Transcript QAV 306

Episode: QAV 306 Club

Length: 1:05:04

 

Cameron Reil­ly [0:18]: Wel­come back to QAV, Tony Kynas­ton has done and before we get into it, TK Hap­py birth­day.

Tony Kynas­ton [0:24]: Thanks, Cam. Yes, that was last Fri­day. Fourth of April.

Cameron Reil­ly [0:28]: The fourth of April.

Tony Kynas­ton [0:30]: Actu­al­ly, it was Sat­ur­day.

Cameron Reil­ly [0:31]: Sat­ur­day. You have had a big week­end?

Tony Kynas­ton [0:35]: Kind of pass­es with­out know­ing, when you can’t cel­e­brate with any­one except being alone.

Cameron Reil­ly [0:39]: I know, ear­li­er in the year you told me you did have big sort of birth­day bash plans. So, I guess either that did­n’t hap­pen. Or you went ahead and just did­n’t invite me.

Tony Kynas­ton [0:49]: It’s a for­mer now you’re invit­ed. But no, we bought the use of a band for the char­i­ty auc­tion ear­li­er on or late last year. First of all, our tour­ing in Aid of the Bush­fire Relief. So, that kind of push the dates back and we thought it might even work with my birth­day. But first of all, you could­n’t have gath­er­ings of more than 10 peo­ple and now it’s two peo­ple. We just could­n’t book on; we’ll get to them lat­er in the year hope­ful­ly.

Cameron Reil­ly [1:20]: So, what did you do? Just a qui­et night in the sky palace?

Tony Kynas­ton [1:23]: Yes. qui­et night, a cou­ple of cup­cakes, and a bot­tle of wine. And then Jen­ny bought me a nice bot­tle of scotch. So, I sat on the deck for about 11 o’clock. 

Cameron Reil­ly [1:37]: What was the bot­tle?

Tony Kynas­ton [1:38]: I just haven’t had it with me. Sor­ry. It’s a strange one. It’s such inside scotch. It’s whiskey. It’s French whiskey. So, [cross-talk­ing 1:44] shar­ing it. So, it’s a real­ly strong, rich sort of fla­vor to it.

Cameron Reil­ly [1:50]: By the way, remem­ber, Niko, who was at our screen­ing after-par­ty in Syd­ney, who brought his sort of own whiskey con­coc­tion along? I’m chat­ting with him after we talked today. He’s just set up his fac­to­ry. At least his fac­to­ry in Syd­ney is going to start pro­duc­ing his whiskey.

Tony Kynas­ton [2:09]: Wow. And he can do that dur­ing the shut­down.

Cameron Reil­ly [2:13]: I guess. Maybe it’s just him in the fac­to­ry hear­ing up, but I said, Tony and I get in on this man. You want to get it on the ground floor of the whiskey busi­ness so, I’m hav­ing a chat with him lat­er on, at least I do. I have nev­er met you.

Tony Kynas­ton [2:29]: We’ll drink all the prof­its. I think prob­a­bly.

Cameron Reil­ly [2:31]: That’s okay. Yes, he and I are talk­ing about doing a whiskey pod­cast where he sends me a bot­tle of whiskey each week. And then we drink it and talk about it, I thought you’d like to get in on that.

Tony Kynas­ton [2:41]: Yes. That’d be great. So, I’m in my study. So, when we fin­ished, I’ll take a pho­to of the whiskey and send it off to you.

Cameron Reil­ly [2:50]: Great. And you did­n’t do a zoom par­ty. There was a mate of mine in Seat­tle, an old friend of mine, Buzz Brugge­man, one of the god­fa­thers of the pod­cast net­work. He had his 65th birth­day, I think on zoom a week or two ago, we did a zoom par­ty, and a bunch of peo­ple from around the world jumped on zoom to toast him and wish him a hap­py birth­day. We should have done that for you. And I did pitch the idea of a zoom meet­ing for our club sub­scribers last week, and he said you’d be into it.

Tony Kynas­ton [3:23]: Yes. And that would be good.

Cameron Reil­ly [3:25]: First of all, you com­plained about how hard I’m work­ing in you were like, Jesus Cam. You’re mak­ing me do two pod­casts and review the Edit of the Get­ting Start­ed Guide. Now you want me to do a video call?

Tony Kynas­ton [3:40]: Yes, I think you should dou­ble my pay.

Cameron Reil­ly [3:41]: I think I will. I’ll triple it, how about that? So, we will let Club sub­scribers know when we’re going to do that maybe lat­er on this week, depend­ing on when this comes out lat­er on this week, or we’ve already done it and was­n’t great and we had a good time. Alright, well, its big week for us. Last week, we bought a stock we added the stock to the port­fo­lio and every­one lost their col­lec­tive minds over that. So, we should start with that the San­tos buy. I don’t know how you want to start with this, we got a cou­ple of ques­tions from lis­ten­ers. And we should prob­a­bly do the check­list as well. I did it last night. Where do you want to start?

Tony Kynas­ton [4:37]: Well, let me go through my rea­son­ing for buy­ing it. And we may have answered most of the ques­tions in so I’ve said before on the pod­cast that I use the top movers’ tables in the AFR which they pub­lish at least a cou­ple of times a week they pub­lish a small one every day, usu­al­ly has a top-five stock in it and they pub­lish a big­ger one prob­a­bly three times a week, which are com­pa­nies which have their high­est stock price in the last rolling 12 months. And San­tos popped up. So, I went and had a look at it. And prob­a­bly the thing that struck me the most was it’s got updat­ed fore­cast earn­ings per share.

So, peo­ple have been crunch­ing the num­bers on San­tos. And they’ve low­ered their esti­mates, which gives us some num­bers to work with. So, that was a good copy with the fact that San­tos was already on our watch list after its half-year results. So, the num­bers kind of just got bet­ter after that. And I think we’ll go through and ana­lyze it either now or lat­er in the pod­cast, but the future IV I came up with was about $9. And giv­en the cur­rent share price is around four. I thought that was a pret­ty good mar­gin for safe­ty as well. So, that got me inter­est­ed, I had looked at the three-point graph for San­tos. This is one of the inter­est­ing ones that hap­pened at this stage in the mar­ket. If we take a ruler out and look at San­tos, it’s almost a ver­ti­cal drop from about $9 so the price dur­ing the end of Jan­u­ary was $8.70.

Before the Coro­n­avirus cri­sis, they’re call­ing it now. Any­way, so you’re a straight line down then we’ve got a bit of an upturn, the clas­sic J curve that peo­ple talk about in eco­nom­ics. So, we have seen tech­ni­cal­ly, an upswing from a three-point down­trend. The dif­fi­cul­ty with these kinds of ones is kind of after one month of train­ing, you don’t know whether it’s going to con­tin­ue and might go either way it might swing up or it might swing down. So, these arise a bit iffy in terms of using the three-point graph to pre­dict how things are going to go. But what did give me a bit of courage is that the share prices went from a low of $3.42 up to 399. So, it’s it has arisen a fair bit. So, I start­ed doing some research.

Cameron Reil­ly [7:21]: Sor­ry, well, it was a lot low­er than that. I’ve got the chart in front of me I see we’re down to $3 and one.

Tony Kynas­ton [7:30]: Okay, what are you look­ing at the five-year month­ly?

Cameron Reil­ly [7:37]: Sor­ry, no, my bad two-year week­lies, I can’t fig­ure out how to get the graph on the front page. How to get that five years month­ly? [Cross-talk­ing 7:47].

Tony Kynas­ton [7:48]: So, go across to the box, which might say my select the price alert.

Cameron Reil­ly [7:53]: Yes.

Tony Kynas­ton [7:53]: Yes, and select None. It’s a bit clunky, but that turns off the SD max indi­ca­tor. And then you can go across to the peri­od selec­tor and you get five-year month­ly in.

Cameron Reil­ly [8:07]: Thanks. Yes. Okay. Now I’m with you. Right.

Tony Kynas­ton [8:11]: Yes, but you’re right. Accord­ing to the month­ly graph, the low was 342. But it did get low­er than the inter­est. So yes, it’s gone up some­thing like 25 — 30% in the last lit­tle while, maybe in the last week. So, there’s cer­tain­ly an uptick hap­pen­ing. So, I kind of did some research to work out why. And what I found was a cou­ple of things. So, first of all, the breakeven price of a bar­rel of oil for San­tos is around $30. So, I saw 30 in one of the research­es reports I was read­ing, Alan Kohler report­ed 32, in the research reports he was read­ing on the week­end. So, it’s around 30 bucks, the oil price jumped to $30 on Fri­day and sell back to 29.

And that was large because of some tweets from the orange mar­ket in Wash­ing­ton say­ing that he’d been speak­ing to MB major banks or in Sau­di Ara­bia, and they were try­ing to do a deal to get the oil pro­duc­tion num­bers down because what’s hap­pened is the oil demand has dropped because of the Coro­n­avirus, and it’s dropped to by about 25 mil­lion bar­rels per day. And at this stage, the Saud­is and the Rus­sians have been float­ing the idea of drop­ping oil pro­duc­tion by 10 mil­lion bar­rels a day. So, they’re going to have to drop it fur­ther, but at least they’re start­ing to talk about the inter­est­ing thing though, is that we’re get­ting to a stage where we’re get­ting too close to what’s called peak stor­age in the oil indus­try.

So, all the wells are still pump­ing all the refiner­ies are still refin­ing and they’re still ship­ping crude. But nobody’s buy­ing. So, all the stor­age for oil is fill­ing up in the world, large co tanks that you’ll see. Often­times in sports, the pipelines are fill­ing up. All tankers are trav­el­ing the world with car­goes and can’t sell them. That’s prob­a­bly days If not, maybe a week away from being full. And that’s always a tip­ping point in the oil mar­ket because it does­n’t mat­ter how much you reduce sup­ply; you can’t pump any more on stor­age any­way.

Cameron Reil­ly [10:32]: Isn’t that when you just do a cou­ple of X on Valdez?

Tony Kynas­ton [10:34]: I start to do it for the insur­ance yes, it pos­si­bly. But basi­cal­ly, all pro­duc­tion has to drop to zero until the stuff that’s in the pipeline can be sold. So, no one’s going to let that hap­pen. That tends to be the burn­ing plat­form that gets a deal done at the last minute. So, even though it was Trump’s tweets, which saw the oil price rise, I think there will be some­thing done in the next week or so to low­er pro­duc­tion dra­mat­i­cal­ly, try and soak up the oil that’s in stor­age. And because that means sup­ply starts to equal demand, we should see a price rise in the price of oil, it might not be dra­mat­ic, but it only has to rise maybe one or two bucks a bar­rel for San­tos to go at least to break even and stop los­ing mon­ey. On top of that, they’ve got low debt, they’ve got noth­ing, I think that needs to be matured or swapped out for anoth­er cou­ple of years in terms of debt repay­ments. And they stop­ping all their cap­i­tal works in pre­serv­ing cash. So, I did­n’t go all-in on Fri­day, I bought prob­a­bly about 12% of my usu­al amount. So, I’m going to dol­lar cost aver­age into this. And if the share price turns down, I’ll wait and watch and see and maybe buy some more. If it even starts to run quick­ly. I might buy some more as well. So, it’s a bit of a watch and waits and the dol­lar cost aver­age exer­cise. But I thought even though I don’t think we’ve seen the vol­ume at the mar­ket that we may have for oil.

Cameron Reil­ly [12:01]: Inter­est­ing. And I’ve been read­ing stuff over the last cou­ple of weeks about the impact that the oil price is hav­ing on the shale pro­duc­ers in the US. So, could send a lot of them to the wall.

Tony Kynas­ton [12:14]: Yes. And we had the first bank­rupt­cy in the shell mar­ket dur­ing the week as well. So, that’s already start­ing to hap­pen. And that’s obvi­ous­ly the game plan of Sau­di Aram­co, which is prob­a­bly the biggest com­pa­ny in the world now, poten­tial­ly, but cer­tain­ly the biggest oil com­pa­ny, they’re try­ing to gain mar­ket share and give economies of scale. And it’s always been a thorn in the side of AIPAC that Amer­i­ca has become all-suf­fi­cient since the Oba­ma days. So, they’re try­ing to dri­ve the shale oper­a­tor to, while I’m read­ing, have sort of 50 $60 breakeven prices for a bar­rel of oil. And they’re high­ly indebt­ed. So, I’ll start to go to the wall. And that will have flow-on effects for the finan­cial indus­try in the US as well because that’s why I get repaid, they’ll be a markup in bad debts. And often­times, those debts are syn­di­cat­ed across a whole heap of the bank so it’ll flow through the US won’t be great. That might be anoth­er leg down in the mar­ket. But reduce demand in the mar­ket will mean the oil price should rise.

Cameron Reil­ly [13:15]: Right. So just to clar­i­fy this hit your radar because it was on the top mover’s chart in the ASX and how often do you look at that?

Tony Kynas­ton [13:26]: I apply for the Aus­tralian Finan­cial Review.

Cameron Reil­ly [13:27]: Sor­ry, AFR, yes. How often do you look at that?

Tony Kynas­ton [13:30]: Every day.

Cameron Reil­ly [13:32]: Right. So, that’s part of your dai­ly review over break­fast is the top mover’s chart?

Tony Kynas­ton [13:37]: Cor­rect. Yes. Months [inaudi­ble 13:39] break­fast, but some snacks dur­ing the day.

Cameron Reil­ly [13:43]: And what are you going to do when Fair­fax goes bel­ly up? How will that change your [cross-talk­ing 13:48]?

Tony Kynas­ton [13:49]: I have to try and find anoth­er source of that kind of child or we’ll do a fil­ter on stock doc­tor myself or some­thing like that.

Cameron Reil­ly [13:56]: Just buy it.

Tony Kynas­ton [13:57]: Yes, pos­si­bly.

Cameron Reil­ly [13:58]: Yes, we’ll just buy Fair­fax.

Tony Kynas­ton [14:00]: Buy Fair­fax. Yes, for sure. [Inaudi­ble 14:03] Fair­fax so, you can run chan­nel nine.

Cameron Reil­ly [14:10]: Well, we know some­one who could help us run Chan­nel Nine. He has din­ner with us in Syd­ney. He prob­a­bly knows a few things about what’s going on. Okay, so your radar through that apart from that, at a time like this, peo­ple have asked me via email in the last week or so. What’s Tony doing right now in terms of how many stocks is ana­lyz­ing and I said, look to the best of my knowl­edge, noth­ing he’s not both­er­ing with analy­sis. Are you doing much deep-dive stuff at the moment or just when things tick­le you in the nether regions like this one?

Tony Kynas­ton [14:56]: Yes, no, I’m not doing much analy­sis until I get a sort of a lead like this. But I am watch­ing the three-point train grasp because there are a cou­ple of stocks, I’m watch­ing which are get­ting close-ish to three-point uptrends. So, stocks like Rio, Bell Finan­cial group, which we’ve had before, and their met­als are all on upswings that haven’t bro­ken through yet, but they’re get­ting close. So, I’ll prob­a­bly update our watch­list once every cou­ple of weeks. I’ll prob­a­bly do it again this week now because things look like they might be mov­ing and see how it looks. And then I’ll watch the stocks which are mov­ing up because some stocks are and see if they’re get­ting close to 3.3 lined break­throughs.

Cameron Reil­ly [15:42]: I want to talk about the cen­ter’s chart in a sec­ond, but just go over for me again. How are they report­ing on the finan­cials? So, you say­ing that they’ve done some updat­ed pro­jec­tions?

Tony Kynas­ton [15:57]: Yes, so that was the thing which tipped over for me. So, I think when I first did the num­bers on San­tos after the full-year results, I think their fore­cast earn­ings per share was I don’t have the num­ber in front of me, but it was maybe even an increase on the cur­rent num­ber. But now when I look at it, the cur­rent APS for San­tos is 43.91 cents. The future APS has now dropped to 28 cents. So, the ana­lysts have been updat­ing their num­bers on that.

Cameron Reil­ly [16:29]: Okay, right, because that’s what I was doing the check­list on it last night. That was the one thing I was­n’t sure about, these num­bers that I’m using. How do I tell if they’re even rel­e­vant, but I did notice that the future APS was very low? So, did­n’t sort of tweak for me, though, that was an indi­ca­tor.

Tony Kynas­ton [16:48]: So, that’s one of the things even with these oth­er stocks I men­tioned before like Rio Tin­to, if they do a three-point uptrend break­out, I want to still have some kind of con­fir­ma­tion that the APS fore­casts have been low­ered. And we’re not still doing cal­cu­la­tions based on old num­bers.

Cameron Reil­ly [17:06]: Right. Okay. And is there any way of telling how up to date the num­bers are on the stock doc­tor, because when I look at the past finan­cial per­for­mance, it just says Decem­ber 19, for their annu­al report? Is there any­thing else I should be look­ing at there?

Tony Kynas­ton [17:22]: It’s pret­ty labo­ri­ous, but you can do it. There’s a varies in the alert man­ag­er. We look for alerts, recent updates on price-sen­si­tive maybe, or a com­pa­ny finan­cials updat­ed, there’s a cou­ple of tabs, you can see there you can check, and then you run it. And you can see there’ll be updat­ed APS will be one of the alerts that come up through there.

Cameron Reil­ly [17:48]: But there’s noth­ing on the map the main screens, San­tos and SDS that tells you that right?

Tony Kynas­ton [17:54]: No, I picked it up because I still had the num­bers in my spread­sheet from Feb­ru­ary when we did the analy­sis before. And I can see that the earn­ings per share and almost halved from old num­bers.

Cameron Reil­ly [18:07]: Okay. Well, let’s talk about the chart thing. Do you want to whip through the check­list? This chart is a tricky one. And I’ve had a cou­ple of peo­ple asked me to help them under­stand how to do a chart in times like this.

Tony Kynas­ton [18:26]: So, this is an inter­est­ing one, because San­tos fell from basi­cal­ly a tie point straight down. So, some of the oth­er com­pa­nies we look at, for exam­ple, Quan­tos, sorts of had a leg down first. And so, if you draw the line from its high point towards the next high point, the upswing we’re see­ing has­n’t crossed that line yet. But in the case of some­thing like San­tos, where it goes from the high point straight down, we go through a cou­ple of points. So, the high­est point was in Jan­u­ary, the price of 869. And then we have anoth­er month the end of Feb­ru­ary at 683. And then end of March, we have a low of 342. So, there’s our line for three points. And then the cur­rent price is 399. So, it’s gone above that line. There, as I said before, because of the shape of this graph, we’re not going to know whether it’s going to be sus­tained or not for anoth­er month or two. So, I’m not going to go all-in just yet. I’ll just keep dol­lar-cost aver­ag­ing as the month unfolds.

Cameron Reil­ly [19:32]: Yes. Because the ASX, the [unclear 19:36] did have sort of ral­ly last week in gen­er­al.

Tony Kynas­ton [19:41]: Yes cor­rect. I think it was down last week or the week before but any­way yes.

Cameron Reil­ly [19:47]: Real­ly?

Tony Kynas­ton [19:48]: I could be wrong. Sor­ry.

Cameron Reil­ly [19:51]: Well, I’m sure you’re nev­er wrong Tony. That’s what I like about you.

Tony Kynas­ton [19:55]: Well, I think that’s a good point to make. I could be wrong in this case. San­tos could drop through the floor next week. Who knows? And the oth­er thing about this chart is if we go across to beach ener­gy, which is one, I haven’t had time to do as much research on the San­tos, but it’s anoth­er oil com­pa­ny. And its graph is also doing the same thing. So, beach ener­gy may become a buy­er as well, I just haven’t had time to research it yet.

Cameron Reil­ly [20:25]: And, the next day, after we record­ed this Tues­day, the sev­enth of April, the day I’m edit­ing this, Tony did email me and say that he had just added beach petro­le­um to his port­fo­lio. But he did­n’t want me to add it to the QAV port­fo­lio, because he felt we were sort of exposed to that sec­tor with San­tos. But he did want me to let you know for transparency’s sake that he did add some BPT to his port­fo­lio this morn­ing. Well, when I was ana­lyz­ing this last night, where my head was that for­got what’s going on with the oil price, for­get what’s going on with the all odds in gen­er­al and the glob­al this and that, and for­get all of the macro­eco­nom­ic analy­sis, I’m look­ing at my check­list, I’m look­ing at what the num­bers tell me. And what my rules tell me accord­ing to the offi­cial, soon-to-be-released QAV get­ting start­ed man­u­al, as soon as Tony signs off on it. My rules are my rules. And this pass­es the rules on the check­list.

So, I put out of my head, that I might be doing the wrong thing here. But for me, I put out of my head, all of the oil stuff and all of the gen­er­al mar­ket stuff and go, I’m just look­ing with one shot. Robert De Niro, a deer hunter focus­es on this dog. This is the thing, I’m going to put this on a cof­fee mug, this is going to be the next cof­fee mug. Lis­ten to the num­bers that are all, I think. Lis­ten to the num­bers. What are the num­bers telling me to for­get every­thing else, lis­ten to the num­bers? Again, this could be com­plete­ly off base here. But this is where I’ve come to after a year or so of doing this with you. For­get the sto­ries for­get the nar­ra­tives for­get try­ing to pre­dict where the oil prices going and what the Saud­is are going to do and what the Rus­sians are doing and what Trump’s tweet­ing about. Look at the num­bers make my deci­sions based on the num­bers; you’re not going to be right all the time. And you’ve always told me that, you try and get it right 60% of the time. But the num­bers are telling me what the num­bers are telling me, which is this is a buy. So, I’m like, okay, I lis­ten to the num­bers.

Tony Kynas­ton [22:40]: No, I agree. And that’s what I think it was impor­tant for me to see that the earn­ings per share fore­cast num­ber had been revised down. That gave me some more con­fi­dence that the num­bers were more accu­rate than they were a month ago. 

Cameron Reil­ly [22:54]: So, we’ve talked about the sen­ti­ment chart, pull-up check­lists, boys and girls. Col­umn H gets a tool for sen­ti­ment because it’s breached that line. And I’ll do a video of this. So, lat­er on, today or tomor­row or some­thing you can have a look at the video. Cameron in the edit­ing booth here. I decid­ed it was­n’t worth a video, but I did a screen­shot and marked the three points. So, go up to our web­site, have a look at the blog post for this episode 306. And you will see the pic­ture screen­shot there­of that in case of a lit­tle bit con­fused about how the chart works on our videos page QAV pod­cast com­mu­ni­ty slash videos, you’ll find all of our videos. Col­umn I, is there a recent pos­i­tive upturn? Yes. So, you agree with me?

Tony Kynas­ton [23:46]: Absolute­ly, yes.

Cameron Reil­ly [23:47]: Okay. Net oper­at­ing cash flow 2.920 bil­lion, say shares on issue 2.083 bil­lion gives me a cash per share of $1.40 share price when I did it last night was at 399 as a change today?

Tony Kynas­ton [24:07]: Yes, it’s 409 now accord­ing to the stock doc­tor.

Cameron Reil­ly [24:10]: Okay, well any­way, I’ll leave it at 399. Price to cash ratio, I got 285 which is less than sev­en. So, got a two on that div­i­dend yield 2.01% low­er than the mort­gage rate. So, we did­n’t score on that PE 18.63. Which is not less than the yield not the low­est nor the high­est in the last three years.

Tony Kynas­ton [24:39]: Just hang on for a minute no you’re right there. Because if you look at the stock doc­tor, it’s 18.63 as of Decem­ber 19, but it’s cur­rent­ly nine.

Cameron Reil­ly [24:51]: Okay, right. So, you take that one?

Tony Kynas­ton [24:53]: Well, I take [cross-talk­ing 24:54] them because some­times either the PE can go up if the price has jumped after the result. So, we’ll take the results num­ber just because I’m using those fig­ures, but if the share price has come down, then you know, we’ll take the low­er num­ber, but it’s still not the low­est because it was 3.96 back on June 17.

Cameron Reil­ly [25:12]: Okay. I’ll change that any­way, in my sheet 9.09. Good to pick up thanks. Net equi­ty. I got 10.956 bil­lion.

Tony Kynas­ton [25:24]: Yes.

Cameron Reil­ly [25:25]: And it does have con­sis­tent­ly increas­ing equi­ty. So, I gave it a one for that. Share price again, I use 399 net equi­ty per share our cal­cu­la­tors $5.26 share prices below that. So, I’ve got a one for col­umn Y, is the share price less than NIPS. Price to book I end­ed up with minus 24%. So, its share price is way below val­ue. So, it gets a one for col­umn dou­ble A is the share price less than 30%. Above the NIPS. That’s our Peter Lynch peg ratio. No, that’s [cross-talk­ing 26:08]. This is your cap cities. This is the cap cities guy.

Tony Kynas­ton [26:16]: I haven’t been able to find that ref­er­ence for you either. Sor­ry.

Cameron Reil­ly [26:19]: I think you made that up, dude. Because I told you I bought the book. Well, I’ve only read that first chap­ter. I haven’t had a chance to read fur­ther yet, but I scoured that. Well, when I say a scout, I hit Ctrl F and search for it. That’s my ver­sion of scout­ing. No, I could­n’t find that. So, I don’t know where you got that sor­ry from.

Tony Kynas­ton [26:41]: I’ve got my book on Audi­ble. So, I’ve start­ed to re-lis­ten to it. So, I haven’t come across it yet. But it will be there some­where. I think and I could be wrong could be some­where else. But it was almost like a throw­away line. It could be in the epi­logue or some­thing. Will they say Paul Mur­phy built up an empire by pay­ing one com­pa­ny at a time by pay­ing no more than six times cash flow.

Cameron Reil­ly [27:03]: Yes, right. Col­umn E B EPS 43.91 cents.

Tony Kynas­ton [27:12]: Yes.

Cameron Reil­ly [27:14]: And future earn­ings per share to get a stock doc­tor 28 cents.

Tony Kynas­ton [27:18]: Yes, that’s right.

Cameron Reil­ly [27:19]: Okay. Which is neg­a­tive growth of minus 3.98. So, it gets a minus one for growth over PE. I got an IV num­ber one been of $2.25.

Tony Kynas­ton [27:38]: Yes, 92.

Cameron Reil­ly [27:41]: So, obvi­ous­ly the price is above that so it does­n’t get a score for that. I got IV num­ber two for $4.15. [cross-talk­ing 27:50].

Tony Kynas­ton [27:53]: I think I made a mis­take there I think $9 may have been the old EPS num­ber. So, I apol­o­gize for that.

Cameron Reil­ly [28:00]: That’s alright it’s still above where it is last night today but bare­ly. But any­way, got a one for the share price is below IV num­ber two, but it’s not twice IV num­ber two, so sor­ry, IV two is not twice the share price I get zero for col­umn AK on my sheet. Is it a star stock on a stock doc­tor? No. Is it an A one A two B one B two on share analy­sis? No, I think was a C three as of last night. But stock doc­tor’s cur­rent intrin­sic val­ue is $6.10. There was a con­sen­sus val­u­a­tion, I think.

Tony Kynas­ton [28:40]: Yes, of 13 peo­ple.

Cameron Reil­ly [28:44]: So, we should take that as being [unclear 28:48] up to date?

Tony Kynas­ton [28:49]: I think so. Yes. It’s low­er than it has been in the past and giv­en those new EPS fore­casts, these guys should be using that to come up with $6.10.

Cameron Reil­ly [28:59]: Yes, right. Okay, so gets one for the share price being below the stock doc­tor intrin­sic val­ue the share analy­sis cur­rent intrin­sic val­ue, I only got $2.17.

Tony Kynas­ton [29:16]: Yes, so it’s about that.

Cameron Reil­ly [29:21]: Big dif­fer­ence between a stock doc­tor and share analy­sis.

Tony Kynas­ton [29:24]: Yes.

Cameron Reil­ly [29:27]: But share analy­sis is intrin­sic val­ue is going up in the future. I think it was gone up to three bucks some­thing from mem­o­ry.

Tony Kynas­ton [29:39]: $5.13 in two years.

Cameron Reil­ly [29:43]: In two years, okay. What is in one year?

Tony Kynas­ton [29:46]: One year it’s 387.

Cameron Reil­ly [29:48]: There you go. So, we give it one for that intrin­sic val­ues going up finan­cial health and the stock doc­tor is sta­ble, gave it one CEO only got I think 0.09% equi­ty or some­thing, so gave it a zero for exec­u­tive share own­er­ship. So, I got 11 out of 19 58%, and a total QAV score of 0.20, which is bloody strong. Even though the growth is not great. Like the fore­cast, EPS is down, as we said, etcetera. But still came up look­ing good. So, lis­ten to the num­bers I said to myself.

Tony Kynas­ton [30:36]: Yes, and it just the big aster­isk and caveat here are that these num­bers may not mean much going for­wards. Because if San­tos has to draw down on its equi­ty, then it won’t be increas­ing equi­ty going for­ward. We got an EPS fore­cast, which gives me a bit of com­fort, that’s good. But all these oth­er fig­ures will change in the next six months, we don’t have vis­i­bil­i­ty of those yet. So, even though we’re using the num­bers, I’m acknowl­edg­ing that they are out of date. But it does give me a bit of com­fort that the EPS has been low­ered, and we’re still with­in that sort of IV price range for San­tos. And look, we could try to pre­dict what equi­ty will be like in the future and what these oth­er num­bers will be like in the future. But it’s just too hard.

Cameron Reil­ly [31:26]: Yes. You start­ing to sound like the orange, what did you call him before the orange, some­thing that Mup­pet? Look on hand. On one hand, things can be fan­tas­tic it will all go to zero tomor­row. On the oth­er hand, it could be the worst calami­ty that’s ever hap­pened. You can peo­ple tell me, I don’t know.

Tony Kynas­ton [31:47]: It could be a large num­ber could be a small num­ber.

Cameron Reil­ly [31:53]: What­ev­er it is, it’s a beau­ti­ful num­ber. And if it’s a great num­ber, if it’s a low num­ber, then I did it. If it’s a bad num­ber, then it was the state gov­er­nors who did­n’t lis­ten to me. I watched his yes­ter­day while I was roast­ing cof­fee beans. I was watch­ing his dai­ly press con­fer­ence art. Being a his­to­ri­an or a stu­dent of his­to­ry, spend­ing so many years going deep into the fall of Rome and the fall of Athens and we tend to look back and go How did this hap­pen? How did they let this go on? It’s ridicu­lous from the glo­ry of Athens in its hey­day in the glo­ry of Rome to just becom­ing a sham­ble. And I’m watch­ing Trump’s press con­fer­ences and I’m going I’m liv­ing through it I’m watch­ing it hap­pen. It’s down­ing to me it is just mind-blow­ing watch­ing his press con­fer­ences right now just, what a just Bizarro world it is.

Tony Kynas­ton [33:02]: It’s two hours of ram­bling, isn’t it? It’s like the uncle you’re feed­ing dock to a Christ­mas time so he starts ram­bling, you know how they are.

Cameron Reil­ly [33:11]: And just the vagaries and the non­sense and when he gets into argu­ments and shut­ting down jour­nal­ists who try to ask ques­tions and even the guy from Fox News, he shut down the oth­er day and accused him of secret­ly work­ing for CNN. It’s just astound­ing to watch any­way. Alright, so we had some ques­tions from peo­ple that we may have already answered them lets run over it. Richard. Richard says hi Tony. I recent­ly received QAV of email with your deci­sion to buy San­tos shares the oil indus­try short term futures not look­ing too bright at the moment the com­bi­na­tion of the Coro­n­avirus with the drop in oil price has result­ed in a severe drop-in planned activ­i­ty for the rest of 2020.

How­ev­er, undoubt­ed­ly, there are many oil and gas com­pa­nies cur­rent­ly under­val­ued on the mar­ket. I look for­ward to hear­ing your stance on see­ing those. Well, I think you already explained that. Richard also has some ques­tions about Stan­more Coal. But let’s cir­cle back to that because Chris had some San­tos ques­tions as well. Oil demand is col­laps­ing and sup­ply is increas­ing the most recent uptick in oil prices last week as a result of a tweet by Don­ald Trump that he expect­ed Rus­sia and Sau­di Ara­bia to agree to pro­duc­tion cuts which may or may not hap­pen glob­al stor­age is near capac­i­ty and with­out sub­stan­tial pro­duc­tion cuts. All prices are at risk of fur­ther Falls is the deci­sion to buy pure­ly based on the three-point trend line?

Tony Kynas­ton [34:34]: Not pure­ly, I’ve giv­en my rea­sons, but yes, it’s also because the fore­cast earn­ings per share num­bers were updat­ed to and it scores well on the QAV check­list.

Cameron Reil­ly [34:45]: Yes. The deci­sion to buy does­n’t seem con­sis­tent with any of the QAV com­men­tary over the last cou­ple of weeks about sit­ting on our hands for sev­er­al months ques­tion mark?

Tony Kynas­ton [34:59]: Good point. Well, I don’t think I’ve ever said I’ll be con­sis­tent. So, what can I say, the process is the process and the process was have a look at San­tos and the num­bers stacked up and the graph was good? So, I start­ed to buy some­thing.

Cameron Reil­ly [35:18]: Well, I think the sit on your hand’s com­ment is, par­tic­u­lar­ly in response to peo­ple that are eager to jump back in because things are cheap. As I’ve said, I think the man­u­al that we will come out with soon, the check­list, and all of Tony’s state­ments and tools to help your think­ing, not a reli­gion. Although, by the time I’m fin­ished, it will be reli­gion.

Tony Kynas­ton [35:51]: The only way we can get tax deduc­tions.

Cameron Reil­ly [35:53]: Yes. And I am build­ing a shrine to you, but they sit on your hands, the way I’ve under­stood it is don’t be eager to jump back in when we get back in when we lis­ten to the num­bers. And in this case, the num­bers tell us that we should get back in, it’s ten­ta­tive, but the num­bers say yes.

Tony Kynas­ton [36:20]: No, that’s exact­ly right. Cam. Yes.

Cameron Reil­ly [36:22]: It’s not a reli­gion Chris yet. That’s my next cof­fee mug QAV it’s not a reli­gion dot, dot yet. It’s not a cult dot, dot, although that’s exact­ly what we would say if it was a cult. This is from Chris; the gen­er­al view is that we have yet to hit capitulation/despondency. In the cycle of mar­ket emo­tions. Does Tony agree with this? I think he does­n’t.

Tony Kynas­ton [36:49]: Yes. So, we went through Kubler Ross last week. I think we haven’t hit the bot­tom yet. We’ve been through anger and we’ve been through a bit of denial. I think we’re at the bar­gain­ing stage now. So, depres­sion comes next. I think after peo­ple have been locked up in their apart­ments and hous­es for a cou­ple of months, they’ll start get­ting depressed. And that’s not to say, the cafe is not open­ing, the restau­rants not open­ing peo­ple with los­ing their jobs are still not back at work. That’s a good point. The oth­er rea­son I looked at San­tos was they went they had their AGM last week, last Fri­day. So, that’s anoth­er time when com­pa­nies can talk to us about their future guid­ance. And they answered all the ques­tions about how much debt they had when it had to be repaid, and things like that. So that’s use­ful too. But we may start to see some updat­ed fore­casts when com­pa­nies hold their AGM, which they should all be doing fair­ly soon. If they haven’t already. So that might start to give us some fig­ures to put into a spread­sheet.

Cameron Reil­ly [37:53]: Alright, lis­ten to the num­bers. It remains to be seen for me how all of these buy­er lay­outs or what­ev­er you want to call them sup­port pack­ages, the gov­ern­ments are com­ing up with a gun to pay­ing out. I was talk­ing to one of my oth­er pod­cast sub­scribers, my his­to­ry shows in Syd­ney, who owns sev­er­al jew­el­ry stores late last week, and I said, how hang­ing in and I said, is gov­ern­men­t’s pack­ages, help­ing you out and he said, no, com­plete­ly use­less for my busi­ness. It’s a lot of good talk but, at the end of the day, it’s not going to be any good for peo­ple like me. So, I’m going to get him on one of my oth­er pod­casts this week to sort of drill-down and under­stand how he sees it. So, I think as peo­ple start to see busi­ness­es big and small, go to the wall. That could cre­ate anoth­er shock­wave, anoth­er round of shock.

Tony Kynas­ton [38:55]: Absolute­ly. And it’d be great to have him on our show. And just a thought, if lis­ten­ers out there, want to send us some anec­dotes about, how the virus is affect­ing their busi­ness and how the gov­ern­ment sup­port is help­ing or not help­ing, that might be a great way to get a feel for things as well col­lec­tive­ly. And we can share the results anony­mous­ly, or some­one gives us a case study. We can drill down into that maybe get them on the show, but now we have a lis­ten­er base the field to work out what’s hap­pen­ing in their world.

Cameron Reil­ly [39:27]: I’ve got quite a few emails from pilots, that sub­scribers talk­ing about how they’re fly­ing a couch for the next cou­ple of months. And all of them have said the same thing. So, I’m using this as an oppor­tu­ni­ty to drill down into my QAV study so that’s great. Tak­ing the time to invest in QAV. Uni­ver­si­ty.

Tony Kynas­ton [39:50]: Well, it’ll be inter­est­ing to see if they have any infor­ma­tion about when they think they might be fly­ing again.

Cameron Reil­ly [39:55]: Yes, yeah. Okay. Do you want to cir­cle back to Richards, Stan­more Coal ques­tions?

Tony Kynas­ton [40:04]: Yes, that’s right. So, Stan­more Coal was one of the shares that we’ve owned. And per­haps some of the lis­ten­ers are still own­ing it. But there was a takeover offer made for them, I think in the last week, but I don’t think it’s been opened yet. But it’s hap­pen­ing as we speak any­way. And the offer price was $1, the com­pa­ny that’s locked the offer already had about a third of the shares before the bid was launched. And I did a bit of a Google search on the week­end. And I’ve now got, I think, over 50%. So, it’s an uncon­di­tion­al offer, which is good. So, that means that it can’t be pulled or can’t be amend­ed down, it could be increased. The share price rose to almost meet the offer. So, the offer is $1 per share, and the share price is 99.5 cents.

So, if peo­ple do want to sell into this bid, then they can get their mon­ey in two days if they sell on the mar­ket. I per­son­al­ly prob­a­bly would­n’t do that just yet. Because it’s unlike­ly there’ll be anoth­er bid com­ing because the bid­der already has over 50%. But it’s pos­si­ble in these kinds of cir­cum­stances that some­one that’s called a green male and might launch a coun­terof­fer. And just try and extract some a high­er price out of the bid­der by buy­ing a block­ing stake and stop­ping them from get­ting to for acqui­si­tion of the com­pa­ny. And that’s forc­ing a high bid. So, don’t need to add just yet. If you accept the bid, you’ll get your mon­ey prob­a­bly slow­er than if you sell on the mar­ket. So, if you need the cash, then do that. But don’t wait until the bid­ding com­pa­ny gets up close to 90% because then they can com­pul­so­ri­ly acquire your shares.

Cameron Reil­ly [41:57]: Sor­ry. How do you tell where they’re at? How do you keep track of that?

Tony Kynas­ton [42:01]: He’s just got to look at the six announce­ments for the com­pa­ny and the bid­der. Yes, so the stock doc­tor will have announce­ments on the front page, I think. And the most recent ones any­way, and you have to be kept up to date through that process. So, I think fur­ther on in that ques­tion from that lis­ten­er, that he was wor­ried about the com­pa­ny. One of his ques­tions is gold­en invest­ments as a pri­vate com­pa­ny. So, that’s the bid­ding com­pa­ny. So, am I cor­rect and assum­ing if and after the takeover goes ahead, any remain­ing share­hold­ers will not be able to sell, and it will effec­tive­ly be a loss for them? So that’s not the case. So, we spoke once before about a takeover. And that was anoth­er coal com­pa­ny, I for­get what the name of the coal com­pa­ny was. Sor­ry, just escape kept my mind. Will King be the chair­man any­way?

And that was a bit dif­fer­ent to this one, because that com­pa­ny and attack­ing the com­pa­ny that was want­i­ng a takeover, weren’t sub­ject to Aus­tralian cor­po­rate law, they were using British cor­po­rate law. And there are some dif­fer­ent wrin­kles in that cor­po­rate law com­pared to Aus­tralian cor­po­rate law. But this takeover of Stan­more is sub­ject to our laws, and one of the laws is that you have to make the same offer to all share­hold­ers. So, if you wait, then this bid­ding com­pa­ny, which is called Gold­en Invest­ments, will still have to offer you $1 a share when they com­pul­so­ri­ly take you over. If you wait till the bit­ter end. So, they’ll do that. And again, in the pri­or exam­ple, the com­pa­ny was threat­en­ing to go pri­vate, and then was going to make a poten­tial­ly a low­er offer to share­hold­ers to buy them out, which must be poten­tial­ly the case of how British law works. But that’s not how Aus­tralian law works. So, if you wait, you will still get $1 per share. The ques­tion is, how long do you want to wait for your mon­ey and whether you sell our mar­ket now or wait until it gets clos­er to the com­pul­so­ry acqui­si­tion num­ber, which is 90%.

Cameron Reil­ly [44:13]: Just remind­ing peo­ple, this is not finan­cial advice.

Tony Kynas­ton [44:15]: It’s not, no. So, what would I do? I would hang on a bit longer and see if there’s going to be any­one launch­es anoth­er bid. But as the acqui­si­tion creeps out, to maybe 70% plus, then I’d sell our mar­ket and get my mon­ey. And okay, it’s 99.5 cents in $1. But I get it with­in two days rather than wait­ing for the bureau­cra­cy of the bid­ding com­pa­ny to send me a check.

Cameron Reil­ly [44:41]: Okay, any more ques­tions from Richard on Stan­more? I think that’s kind of it.

Tony Kynas­ton [44:46]: Yes, I think so.

Cameron Reil­ly [44:47]: Pos­si­ble sce­nar­ios. We’ve got a ques­tion from Paul. Paul had din­ner with us. Hi, Paul. How are you doing, Paul? Paul came to din­ner in Syd­ney. Do you want to say hi, Paul? Say hi, Paul.

Tony Kynas­ton [44:47]: Hi, Paul. Tony is every­thing and I just last it. Hi, Paul, it was great to meet you. We ques­tion you and I thought we had a very high IQ din­ner that night with our lis­ten­ers. It was great.

Cameron Reil­ly [45:01]: I brought it down. I apol­o­gize for that. He asks, does any type of list­ed invest­ment vehi­cles lend them­selves to QAV analy­sis? For exam­ple, ETFs, LIC, or LITs, do they ever score well enough on the price to cash per share ratio to score over point one? I think we’ve talked about run­ning them through the check­list before, right?

Tony Kynas­ton [45:43]: Yes, every list­ed com­pa­ny goes through the check­list. And occa­sion­al­ly we do get some ETFs and LICs. that meet our scores. That has hap­pened before it’s not all that often, but it has hap­pened. So yes, is the answer.

Cameron Reil­ly [45:58]: Yes, is the answer, Paul, and if you want, let me know. And I can shoot you some links to episodes that we’ve done before. Where we talked about that, by the way, every­one, feel free to do that. If you guys talked about this before, shoot me an email, because I keep pret­ty good notes on what all of our episodes are. And I can flick you a link, got to lis­ten to this one and this one and half of that one and what­ev­er. Or we can answer them again the fol­low­ing week like we just did, but some­times we do deep­er dives. And that kind of jazz, I should come up with like an index for peo­ple.

Ques­tion two from Paul, Tony has pre­vi­ous­ly spo­ken about invest­ing in list­ed Invest­ment Trusts such as Wham and specif­i­cal­ly when the trad­ing price was less than the net tan­gi­ble assets, as we speak almost all of the Wham prod­ucts, cap­i­tal research, etcetera, are trad­ing at sig­nif­i­cant dis­counts to their NTA. How is an NTA cal­cu­lat­ed when the assets are hold­ings and list­ed com­pa­nies them­selves? Would­n’t the NTA be cal­cu­lat­ed based on pre-COVID-19 earn­ings and itself be inflat­ed tak­ing that into account? Is this one of the times or oppor­tu­ni­ties where Tony will con­sid­er buy­ing into a list­ed invest­ment vehi­cle even if the NTA itself has a ques­tion mark over it? Thanks again, James Paul. Well, this is kind of sim­i­lar to the San­tos dis­cus­sion, I think, right about the valid­i­ty of the num­bers?

Tony Kynas­ton [47:26]: Well, yes, there’s part­ly that. Paul’s right that LICs can be trad­ing at a dis­count now. And part of that’s because the mar­kets get­ting ahead of the NTA report­ing, so, com­pa­nies that are list­ed in this style, either liquor or an ETF, sor­ry, I think maybe just LICs they have to report their NTA at least month­ly. So usu­al­ly, by about the sec­ond week of the month, they’ll release their net tan­gi­ble assets on the ASX web­site. And you can go and have a look. And then you can say, Well, giv­en that these West­ern invest­ment com­pa­nies have stocks and cash as their assets, you can look at as a proxy, where the share mar­ket has gone since the NTA was report­ed.

So, if the NTA is say, March 31, and the share mar­ket has gone up since March 31, then maybe it’s gone up by 5%. So, you can add 5% to the NTA num­ber and see if it’s pos­i­tive or neg­a­tive com­pared to the share price. So, that’s pret­ty much how I would do it as the mar­kets mov­ing around like this. But a cou­ple of oth­er points. I’m not sure that Paul is right about all the Wham sta­ble of list­ed invest­ment com­pa­nies being at a dis­count to their NTA, I have a look at the notes pro­vid­ed by Jeff Olson, they did an investor call on the first of April, and the only West­ern invest­ment com­pa­ny and they’re sta­ble I could see trad­ing at a dis­count was when glob­al and that’s trad­ing at about a 25% dis­count. So, just to run through that the net tan­gi­ble assets for Wham glob­al state of being to those 20 per share. In oth­er words, if you add up all the cash and all the stocks that Wham glob­al adds divide by the share­hold­ers and Wham glob­al you get $2.20 per share. But the price for Wham glob­al was $1.65 per share. So, 25% dis­count what I then did was have a look at the share price graph for Wham glob­al in stock doc­tor and it does have a bit of an uptick to it.

But it has­n’t yet quite breached the three-point trend line. So, I would think that if you want­ed to sort of tak­ing advan­tage of this dis­count then you could start dol­lar-cost aver­ag­ing. But I would feel more com­fort­able when the share price goes above that three-point trend­line. Addi­tion­al­ly, I went to the MSCI glob­al index, because this is a glob­al LIC and that’s been trend­ing down. So, it’s also pos­si­ble that the NTA will go down as well. So, I’m not in any hur­ry at this kind of stage of the mar­ket to look for dis­counts and NTA. But they are appear­ing, where I tend to find its, bet­ter buy­ing is that often­times those dis­counts don’t dis­ap­pear on the way up. So, the assets, or the shares that this com­pa­ny owns, will start to go up quite pos­si­bly before the share price and the LIC does.

And then often is the case because we’ve reached capit­u­la­tion in the mar­ket, and peo­ple just start buy­ing into these lists of invest­ment com­pa­nies. They’re sold out and they’re sit­ting on cash still, but the share prices are mov­ing for the under­ly­ing shares in that invest­ment com­pa­ny. So cer­tain­ly, you can take advan­tage of a 25% dis­count, but our dol­lar cost aver­age at this stage. I feel more con­fi­dent when the mar­ket starts to turn up. And cer­tain­ly, more con­fi­dence on the three-point trend lines start to go above their down­swings.

Cameron Reil­ly [51:15]: Sor­ry, I’m still stuck on when you said glob­al LIC, my mind start­ed to wan­der. Phased out for the last half of it.

Tony Kynas­ton [51:28]: Yes, the Wham glob­al LIC.

Cameron Reil­ly [51:34]: Great. Well, thank you for those ques­tions, Paul. Hope you’re tak­ing care of stay­ing safe in Syd­ney town. Steven Maab sent us an email and with some ques­tions, which we will answer pri­vate­ly, I guess. But one of the things that he point­ed out and I know we’ve had some ques­tions about this recent­ly, so might be use­ful for peo­ple. Stephen was on the show a few months ago BCV. And he men­tioned I think at the time that he likes to use a low cost or has in the past likes to use a low-cost bro­ker. So, peo­ple have been ask­ing who to use one of the ones that Stephen says he likes to use is some­body called Self­wealth online bro­kers at $9.50 trades so Stevens smart chap knows what he’s doing.

So, you might want to have a look at those Self­wealth. Not a rec­om­men­da­tion. I don’t use them, Tony, does­n’t use them but Steven does and he’s a smart cook­ie. So least check them out. And they don’t spon­sor the show yet. Prob­a­bly because we haven’t asked him to maybe we should do that. Maybe Steven Maab should do that Steven should sug­gest that they spon­sor the show. Now, lis­ten­er Elmer sent me a link on the week­end to an arti­cle that friend Roger Mont­gomery wrote on the ASX his web­site for some rea­son. Well, at least that’s where it was post­ed. Talk­ing about frame­work to assess COVID-19 invest­ment risks and oppor­tu­ni­ties. I had a quick read of it seemed to make sense to me, Tony, what did you think of it?

Tony Kynas­ton [53:16]: Yes, same I did. So, as we set, off-air before Roger, a clas­sic val­ue investor. Now he’s been doing cash over the last cou­ple of years because he thought the mar­ket was over­val­ued. And that’s turned out to be cor­rect. But I don’t do that because you don’t get the ben­e­fit of those last cou­ple of years in a bull mar­ket to boost your shares. And then I’d like to sell into the down­swing and go to cash then so just dif­fer­ent fla­vors of the same pie, I guess. But oth­er­wise, I’m pret­ty much on the same page with Roger he’s got a cash port­fo­lio and he’s start­ing to look for com­pa­nies that are going to sur­vive they’ve got low debt and they’ve got sol­id busi­ness­es and he makes the point buy them at the right val­ue. So, under­stand what intrin­sic val­ue is.

Cameron Reil­ly [54:05]: There’s a quote from his arti­cle. “To avoid over­pay­ing and the investor must under­stand the intrin­sic val­ue that con­cept requires its chap­ter which I includ­ed in my book Val­ue. Able”. You can find out more about how to val­ue a com­pa­ny there and I know that we’ve talked about his book before, it’s a book that you rec­om­mend peo­ple read?

Tony Kynas­ton [54:26]: Yes. It’s a good book.

Cameron Reil­ly [54:28]: There you go. So, Roger is doing the do stick­ing to it writ­ing good stuff. One of Aus­trali­a’s val­ue investors who is I’m sure going to do quite well this year.

Tony Kynas­ton [54:48]: Yes. That’s the clas­sic play­book for val­ue invest­ing as you under­per­form in the boom­ing mar­ket, but he’s come into his own in the next 12 to 18 months.

Cameron Reil­ly [54:58]: Well, I think that’s all my notes for today Tony, is there any­thing else you want­ed to throw in before we go to black?

Tony Kynas­ton [55:10]: Yes, a cou­ple of things. So, we did have an email. I think from David, one of our lis­ten­ers about the Kath­man­du rights issue. So, I think he sent us an email last week ask­ing whether Kath­man­du was a buy. And then we went back and said, lis­ten to the pod­cast, and then the rights issue hap­pened. And we asked him if he would go into that and we swapped some emails about that, but basi­cal­ly, to give some back­ground Kath­man­du is a retail com­pa­ny, they pur­chased a surf way chain and boots man­u­fac­tur­er from the States last year. And they bor­rowed to do that on the under­stand­ing that they could trade their way through ongo­ing and use the rev­enue to pay off the debt. So, giv­en that all stores had to shut in the last month, that’s turned out to be not a great plan. So, they’ve had to raise mon­ey.

And they’ve quick­ly raised a lot of mon­ey from insti­tu­tion­al investors on a 1.2 for one share price rais­ing at 50 cents New Zealand of 49, Aussie, and the retail part of that process is about to open. So, in oth­er words, if you’re a share­hold­er, as a clos­er busi­ness last Fri­day, you can buy an extra 1.2 shares at 49 cents a share. And the share price, I think like a lot this morn­ing was 76 cents. So, even though you’re being dilut­ed, it’s not a bad deal. So, you might want to con­sid­er going into it. But apart from the finan­cial advice side of things and think about it for your­self, I just want­ed to raise a cou­ple of points about this rights issue because we might see them in oth­er ones and they’re a bit instruc­tion­al. This rights issue has some pos­i­tives and some neg­a­tives. So, the pos­i­tives are the com­pa­ny’s col­or on the front foot. And they’re issu­ing their rights ear­ly. And that’s always impor­tant because there’s only so much cash sit­ting around in the mar­ket. And once that goes, then if some­one’s low to mar­ket and they need cash, they’re going to have to dis­count it very heav­i­ly to try and lose some cash. So, it’s always good to go ear­ly. And we’ve seen sev­er­al rights issues in the last week with Web­jet and the media kind of being forced to do it and Kath­man­du kind of being forced to do it.

But we’ve also seen sort of pro­duc­tive com­pa­nies like Korea, rais­ing mon­ey just because they know if you go ear­ly, you’ll get access to cash even though they may not need it straight away. They made it down the track. But if you go well, it’s good thing man­age­men­t’s being proac­tive. The oth­er inter­est­ing thing about this one and I think it’s pos­i­tive is that the banks had been inti­mate­ly involved with Kath­man­du and I men­tioned, they’re talk­ing to the banks a lot because they owe mon­ey and they can’t trade at least in the retail sense, they can still do online. So, the banks will be get­ting updates as to how they plan to repay their debt. And in doing this share place­ment, the banks have agreed to waive some of the covenants on a debt and that might be a term that some lis­ten­ers are famil­iar with, and some aren’t. But basi­cal­ly, lots of cor­po­rate loans will come with strings attached which are called covenants.

And so that’s when the bank might say, for exam­ple, will lend you this mon­ey but if your mar­ket cap­i­tal­iza­tion falls below this lev­el, you want to get it back or if your rev­enue drops by a cer­tain num­ber. Prob­a­bly all sorts of dif­fer­ent covenants that can be placed in loan doc­u­ments. I’m not sure what the ones are for Kath­man­du, but it is a pos­i­tive sign to see the banks are will­ing to try and try their way through with Kath­man­du rather than to fore­close and try and sell the assets and get their mon­ey back. So, that’s good. On the neg­a­tive side of things. One of the largest share­hold­ers in Kath­man­du was a com­pa­ny called Briscoe Group. Again, anoth­er New Zealand retail chain and I think it’s Alan Briscoe. But any­way, Mr. Briscoe is a famous New Zealand retail­er. He isn’t tak­ing up his rights in Kath­man­du, which is usu­al­ly a neg­a­tive side.

How­ev­er, I think a mit­i­gat­ing cir­cum­stance will be that because Briscoe Group is anoth­er New Zealand retail, they’re prob­a­bly fac­ing their cash lim­i­ta­tions at the moment so prob­a­bly under­stand­able. And the oth­er neg­a­tive for Kath­man­du was this is their third share rais­ing in three years. And this one could­n’t be fore­seen. And the oth­er ones had good rea­sons because they were under­tak­ing acqui­si­tions. But it’s always seen as being neg­a­tive to con­tin­u­al­ly raise cash because there comes a point where poten­tial­ly you’re throw­ing good mon­ey after bad if a com­pa­ny has to keep com­ing back to the mar­ket all the time. So, I think it’s prob­a­bly okay in this instance if I go on the front foot and there’s a good rea­son for doing it, but if it becomes a habit, I’d be steer­ing clear of Kath­man­du.

So, an arti­cle caught my eye recent­ly in the fin review about Wes­farm­ers. So, Wes­farm­ers had float­ed off course spun off coals, the coals group of sub-mar­kets out of the Wes­farm­ers com­pa­ny and kept a stake in coals as part of that float process that they’ve been sell­ing down and they sold anoth­er 5% last week. And I think they still have 5% to go in our share­hold­ing in coals. And so, some of the invest­ment bankers are start­ing to spec­u­late that Wes­farm­ers is build­ing its cash hold­ing to go and make a bid on a dis­tressed com­pa­ny. And I would­n’t mind bet­ting that Wes­farm­ers is prob­a­bly lin­ing up com­pa­nies that may be on the QAV check­list because that’s the kind of forum is to go in and get some deep val­ue. Some of the names that were being thrown around JB Hi-Fi which isn’t part of our check­list, but our retail might fit the Wes­farm­ers sta­ble of retail busi­ness­es like Kmart and Office­works, and Bun­nings as well. Anoth­er one is super cheap auto which I don’t think was on our check­list this year but was for me last year. And quar­ter has even been bandied around as a poten­tial acqui­si­tion. Now tomor­row’s cap has fall­en. So, I think to watch this space. And we may find that this cor­po­rate activ­i­ty hap­pen­ing in the next sort of three or four months. And that can also be some­times a sign that with the mar­kets reach­ing their bot­tom, and the big play­ers can feel com­fort­able and invest­ing, I think that’s it.

Cameron Reil­ly [1:01:48]: Well, good news for after pay share­hold­ers their share price rebound­ed a lit­tle bit in the last week. It’s now only 50%. down from where it was before the crash. Look­ing good been back.

Tony Kynas­ton [1:02:04]: [Inaudi­ble 1:02:04] in the same boat as all of us real­ly, aren’t they?

Cameron Reil­ly [1:02:07]: Yeah. Okay, Tony. Well, that’s it. Thank you, every­body, for your ques­tions. And we will be back next week with more reli­gion. Sor­ry, not a reli­gion just a secret plan. I should­n’t talk to them about the secret.

Tony Kynas­ton [1:02:29]: Hope­ful­ly, we’re more sci­en­tif­ic than the reli­gion. But any­way. I’m look­ing out the win­dow on the right. And I can see a cruise ship sit­ting off the coast of Syd­ney.

Cameron Reil­ly [1:02:39]: Anoth­er one?

Tony Kynas­ton [1:02:39]: Yes, there were nine cruise ships out there last week. And two came into the har­bor on the week­end I think to refu­el, hope­ful­ly, they did­n’t dock so that was good. But they’re all going up and down.

Cameron Reil­ly [1:02:51]: You know, this is the one time I would con­sid­er going on a cruise.

Tony Kynas­ton [1:02:55]: Real­ly?

Cameron Reil­ly [1:02:56]: Because I’d be the only per­son on it. That to me sounds like a good cruise. Just me, maybe Chris­sy. And no Fox.

Tony Kynas­ton [1:03:06]: But could let Fox loose on a boat by him­self, could­n’t you?

Cameron Reil­ly [1:03:10]: Well, yes, that’s true.

Tony Kynas­ton [1:03:12]: I won­der whether the cruise indus­try is going to sur­vive after this.

Cameron Reil­ly [1:03:15]: Real­ly?

Tony Kynas­ton [1:03:16]: Yes. Would you take a cruise next year?

Cameron Reil­ly [1:03:18]: I would­n’t have tak­en a cruise at any time at any point in the past or the future Tony sounds like hell. The only thing worse than being stuck in this house with Fox for the next six months is going on a cruise.

Tony Kynas­ton [1:03:33]: Fox over­board.

Cameron Reil­ly [1:03:36]: He’s over­board. He’s dri­ving us nuts.

Out­ro: Please be advised Ladies and gen­tle­men, boys and girls, cats and kit­tens, that noth­ing you heard on this pod­cast should be tak­en as finan­cial advice. Because nei­ther Tony nor I are licensed, finan­cial advi­sors. We don’t know your sit­u­a­tion. This is just Tony talk­ing about what he thinks, how he runs his stuff. Don’t take it as advice for you. If you need finan­cial advice, go see your finan­cial advi­sor. By the way, we’re also not doc­tors or gyne­col­o­gists or nuclear physi­cists. We have opin­ions on all those things. But you should go get some pro­fes­sion­al advice before you make any life-chang­ing deci­sions. But do get a copy of my book the psy­chopath epi­dem­ic, if you haven’t already looked for it online and keep an eye out for my film Mar­ket­ing the Mes­si­ah going to be com­ing to down­load and stream­ing ser­vices and the live stream­ing event com­ing up in the next cou­ple of weeks. Until then, stay safe, take care, and remem­ber not a reli­gion or a cult. But that’s exact­ly what we would say if it was­n’t.