certainly, I would feel hypocritical sitting here talking to you on a Mac book with a microphone and using an iPhone and all that in a place that’s made of steel to then say, I’m not going to invest in a coal company because it’s going to be used in the production of steel. So, I guess that’s the first point for me. And secondly, I’m not so sure that the supply side is the way to tackle these problems, like for example, climate change. , I think it’s for me, the tackling of it comes from the demand side. And what I mean by that? And you would have come across this in your episodes on that, the drug Wars, the war on drugs and the state.

Cameron Reilly  [08:42]: I see what Tony is referring to here is one of my other podcasts, “The filter”, where we take contemporary issues and we drill down on the data. Like we did one big series on the Syrian civil war, we’ve done one on the war on drugs., we’ve done one on gun control here and in the United States and in some different countries recently did one on anti-vaccination claims. So you can check that at thebullshitfilter.com.

Tony Kynaston [09:10]: So by arresting the leader of a drug cartel, because someone else is going to pop up and replace them, you solve it by decriminalizing drugs and having safe injection rooms and helping the people lower their demand for the product. And I think the same thing happens with Coal, and I think it is happening with Coal. I sent you an article, which we can include in all the website, kind of the newsletter and my feeling is that, and this article says this, we’ve probably seen the last coal plant built in the world, or if we haven’t seen it and we’re going to see it soon. I know that I read another article recently, which said that Britain for the first time ever last week had all its power supply by other means rather than coal. And look like by, I think the end of next year being completely weaned off coal power in terms of coal, in terms of pairing electricity in the UK. That’s, I mean, that’s happening more and more across countries. I don’t think we’ll see another coal powered power plant in Australia, but by the same token, we have to balance the need for electricity until the sustainable come along; the wind and solar and the battery technology ramps up and comes along. So, if you were someone who was really gung-ho about climate change, and I know there are people who are out there and you’re also, I think, less hypocritical than a lot of people and you, weren’t driving a car and you weren’t flying in an airplane and you weren’t living at a steel and cement building and you say, I don’t want to invest in coal, that’s fine. You probably want to take a positive stance and invest in companies that were building alternative infrastructure. And one of those which I invested in is a company called Infratile and they run some big solar and wind farms.

So you’re expanding that source of energy, which would eventually crimp the need for coal. So that’s probably one way to do it. I personally, haven’t been as gung-ho about not only coal shares only because A, I think it’s a declining use or declining electricity producer and B, I think it’s a little bit hypocritical for me anyway, to say, I’m not going to own coal shares when I still drive a car and flying the plane. And even when I do that, like I drive a diesel car with a BlueTech engine, so it listens to the carbon emissions and I try and I always buy the carbon offsets when I fly and kinds of things. But as you said, number one for firstly, trying to invest for my family and our future and secondly, then I’m weighing up the impacts of the ethics of it. Coal has been a difficult one for me.

I think in terms of my ethical framework, I wouldn’t invest in a tobacco company for example, and I wouldn’t invest in a gun manufacturer, but both of those industries aren’t listed on the ASX. So they’ve either not present here in Australia or they have privatized. And one of the interesting things about this, as well is that, whether tobacco companies that were listed in Australia privatized, they actually, I made more money because they went into the third world and expanded there and got a lot more people hooked on smoking than were available to them in Australia. And one of the reasons they could do that is they didn’t have the scrutiny of a listed investment, which often makes it easier to shine a light on these companies and what they’re doing, if they’re private, they’re pretty much invisible to most of the well, to most of the investing public and probably to most of the general public. So does that make sense, Cam? I’ll probably be a bit convoluted there, but that’s how I approach these things.

Cameron Reilly  [13:12]: Yeah. Well, of course you and I have been working on this book about Psychopaths and there’s a big section in the book where I drill down on how does one determine one’s ethics and values and to make sure that you’re not participating in behaviors inside of the workplace or as an investor, guests that not aligned with your ethics and values, and one of the starting point is to work out what your ethics and values are. And I think that’s a process that I found incredibly difficult when working on the book, I thought it would be easy and it wasn’t. And then I went and interviewed people who are experts in ethics like Julian Burnside QC, and the guy who runs the St. James Ethics Center in Sydney and asked them how easy it would be for them to sit down and write down a list of their ethics and where they derive them from. And they both said, man, it’d be really difficult. And these guys talk about this stuff for a living, but I think we need to start then, of course it is difficult when you live in a society where I have to use electronic products, I have to use steel, I have to use electricity unless I want to go live in the backwoods and be self-sufficient, which I don’t have the capabilities of doing. So it’s a, trade-off, you’re constantly trying to minimize the damage that you are personally participating in, I think. When I buy an iPhone, I know that components of it are made in sweatshops in China. I know that those people though, are earning money from doing that, which they might not otherwise have, but that their working conditions probably aren’t as good as I would want them to be, but it’s a tradeoff. You try and minimize the damage that you’re doing while making your way through the world and looking after yourself and your family.

Tony Kynaston [15:06]: Yeah. I agree and I think one of the things about if I just bring it back to [inaudible 15:10] is if I buy shares in the coal company, I’m not necessarily the money doesn’t go to the coal company. So, I’m not necessarily making the world use more coal. I guess it’s different if the company was raising money in the initial public offering, or if they were going to open a new coal mine and they’re either capital raising for it and you paid him directly for it. So, it’s probably a technicality, but there is that. I think I’d be in some instances, happy to buy shares in a coal company that was an existing player and it was using existing mines. I’d probably think twice about it If I was investigating in a new player who was opening up new mines, I think that me is possibly crossing the bounds of my ethics. And I know it’s a technical argument that’s how I would approach that. The other side of this thing is of course, is that you could almost make a case that every company that you come across.

Has got some kind of ethical tank to it. You mentioned that Apple, which has been a seriously good investment for people in the last say 10 to 20 years and that has its problems. Most of their products are made developed minimum, which is a huge user of electricity to smelt the bauxite and make aluminum. And in fact, I think Apple has just partnered up with Berkshire Hathaway and someone in Canada to try and find a different way of producing elementary and that doesn’t use so much electricity, so they’re aware of the problem. And also, the one that you mentioned about the sweatshops at Qualcomm in China, but, think about even every day, sorry, I thank you, but also think about, say the banks in Australia.

I mean, they just gone through the ringer with their ethical behavior. So if you stop investing in banks, think about Woolworths or supermarkets. I mean, they run big transport fleets of trucks delivering to their stores, plus they have large electricity bills. If you sort of took a very hard line beyond this, it’d be very hard to find someone who you could invest in, unless they were positively investing in things like things like solar power or wind energy or batteries or something like that, maybe a Tesla and then you run the risk of, I wouldn’t say Tesla was a great investment because it’s running at a loss.

Cameron Reilly  [17:36]: Well, in the book, I remember writing about B corporations, B Corp’s. Well, I think we talked a little bit about that at some point in the past, you’re familiar with B Corp’s I believe.

Tony Kynaston [17:46]: So, are they the ones that have a triple bottom line or a quadruple bottom?

Cameron Reilly  [17:49]: Yeah. And they sign up to I guess some sort of a contract where they’re going to consider, well, here’s the website from bcorporation.com.au that monitors this certified B companies are a new kind of business that balances, purpose, and profit. They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. This is a community of leaders driving of a global movement of people using businesses as a force for good driving of a global movement. But I think somebody needs to proofread the copy on their, it should just be driving a global movement. I might contact them after this and be that guy.

Tony Kynaston [18:36]: But yeah, like if

Cameron Reilly [18:38]: There’s a list of businesses like this, that I’ve signed up

Speaker 1 [18:42]: To build

Cameron Reilly [18:45]: Ethical practices and beyond the lip service that every business pays to it these days, but genuinely trying to hold themselves to a higher standard, then I would feel good about investing in companies, supporting those companies, how I can, but at the end of the day, we’re looking for good investments, as well as ethical investments. You know, one of the issues for me in the last five or six years in my marketing businesses, I have clients that are in the mining industry that are in coal mining. I’ve done a lot of work in the coal mining industry, even at that, in that sense, I have to decide, well, am I going to take their money, or am I not going to pay the rent this week? And that’s an ethical decision, which is relatively easy to make, but yeah.

Tony Kynaston [19:32]: Yeah. But also too, I think we have to be a bit realistic. We need mining companies; they support our standard of living. We drive cars and we build roads and we use some ethanol, those kinds of things, so we do need them. I think it’s probably two biggest, safe to say, I’m not going to invest in mining companies because they might be impacting on global warming. I think you have to drill down a bit further than that. But I’m just looking at the B Corp website and the first company they’ve got listed there as Ben and Jerry’s, for cross site, I just say supersize me. They were a four sugar in there, so I’m not sure that they’re the big corporation set so that the occasion I’m skeptical about things like certification like that.

I wouldn’t be surprised if we try like drill down and we found out that the Australian banks were signed up for that because I know they’ve done a lot of work on triple bottom line and trying to show them themselves to be ethical, which of course is just flying up in their face in the last six months with the High Royal Commission where they’re having to refund people’s, I think it’s, I think the total now, something like it’s either $10 billion amongst all the banks or it’s projected to be $10 billion. So that’s an awful lot of money that they’ve taken from people without providing a service or in some kind of conflicted way. And also, I’m skeptical, like for example, there’s a company called Rio in Australia. It’s an iron ore mine, but it has owned coal companies in the past.

And it’s done a lot of work in the last couple of years to try and engage with activist investors on their share register who have been continuously raising motions at the AGM of Rio to improve Rio’s performance when it comes to climate change. So we bit the bullet and sold the coal division last year and now they’re trumpeting themselves as being a good corporate citizen in terms of climate change. But, again, for goodness’ sake, they sold the coal company to somebody else. That’s coal company still exists and is still producing, coal is still being burned and the carbon is going into the atmosphere. So I don’t see how Rio gets a pass in terms of good corporate citizenship, when it comes to climate change, simply by selling the coal companies, if they have covered them in, I would have said, yeah okay, tick, but they didn’t, they just sold them and said army. Great. So I think you’ve got to be very careful in this space, both in terms of be skeptical about those who hold themselves out as being good corporate citizens. And also I think a bit more inquiring about what looks like maybe in an industry that has face to face some negative publicity when it comes to things like climate change.

Cameron Reilly  [22:36]: Tony, you’re not suggesting that people running these businesses would say they’re doing one thing, but secretly be doing something else and try to hide it would you? What would you call a kind of person like that Tony?

Tony Kynaston [22:51]: A C Corp. I’ll tell you not going to say what the C stands for and it will be corporate, no psychopath. Absolutely. Maybe we should just set up a psychopath certification company.

Cameron Reilly  [23:06]: Most of my television show, man, that’s what I want do. Yeah. If you didn’t hear our last episode with Joe Barbaris, I think I talked about the idea I have for a TV show that I’m pitching at the moment where based on the book, “The Psychopathic Economy” that Tony and I wrote over the last few years idea for the TV show is that I and a psychiatrist, travelled around the world, interview business leaders, political leaders, military police, religious leaders, and get them to sit the psychopath test, live on camera, to try and determine how many of the world’s leaders are actually clinical psychopaths and sociopaths, and then we can figure out what do we do about that.

Tony Kynaston [23:50]: Give them a koala stamp. If they pass the psychopath test,

Cameron Reilly  [23:55]: No, look at it. It is very difficult. I often wonder about our children’s generation. You and I both have kids that are in their late teens, they’re adults and they’re very ethical people and they’re deeply concerned about the environment and the treatment of minorities and all that kind of stuff. And what kind of impact that generation will have on things like the fossil fuel industry over the next 10, 20 years, or will they be like teenagers in the sixties who were protesting about all sorts of stuff when they were hippies and then they cut their hair off and put a suit on and they’re probably running a Ben and Jerry’s now.

Tony Kynaston [24:38]: Yeah and mining capital quite possibly. I’ll put my hand up and say, I was a bit like that. I’m probably a lot more pragmatic now than I was when I was kids age, that was a lot more, I was running around a lot more protesting against things that I am now, and probably wouldn’t have touched the coal investment back then. And they’d a lot more black and white about it, but I think the worlds are more new its place in that. And as you said before, we’re trying to balance our income generation with our ethics and it’s not always easy.

Cameron Reilly [25:08]: Speaking of your younger days, we’re recording this on the Friday, the 17th of May, 2019 Bob Hawke died yesterday. What were your thoughts on Bob?

Tony Kynaston [25:19]: Oh, it wasn’t amazing Australia with an amazing human being. It’s the first thing that comes to mind is you compare a leader like that to the current crop we have now, and its chalk and cheese. The guy was a road scholar, very smart person came up through the act. You would go into the wages, arbitration commission and stand on his feet for five days straight talk non-stop about the need for a wage increase or holiday leave loading or whatever, and be very successful at it. And then talk that into the prime minister ship. And with Paul Keating, just changed the whole face of Australia for the better took the terrorists away, floated the dollar, made the economy much more flexible in that cyst on the economic side, but he was a great environmentalist. He single-handedly signed up most of the countries in the world to ban mining.

And then in Antarctica, he stopped the dams from being built in Tasmania at Gordon below Franklin. So many things that he did, he was just an amazing human being and also a man of the people, just such a great. We talk about populous people leading countries. Now they might act like a populous leader, but they’re not very popular. Whereas Hawke was, if he’s diet, I think when he became prime minister, his popularity was like at about 75%. And I met him once and shook his hand, but didn’t really talk to him. But when you see the guy up close, he’s fit tan has this huge mane of wavy white hair with Eric and smile on his face. You’re already was a man of the people, very impressive person. And you’re very sorry to see him go. He did a lot of good for Australia.

Cameron Reilly  [27:07]: Yeah. You had a good innings, 89, not bad for a man who was renowned as the country’s greatest alcoholic for many years, that’s not a bad innings.

Tony Kynaston [27:16]: He was. I just finished reading a book called “Wednesdays with Bob” by a guy called Reilly as well, coincidentally. And he’s obviously struggles with his demons and his bad side. He divorced his wife when he was a bit of a ladies’ man or a lot of ladies’ man in his younger days and a philanderer and an alcoholic, so he’s troubled sides and you don’t want to just push that aside. But I think when I read about that and hear the stories, it makes me more of a human being almost he’s not the same, but he battled through all that and still do a really good job for Australia. So very impressive person.

Cameron Reilly  [27:55]: And the cover of that book has Bob smoking a cigar and as a cigar smoker, or that’s one of the things I always liked about Bob, you always saw him with a cigar in his mouth.

Tony Kynaston [28:05]: Yep. He enjoyed it and lived to 89. Yes, that’s right.

Cameron Reilly  [28:10]: Okay. Well, there you go. That’s Bob, that’s ethics. I think it’s getting to that time where we should start to drill down into our stock of the week, Stan, more coal.

Tony Kynaston [28:22]: I did want to make one more point about ethical investing and that’s to issue a bit of a warning. And that is that there are some funds out there who say that they’re ethical investment funds and they probably are, but there are good ones in there.

So ones, and I remember years ago, my stock broker saying to me, he loved ethical investing because he could set up a fund and take about half a dozen stocks out of the index and then just buy the rest, buy the index and charge people twice the fees because they are prepared to pay up for an ethical investor. And so, I just wanted to warn people to be careful of that. If you look at the Australian share market and take out a couple of coal companies and take out maybe the gambling companies, and maybe you also want to take out the one listed wine company, you could say that the rest is an ethical investment fund. And if that’s the fund you’re looking at, just make sure they’re not giving you the index with a few companies taken out and charging you more than the index fee. I guess the ones you might want to look at other ones that may have a concentrated portfolio and a positive screen. So they’re investing in solar farms or wind farms or companies that may make, say for example, ethical clothing or something like that. So yeah, just be careful.

Cameron Reilly  [29:45]: All right. Good tip.

Tony Kynaston  [29:47]: So Stanmore Coal has had a terrific run in the last sort of nine months. I think it’s a coal company. I think it’s also an exploration company. So it has some coal mines that are working and it also has a couple of tenements which look particularly, the potential for them seems pretty good and it looks like, I think it’s got about half a dozen different either mines or, or tenements. So that’s a drilling to see just how good they are, they will be, and they’re all in Australia. And there are a mix of both coking and thermal coals. So I just wanted to outline that upfront. So again, if you’re someone who doesn’t want to invest in coal companies, this Stanmore coal may not be for you. It does have coking coal, but it also has thermal coal. And I also want to, I probably should have said before during our ethical investment section, I mean, something like coal may turn out to be the contrarian investment of our times really, because a company like Stanmore Coal is, has what the share price has gone up two or three times in the last 12 months whilst, you know, whilst being in this environment of people being unsure, whether they want to invest in coal or not. So since June, 2015, the share price was 6 cents. it’s now $1.40. Wow. Yeah.

So a huge upturn. And that’s the interesting thing I found about coal in the market. Whenever I talk to, if I come across fund managers or people who I know are other investors and talk about coal, they say the same thing. You know, we started off being very pure about it. Then we see it run up and we think, geez would be better look at this and can we live with it? And then they jumped on board. So this is kind of contrary to sort of investment where you can, if you get in early, you can sort of ride the wave up as people capitulate to start the buyer as well.

Cameron Reilly  [31:45]: So everyone listening, at home, grab your spreadsheet, grab your pen, your paper. We’re going to get into the numbers and see if my numbers match up with Tony’s numbers, which they usually don’t. So we’ll try and get the numbers right. This week, Hamish picked up a problem in our numbers a couple of weeks ago. So, let’s get into the numbers with these guys net cash flow. Now I went and got the half yearly report, did all my math I’ve come up with just over 15 million for the net cash flow. Okay.

Tony Kynaston [32:26]: Can we just have a look? Well go. So I’m using a Stock Doctor here and now I’ve got 41.1 million.

Cameron Reilly  [32:32]: Jesus Christ.

Tony Kynaston [32:39]: Yeah. Hold on.

Cameron Reilly  [32:41]: I actually ended up adding up the bottom figures from, Yahoo finance. They’ve got the cash flow tab here for the last four quarters. You got Yahoo finance there.

Tony Kynaston [33:00]: Yeah. I’m just typing it now. So, okay.

Cameron Reilly  [3304]: SMR for people playing at home live, by the way, I’ll put all the links in our show notes and the email and that kind of stuff. But in case you’re doing it before you get that a SMR is the stock code for Stanmore Coal.

Tony Kynaston [33:18]: Yeah. I just noticed in Yahoo finance; the share price has dropped 2% today. So they must know we’re looking at it.

Cameron Reilly  [33:27]: Yeah. How’s Myer doing? I looked yesterday. It was down 11% since we looked at it.

Tony Kynaston [33:33]: Yeah. it’ll bounce around that. I think it’ll be fine.

Cameron Reilly  [33:36]: It’s jumped up a bit actually since then. It’s only down eight and a half percent now, so, you know, that’s all right. Yeah.

Tony Kynaston [33:45]: Yeah. Okay. Where are we? I guess the other thing too we should talk about just briefly is that we’re at that stage in the year where companies are going to start really off their financial years of the months’ time, and then they get a month to pull the figures and then come all with stuff, they’re giving us new figures. So investing now is you got to just be careful because, we’re basing it on figures of the nails, five months old. And if a company had a good result, five months ago, the share price has gone up like Myer and Stanmore coal have said we’re probably playing a waiting game for those prices to come down a bit or to wait and see what the new figures are like. So we do need to be careful investing at this time of the year as well. Yeah.

Cameron Reilly  [34:37]: By the way, Mitchell Services has gone up for 16 and a half percent since we talked about

Tony Kynaston [34:45]: Two weeks ago, that hurts doesn’t it? I mean, we said we were going to be disciplined and not buy, and then it goes up, it’ll come down at some stage.

Cameron Reilly  [34:54]: Yeah. Okay. So back to Yahoo finance. So I’m in the financials section under the cash flow tab, quarterly figures. I’ve got a says net income. I scroll right down and I’ve got total cash flow from investment total cash flow from operating total cash flow from financing and down, then the very bottom change in cash and cash equivalents.

Tony Kynaston [35:25]: Okay. So the problem I’m getting with looking at this is that it’s all for 2018,

Cameron Reilly  [35:32]: Right? Isn’t that what we want? We’re doing the last 12 months of reported figures.

Tony Kynaston [35:38]: Oh, actually hang on. You’re right. No, sorry. You’re right. We are, we don’t have junior for this year or we if you’re doing quarterly, we should have figures for marching, but I’m not seeing them in Yahoo Finance March, 2019. Yeah.

Cameron Reilly  [35:54]: Four reported quarters. Well, yeah, the Yahoo have anyway.

Tony Kynaston [36:00]: And the figures, sorry, the thing is look strange for September and December because they’re the same. Well, so are the figures for June.

Cameron Reilly  [36:10]: So I was going to ask you about that. Is that weird? because it looked weird to me. All the figures are like, they’ve been cut and pasted.

Tony Kynaston [36:17]: Yeah. It looks away to me too. I agree. Right. So I don’t know what to make of that. Sorry.

Cameron Reilly  [36:24]: It looks like a budget somebody’s gone. Yeah. I reckon we’ll do about that. Yeah. So then, so I’ll look at the financial data in Reuters then and see how that matches up. They don’t enable me to drill down with the historical stuff that much. It’s got Sales earnings.

Tony Kynaston [36:50]: Have you tried going to the steam or coal website and see what they’ve produced?

Cameron Reilly  [3655]: Yeah, I’ve got the half yearly report and the annual report before that. So let me pull up the half yearly report. Here we go. So on their half yearly report, cash flow is on page, no page number, but it’s page two, top of page two during the half year to the 31st December, 2019, total net cash flow of 12.474 million was recorded, which maps to the bottom numbers in Yahoo six two, three, seven times two, 12.4. Now I did check that at the time and somebody in Yahoo was just divided that number in half and put half of each quarter. So

Tony Kynaston [37:41]: Yeah, Microsoft here. So their half

Cameron Reilly  [37:43]: Yearly report says total net cash, inflow of 12.47, 4 million.

Tony Kynaston [37:50]: So half year he said, what’s the date on that? Is it a December or is it March? December. And you have what? Sorry.

Cameron Reilly  [37:56]: Half yearly to December is 12.474 million.

Tony Kynaston [38:01]: Okay. Well see, that’s strange because Stock Doctor has 27.47, 9 million for the half for operating cash flow. We’re talking, operating cash flow here.

Cameron Reilly [38:11]: No I’m taking investment activities and financing activities into account as well. Yes. If I just take from operating activities, you’re right. 27 odd million. Okay. Yeah, so we want to ignore the losses. They made an investment because that took a few.

Tony Kynaston [38:32]: Yes, that’s right. Yeah, We okay.

Cameron Reilly  [38:36]: Operating only ignore investment, et cetera. Okay. So if I take these four numbers,

Tony Kynaston [38:47]: So, just on that camera, just so we’re clear if we have a look at the investing cash flows, that negative number, there was capital that was X was, this was spent which yeah. So they either spent that developing a mine or they’ve replaced their equipment or something like that. I would imagine, which is kind of normal procedure for a mining company. And it looks like they’ve used their operating cash to do that, which is, you know, they haven’t quite possibly, haven’t gone out and borrowed rod on our behalf. Sorry. I’m just looking at the financing cash flow. So they borrowed 22 million, right? Yeah. But anyway, it’s one of the reasons why I look at the operating cash flow. It’s the cash that’s coming in the door, that’s important. And then it’s up, you know, it’s up to the quality of the management about how they use that cash that we need to look at, but it’s not as important as the operating cash coming in.

Cameron Reilly  [39:39]: All right. So now I’ve got 41.1, 6 million.

Tony Kynaston [39:43]: That’s the one. Yeah. 41.16, yeah.

Cameron Reilly  [3947]: Okay. Operating only.

Tony Kynaston [39:50]: Okay.

Cameron Reilly  [39:53]: Thank you. Yahoo Finance. Those numbers are still the same. They’ve still got even numbers for those quarters, but I guess it all works out in the end. Number of shares on issue. According to the annual report, that’s a big number. Let me put some comments in there. 251.8 million.

Tony Kynaston [40:08]: Yeah. I’ve got a more up-to-date one and we Stock Doctor 252.828 million.

Cameron Reilly [40:15]: Okay.

Tony Kynaston [40:16]: So that number, you just read out Stock Doctor is saying its case in June last year.

Cameron Reilly [40:21]: Yes. That was in the annual report, yeah. Would that make a huge difference to our final figures, do you think?

Tony Kynaston [40:27]: Not really. No. You probably find that [inaudible 40:30] or someone like that would have the latest shares on issue as well, or the ASX will probably have the latest shares on issue.

Cameron Reilly [40:36]: Okay. Cash per share, then I’m getting about 16.03 cents, yours is going to be slightly different.

Tony Kynaston [40:43]: Yeah, I did. I got 60 cents as well.

Cameron Reilly [40:46]:  So then share price is $1.40 as of today, the 17th of May and that makes our share price to cash per share $8.56.

Tony Kynaston [40:58]: Yeah. So, we’re like 66 that’s right.

Cameron Reilly [41:01]: Okay.

Tony Kynaston [41:03]So that’s a little bit high, I think this will probably work out to be a bit like mutual services. Again, it was probably, if we have done this a bit earlier, the price would have priced the cash flow, be in the six range and we asked them the eight range.

Cameron Reilly [41:14]: Yeah okay.

Tony Kynaston [41:15]: The point I like here.

Cameron Reilly [41:17]: Well, let’s keep going in the data collection anyway, see where we ended up now. The sentiment share price graph, three-point trade-in, positive?

Tony Kynaston [41:24]: Very.

Cameron Reilly [41:25]: Dividend yield. I got 3.5.

Tony Kynaston [41:28]: Yep, me too.

Cameron Reilly [41:29]: Okay. The PE I’ve got 19.14.

Tony Kynaston [41:32]: I’ve got 14.5.

Cameron Reilly [41:34]: In Yahoo, I’ve got trailing PE 18.42 on my last number from Reuters though.

Tony Kynaston [41:41]: Let me go into the ISX website and see if that helps.

Cameron Reilly [41:45]: So, Reuters has given me the PETTM as 19.14 trailing 12 months. So that would be the right figure?

Tony Kynaston [41:58]: What did you have sir?

Cameron Reilly [41:59]: 19.14.

Tony Kynaston [42:00]: I’ve got 14.5.

Cameron Reilly [42:00]: I’m just saying TT. The trailing 12 months is the number we’d be looking for the PE there’s no problem with that part from the fact that numbers are wrong.

Tony Kynaston [42:14]: It should be right, yeah, we’re not doing it for the four EPS. So, it should be the earnings per share for the last 12 months over the current price.

Cameron Reilly [42:23]: Yeah, over the current price. Like today’s price?

Tony Kynaston [42:27]: Yeah.

Cameron Reilly [42:28]: Okay. Well, you would think Reuters would be calculating that wouldn’t you? On the fly?

Tony Kynaston [42:35]: It’s TTM, let’s Stock Doctors just doing it for the current APS the last six months. There’s a new calculation the in check. So, they’ve got 9.06 cents a share is the earnings per share and the price is $1.40.

Tony Kynaston [42:35]: It’s TTM, let’s Stock Doctors just doing it for the current APS the last six months. There’s a new calculation the in check. So, they’ve got 9.06 cents a share is the earnings per share and the price is $1.40.

Cameron Reilly [42:52]: Well, Yahoo is giving me a slightly different figure anyway, but it’s lower than Reuters, but not as low as Stock Doctor.

Tony Kynaston [43:01]: Yeah. I think Stock Doctor is just taking the most; the six-monthly EPS, which is 9.06 cents.

Cameron Reilly [43:13]: Right.

Tony Kynaston [43:15]: Yeah. So Stock Doctor is only doing a six-monthly P, well that’s the one I’ve been using so that’s the one we should use going forward, I guess. Some of the training 12 months, but the current EPS, six months.

Cameron Reilly [43:26]: Trying to figure out how I’m going to get that off of Yahoo or Reuters.

Tony Kynaston [43:31]: Yahoo or Reuters should have the current earnings per share shouldn’t it? The most recent down?

Cameron Reilly [43:36]: Yeah. I’m looking for it.

Tony Kynaston [43:37]: Okay.

Cameron Reilly [43:38]: How are you calculating earnings again? Just net income?

Tony Kynaston [43:43]: Yeah, Net profit.

Cameron Reilly [43:45]: Net Profit.

Tony Kynaston [43:46]:  Net Profit after tax.

Cameron Reilly [43:48]: 
So, if I calculate this manually.

Tony Kynaston [43:51]: Oh, that’s really time-consuming. Isn’t it?

Cameron Reilly [43:54]: Yeah. If I’m getting a price to earnings then of about 16.57

Tony Kynaston [43:59]: Now I’m getting 14.5.

Cameron Reilly [44:03]: Yeah. You said your earnings per share is different though.

Tony Kynaston [44:06]: Yeah. I’ve got 9.06 cents a .096

Cameron Reilly [44:10]: Right. Wonder if that’s because you’ve got more shares on issue.

Tony Kynaston [44:15]: Yeah, could be, yeah.

Cameron Reilly [44:17]: Okay. Well, I’m going to leave my numbers as they are.

Tony Kynaston [44:23]: Where did you find their half-yearly report?

Cameron Reilly [44:26]: It’s on the ASX website. I’ll just put it in the Skype chat window for you.

Tony Kynaston [44:30]: Okay, because say sometimes it’ll tell you what the earnings per share is. No, it’s not there, okay. Sorry, dead end.

Cameron Reilly [44:40]: All right. Let’s just keep going with what we’ve got.

Tony Kynaston [44:42]: Yep sure.

Cameron Reilly [44:44]: Gives me a PE of 16.57. Yours is a little bit lower.

Tony Kynaston [44:50]: [cross-talking 44:50] 14.5

Cameron Reilly [44:51]:  Now I can’t get the previous PE from Reuters or Yahoo easily. Do you have some previous PEs?

Tony Kynaston [44:59]: Yeah. So Stock Doctor has the last four and before that the company wasn’t making a profit. So, it didn’t have a PE.

Cameron Reilly [45:07]: And you’re looking at the last four halves now or the last four annuals?

Tony Kynaston [45:11]: Yes, last four halves.

Cameron Reilly [45:13]: Yeah.

Tony Kynaston [45:13]:  And I go 5.7, 7.6, 36.7, 10.3 and then the current is 14.5. So, it’s not the lowest, it’s probably in the mid-range. So, it doesn’t score for our checklists there.

Cameron Reilly [45:28]: All right. Net equity, I’m getting this from Reuters, net, tangible assets. I took quarterly numbers and added them up. I’ve got about 87 million just over.

Tony Kynaston [45:38]: Yeah. I put 90.5.

Cameron Reilly [45:40]: Okay. Close enough.

Tony Kynaston [45:42]: Yep.

Cameron Reilly [45:43]: So, I’ve got net equity per share of 34 cents, 0.3457 dollars.

Tony Kynaston [45:52]: Yes. I’ve got 35.8.

Cameron Reilly [45:55]: Okay. Close enough. Which gives me a price to book ratio of 305%.

Tony Kynaston [46:02]: Yeah, that’s true. Yep. Talk about 95, but we’re way out without checklists on that one.

Cameron Reilly [46:09]: So, Impact net income last six months, 21, as we said before, 0.2 million earnings per share is about eight and a half cents return on equity earnings divided by equity, I’ve got 24%.

Tony Kynaston [46:25]: Yeah. Stock Doctor is saying 29.6%. Yep.

Cameron Reilly [46:29]: I’ve got future earnings per share of about 3.7 cents.

Tony Kynaston [46:36]: No, Stock Doctor is actually saying 37.2 cents.

Cameron Reilly [46:41]: So just be careful there if you’re using Reuters to get this number, as I was over on the analyst’s tab on Reuters, about halfway down the page, under “Consensus Estimates Analysis”, it’s got the earnings per share and it says 37.15. And I made this mistake a couple of weeks ago when we did Mitchell services, even though it doesn’t really explain it there, that is, in cents, 37.15 cents. I think I added too many decimal points to the front of it this time I overdid it. So, I get my first intrinsic value of 43 cents.

Tony Kynaston [47:30]: I got 49 cents, but that’s just a difference in some of those things I think.

Cameron Reilly [47:34]: Yeah. And my future EPS, my IV2 $ 4.95.

Tony Kynaston [47:40]: Spot on, I had 4.96. Yep.

Cameron Reilly [47:43]: Okay. So, checklist time, is it a star stock on Stock Doctor?

Tony Kynaston [47:50]: No.

Cameron Reilly [47:51]: I did it manually using the way that we talked about a few episodes ago, financial strength table on Reuters plus the return on equity and the EPS I gave it 29%. So, it sort of failed there, is it an A1B2 on share analysis? I’m assuming No?

Tony Kynaston [48:15]: No. It is actually 2B2.

Cameron Reilly [48:17]: Really? Wow. So it gets a one for that on our checklist. Okay.

Tony Kynaston [48:22]: Yeah.

Cameron Reilly [48:23]:  Is the share price beneath the Stock Doctor intrinsic value?

Tony Kynaston  [48:27]: Stock Doctor doesn’t have a share price, but it has a consensus share price and the consensus shared price is a $1.50.

Cameron Reilly  [48:34]: So, I looked at the Yahoo consensus share price, it was $1.30.

Tony Kynaston [48:39]Can we just have a look at Stock Doctor and see.

Cameron Reilly [48:41]:
 And the share price is above that.

Tony Kynaston [48:43]: Yes, that’s right. Whereas I’m saying $1.50, it’s saying $1.55 now, and it tells me that it’s using two analysts to come to that number, doesn’t tell me who those analysts are though.

Cameron Reilly [48:56]: Right? Yeah. So, Yahoo Finances it’s using too as well and it says $1.30. You can give yours a one. I’m giving it a zero. Is the share price beneath the share analysis intrinsic value?

Tony Kynaston [49:16]: No, it’s not. Yeah. It’s totally six-inch analysis.

Cameron Reilly [49:20]: Right. Is it below my intrinsic value if I use a 19 and a half percent hurdle rate? That was 43 cents. So no, it’s not below that. Is it below my seven and a half percent? Yes.

Tony Kynaston [49:35]: Yeah, it is.

Cameron Reilly [49:36]: Giving it a one there and not a two?

Tony Kynaston [9:38]: A one.

Cameron Reilly [49:39]: Number one? Yeah okay.

Tony Kynaston [49:40]Yeah.

Cameron Reilly [49:41]Price to book is the share price less than 30% above the net equity per share or the net equity per share, we said it’s 35 cents share prices, 1.40, the differences of dollar five, that’s a 305% increase, no. Does the share price have positive trend? Very much so and it gets a two.

 

Tony Kynaston [50:01]: Correct, that’s right.

Cameron Reilly [50:02]: Is it the lowest PE in the last three years?

Tony Kynaston [50:05]: No, it’s currently 14.6.

Cameron Reilly [50:07]: So, it gets a zero growth of earnings per share over the PE I’ve got 0.177. You want it to be higher than 1.5, so gets a zero?

Tony Kynaston [50:18]: No, it gets at one.

Cameron Reilly [50:20]: What?

Tony Kynaston [50:20]: So, the future earnings per share is 37.2, the current per share is 9.6, so that’s 27.5 difference. Put that out of a 9.6, the current earnings per share and the growth is 295%.

Cameron Reilly [50:41]:  Yeah.

Tony Kynaston [50:42]: And then divide that by the P, which I’ll use 14.6 and I get 24.83, and we only want 1.5. There’s huge growth there.

Cameron Reilly [50:52]:  So, what we worked out over the next few minutes when we were recording, this is you remember back when I was going through Yahoo Finance, looking earlier on in the episode at their revenue numbers. And for some reason, Yahoo finance has just taken their half revenue numbers and divided them evenly into quarters. So as it turns out, according to Stock Doctor, their revenue has as actually been dwelling a lot, quarter on quarter at half on half. So, the problem I’ve found with this one is the Yahoo numbers aren’t reliable when it comes to measuring things like this kind of growth and so Tony concluded.

Tony Kynaston [51:44]: You got to play out for a Stock Docker subscription and just make it easy on yourself too.

Cameron Reilly [51:50]: Yeah, I know, right?

Tony Kynaston [51:52]: Yeah.

Cameron Reilly [51:53]: This is a nightmare. All right.

Tony Kynaston [51:56]: So consistently increasing equity gets a zero on that checklist.

Cameron Reilly [52:01]: Is the less than the yields? No.

Tony Kynaston [52:05]: No. Correct.

Cameron Reilly [52:07]: Is the dividend yield higher than the mortgage rate? No.

Tony Kynaston [52:10]: No. Correct.

Cameron Reilly [52:13]: Is the financial health from the subscription services stable or increasing Tony?

Tony Kynaston [52:18]: It’s increasing. So we give this one, a two. So, when Stock Doctor is gone from satisfactory to strong.

Cameron Reilly [52:26]: Okay. I looked on some other investment sites and it’s getting strong by signals from a lot of sites. Everyone’s excited about it.

Tony Kynaston [52:36]: Yeah, and probably on the basis of the share price going up so strongly too.

Cameron Reilly [52:40]: Yeah, right.

Tony Kynaston [52:41]: Yeah.

Cameron Reilly [52:42]: Is my forecast intrinsic value more than two times the current share price? No.

Tony Kynaston [52:46]: Yes.

Cameron Reilly [52:48]: Yes, It’s 4.95 to 1.4.

Tony Kynaston [52:54]: Yep. That’s right

Cameron Reilly [52:56]: Look for the most undervalued of the top 10. It’s not in the top 10, are you just knowing that out?

Tony Kynaston [53:02]: I am yeah.

           

Cameron Reilly [53:03]: Okay. Is the price per share, divided by the cash per share less than or equal to six? I’ve got 8.56.

Tony Kynaston [53:14]: That’s right.

Cameron Reilly [53:16]: Is the CEO and owner founder? Well Tricky [cross-talking 53:22]. So, it was founded in 2008, but I couldn’t find by whom.

Tony Kynaston [53:27]: So, well, Stock Doctor gives us a listing of the shares held by the board members and one of the directors has about 10.4 million shares or 3% of the company.

Cameron Reilly [53:41]: So, you’re assuming he’s a founder?

Tony Kynaston [53:44]: Yeah. I couldn’t find out much about him and whether he actually is the founder, but given this, someone on the board with a big stake, I’m going to give it a two.

Cameron Reilly [53:53]: Oh, okay. Yeah. I thought it was weird. I went through all their company information and everything online could not Wikipedia, couldn’t find anything about who created it.

Tony Kynaston [54:04]: No, I couldn’t either. And also, too, when I looked at the shareholder, like the top shareholding cell companies and it’s quite possible that some of those directors own those companies, which are the largest shareholders to do those, but I couldn’t work it out, but for me, senior director with a large shareholding was enough to give it a good score.

Cameron Reilly [54:25]: Okay. Somebody with big ownership who has their hands on the wheel and is the intrinsic value going up in the future, according to share analysis?

Tony Kynaston [54:35]: It is, yeah.

Cameron Reilly [54:37]: All right. Well, my total score then is going to be, I get a 63%.

Tony Kynaston [54:45]: Yeah, so do I.

Cameron Reilly [54:47]: All right. So not higher than 75% basically, it’s overpriced.

Tony Kynaston [54:53]: Yeah, exactly. So, if we take the 63% and divide it by the price to cash flow by 0.66 on an overall score with 0.073.

Cameron Reilly [55:02]: Yeah, me too. So we’re looking at a two late, you’d say?

Tony Kynaston [55:07]: Yeah, it’s got to go on the watch list and it’s actually short ahead. So, when I first started talking about doing this one with you, it was giving me a 0.1 when the share price was 10 or 20 cents low, but it’s jumped up in the last sort of week to 10 days.

Cameron Reilly [55:20]: Wow.

Tony Kynaston [55:22]: Yeah. It’s hot.

Cameron Reilly [55:24]: It’s hot! It’s hot baby! Well, there you go. That is our analysis of Stanmore Coal. It’s hot, but a bit late for you.

Tony Kynaston [55:37]: Yeah. So, it’d be like to me, I put it on the watch list again, if it drops down 20 cents a share, which it could I’d have another look at it.

Cameron Reilly [55:45]: Yeah.

Tony Kynaston [55:45]: And certainly I’ll do some analysis on it when the new reporting numbers come out in August.

Cameron Reilly [55:52]: We will be back next week with if everything goes to plan any way, our big guest, Mr. Alan Kohler.

Tony Kynaston [56:01]: Correct, yeah. Looking forward to that. That should be great.

Cameron Reilly [56:04]: And you’ll have a towel over your head?

Tony Kynaston [56:06]:  No, I won’t.

Cameron Reilly [56:11]: Well be sitting in a room that’s slightly less echoey than your dining room?

Tony Kynaston [56:17]: I can try, yeah. Well, the problem is the other room up here, the study is as big as I think I only sit in the bedroom. Like I sit in the bathroom, but things will echo in there as well, so that’s not going to work.

Cameron Reilly [56:29]: Yeah. Where you sit in your car, just take it out to your car. So your car. Thanks mate! Enjoy yourself. Good luck with the golf and I’ll talk to you next week.

Tony Kynaston [56:42]: Thanks Cam, see you then. Cheers.

Outro [56:44]: Well, that’s the QAV club edition for this week. Thanks for listening. Thanks for subscribing. As always, according to the lawyers, I have to let you know, we are not a financial advisory service. If you’re looking for financial advice, go see a financial advisor. We’re just here to teach the way that Tony does it may or may not be right for you. And we’ll be back next week with Alan Kohler. Thanks for listening.

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