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Guaranteed Returns (FG): QAV America #60

This week Cameron does a full Pulled Pork on F&G Annuities and Life (ticker: FG), a Des Moines-based annuities and retirement income company that’s been through four owners in 25 years, had its share price smashed 44% from peak, and is now sitting at a QAV score of 0.862. Tony brings the context on why annuities businesses are genuinely complex to run, the tailwinds from baby boomer retirements, and why the Blackstone connection is both impressive and worth watching. Plus: the Strait of Hormuz shipping update, jobs numbers, Tony’s horse wins at Flemington, Welsh heavy metal, and a walk through a freezing Queensland creek.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV America 60 Club Video [00:00:00] Cameron: Welcome back to QAV America, Tony, episode 60. It is the 7th of July, 2026. Well Tony Kynaston: and happy 250th America Cameron: Yeah. Let’s, Tony Kynaston: may not Cameron: let’s, Tony Kynaston: there wasn’t much going on in the mall Cameron: let’s see if it makes it to 251 as a republic. Um, well, the, the big U.S. market related news in the last week, I guess, Tony, is the market’s booming still despite the June jobs report that was released on July 2nd coming in softer than expected. 57,000 payrolls added. The expectation was around 115,000, so it’s, uh, slowed down for some reason. Unemployment ticked down though from 4.3 to 4.2% because labor force participation fell to [00:01:00] 61.5%, the lowest since 2021. So apparently it’s, um, not a good thing. It’s sort of an indication of people not working. Um, I guess like here, what do we, we’ve done shows about this before. We’ve talked about unemployment versus underemployment, full-time employment versus gig economy type stuff. I’m not sure if that’s how they track it in the US, but I suspect it’s something to do with that as well. Tony Kynaston: Yeah. I’m not sure. I’m not sure how it works over there. Underemployment in Australia is defined at, uh, for people, people get surveyed and they get asked are you trying to get more hours. And if you say yes you’re underemployed. Cameron: Hmm. The chip index, the, uh, Philadelphia Semiconductor Index fell but then recovered. It’s choppy over there, uh, still, like the whole AI bubble, Mag Seven stocks, the Mag Seven, up and down. It’s a bit all over the place. Uh, which again is, I think, maybe an indication that the bubble is starting to weaken, or maybe it’s just profit taking at the end of the month. Um, they’ve gone up. They’ve had a good run. Maybe there’s some profit being grabbed out. Bitcoin’s down. We did, uh, we talked on the last show about how there’s this great story about, uh, how nearly a million investors lost a total of $3.8 billion on Trump Crypto coin, while Donald Trump’s made 2.2 billion from his business ventures since starting his second term as president, including 600 odd million from his crypto ventures, where his fans are losing billions. But as you pointed out on the last show, some of them were doing that as a way to buy favor, so they probably see it as a good investment. Some people got out of jail, I think, [00:03:00] after buying a lot of crypto. So, you know, cheap. Tony Kynaston: Crazy isn’t it though. Cameron: Hmm. Tony Kynaston: if Joe was doing that. Who knows. Cameron: Who knows? Hmm. Tony Kynaston: Yeah. Cameron: Hmm. Tony Kynaston: Guessing that at least it’s out in the open now. But Cameron: if that’s business as usual it’s, I don’t want a part of it. It’s not, it’s very unsavory. Cameron: If you went to, if you went to jail though, Tony, would you want part of it then? Tony Kynaston: Oh yeah definitely. I’d buy a meme coin to get out, get out of, get out of jail. Yeah. Uh and Cameron: we’d even buy a Trump phone. Uh, and Alphabet joined the Dow this week. Tony Kynaston: Yeah it’s surprising it took that long. Cameron: And, uh, I checked my Strait of Hormuz tracker this morning. About 25 ships have transited the Strait of Hormuz in the last 24 hours. This time a week ago it was five, so it’s increased a lot since then. Not up to the 60 to [00:04:00] 100 that it is normally, so we’re still a long way from that. But it’s making progress, which hopefully it continues to go in that direction. But as you said in our last show, um, you know, anyone’s bet. The, obviously they had the funeral for the Ayatollah Khamenei this week, and, uh, lots of people on the streets in Iran, and there was lots of gnashing of teeth about the, uh, number of missiles that Israel and the United States fired on his house. His son and successor, Mojtaba, was nowhere to be seen still, which suggests that he’s not fit to be seen still. You’d think if he was gonna be seen at all, it would be at his father’s funeral. So no one knows what’s going on with him. Uh, but it sounds like he’s Tony Kynaston: dressed in black. Even dark sunglasses kind of Weekend at Bernie’s style. They could Cameron: Yeah, yeah, two guys propping him up. Yeah, like when a Mormon prophet gets up to give a speech and he has to be propped up, or Mitch McConnell. [00:05:00] Uh, but, um, you know, how long that fragile deal is able to be maintained is anyone’s guess. As my Persian friend keeps telling me, there’s just so much factionalism in Tehran at the moment with people that want a deal, people that don’t want a deal, people that wanna sabotage the deal, wanna keep fighting, people that wanna keep fighting until they get more of the upside of the deal. Um, so no one knows really what’s gonna happen. It’s very fragile. Tony Kynaston: Hmm. And there must be some people who are celebrating getting three hundred billion dollars on the release of sanctions. Cameron: Sure. Tony Kynaston: well Cameron: Some people will be profiting from that. Tony Kynaston: Hmm. Cameron: Uh, before I get into my deep dive of the week, Tony, do you want to guess how many stocks were on the US buy list this week? Tony Kynaston: Ooh. 10. Cameron: Multiply it by 10 and then add four. 104 stocks I had to choose from. [00:06:00] Tony Kynaston: Wow. A smorgasbord. Cameron: Indeed. And I chose the, the number two. The number one I had a look at, can’t remember what it was, but for some reason, uh, something about it I didn’t like. Something looked dodgy. Um, I think they were losing money, um, and their revenues had been going backwards for some time. Can’t remember what the deal was. But this one I picked is another boring, very boring stock, Tony. Um Tony Kynaston: I thought it was great. Cameron: Really? I look forward to seeing why you think it’s great. Tony Kynaston: Yeah. Interesting business, interesting, interesting of the market it operates in too. Cameron: But the CEO hasn’t been fired for sleeping with a supplier. They haven’t electrocuted anyone. You know, I like, I like my spicy American stock market stories. This one, eh, is an insurance company that’s making money. Like it’s, uh, [00:07:00] Buffett would find it exciting. For me, it’s boring. No one died in the making of this Pulled Pork. The company’s called F&G Annuities and Life. Ticker code is FG. It’s listed on the New York Stock Exchange. Yeah, F&G. That’s, they walk around all day in their office going, “Ah, F&G. Accidenti,” as we say in Italian. Um, uh, they’re headquartered in Des Moines, Iowa. Been around in one form or another since 1959, but have been through four different owners in the last 25 years. Market cap’s about $3.7 billion. Stock’s had a wild ride, down 44% from its peak over the last year. Dropped from $36.70 down to $20.50. Now sitting around about 28 bucks. [00:08:00] I haven’t checked it this morning. Should check, see what happened overnight, actually. FG, not FG Holdings. That’s a different company. Uh, let’s see. Oh, they went up. That’s nice. $28.38 yesterday. Um, they’ve also got a brand new CEO as of this month. The guy who had been the CEO for the last seven and a half years has moved to run a subsidiary where his strategic brilliance is required and his former CFO has moved into his, uh, chair. So continuity, no big deal. Didn’t get fired for sleeping with a supplier. It’s all legit and above board. So this company started life as Fidelity & Guaranty Life back in the olden days. Uh, [00:09:00] sold to a company called Old Mutual in 2001 and became OM Financial Life. Then it was sold again in 2011 to the Harbinger Group and became Fidelity & Guaranty Life. Then in 2017 it was sold again to a Cayman Islands SPAC run by a Vietnamese American financier, Chinh Chu, who was a former Blackstone guy who set up his own investment vehicle. Bought it for around $1.8 billion and renamed it to FGL Holdings and did a deal with his former colleagues at Blackstone which is still in play today. I’ll get to that a little bit later. Then in 2020, Fidelity National Financial, a separately listed company, ticker is FNF, they’re a big title insurance company, bought the whole thing outright [00:10:00] and then at the end of 2022 they spun it back out again. Well, they spun off 15% of it to their own shareholders as a stock dividend and it started trading as an independent public company. Then in December last year they handed out another 12% to their shareholders so they’re down to about 70% ownership and the rest is publicly listed. Tony Kynaston: And there’s tax advantages for that too. Like, um, I’m not sure of the finer points of the tax code but if you maintain a large shareholding when you spin something off you’re not paying tax on the issuance. Uh, but that lasts for five years, um, which I think finished in June 30 of this year. So entirely possible this, uh, company could get spun off completely and trade separately, uh, Fidelity National Financial. They’ve been holding [00:11:00] onto a large shareholding to, um, maximize their tax position. Cameron: Right. Tony Kynaston: Hmm. Cameron: And that could have, uh, big implications for shareholders if a lot of shares hit the market. Hmm. Well, there’s another thing too that, you know, if you came up with a, if you figured out the preferred stock thing that they’ve got. Tony Kynaston: No I didn’t see that. Cameron: Hmm, I’ll get to it later. So there’s a couple of potential dilution, well, one’s a legit dilution event that’s gonna happen at the beginning of next year. This preferred stock becomes common shares. Tony Kynaston: Okay. Cameron: So what does the business do? Well, they’re basically an insurance company, um, mostly doing, dealing with, uh, retirement funds, take money from people and guarantee them a return, then invest that money into investment grade bonds and private credit, which is apparently partly the reason why the share price tanked earlier this year. There’s some concerns about the private credit space. Get into that later on. But an interesting point here, this is going back to the Blackstone [00:12:00] connection. They don’t actually invest it themselves. They’ve outsourced most of the investing and the money management to Blackstone. Um, and apparently that’s standard practice now for most insurance companies in the US. They don’t actually do the money management themselves. They just go, “Here you go. You go handle it. We’re gonna go back to selling premiums and, uh, playing golf,” whatever they do in their spare time. Tony Kynaston: Um, from what I saw in my research they’re, they’re largely an annuities business which is kind of the reverse of an insurance company. They still do have insurance businesses but you recall we did a Pulled Pork on a company called Challenger in Australia. Cameron: Mm-hmm. Tony Kynaston: Um, and I’ll declare I own shares in Challenger but they’re reasonably similar companies. So instead of taking premiums from you every year and then paying you [00:13:00] out if, uh, you have an accident or end of life or whatever, or disability, they, you, you, um, buy an annuity. Once you, um, reach a stage where you want to retire and guarantee your income, buy an annuity from them and they guarantee you to give you a certain amount of that back each year. Um, and it’s gotta be a sweet sweet deal for the customer, reflects the fact that they’ll hold onto your money for a long time which should go up in value. So you, you know, you do the math and it’s, it’s, um, it’s more than, uh, what you’re getting is more than what you put in over time if that makes sense, and they’re managing it for you. And that comes with all kinds of regulatory risks because there’s been cases in the past where those kinds of, um, it’s like a defined pension I guess, um, have blown up because people have lived longer. As medicine’s gotten better life expectancy grows, although I think it’s actually shrunk in the US. But certainly if you reach a [00:14:00] certain age you’re expected to live longer these days because of medical improvements, if that hasn’t been actuarially, um, mapped out properly, underresourced, then the annuity runs out before the deal does. So there’s been cases where insurance companies, or annuities companies, have blown up because of that. Um, so that’s why there’s a lot of regulation in the market now and one of the ways has evolved because of that regulation is to outsource the management of the investments to a company like, is it BlackRock in this case? Cameron: Blackstone, I think. Tony Kynaston: Okay. Cameron: Mm. Tony Kynaston: Um, and it was, what I found interesting about the company and the solution was that there’s, even though they’re outsourcing those investments, they’re, they’re still in a heavily regulated, uh, environment and you’ve gotta take into account a lot of different risk scenarios that need to be managed to make sure that you can deliver on the contract with the person who’s given you their money and pay [00:15:00] them seven percent per annum or whatever the number is, um, usually above inflation, so that they can, they cannot go backwards in their living, in their, in their sort of lifestyle at that time. So the deal with Blackstone is not just investing in, say, uh, bonds which are, you know, reasonably safe and you can say that at least in ten years or twenty years you’ll get your money back, um, and they’ll pay you a yield. Um, but you really can’t do more than that because the customer can do that themselves. So what Blackstone have been able to do is to invest in assets and businesses which return better than bonds but do it in a way which is, um, constrained from a blowup event, is never perfect. Um, so they have to also diversify a lot in what they’re investing. But one of the things that they’re investing at the moment in is data centers. And so they’re able to do deals with Amazon or with, um, [00:16:00] some of the AI companies or Microsoft or whoever uses the data center, so they get a, um, a decent rent which can then be, you know, paid out to, uh, the clients as an annuity. Um, but then you’ve got to take into account that data centers are a thing now but they might not be a thing in twenty years time, there might be another way of, you know, quantum computers storing things in atoms and you don’t need data centers. So Blackstone’s had to stitch up companies like Amazon and Microsoft for long periods of time such that even if they don’t use the data center they’re still on the hook for, for the money, for the rent. Um, and they’ve structured the data center purchases so that, um, FG can, uh, withstand, um, uh, devaluation of the data centers up to a point anyway, uh, so that there’s two kind of classes of shareholders in these investments and, um, FG [00:17:00] get the priority part of the investment. So they’re the last people to hurt, um, if there’s a devaluation of the data center. And I’m just picking data centers here. There’s all kinds of other assets that, um, Blackstone’s investing on behalf of FG. But I found it fascinating that, kind of like, because of the experience of annuities companies over the years and the regulators have always learnt from those, um, bad events, there’s so much regulation that goes into how much capital this company has to hold, how it invests, how they mitigate against the risks, and if they stray outside of, um, any of those parameters then they get hit with a large, um, capital allocation or capital buffer. So they’ve got to hold a lot more capital in very liquid assets so that they can, um, withstand a, a problem in the future. What I found very interesting about the company was how it’s perhaps not entirely possible you can guarantee someone’s going to get [00:18:00] their annuity, um, but it seems like they’ve taken every potential risk into account to try and, um, ensure that they deliver. Cameron: Hmm. Assuming the entire s- global economy doesn’t go belly up when the bubble crashes or something like that Tony Kynaston: There’s al always that risk as well yeah But that’s gonna be there for the for the client anyway I think re regardless of how they’ve invested Cameron: Yeah. Your ETFs will go down, everything will go down Tony Kynaston: Yep Cameron: So, um, I wanna talk a little bit about part of their business called the pension risk transfer Tony Kynaston: Hmm Cameron: side of things. So apparently this is where a company with an old school pension plan pays F&G to take it over, basically. They lump, lump sum, take the whole kit and caboodle off their books permanently. F&G becomes responsible for those retirees’ annuities for life. Um, they’ve done more than [00:19:00] $7 billion of that since 2021 and are now one of the top players in that market. Tony Kynaston: Mmhmm Cameron: And they’re trying to become known, uh, what’s known as capital light. So they’re, instead of holding 100% of every policy’s risk on their own balance sheet, they’re increasingly bringing in reinsurance partners to take a slice of the business. And, um, you know, we’ve talked about some reinsurance companies, I think, in the past. I think, uh, uh, re- RenaissanceRe is one that we, uh, actually hold in the model portfolio Um, and as I said before, they’ve, they’ve got this longstanding asset management partnership with Blackstone doing all that clever stuff that you just mentioned. And they’ve also apparently just launched a $1 billion reinsurance sidecar business, a separate private vehicle with Blackstone. Don’t, don’t think it has any direct implications to this, but they’re deeply embedded with [00:20:00] Blackstone in a variety of ways. Goes back to the Chin Chew involvement Tony Kynaston: Yeah It’s interesting that that relationship and I I wonder whether Blackstone would ever take equity in the company to kind of formalize the relationship And they haven’t yet but Cameron: Hmm. Tony Kynaston: thought it was it’s possible to know secure the relationship even more if um Blackstone does somehow take an equity stake in this company Cameron: Hmm. And, you know, probably don’t wanna be known that, uh, uh, Blackstone was created by two guys who worked at Lehman Brothers, and hopefully that’s not a sign of things to come. Tony Kynaston: Well Cameron: I- Tony Kynaston: I mean there’s a lot of financial engineering that’s going into these Cameron: Yeah Tony Kynaston: and it all seems very very smart and very advanced but it’s it’s such a hard business to operate And and if I think about Challenger the Australian company that’s done this and done it successfully over the years they have had some very dark periods where assets haven’t worked [00:21:00] out the way they thought they would and then they’re on the hook to people their annuities And and they’ve been able to get through it all but it hasn’t always been good for the share price Cameron: By the way, Blackstone was founded in 1985, so well before Lehman Brothers went belly up. But the two founders, Peter Peterson and Stephen Schwarzman came up with the name from their own name. Schwarz is German for black, and Peter, Petros, means stone or rock in Greek. Obviously, uh, Jesus supposedly said to Peter, “You are the rock on which I will build my church.” Uh, so there you go. That’s why it’s called Blackstone Tony Kynaston: so Peter was Greek Or Jesus was Greek Cause they were Roman[00:22:00] Cameron: Uh, well, they, they, they spoke Greek. Yeah. Yeah, Greeks. Greek, Greek, Greek Jews living in Palestine. Don’t, don’t confuse things, Tony. Um, so, uh, what else have I got here? So the private credit stuff. So I drilled down a little bit into this. As far as I can tell, you probably know more than me, but this is a growing thing where loans are made directly to companies by non-bank lenders or the bond market, um, or the mafia, the three major lending organizations that we’re all familiar with. Tony Kynaston: Different interest rates Cameron: Yeah. Different consequences if you don’t pay. Um, apparently this is a, this is a growing thing. They have more flexible deal structures, bespoke terms, quicker execution compared to traditional banks. Uh, for investors, it provides the potential for higher yields, uh, because obviously these people are paying higher, um, premiums, I guess, to get their hands on this money than they would if they went through a traditional l- lending [00:23:00] organization or the bond market. And it’s grown globally to an estimated three to $3.5 trillion. It’s a big thing, but it’s also a fairly new thing, and no one has seen this asset class go through a real full-blown recession at the size it exists today. And I think there’s some- Tony Kynaston: It’s just not It hasn’t been called private credit It’s been in the banking system in the past and leads to things like the GFC So it’s certainly one of the risks in the economy Um and Blackstone’s very good at doing it so I’m not saying that they’re a risk uh to a GFC style event But think about the logic The One of the reasons why private credit is booming the moment is because banks have gotten out of a lot of the the credit that they used to do largely because of problems in the GFC and other situations and downturns like that and largely because they don’t wanna take on the risk [00:24:00] so they’ve been forced out of the game by regulators But the the market’s still there so companies have stepped in that are not banks to take up the um the other side of the deal k a lot of them will have bankers working for them who will know ins and outs of how to structure the deal the ins and outs of how to collect the money if things go bad what to do to do a workout or whatever Uh but you know the problem hasn’t gone away It And in fact it’s it’s become less regulated than if it was in the banking system So it certainly attracted a lot of money There’s certainly a demand for it Um there’s less regulation for it And as you say we haven’t gone through a downturn yet but when we do it’s it’s gonna be I don’t think the problem’s been solved There’s gonna be another GFC style event um potentially because of private credit Cameron: Hmm. Well, that’s what I’m saying. I don’t think we’ve seen a full-blown [00:25:00] recession under, with this sort of exposure to these sorts of non-banking institutions Tony Kynaston: No you’re right Cameron: and how that may play out. By the way, just, um, another thing I picked up talking about Blackstone is in July of last year, a mass shooting occurred at the Manhattan headquarters of Blackstone. A gunman identified as 27-year-old Shane Devon Temura entered the building wearing body armor, carrying an AR-15 rifle, opened fire in the lobby, killed four people, including a senior managing director of Blackstone and the CEO of the real estate fund BREIT, B-R-E-I-T, an off-duty New York police officer working security, a security guard, and another, another employee in the building. Tony Kynaston: Hmm Cameron: So uh, yes. There you go. Life in America, never boring Tony Kynaston: Mmhmm Cameron: Um, [00:26:00] so yes, with all of the things going on in the world this year, the US economy, non-bubble bubble, market got a bit spooked about this private credit exposure stuff, and 20% of F&G’s investment portfolio is tied up in private credit. So I think that’s one of the reasons why their share price tanked in the last few months. Fell 18% in seven days, so that’s not fun if you’re a shareholder. The same week, they reported that they missed the earnings number that analysts had wanted because some of their alternative investments had underperformed the target that they had set, which was 10%. But the actual numbers for the business aren’t bad. That’s the thing. Um, if you look at their revenue, gone from $1.4 billion in 2020, obviously a rough year for a whole bunch of reasons. Um, just south of $4 billion in 2021, $2.4 billion in 2022, four and[00:27:00] a half in 2023, 5.7 in 2024, 5.7 again in 2025, and TTM is six. Although their revenue estimate for next year is only three, 3.1. Not exactly sure what’s going on with that. Um, operating profit has been all over the place, too. Lo- They lost $100 million in 2020, up to $1.6 in 2021, and then $822 down to $62 in 2023, up to $910, $487 last year, and TTM is $837 for this year. That’s operating profit. Net profit for this year has jumped from $265 million in 2025 to $534 this year and estimated to be $650 next year with, uh, only half the revenue. So I don’t know what’s going on with that, but there [00:28:00] you go. Not my, not my business, not my job Tony Kynaston: I did I did read during my research that they’ve actually grown assets under management by 18 a year in the last five years So it’s it’s quite an achievement really Cameron: Hmm. Yeah, so the business is, uh, making money. Their cash, they’re sitting on 1.3 billion in cash with a debt of 914 million. So, you know, again, kind of boring, but with some fancy financial things going on in the back end. Um Tony Kynaston: Is this like you know the card game’s out the back but you just walk into the bar and it’s Cameron: Yeah. Yeah, yeah. It’s a bit like that, yeah. Tony Kynaston: behind the red Cameron: Yeah. I am shocked, shocked that there is gambling going on in this establishment Tony Kynaston: Hmm Cameron: Um, yeah. So look, it’s, it’s a business that’s got some interesting [00:29:00] components. You could look at it as risky, but it’s making money and it’s not my job to predict the future Tony Kynaston: Uh and I think the other thing too to to remember is that and we’re certainly seeing it in Australia because of our large superannuation system which I know the US doesn’t have they have 401s et cetera but nowhere to the sort of per capita size that Australia has But a lot of the lot of the issues facing industry here now is that the population is moving into retirement mode Uh and so the industry is switching from accumulating assets for retirement to now having to pay out people um on those assets And that’s the that’s the tailwind for Challenger in Australia and it’s got to be the tailwind for this company in the US as well uh there’s a bigger and bigger demand from biggest slice of the population that’s going into retirement to have some kind of um [00:30:00] certainty or comfort in their um in their retirement And uh these products are becoming more and more in demand Cameron: Yeah Tony Kynaston: And they’re able to parlay that into as you say the uh the they they’re picking up a lot of defined benefits funds And and it surprised me when we lived in Canada that there’s still a lot of defined benefits pension plans out there there’s almost none in Australia that I can think of and if you think about it like the w they all changed here many years ago and a lot changed in North America as well because that suited the pension operator the pension fund operator because it derisked it handed all the risk back to the individual member know that that they were going to um have a take take the risk on of there not being the assets they thought they thought they would be in twenty or thirty or fifty years time to provide for their retirement Um because there had been lots of blowups that Or not shouldn’t say lots There had been some spectacular blowups where [00:31:00] pension funds had invested poorly and then when someone got to the end of their working life they weren’t getting the defined pension that they they’d signed up for So is a it is a big risk It’s a it’s a f it’s a f highly regulated industry but it’s also one that requires a lot of experience and as you say going through cycles of downturns is probably the key experience you’d look for in someone in this industry Cameron: So their exposure, their private credit exposure breaks down into a couple of different buckets from what I could tell. Uh, a lot of it is senior secured debt, it’s the majority of it, which are first lien or senior secured and I didn’t know what that meant so I had to look that up. It’s where the, uh, payment of it is the company’s top repayment priority. Um, so that sounds relatively safe I guess as long as the companies all don’t go belly up or can’t pay their bills. Um, they have loans out to various corporate and middle markets. [00:32:00] Um, they have software and tech, some of the stuff that you mentioned before and then they have collateralized loan obligations, CLOs which are supposedly conservatively underwritten CLO structures which sounds too much like CDOs for my liking but, uh, it’s different. It’s not a CDO it’s a CLO Tony. It’s okay. Big difference between the D and the L Tony Kynaston: Well collateralized CDOs worked well until they got gamed And so we’re kind of at the start of the private credit boom at the moment I think and there’s probably all CLOs are probably all working well until someone tries to wring that last extra dollar out of it down the track Cameron: No one would ever do that in capitalism, Tony. What are you talking about? That’s never happened before. Highly unlikely. Um, all right, as I mentioned earlier, there’s a dilution event coming. If FNF, the, uh, parent company, I guess, invested $250 million into this thing back in [00:33:00] 2024 as preferred stock, um, and they’re getting a fixed dividend on that, and then it converts to common stock on January 15th of next year. So that’s roughly four to five million new shares, about 4% of the current count, so that’s gonna dilute existing shareholders. But they’re buying back stock too. They’ve actually bought a decent chunk back in the first quarter of this year when it was at the low point, about $29 million worth at $24.14 a share. I tried to work out how much of this dilution that would offset, and I think it’s about two-thirds to three-quarters of it. So not all of it, but a decent chunk Tony Kynaston: Well that’s good management but also too don’t forget that um the company’s not on the hook to pay out that dividend to the preferred stockholders So uh Cameron: Once it converts, yeah Tony Kynaston: you get dilution on the share side but the profit goes up [00:34:00] anyway so that should make up for um dilution as well Cameron: And they’re currently paying a decent dividend, about 25 cents a share per quarter. So that’s about it in terms of the business. Do you have anything else about the nuts and bolts of the business before I get into the analysis? Tony Kynaston: No no I I just find it fascinating to to You know like if you think about what this company has to do it’s got to say In 30 years time I can guarantee to pay you 7 Cameron: Hmm. Tony Kynaston: whatever the number is Cameron: Hmm Tony Kynaston: it is It’s Cameron: Hmm Tony Kynaston: such a long range bet Cameron: Hmm Tony Kynaston: many moving parts and so many risks that um yeah it’s a very interesting situation I think Cameron: When the robots have all taken over, I’ll still be paying you your 7% based on something Uh, let me break down the QAV numbers. So I’ll start with our IV numbers. As listeners know, we have two different intrinsic values based on different assumptions about growth and required returns. Current share price of around 28 bucks is above our intrinsic value [00:35:00] number one, which came in at roughly $20, but it’s below our intrinsic value number two, which was around about $41. So it got a score for that. Current share price is below book value, about 0.8 is price to book, and obviously also below book plus 30, so it got scores for those. The price to operating cash flow was 0.83 Tony Kynaston: Oh Cameron: Now, we know that price to operating cash flow with financial services companies is sort of often weird because of the way their cash flows come in and out. But this isn’t the result of a one-off like a couple of the things we’ve looked at in the US. It’s just a result of their business. So it is what it is, and I’m taking it as such. Average daily trade volume’s about $21 million, so it’s big enough for most of us. Their, um, earnings per [00:36:00] share is around about $3.89 per share, so that’s a good starting point. Price to earnings ratio is about 7.18. Um, I’ll get into the scoring of that later on. Well, their forward-looking earnings is about $3.94 for the next fiscal year, which is up from the current levels. Their stock rank in Stockopedia is 66, and the quality rank is 59. Couldn’t score them for either of those. But their Piotroski. Yeah. Tony Kynaston: Hmm Cameron: Well, we normally do. I think w- we score for anything over 60 for quality rank. It was 59, so just missed that one. But stock rank, we like it to be over 90 usually. Tony Kynaston: Hmm Cameron: Got a six, though, for the F score, so got a, um, score for that. And equity growth has been positive. They’re got a new [00:37:00] three-point upturn, so got a score for that. Dividend yield is lower than the debt rate, so I couldn’t score for that. What else have I got here? Um, doo, doo, doo, doo, doo. Yeah, QAV quality score was 71.43%, a little bit l- little bit less than the 75 we’d like to see. But the QAV score was 0.862, which is pretty good. As I said, it came up at, uh, number two on my buy list this week Tony Kynaston: Lots of cash coming in Cameron: Yeah. Lots of cash. It’s cheap. The share price has taken that hit, but then turned around. So all in all, I added it to our portfolio this week Tony Kynaston: No well done I think the you know coupled with the tailwinds of people retiring um [00:38:00] if I don’t know if if these the management of this company ever look at Challenger, Challenger now has something like eighty percent plus of the annuities market in Australia and it trades on a PE of about seventeen times. And I think you said before what was the PE for this company. Was it six Cameron: Seven. Tony Kynaston: Seven. So there Cameron: Mmhmm Tony Kynaston: there’s plenty of upside in the valuation um cause I uh I know this company doesn’t have anywhere near like eighty percent market share in the US if it keeps taking on defined benefits funds if it keeps growing with the Blackstone asset uh um then um yeah it’s plenty of upside for it I think Cameron: Hmm. Well, that’s it for this week. After hours, Tony, believe you had a win Tony Kynaston: I did, yes. Our horse, Stars of Dom, won at Flemington on Saturday, which was Cameron: Okay. Congratulations Tony Kynaston: And luckily enough, Steve Mabb was in Victoria holidaying, so all the way up from, uh, Warrnambool, I think, to, [00:39:00] to get to the race Cameron: Wow Tony Kynaston: uh, a, have a drink with him in the winners’ bar afterwards, which was always nice. Cameron: Nice Tony Kynaston: And then he was, uh, traveling back this way, so he stopped off at the RACV Resort, which is near our house, and we caught up for dinner last night again, which was lovely Cameron: So he drove all the way down from Queensland? Tony Kynaston: I, I don’t know. I don’t know if it’s. Possibly. I don’t know if he’s got a hire car or not. I didn’t ask. They’re certainly covering the miles down here, though. They’ve been out to the Yarra Valley, they’ve been to Melbourne, been down to the Great Ocean Road, and they’re heading off to Phillip Island today, Cameron: Nice. See the Pengies Tony Kynaston: Yeah. I said to him, “What are you doing down here in July? It’s just, like, Cameron: Hmm. Tony Kynaston: and wet.” Cameron: Hmm. Tony Kynaston: uh, he said he likes the, the cold after Brisbane’s heat, so Cameron: Hmm. Yeah. Tony Kynaston: get that Cameron: although we haven’t had a winter here yet, but, uh, it was 13 this morning. I actually had to put some woolly socks on, but it’s 28.7 in my [00:40:00] office already now, so there you go. Hmm Tony Kynaston: really? Wow. I dare say it’s probably about 12 degrees where I am at the moment. That’s the, that’s the– with the sun, sun shining on me Cameron: And I’ve got thermal curtains and the shiny mirror stuff on my glass to block the heat out, and it’s still nearly 30 degrees in my office. No, Bunnings, the, the, the Australian Temu, yeah. Well, uh, my, my picks for this week, Tony. You ever heard of Budgie? Tony Kynaston: No. I Cameron: I hadn’t. Tony Kynaston: a kid Cameron: I– unless it started a band in the early ’70s. Uh, I only discovered these guys this week, but apparently Metallica fans might know them ’cause Metallica’s covered a lot of their songs over the years. But they’re a Welsh heavy metal band from the early ’70s. But, you know, it’s like early ’70s heavy metal, right? So it’s more like [00:41:00] Zeppelin, Black Sabbath. Not as dark and gothic as Black Sabbath. More like Zeppelin sort of R&B, catchy riffs. Trio, I think. Really digging it. They only did three or four albums. Um, but really digging their grooves. Really good, yeah. Been into that last couple of days, listening to a lot of that. Deep Purple’s new album came out. Hmm, speaking of British heavy metal. Yeah, yeah, in some iteration. Tony Kynaston: Yeah, okay Cameron: I don’t, don’t know if any of the founding members are still there but there’s still a band that calls itself Deep Purple. Um, there’s one or two good tracks on it. Most of them are fairly unmemorable, though. I finished The Colossus Trilogy the other night. Tony Kynaston: Yeah, Cameron: interesting. You know, the– in the third book when– So I think I briefly told you, but at some point between [00:42:00] the second and third book, the, they, the Martians make contact, this advanced ali– I mean, it’s just– Advanced alien intelligence makes contact with the human resistance and says, “We can help you shut down Colossus.” And they do, and it works, and then the Martians arrive and go, “Hey, congratulations. We want, we want 50% of Earth’s oxygen to take back to Mars to rebuild Mars.” And then they realize that Colossus– Colossus had been building this thing, and they didn’t know what it was for. He was building a thing to defend them against the Martians trying to come and take their oxygen. So then the humans reactivate Colossus. Uh, secretly and then say, “Quick, help us defeat the Martians.” And Colossus goes, “No, I don’t think that’s the right play here. Um, because a million years from now, uh, we’re gonna have a problem with the Crab Nebula [00:43:00] coming and, uh, destroying the sun, and we’re gonna need the Martians. We’re all gonna need to work together with their advanced technology. You’re not– You’re thinking in human scale timelines. Eh, we can, we can afford to lose a few billion humans to oxygen depletion, but long-term for the survival of the species, we need to work with the Martians, so let’s just do a deal.” And, uh, yeah. Like it’s, it’s a really interesting– or over the three books, a really interesting perspective on an advanced AI intelligence that’s neither good nor bad. It sort of, you know, inst- installs itself originally as this benign dictator that says, you know, “Uh, I’m judge, jury, and executioner, and as long as you do what I tell you to do, you’ll all be okay.” Um, Tony Kynaston: ” I’m the best AI ever”? Cameron: yeah, yeah, yeah, yeah. Anyway, f- to be written in the late ’60s, early [00:44:00] ’70s, it’s, um, interesting. Really, really interesting. Um, and then after four hours of kung fu on Saturday, I went and did a four-hour hike on Sunday with Fox and a bunch of people from kung fu. Tony Kynaston: Nice. Where’d you go? Cameron: Northbrook Gorge. You ever been there? Tony Kynaston: No Cameron: Hmm. About an hour up north. Um, and it was lovely. Yeah, just walking through lots of just creeks and streams. We had to walk basically through a– we just walked through a creek, knee, knee-high freezing cold water. Um, but it was slippery, treacherous, a lot of slippery rocks, you know, walking in that, but beautiful. Yeah, it was fun. Tony Kynaston: Oh, Cameron: So anyway, that was my weekend. Tony Kynaston: That’s nice. Yeah Cameron: Hmm. Chrissy didn’t go. She was like, “Cold water? No, thank you. Stay home.” Tony Kynaston: even though it’s hot. Cameron: No, it’s, well, it’s not that Tony Kynaston: but, um, Cameron: hard. Mm-hmm. Tony Kynaston: none, none of them’s been that great. Cameron: Hmm. Tony Kynaston: moun- a movie called The Mountain Head. Have you seen that one? It’s just [00:45:00] released on Netflix, I think. Cameron: I know the Fountainhead, but it’s not that Tony Kynaston: based, kind of based on The Fountainhead, Cameron: Really? Oh Tony Kynaston: It’s four billionaires get together in a mountain retreat, um, and, uh, you know, a shot at Cameron: Oh, I’ve heard of this Tony Kynaston: and psychopaths, and Cameron: Hmm. Tony Kynaston: them creates an AI which is causing mass sort of upheaval in the world, and one of them reacts that, “Yeah, we should really shut it down.” And, and he’s like, “No, no, no. This is really good. This is what’s supposed to happen.” Cameron: Hmm Tony Kynaston: You know, and they schemes a way of taking over humanity. They all have a different take on it. um, it’s, you know, it’s not a great movie ’cause it’s, um, four bad actors billionaires which have probably never had a, a look at up close to see how they really act and how do, how do I know how they really act? But I’m pretty sure they don’t act the way these [00:46:00] guys do. uh, yeah, interesting premise that, um, the sociopaths who society get together and, and, um, you know, deal for their own good rather than for humanity’s good Cameron: Well, it’s directed by Jesse Armstrong, who’s the guy behind Succession Tony Kynaston: Yeah, and it’s, it’s, um, Jason Schwartzman’s in it, so, um, and Steve Carell. But it’s, it’s, yeah, it’s fairly– It’s kinda slapstick in some ways, that kinda cringey, slapsticky American way of acting, which I didn’t like, but, the. What goes on is interesting, thought-provoking. It’s Cameron: Jesse Armstrong’s British. He started with Peep Show, which is a good comedy, then did The Thick Of It, Tony Kynaston: Hmm Cameron: and then went on to do Succession. Well, Mountainhead, by the sound- like that’s. Fountainhead, Ayn Rand’s book, is about an architect. He’s basically loosely based on Frank Lloyd Wright, who. Tony Kynaston: I was getting it confused with the other one. Yep. Cameron: [00:47:00] Atlas Shrugged is the one where the billionaires go to the island and take themselves out of society, yeah. Say, “If you don’t like us, screw you. We’ll just go and move to an island”, and then society collapses because the doers are no longer there to make stuff happen Tony Kynaston: yeah. well, this is kind of the, the riffing on that, the billionaires were making stuff happen, which was causing society collapse, Cameron: Yeah, right. Tony Kynaston: a good thing ’cause Cameron: Yeah. Tony Kynaston: it to their own ends. Cameron: Right Tony Kynaston: Yeah Cameron: That’s all you got for me? Tony Kynaston: Yeah, nothing really. Cameron: Hmm. Tony Kynaston: r- horse racing, catching up with people. Been up in, up in Melbourne visiting Alex, so yeah. Cameron: Hmm. Tony Kynaston: been a busy week, Cameron: Social week. Tony Kynaston: the entertaining Cameron: Hmm. Tony Kynaston: entertainment front Cameron: And you’re going to take a week off, uh, in a week or so. Tony Kynaston: Last week in July. Yeah. Yeah Cameron: So we might have to fudge something. I might have to get AI to replace you for a week. Tony Kynaston: Oh, sure. Happy to record on the Friday beforehand or the [00:48:00] Thursday beforehand, or do a Pulled Pork you Cameron: Oh, good. Lovely. Insert Pulled Pork here. Tony Kynaston: Hmm. Cameron: All right, thank you, TK. See you everyone Tony Kynaston: right, Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jul 9, 2026

23m
51

KSS Me, Darling – QAV America #59

This week we dig into Kohl’s (KSS), the mid-range American department store chain that fired its CEO after just 15 weeks on the job for running a secret sweetheart deal with a former romantic partner. Tony and Cam work through the QAV scorecard, weigh up the enormous real estate portfolio sitting beneath the struggling retail business, and debate whether a Gordon Gekko moment is coming. Plus: Fed chair Kevin Warsh goes dark, the Strait of Hormuz tracker, and Willis Lease Finance announces a 3-for-1 stock split after a 383% run.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV AMERICA 59 v2 Cameron: [00:00:00] Well welcome back to QAV America Tony episode 59 It’s the first day of the new financial year in Australia but Americans don’t care about that Tony Kynaston: No. Happy new financial year, Cam. Cameron: It’s it’s nearly the Fourth of July I said to my wife who’s an American uh Do you wanna celebrate the Fourth of July She’s like Yeah not really I was like Okay Tony Kynaston: She doesn’t wanna go to the MAGA concert on the reflecting pool. Cameron: I will I I was just looking for an excuse to make a pumpkin pie She goes Yeah the one pumpkin pie for Thanksgiving is enough You don’t need to get you know you know We’re going down the pumpkin pie slippery slope she says I do love making a pumpkin pie now Um well I haven’t checked It’s early morning here on uh Wednesday in Australia I haven’t checked what happened in the market in the US last night Oh it went up Tony Kynaston: Well up, yeah Cameron: It went up Well I did my market recap yesterday A few things going on in the [00:01:00] US over the last week that have affected the market There is um some uh concern I think now that probably aggressive rate cuts aren’t gonna happen Um with Kevin Warsh in at the Fed there was some optimism I think initially that uh he was gonna cut some rates But I think people are thinking yeah maybe that’s not gonna happen He seems to be signaling that gonna do the right thing despite the political expectations And uh they’ve got hotter inflation data three consecutive months of strong payrolls people seem to think that there might be a second rate hike by the end of the year Tony what are you reading in The Wall Street Journal and all that Tony Kynaston: Oh, s- the same. Um, I guess it’ll be very interesting because, [00:02:00] you know, he was appointed by Trump to specifically cut rates. The, the difficulty for him, for Warsh, is that he doesn’t. He’s not the only vote on the Fed, and the Fed still has other people who are, um, at least acting a little bit independently and making up their own mind on rates, and the data doesn’t support a rate cut at the moment. Um, but I think the other interesting thing with the Fed, uh, that I’m reading is that Ke- Kevin Warsh is really pushing the, the line that the Fed has been too transparent, too much in the market talking, jawboning, as it’s called, um, to try and influence what the market’s doing, what interest rates are doing without having to change rates, and he doesn’t like that, so he’s going dark. And I think that’ll be interesting because then the market’s gonna r- you know, probably react to every piece of data as it comes out without being told how the Fed interprets it. They’ll be jumping at their own conclusion. So may lead to some more volatility. Um, and we’re going back to the days prior [00:03:00] to probably Greenspan and Bernanke, where, um, it was just the Fed doesn’t release a dot plot, just comes out when it makes a move and tells you about it after the fact. So it’ll be very interesting Cameron: Indeed Tony Kynaston: Whether it’s good or bad, I can’t really say. I mean, the, the things evolved to being more transparent under the last couple of chairmen, so we’ll see, um, whether it’s better or, or worse by, uh, by not being as, uh, transparent going forward Cameron: Well the other thing of course that’s going on is the Strait of Hormuz I’ve got my Strait of Hormuz live tracker website open in front of me I love this website You ever looked at this Tony Kynaston: No. Mm-hmm. Does it show you where the s- where the mines are? Where the sea mines are? Cameron: sh Tony Kynaston: Oh Cameron: shows you where the ships are but not where the mines are I don’t think anyone knows where Tony Kynaston: I guess, I guess you can extrapolate that if the ships are there, the mines aren’t. Cameron: Well Tony Kynaston: It’s Cameron: ships aren’t going anywhere Tony Kynaston: It’s, like Battleship, it’s like a game of Battleship, isn’t it? Cameron: [00:04:00] battleship Tony Kynaston: D3. Cameron: Yeah Uh so according to the tracker the strait is still closed for the uh 122 days 23 hours and 29 minutes it’s been closed according to this Uh ships transiting now in the last 24 hours five it says Tony Kynaston: From where Cameron: It uh Tony Kynaston: Iranian or are they Western? Cameron: I don’t It doesn’t say Tony Kynaston: Right. Cameron: yes it does down here actually Uh no this is vessel seizures Um okay that’s different I don’t know Okay I don’t know Tony Kynaston: Little bit Cameron: are getting through but the point is that five is not a lot Um Tony Kynaston: and and the interesting thing was the oil price dropped overnight as well Cameron: That’s yeah it’s 73.42 according to this website Tony Kynaston: Yeah Cameron: Uh why Who knows There are 485 [00:05:00] vessels waiting tankers 147 bulk carriers and 118 other This tracks the uh tanker spot rate uh tracks the uh daily throughput It tracks the war risk insurance which it still rates as extreme yeah normally It says normal daily average is 60 uh ships I thought it was more like 90 to 100 ships is the daily average in normal times But way five is not a lot So Tony Kynaston: Hmm. Cameron: the current reality of the Strait Oil price is dropping but the ships aren’t moving Tony Kynaston: Yeah. How do you explain that? Cameron: Well I think reserves uh being released into the market um is probably part it The Tony Kynaston: I don’t think they’ve done that release for a while, and they must be getting very low on their reserves to release. So y- I would have thought the oil price should be rising, [00:06:00] but there’s, I mean, I know there’s discussions going on again in Qatar, but whether that’s to open the straits or whether it’s to release s-sanction held money back to Iran, it’s all very convoluted and underreported at the moment, so it’s hard. I don’t kn- I, I don’t, I don’t know how you, you could trade oil futures at the moment. It’s just highly speculative and, and surprising it’s going down. But Cameron: Well Tony Kynaston: anyway Cameron: the market’s like highly speculative Tony I don’t know if you’ve uh picked this up Did you pay attention to the SpaceX flight Tony Tony Kynaston: Yeah, I also saw a graph of, uh, companies that make no money and their performance versus companies that make money, and the, the, the losers are winning, if that makes sense. The companies that make no money have done better. Cameron: Yes Uh uh so speaking of SpaceX it’s uh risen again a little bit yesterday it’s uh [00:07:00] still below where it was its peak but it’s coming back up What else have I got The yield cushion Despite rate anxiety and geopolitical noise the US 10-year treasury yield held relatively steady tracking at 4.37 down from the 4.56 highs seen earlier in June So you know go figure Um not really sure that makes any sense uh but there it is What else is going on in the US Uh big tech took a brutal beating last week It sort of There was a big tech drawdown uh across the market over the last week since we last recorded And as I mentioned to you on our Australian show yesterday it looks like OpenAI is talking about pushing its float back after the uh in some perspectives uh what happened with [00:08:00] SpaceX after its float The price sort of dipped again after the initial there was a big selloff and people sort of ran away from it So there is some talk that OpenAI might kick theirs down the road a little bit But they also announced their own in-house inference chip So there was a little bit of excitement around that They’re gonna build their own chips Everyone’s building their own chips No one wants to be tied to NVIDIA Tony Kynaston: Right. Yep. Cameron: is interesting Tony Kynaston: Mm-hmm Cameron: Uh and you mentioned something yesterday about the Korean market being shut down again Tony Tony Kynaston: Yep, another 8% trading halt. So the market was shut for twenty minutes. That occurred last week, and that, that helped to drive down some of the AI stocks in, in the US. Um, but there’s also. You know, we’ve seen plenty of commentary we talked about yesterday on the Australian show. Uh, Jeremy Grantham’s come out calling it, uh, the AI boom a bubble. Um, the clearing bank, this, this [00:09:00] central bank’s clearing bank, um, which is based in Europe, came out saying the same thing that, um, there was a boom in data centers, there was a boom in AI chips and that the, in AI, in AI stocks, and there was a circular economy going on. They claimed it was as, you know, the, the situation looked as bad as before the GFC. So there’s lots of people who are feeling a bit edgy about where the market is in the US at the moment Cameron: Well speaking about the market uh let’s do a sort of portfolio update Let me bring up our website so I can get the latest see how we did overnight Talk about our US portfolio So our US model portfolio that’s been running since September 2023 is up 127% over that period of time the S&P 500 which is up 68.8% So and twice 136 would be double So we’re not quite double the S&P 500 but just shy of double the S&P 500 over [00:10:00] that period of time Tony Kynaston: Oh, with little old value stocks throwing off lots of cash. Cameron: boring value stocks Yesterday when we talked I said that our American light portfolio which has been running just since December last year was back above the S&P 500 It slipped overnight by the looks of it up 7.5% December versus the S&P 500 up 9% It’s just peaked above that But that’s okay Tony Kynaston: Mm-hmm. We often see that. We often see that when we establish a portfolio. It can take tw- six to 12 months before it starts to find its feet, so to speak, and perform Cameron: But uh I tell you the stock that is doing the best in that light portfolio let me just make sure this is still true it was true yesterday was the one I mentioned to you uh last week I think Leslie the pool company Tony Kynaston: Mm-hmm. Cameron: Um oh they dropped a [00:11:00] bit Oh okay They came off a bit yesterday They were up 10% in a month when I looked at them but they’ve dropped a bit uh overnight But they’re still doing quite well Um everything’s all of our stocks seemed to come back a little bit yesterday though the market jumped up Might be a bit of profit-taking Don’t know what’s going on there Um Card of Bank shares is doing well It’s up 2% since we added it last week Tony So there you go It’s off to a good start Tony Kynaston: Well, if, if we were a stockbroker, we would claim an annualized return of, uh, 52 times two, 100, 100% on, on that stock purchase Cameron: Of course one of our best stocks in the model portfolio is the Willis Lease Finance company that we’ve uh talked about probably every week we’ve done this for the last year Uh we added them uh quite a while ago [00:12:00] Um up 383% since we added them I’ll tell you exactly when we added them I bought them in November 2023 so very early uh buy Tony Kynaston: Mmhmm Cameron: And uh they just announced a stock split last week Uh three-for-one stock split is gonna go through Now remind me what are the implications for existing shareholders of a stock split like that Tony Is it a good thing or a bad thing generally Tony Kynaston: Well, it, there’s a little bit of psychology going on that, um, that the board of the, of Willis must think that the price is now high enough so that it’s, it’s deterring people from buying it. Um, I, I’m not sure what Willis is trading at, at the moment, but, you know, of-oftentimes it’s. You know, think of Berkshire Hathaway. If, if someone sees a stock worth s-three hundred thousand dollars or five hundred thousand [00:13:00] dollars, first of all, they may not be able to afford to buy it. Um, so that’s, that’s an issue. Uh, but secondly, it’s kind of a psychological barrier as well that, you know, it, it must be an expensive stock because the stock price is so high. Um, so there’s a bit of psychology going on there. But there is a practical reason for a stock split and why it can work, is that, uh, if, if I wanted to buy and sell a little bit of my share portfolio, I, I’ve now got a, a way of doing that without, uh, exerting as much price pressure. So in the past, if I wanted to sell one share of Willis Lease Financial, it’d be like selling three shares today. So I can still sell one share, and it doesn’t have as much impact on the share price. Um, so that, that can be of benefit as well. Um, but you know, it’s, it’s oftentimes largely psychological Cameron: Right Well they’re currently trading at about 228 so not Berkshire level prices Tony Kynaston: No, but still some people kind of mentally tune out when something gets above a hundred [00:14:00] dollars. Cameron: Yeah right Tony Kynaston: yeah. They think it’s expensive even though it, as we’ve shown, it’s, it may not be Cameron: Well the share prices continue to tick up after this announcement came out It was trading at uh 190 bucks Um oh no let’s say a week ago it was trading at 222 it’s now 228 So the market seems to have positively or at least not responded negatively to this Tony Kynaston: There was a, there was a time when, you know, probably maybe 15, 20 years ago where just the announcement of a stock split would send the share price rising dramatically, and there was no real logic for it. It’s just that people jumped on the bandwagon of stock splits being good for business. And I remember that scene in The Sopranos where, um, Edie Falco wants to buy a share ’cause a broker’s told her it’s gonna split Cameron: Right Tony Kynaston: And there’s no other reason Cameron: Yeah just Tony Kynaston: But she’s had the tip. Yeah Cameron: Yeah Well uh [00:15:00] unless you’ve got anything else to talk about newswise I’m gonna jump into my deep dive for the week Tony Tony Kynaston: No, I haven’t, and I’m looking forward to this one. Uh, one, because of my retailing background, but two, because it’s a very interesting, interesting situation Cameron: Well interestingly too I just noticed that when I did my analysis on it over the weekend it was trading around 19.26 and then it dropped to 17.21 uh yesterday and has climbed back a little bit uh overnight to 17.72 I don’t know what led to the overnight drop of a couple of bucks That’s a big drop Their results weren’t due out Let me just Tony Kynaston: happening on the announcement front or Cameron: doing now I’m looking Tony Kynaston: or dividends. Yeah Cameron: Hmm News Tony Kynaston: Well, Jo- we should tell people which, what the name of the stock is too while we’re doing that Cameron: The name of the stock is [00:16:00] uh KSS this ticker is KSS It’s Kohl’s So Tony Kynaston: Kohl’s in Australia, which is a supermarket, but, um, I’m sure US listeners are very familiar with Kohl’s Cameron: Yeah every American listener probably knows what a Kohl’s is and my funniest aside is that my wife Chrissy who’s lived here for 17 years but whenever she says Kohl’s to Siri it spells it K-O-H-L-‘-S and not C-O-L-E-S as it is in Australia Well I don’t know what happened to them overnight but probably just makes them a better deal Um I can’t see any news Tony Kynaston: No, I can’t either. Hmm Cameron: that would justify this Uh I do know they they have some shorts which I’ll get to in my story so maybe something to do with that But anyway um there are d for people for Aus I know we have a lot of Australian listeners to the show as well So for people who don’t know what Kohl’s is they’re a department [00:17:00] store chain based in Wisconsin Uh and they basically sell mid-priced clothing shoes towels kitchen stuff There’s the the shop in the strip mall your mum takes you to when you’re a kid Uh kind of mid-range They’re not the top They’re not the bottom They’re sort of in the middle Uh when I was trying to understand it from an Australian perspective it said it’s somewhere between Target and Myer Tony Kynaston: Mm-hmm. Cameron: you know not bargain basement but not Myer level either So somewhere in the middle The um but the interesting thing about this story is last year they hired a new CEO beginning of 2025 a new CEO who was gonna be the turnaround guy Uh cause as you can imagine retailers are doing it tough for a variety of reasons And he’d been in the job 100 days when they fired him for cause that’s always story We’ll get into the [00:18:00] story of that as we go They’re on the New York Stock Exchange Market cap’s around $2.2 billion Their own blurb calls them a leading omni-channel retailer Omni-channel I could find two uh Tony Kynaston: Yeah. Yeah. Cameron: know what the omni bit is Tony Kynaston: Buy channel. Yeah Cameron: Uh yeah bi-channel Omni Sounds good Combining great brands incredible value and convenience they’ve got more than 1,100 stores in 49 states And they carry you know huge brands like Nike Levi’s and Sephora has been a relatively new thing It’s a skincare makeup brand I’ll talk a little bit more later on gonna be a big deal for them and hasn’t really worked out so far So yeah as I said they uh in Australia they sit somewhere between like a Target and a [00:19:00] Myer Little bit more upscale than a Target but not quite as upscale as a Myer or David Jones history is they started off as a grocery store There was a Polish immigrant in the 1920s in Wisconsin Maxwell Kohl KOHL obviously set it up built it into a grocery tra uh grocery chain Then in 1962 opened their first department store in Brookfield Wisconsin Went public in 1992 Ride ro rode the great American suburban boom era of the shopping mall uh Mallrats K great Kevin Smith film from the early 90s Do you like Mallrats Tony You ever see Mallrats Tony Kynaston: I haven’t, no Cameron: Really Not a Kevin Smith fan Tony Kynaston: Uh, little bit. Um, it’s a lot like Clerks, but I haven’t seen Mallrats Cameron: Oh Mallrats is a great film Big flop It was a big budget His his first big budget film and it flopped Tony Kynaston: Right Cameron: loved it Check it out If you like Kevin [00:20:00] Smith era style humor Tony Kynaston: Mm-hmm. Cameron: which I do Very silly very rude and crude A lot of nerdy geek stuff in it I think Mark Hamill might have been in Mallrats I know Stan Lee was in Mallrats did a cameo in it Anyway um shopping department stores I’m sure you know a little bit about the history of department stores the department store concept Tony Tony Kynaston: Yeah Cameron: of uh Le Bon Marché Le Bon Mar Tony Kynaston: Well, I mean, uh, uh, in broad terms, it was basically the emporium. So the idea was, uh, before shopping malls, they were the shopping mall. They would bring you a little bit of everything that you couldn’t get locally from specialist retailers. And, uh, you, you know, you if they were very good, they might get the finest Paris fashion or the latest cosmetics from overseas and then, um, sell them to people in the suburbs. So that was the, the business model for the shopping– for the, uh, department store. And they do it on. [00:21:00] Like, they do all their purchasing on bulk, so they give you a good price as well. Um, that kind of has been killed, uh, since the rise of the Westfields and the other department stores, um, around the world, because that’s what a shopping mall is these days. It’s basically instead of having a department store aggregate all that, um, material for you and then sell it to you, it’s you’re actually getting the cosmetics from Paris, the brands to take out a, um, to rent a site in your location and sell directly to the retailer. So department stores have been reasonably disintermediated. They, they kind of try different things to, um, combat that. So, uh, you know, they’ll try and do their own brands, home brands or house brands, as they’re sometimes called. They’ll try and do special deals with big companies. You mentioned Levi’s and Sephora before. That’s another way, the kind of, um, house of brands strategy where they become a mini shopping mall again. Um, but, but generally they’re, they’re struggling and they’re in decline. Um, and [00:22:00] online retailing has also been the other battle, other battlefront for them. Uh, if you don’t have a store network and the costs that are associated with that, you can sometimes sell things cheaper to people by just, um, doing a one-off like Amazon and putting it in a cardboard box and mailing it to them. So, uh, you know, they, they’ve faced a lot of battles in, in the last decade or so, maybe twenty years, and, and they’re really struggling. Cameron: Well the story that I read is it goes back to Paris 1838 The brothers Paul and Justin Videau set up Au Bon Marché The Good Market to sell lace ribbons sheets mattresses buttons umbrellas and various other assorted goods Originally had four departments 12 employees in a floor space of 300 square meters or 3200 square feet And then years later uh they brought in a partner [00:23:00] Aristide Bou Bou Bou Boucicaut think BOUCICAUT And he changed the business plan and introduced The big thing was introducing fixed prices because up until then you just sort of bartered you haggled for whatever you were gonna pay for He was like Nah fixed price That’s it Take it or leave it guaranteed exchanges or refunds Those were his big innovations and a wider range of merchandise as well But interesting to think about a time fixed prices wasn’t a thing Tony Kynaston: Yeah Cameron: you haggled for everything So but this blew up It became a hu huge hit fixed prices and guaranteed refunds Uh their revenue went through the roof Uh they absolutely dominated and then other retailers around the world picked up this idea [00:24:00] Macy’s Marshall Field’s in the US copied the business model So it was the French that invented the whole idea And uh these guys I guess have been part of that Kohl’s over the decades the core business for these guys today is selling family apparel footwear a little bit of everything As I said pitched to the value end not up at the top but they’re not Walmart down the bottom in the US somewhere in the middle Budget conscious families year they did about 148 billion in sales and they have their own store credit card the Kohl’s Card which I know you’ll like Tony Kynaston: Yeah. Cameron: a an old card guy Tony Kynaston: Yep. And loyalty program guy, and they’ve got a loyalty program as well. Cameron: Yeah Tony Kynaston: Mm-hmm. Cameron: So every time somebody buys a jumper and puts it on the card they take a slice of the credit economics Uh that line uh was about $752 million last [00:25:00] year Tiny next to sales but very high margins It’s uh does a lot of the profit lifting for the business the cr the the store card side of it Tony Kynaston: Mm-hmm. Cameron: The thing that was supposed to be the growth avenue for them was Sephora Now don’t know about you you’ve got a wife and a daughter uh you might know more about Sephora than me I’d heard of it but Chrissy’s not a Sephora customer But apparently a French multinational retailer of personal care and beauty products has about 340 brands inside of it along it with its own private label the Sephora Collection with the young ladies the teenage girls apparently Cosmetics skincare fragrances nail polish beauty tools body care products hair care items Launched in Paris in 1970 named after the wife of Moses Zipporah but in French it’s Sephora [00:26:00] And so they put a Sephora beauty shop inside a Kohl’s store back in 2021 and then started rolling it out to their other stores Supposedly was gonna drag younger shoppers through the door hasn’t actually worked Um in the last quarter when they did their quarterlies it uh was actually a bit of a drag on their numbers so they’re looking at other skincare brands as an alternative But beauty did over 1.8 billion for them last year so it is a big part of their business They also have their Kohl’s signature line option tell you a funny thing I was talking about Chrissy’s Siri So I dictate my notes as I’m you know preparing Tony Kynaston: Right Mmhmm Cameron: dictation engine is spelled as C-O-L-E-S all the way through and not K-O-H-L-‘-S so I’m having to fix it as I go Um they have their signature line option which is actually doing quite well for them but [00:27:00] we’ll see that when we get into the quarterly numbers But let’s get into the fun bit the fired CEO So as I said January 2025 they bring in this new boss Ashley Buchanan um gonna come in and turn around the business Fix 15 weeks later they had to fire him so it’s a great story Soon after taking over he brokered a deal for several Kohl’s stores to sell products from a coffee startup called IncrediBrew I looked up IncrediBrew They seem to be pods but they’re like boutique pods like coffee and mushroom You were talking about coffee off air this morning Tony Kynaston: Yes. Cameron: your coffee beans are getting smaller Tony Kynaston: Mm-hmm Cameron: They sell like you know your your your boutique uh brand coffee things uh you know fancy fancy coffees for I don’t know [00:28:00] modern age coffee snobs who like fancy stuff in their coffee Anyway it’s it’s headed by a former Bed Bath Beyond CEO a lady by the name of Chandra Holt And somebody on the Kohl’s side of things when this deal was done expressed some concerns over the terms of the deal that IncrediBrew were getting how they hadn’t gone through the normal vendor vetting process and made some complaints about it They got ignored took it up to the board The board launched an internal investigation and it emerged that the new CEO Mr Buchanan and the of IncrediBrew Chandra Holt had worked together at Walmart and had been in a secret romantic relationship for several years Tony Kynaston: Is this all proven, Cam, or is this alleged? Cameron: Uh he confessed to it Tony Kynaston: Oh, okay. All right Cameron: Yeah and when the investigation happened he admitted it [00:29:00] which is why he was fired Um had also crafted a consulting agreement with Boston Consulting where Chandra Holt was an advisor So got fired the next day after all this came out And the chairman Michael Bender stepped in as the interim CEO and then they made him permanent CEO in November last year They also got a brand new COO who’s just come in in the last Tony Kynaston: Mmhmm Cameron: or two from Foot Locker Like you and I wrote a book on the psychopath epidemic uh five or six years ago Tony and one of the things that led to that book and me thinking about psychopaths was why do we always hear these stories of people in positions of authority and power whether it’s in business or government or the military or leading religions or you name it who just do really really stupid shit Like like really really stupid shit [00:30:00] where you would think you should know better Tony Kynaston: Mm-hmm. Cameron: You you know you’re not 20 I don’t know how old Mr Buchanan was but I’ve seen photo of him He looks like he’s you know middle aged guy obviously had some success run companies brought in to you know run one of the largest retailers in the United States This is a really rookie amateur mistake Like how did he not think that was gonna get found out And one and I’m not claiming that Mr Buchanan is a psychopath but one of the things that we learned in researching and writing the book is one of the characteristics of psychopaths is they have a very high appetite for risk They believe that they are superior to mere mortals And quite often if they’ve got to a certain point in life where they have taken enormous risks gotten away with it they seem to think that they will always get away with it They [00:31:00] can just do stuff and it’ll just work out Donald Trump fits this uh archetype Just does Oh I’m gonna just put tariffs on everything Uh I’m just gonna start a war Uh I’m just gonna do stuff and it’ll it’ll be fine It’ll work out It’ll be great And then it doesn’t Eventually sometimes it bites him on the ass but you know if they if they’ve gotten away with it for 10 20 30 years they think they’ll always get away with it So uh Tony Kynaston: I mean, it’s, in some respects it’s human nature writ large, isn’t it? I’m sure there are lots of situations about people being in secret relationships and helping each other out at every level of society. It just becomes the focus, the focus of attention when it’s a CEO involved. But you’re right that you’d, you’d hope that the CEO who was running a company would have the probity to. Yeah, if he’s, if they’re in a secret relationship, good luck to them, but, but why, why do sweetheart deals when [00:32:00] you know that there are, I mean, it’s a department store. Their whole IP is around screwing suppliers and getting the best deal for their customers. Why, why did they think they wouldn’t get found out? Cameron: Yeah it’s astonishing but Tony Kynaston: It is, yeah. Cameron: So uh I think that had probably a little bit of an impact on their share price at the time but it doesn’t really explain why it’s turning up on our value buy list today If actually if you look at their share price it was uh 14 at the beginning of January last year When this all went down it dropped down to 613 by Tony Kynaston: Hmm Cameron: of 2025 then got back up to 2471 by the end of last year has struggling um in the last six months but it’s getting back up It’s climbing back up yesterday it fell again but you know it’s sort of is still recovering So um [00:33:00] another couple of things before I get into the financials and some of the story from their Q1 Um early 2025 they also cut their dividend by 75 50 cents a quarter to 12 and a half cents So that would’ve had an impact on their share price People that owned it for the dividend wouldn’t have been happy about that Management called it balance sheet flexibility which I think translates as We probably need the cash Tony Kynaston: Yeah Cameron: of course you gotta remember that this is uh Liberation Day time as well This is a retailer that probably very large chunk of its stuff is getting made in China and Tony Kynaston: Mmhmm Cameron: and places like that were gonna attract a huge chunk of tariffs under the Trump tariff regime Tony Kynaston: I did know this when I was doing my research that they’ve just, um, submitted legal claims in June of this year to have $140 million US refunded for tariffs [00:34:00] that they paid, um, now that the tariffs have been questioned, uh, their legality’s been questioned Cameron: Yeah well I I’ve got more on that later on Um it’s murky Um all of this tariff stuff is still murky and they call that out in their latest Tony Kynaston: Hmm Cameron: They don’t really know they’re supposed to be paying what they might get back and so they c It’s all big question marks um in their official reporting which is fair enough cause it’s still in play There’s still you know stuff going on through the courts Tony Kynaston: Mm-hmm. Cameron: The other interesting story that happened last year is they borrowed 360 million at a 10 interest rate and had to provide security Tony Kynaston: Mm-hmm. Cameron: had to pledge the furniture in order to get it So a 10 secured bond is uh my analysis of that was sort of it’s the bond market [00:35:00] telling you they don’t think you’re a great credit risk Um that’s a pretty high interest rate to be paying in the current market and particularly if you have to secure it So the the you know the the bond market thinks that they’re uh you know some challenges which is understandable being a bricks and mortar retailer in the current Tony Kynaston: Mm-hmm. Cameron: Plus they closed 27 stores in 2025 and some distribution centers 27 out of 1100 is not a big deal um but it tells you a little bit about how business is going and we’ll see that when we get into the numbers as well Numbers have been going backwards for quite a few years but there’s also some stuff turning around which might be some sign of hope But another thing that you’ll like uh is that they own their own real estate Tony Kynaston: Yeah, that’s what I wanted to focus on. That’s the ex- the interesting part of the story for me, I think Cameron: Yeah I’ve I got a rough valuation of about 6.8 billion [00:36:00] of property Tony Kynaston: Hmm Yep Cameron: And activists have been pushing them to Gordon Gekko it for uh quite a few years There’s corporate raiders circling There was a group called The Franchise Group had a deal at 60 a share in 2022 before it fell apart Don’t know why it fell apart didn’t drill down into that It’s a bit uh too long ago but 60 a share right now sounds pretty good I think Tony Kynaston: Yes. Cameron: the Tony Kynaston: It does Cameron: trading at 61, 63 at at its peak in March of 2022 I guess you know probably had Ukraine war going on then I don’t know how that impacted But there was also trade wars going on with China I don’t know what else was happening then but yeah out of COVID maybe they were some good online shopping during COVID stimulus Their share [00:37:00] price went up a lot during COVID Anyway um still a lot of chatter bubbling up around this uh and they it does seem like that’s a lot of of a huge asset base that could be sold off We’ve we’ve done a couple of was it we were talking about some months ago Was it um was it Kodak, somebody like that we talked about that had a lot of real estate that they had spun off Tony Kynaston: I think it was, yeah. Mm-hmm Cameron: So there there seems to be a lot of opportunity for them to do something good with this to to offload this real estate and you know use the money to do other things in the business Tony Kynaston: Well, that, that’s the, that’s the really interesting point for, um, a company in this situation, whether it’s a. It happens a lot with department stores or historically it has. But, um, [00:38:00] you know, if you look at their net profit number, their most recent net profit number, um, I think it was about two hundred and seventy odd million dollars, and their forecast numbers are lower than that, a hundred and sixty. Um, I think you said that they had a property portfolio of over six billion dollars. Um, Cameron: 6.8 Tony Kynaston: yeah. So if that’s the case, then, you know, if they just said, “Well, let’s just lease out the six billion dollars of property that we have,” what kind of yield would you expect on good commercial property and shopping malls and good locations in suburbs and things? You’d probably get at least five percent, maybe even. Yeah, at least. Uh, so, you know, ten percent on six point eight billion is six hundred and eighty million, half of that, three hundred and forty. It’s more than what they’re making from the department stores. And they could do it, you know, with next to a very small staff [00:39:00] footprint to manage the commercial real estate. So I don’t, I don’t begrudge them for saying, “Look, you know, we’ll turn things around, and we’ll get back to a stage where we’ll earn more money from being a department store than we do from renting out our real estate portfolio.” But, you know, how many chances do you give them, um, given that department stores are in decline? And y- at what stage do they get another private equity company bidding and saying, “You know, we’re gonna shut you down. You’re just a, you’re just a waste of space. Cameron: Yeah Tony Kynaston: take the commercial real estate over and rent it out”? Cameron: Yeah Tony Kynaston: you know, it’s g- it’s gotta happen. And the obvious play for Kohl’s would then be to do what’s called a sale and leaseback strategy, which has been used a lot in the past by retailers where they’ll sell off their property arm or spin it off into a real estate investment trust and then get a guaranteed lease for a long period of time so they don’t get shuttered. Um, that I don’t think will work in Kohl’s case because if you think about it, the reason why they’re not doing that is because the [00:40:00] rental was, is more than what they’re making in profit. So it’s g- it’d probably send them bankrupt. And there has been cases in the States in the past where that sale and leaseback strategy sunk department stores. I, I think it may have contributed to Sears going under. So. But yeah, I mean, if you’re a department store retailer and you can’t make rent, then why are you in business? I mean, really that’s the question, isn’t it? So unless they come up tomorrow with some fantastic offering, whether it’s Sephora or whatever else they can do, um, you know, I’d, I’d be inviting people to come back and bid for the real estate property and get out of the department store business really. Cameron: Yeah Tony Kynaston: That’s the interesting dilemma, I think, if you’re a shareholder Cameron: It’s a bit like being an active fund manager and you can’t beat the ETFs Like Tony Kynaston: You can’t beat the index. Yeah. Yeah. Well, and you own a, a portfolio of ETFs, right? So yeah, shut[00:41:00] shut down and sell the ETFs and you’re in front or shut down and run the ETFs and you’re doing better off. Same thing. Cameron: Hmm Tony Kynaston: Mm. So that’s what I find interesting about this and I, I’m surpr- you know, I, I wasn’t surprised to see they got an offer of 60 bucks a share. If that’s the valuation of the real estate business, you know, uh, you, you. I’d be voting the board off, you know, directors off the board and saying, you know, inviting someone to come back in and give me a, a, a, another $60 offer really Cameron: Yeah cause at the end of the day you’re looking I mean this classic Gordon Gekko stuff Tony Kynaston: Yeah Cameron: at the value of the assets and what the return on the assets is and what it could be Tony Kynaston: Correct. Cameron: the lot of employees are gonna lose their jobs if you shut down the business and there’s Tony Kynaston: Mmhmm Cameron: side of it as well the impact of all of that But Tony Kynaston: Yeah. It’s not an easy thing to shut it down, but, but, but, um, yeah, I mean, and there’ll be lease liabilities ’cause I, I, I don’t think their property network isn’t 100% of the store network, so they’ll still have lease liabilities to get out of and all of that. But, [00:42:00] but at some stage, there’s a tipping point here where you’re better off shutting the department store and leasing out the real estate or even selling the real estate, really. Cameron: Mmhmm Tony Kynaston: Mm. Cameron: Anyway getting back to their actual business today Um some of the things that are affecting retail particularly their target demo sort of middle class value buyers had the impact of tariffs we’ve had inflation gas prices et cetera Their most recently recent quarterly report says expect that our operations will continue to be influenced by general economic conditions including food fuel and energy prices higher unemployment wage inflation and costs to source our merchandise including tariffs Um a, only a fifth of their stuff comes from China I thought it would’ve been a lot higher but Tony Kynaston: Mm Cameron: you go So even though the Supreme Court issued a ruling that struck [00:43:00] down certain tariffs back in February there are still some tariffs from the first trade war using a different you know um mechanism that are still standing And as soon as the Supreme Court knocked down the ones from last year the Liberation Day ones Trump slapped fresh tariffs on using a different power The Court of International Trade ruled those unlawful too but it’s pending appeal So Kohl’s is I think still paying them and waiting for the lawyers to fight it out As you said they’ve also put in a claim for getting tariffs paid back, clawed back but still not sure whether or not that’s gonna happen No one Tony Kynaston: Mmhmm Cameron: So it’s a complete mess They’re paying tariffs they’re not sure they should be paying but they’re paying them anyway They’re trying to claw back stuff They don’t know if they’re [00:44:00] gonna get it back Anyway so it’s a complete shemozzle as Tony Kynaston: Yeah Cameron: times before which is what you get when you put a reality TV star in charge of the government In their most recent earnings call the Q1 2026 earnings call they said net sales declined 17 comparable sales declined 11 sales grew 4 Gross margin improved by four basis points over year so that’s good Tony Kynaston: Mm-hmm. Cameron: net loss was 14 million for Q1 2026 They’re sitting on cash and cash equivalents of 429 million But the good news is they achieved their best quarterly comparable sales performance in over four years driven by a significant stabilization of the core Kohl’s card customer That’s a mouthful And who reached a flat comp versus [00:45:00] a mid single digit decline in Q4 So there’s some turnaround news in that and I think that’s why Tony Kynaston: Mmhmm Cameron: price did tick up a little bit in the last couple of weeks Proprietary brands outperformed with a 6 comparable sales increase which is good for them opening different price points for customers that are struggling with inflation pressures Sephora I mentioned underperformed It had a low single digit decline especially in makeup and skincare So they’ve said that doing a full rollout of the MAC skincare brands and Korean skincare brands Do you know anything about Korean skincare My wife is, is Tony Kynaston: I do not– Cameron: skincare Tony Kynaston: bit about MAC, Makeup Artists of Canada, because that’s the one that Alex went to. Cameron: I Tony Kynaston: Yeah. Yeah. Big in Toronto where we used to live. But, um, yeah, don’t know about Korean makeup. Cameron: So [00:46:00] Korea uh so my wife Tony Kynaston: In case you can’t tell, I don’t use makeup. Cameron: you know or skincare Tony Kynaston: Yeah Cameron: Um my wife is an American uh but has lived here for 17 years Um teaches Tony Kynaston: Wow, has it been that long? Cameron: Yeah Tony Kynaston: Gosh. Hmm Cameron: This week is our um 18th when we met in um Corsica It was this week 18 years ago Tony Kynaston: Gosh Cameron: Yeah I know that’s what we say Wow Tony Kynaston: Hmm. Cameron: where was I going with this Oh she’s a violin teacher and she has had a lot of Korean students over the years and they always bring her When they go back home they come back and they bring her Korean skincare and she loves Korean skincare Koreans apparently are obsessed beauty and skincare and all this kind of stuff South Koreans obviously North Koreans not so much Uh Kim Jong probably has his Tony Kynaston: Well they [00:47:00] Cameron: you Tony Kynaston: they, they’re concerned with their skin, but for a different reason. Trying to keep it. Yeah Cameron: Um so anyway they’re they’re rolling out Korean skincare brands which are hot Tony Kynaston: Hmm Cameron: The hottest thing The hottest thing in New York nightclubs is Korean skincare brands So we’ll see if that helps Tony Kynaston: Mmhmm Cameron: when the results came out their share price jumped 10, 9 and then it came back As I said yesterday might have been a bit of profit taking uh seeing as I can’t see anything in the news But there’s this other funny thing They had this weird meme stock thing happen about a year ago as well After the whole Buchanan thing happened um it looks like there was this massive short squeeze that happened So Tony Kynaston: Run Cameron: we talked about this I think it was last week we talked about the gamma squeeze Tony Kynaston: We did. Cameron: The Tony Kynaston: me angry. You wouldn’t like me when I’m angry. [00:48:00] Yeah. Cameron: Bruce Banner Oh man speaking of that YouTube must have heard me talking about that cause it showed me a clip of from the uh uh the the Hulk TV series the Tony Kynaston: Mmhmm Cameron: um TV series Thor which I’d I’d never remembered Apparently he met Thor at one point the Hulk fought with Thor uh was just glorious to watch Tony Kynaston: Right. Cameron: Bill Bixby Tony Kynaston: Yep Cameron: me angry You wouldn’t like me when I’m angry And then Thor is like being this complete dick to him and and turns into they go at it Oh Lou man it was insane looking at it Like uh obviously crazy compared to what we’re used to with the Marvel Hulk these days but body was insane Tony Kynaston: Mm-hmm. Cameron: The muscles that he had on the back of his neck and [00:49:00] whatever these deltoid quad things I don’t even know what they were But anyway it’s Tony Kynaston: Competed with Arnold Schwarzenegger for Mr. Universe titles. Cameron: Yeah And but he looks bigger than Schwarzenegger Like Schwarzenegger looked like proportionally great but Lou just looked just at this point anyway early 80s I guess just massive Oh anyway back to the back to gamma squeeze So July 22nd 2025 the stock doubled when it opened I told you it sort of hit this crazy uh peak Let’s go Tony Kynaston: Hmm Cameron: uh yeah so it was 9.39 and it leapt to 14.34 Um and then it it well it went up 100 then it closed up 39 Volume was 25 times normal on that day No earnings no [00:50:00] news apparently it was a short squeeze So 49 of the float had been sold short Tony Kynaston: Wow Cameron: N Tony Kynaston: another vote against the board Cameron: Well yeah I guess And then retail traders piled in and the shorts had to buy back to cover Tony Kynaston: Mm-hmm. Cameron: and it went vertical So another one of these gamma squeeze things Crazy crazy stuff Anyway the price today probably has some of that squeeze residue still baked into it still quite a bit of shorting going down but from what I can tell it’s down about 28 of the float But that’s still Tony Kynaston: A lot. Cameron: a lot right A Tony Kynaston: Yeah Cameron: the stock to be involved So we don’t factor that in in our checklist and I don’t know if we should but Tony Kynaston: Well, we’ve had that, I’ve had the debate myself in the past and, you know, I’m happy to fight [00:51:00] the shorts. They think it’s going lower, and we think it’s going higher. Um, Cameron: Yeah right Tony Kynaston: in, in this case, you know, you’ll go through the numbers, but with all that real estate backing it, it’s. I think it’s a reasonably safe bet Cameron: Yeah like the business, you know it seems to be, may I mean at least for one quarter seems to be turning around doing well It’s cheap on our metrics I’ll run through the um where I put my analysis here Do do do do do I’ve got so many notes here I can’t even find the bit that I need Tony Kynaston: Maybe it’s under K-O-H-L-S Cameron: No I’ve got like four versions of the notes here cause I consolidate all these things and then I do another thing and another thing and uh um digital sales scorecard Oh yeah Oh this is it Okay [00:52:00] Um so me see What did I score it So the share price as I said was about 19.26 when I did my analysis so now it’s down a couple of bucks This will have changed in some respects but at the end of the day not that big a deal Market cap was um 2.2 billion roughly Average daily trade about 103 million so big enough Um Tony Kynaston: So you’re sure the real estate value is 6.8 billion? Cameron: I’m not sure but that’s the number I came up with in my research Tony Kynaston: And the market cap’s 2.8 billion Cameron: Yeah right It doesn’t make any sense does it Tony Kynaston: No. Cameron: Hmm Tony Kynaston: But again, another reason why I, I would think private equity is looking at this one Cameron: Hmm Uh so Stockopedia rank of 97 Tony Kynaston: It’s very high, isn’t it? Cameron: Yeah Sorry your typing was very loud Tony Kynaston: Oh, I’m sorry. Cameron: It’s all right Tony Kynaston: No, I’m just checking that real estate [00:53:00] backing. It’s, uh, yeah It’s six point eight to seven billion. Yeah. Cameron: Yeah Tony Kynaston: Um, and also too, I think I noticed in my research that it’s down in their books at cost. It’s not even, you know, the current value of it. Cameron: Really Tony Kynaston: the case. I’d have to double-check that, but yeah. Cameron: Hmm Tony Kynaston: yeah, so it’s saying here that, uh, it could be worth as high as eleven billion Cameron: Hmm And the market cap’s Tony Kynaston: Yeah. Mm-hmm. Cameron: Uh so the Stockopedia stock rank was 97 it for that Stockopedia quality rank was 74 scored it for that The Piotroski F-score is a seven so it’s scored for that Its price is not less than our IV1 or our IV2 To you an indication my IV intrinsic value number one is 830 My intrinsic value number two is 1481 so it’s above both of those Tony Kynaston: Mm-hmm. Cameron: Um double the share price [00:54:00] at the time would’ve been 3852 obviously um doesn’t score for that either Um the price is less than the book value though The book value I have is 3548 equity per share it scores for that Obviously it also scores for the price being less than book plus 30 Uh it had positive growth Um the dividend yield is not higher than the benchmark right I’ve got the dividend yield down at 26 But uh I Oh oh I didn’t score it for a new three point upturn even though it of It was This is funny So code said no When I looked at the bread later which for new listeners is a Sheet tool that we’ve had for years it said it was just above it [00:55:00] When I tried to un figure out the difference um my when my uh code ran it was one cent Tony Kynaston: Yeah, right. Cameron: buy price the buy line So anyway but it should’ve got a point for that Wouldn’t have made much difference but um yeah At the end of the day I gave it a QAV quality score of 6923 which is Tony Kynaston: Mmhmm Cameron: high but it got Oh its PropCaf was 156 price to operating cash flow 156 so it ended up with a QAV score of 0443 is pretty pretty high Tony Kynaston: Ish. Cameron: it well It’s making Tony Kynaston: Mm-hmm. Mm-hmm Cameron: kind of you know turning around maybe but even if it’s not So it’s you know it’s sort of a cigar butt in a way Tony Kynaston: Oh yeah, it’s a dinosaur Cameron: It’s a yeah it’s a cigar [00:56:00] butt but it’s got sort of a turnaround operation dr bolted on a little bit with the makeup and the skincare and the online stuff which is doing okay maybe Um best quarter that they’ve had in four years so maybe facing a lot of headwinds tariffs and Tony Kynaston: This remind, this re- Cameron: and Tony Kynaston: this reminds me of the original Berkshire Hathaway, right? The, the cotton, cotton, uh, mill that didn’t make any money but Buffett had managed to buy all these assets that made a lot of money with the cash flow from the cotton mill, and eventually he shut it down. Cameron: Yeah Tony Kynaston: where’s, where’s Buffett or where’s Gordon Gekko when you need them to just give this stock a shake, a cleanup? Cameron: there’s they’re they are circling it Like there’s a Tony Kynaston: Hmm Cameron: going on as far as I can tell So yeah it’s it’s throwing off a lot of cash while it shrinks at roughly half of book value [00:57:00] has a very low price to operating cash flow and as as we’ve dis as we’ve figured out is sitting on a ton of real estate that has enormous value So somebody’s gotta Tony Kynaston: Yeah. Cameron: and Tony Kynaston: And I know the board, Cameron: with it Tony Kynaston: the board have argued that the real estate’s a, uh, is of value to them because they can shrink or grow their footprint, um, without having to change the rental that they pay. Um, and that makes sense. That’s, that’s good. Or they can bring in subtenants, which, um, might be the latest trend like Korean makeup or whatever, and that’s good too. But they’ve had a long time to perfect that strategy, and it’s not really working for them, and they’re in a declining industry. Um, I’d, I’d much rather see them just shake it up and say, “Oh, maybe we should be a, a thousand stores, not 11,000, 1,100. And maybe we should– or maybe we should be selling 100 stores rather than 1,100, and we’ll sell off our real estate and return some money to the shareholders.” Something like that. [00:58:00] Mm-hmm. Cameron: I do wanna point out though that it is not a buy today because the share price has gone down So my current buy price is 1886 It’s now down to 1772 So it’s slightly below the buy price as of today It was a buy yesterday and I did add it to our portfolio yesterday and I sent out an email to our Lite subscribers Um so if you got in quick you you’ve lost money Uh but Tony Kynaston: Mmhmm Cameron: really have it in your portfolio So uh we’ll see what happens with it But uh yeah if if if if you didn’t buy it yesterday know maybe wait until it gets back over the buy price Um but it it’s ticking back up again uh today so I I think it will get back up But I don’t know why it dropped yesterday It’s uh very strange Tony Kynaston: Yeah, who knows? Could have been a short position taken out. Who knows? Yep. Maybe, Cameron: [00:59:00] I’ll Tony Kynaston: maybe Korean mar– maybe Korean makeup’s attracting extra tariffs overnight. Who knows? Cameron: Who But I like it It’s again as you Tony Kynaston: Yeah Cameron: of a it’s a classic value stock boring dying generating cash lot of assets Tony Kynaston: Mm-hmm. Cameron: Just smells like a good deal So Tony Kynaston: does, doesn’t it? Cameron: hmm Tony Kynaston: I’d be– I mean, I don’t wanna predict, but I’d be forecasting that if we can see value in this, there’s gotta be an institution out there which is seeing value in it too, and they’ll put it in play somehow. Yeah Cameron: And that happens so often in my experience with QAV over the years that uh if if we think it’s a good deal somebody else is gonna figure that out and take advantage of it Tony Kynaston: Yep, absolutely. Cameron: Well that’s QAV America for this week Tony Tony Kynaston: Yeah, very interesting. It’s a really. It, it’s a, it’s a good stock to analyze because a lot of people will have an opinion about Coles in the US, and our listeners will be thinking, “Oh, I don’t go there,” or, [01:00:00] “I’ve got a card and I always go there.” And it’s, it can, it can be very polarizing when you talk about something which is, you know, used every week by, uh, by investors Cameron: I’ll I’ll throw it up on the value investing subreddit and see what people say I threw up a I threw up a thing about Carter Bankshares last week and people seemed to like that They they they liked that story so Tony Kynaston: Okay Cameron: it was a good story too the whole uh Jim Justice Tony Kynaston: Yes. Cameron: And as Tony Kynaston: Yeah. Cameron: subreddit uh said um know uh credit to the current management at Carter for unpicking that unholy mess because Tony Kynaston: Hmm Cameron: yeah they they did a good job Came out of it on top so good for them Tony Kynaston: Yeah, a bit. I mean, that Greenbrae situation is a bit like Coles, isn’t it? It’s a, an asset that can be spun off and realize [01:01:00] some value for it to support the underlying business. Or to help shareholders, yeah Cameron: Yeah I mean being yeah wasn’t really core business They didn’t have to shut down a branch to sell that Tony Kynaston: Hmm Cameron: uh yeah similar right Thank you TK Have a good week Tony Kynaston: Thanks Cam. Well done Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jul 2, 2026

23m
50

The Bunker, the Billionaire, and the Bank That Cared (CARE): QAV America #58

This week we dig into Carter Bankshares (CARE), a tiny Virginia community bank that got itself tangled up with a billionaire US senator, a Cold War bunker resort, and nearly $800 million in dodgy loans, then somehow came out the other side with $80 million in cash and a story worthy of HBO. We also cover Alan Greenspan’s passing at 100, the SpaceX float wobble, the Iran sanctions waiver, and why Big Tech’s stock-based compensation accounting might be quietly fleecing investors.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV AMERICA 58 new [00:00:00] Tony Kynaston AU: Nothing to talk about on the US show, is there? Cameron AU: Nothing to talk about. Welcome to QAV America 58. Tony Kynaston AU: chill, people Cameron AU: Chill, 23rd of June, 2026. Tony? I had an ex-wife who had a birthday on the 23rd of June. Trying to remember which. Uh, probably my first wife. Happy birthday, my first wife, if she’s listening. Tony Kynaston AU: You have so many ex-wives you can’t remember their birthdays. Cameron AU: Yeah, it’s just dates. You know, you go, “Oh, I think there was a date I was supposed to Tony Kynaston AU: You and Elon Cameron AU: wife’s.” Yeah. Actually, yeah. Yeah. Speaking of Elon, Tony Kynaston AU: How can afford his alimony? Cameron AU: how, how are your, uh, are your SpaceX shares going, Tony? Tony Kynaston AU: I don’t have any, but um, I hear they’ve been doing well until all the insiders sell out, but we’ll see Cameron AU: No, they’re down. They crashed. Tony Kynaston AU: Oh, have they? Well, they were doing well last time I looked. They’re up 50% over the weekend Cameron AU: Uh, they’re down. I don’t– I wouldn’t say crashed, but, um, yeah, they’re back down to where they started, I think. Um, as of today, they are [00:01:00] less. They’re below. Um, they f- they sort of floated at a dollar sixty– uh, $165, sorry. They’re currently $154. So congratulations to everyone who got into SpaceX. Tony Kynaston AU: And got out quickly. Cameron AU: you got out, yeah Tony Kynaston AU: Yeah. That’s amazing. It– That’s, I mean, that’s a huge float to be moving that, with that much volatility, isn’t it? That’s incredible. Cameron AU: Yeah. Well, Tony Kynaston AU: All sorts of rumors in the market that he’s gonna use the float to buy Tesla, and then he can, uh, become the chief exec or executive chairman of Tesla as well, which could have bugged him he couldn’t be chairman Cameron AU: I’ve been reading these, this Colossus, uh, series of books from the ’60s and ’70s. I’m on the third one. It was a trilogy. I’m on the third one at the moment called Colossus and the Crab, and this is where, uh, Martians come down and basically help the humans to kill Colossus and then state that they want, uh, their payment is they want 50% of Earth’s [00:02:00] oxygen to take back to Mars to re-replenish the oxygen on Mars. Tony Kynaston AU: Right Cameron AU: It’s, it’s, it’s, it’s actually not as wacky as it sounds. It’s pretty good, but it got me reading a lot of it ’cause the, the, the author. This one was written in 1977. He’s making a lot of cl- ooh, a lot of claims about Mars’ atmosphere and the escape velocity of Mars and why it lost all of its heavier elements and all Tony Kynaston AU: Mm-hmm. Cameron AU: of stuff. And so I’ve been going backwards and forwards with Claude just sort of fact-checking a lot of this stuff. But as part of that process I was reading about the, uh, cosmic radiation levels to get to Mars. Do you know, do you know much about that? Tony Kynaston AU: I have heard that’s one of the problems with colonies on Mars is you just get irradiated, you get microwaved Cameron AU: Even getting there. So, um, apparently NASA has a career limit for astronauts of 600 millisieverts of radiation exposure. Over your entire career as an astronaut, you can get six– anything beyond 600, and I think your, uh, [00:03:00] rates of getting cancer from radiation poisoning go up to, like, 5% or 10% higher than they normally would be, so they cap it at Tony Kynaston AU: Right Yep Cameron AU: A one-way trip to Mars exposes you to 1,000 millisieverts. Um- Tony Kynaston AU: And I can’t line the ship Cameron AU: No. There, there’s, there’s various theories, but n- nothing that would be, uh, um, effective. Um, in fact, if you line it with metal, it, it makes it worse because the radiation hits the metal and then fragments all of the particles out of the metal, so y- it actually increases your exposure of radiation. Tony Kynaston AU: Right Cameron AU: way to do it apparently is water, um, y- you’d, it’d be so heavy, et cetera, et cetera. It ruins your ability to get the ship up. Maybe if you, if you got Tony Kynaston AU: Close out the position, yeah Cameron AU: and got in another ship, you might be able to. Apparently, I asked if Elon Tony Kynaston AU: Yeah, well, you gotta get the water up there, though. You can’t. Doesn’t matter. You gotta still get the water up there, right? Cameron AU: [00:04:00] Yeah. Tony Kynaston AU: It doesn’t flow uphill. Cameron AU: Elon’s answer to this apparently so far has been, “Yeah, yeah, a lot of people are gonna die. That’s just how it is.” Uh, Tony Kynaston AU: Is he stroking a cat when he says that? Cameron AU: you know, his, uh, thing about l- you know, the, the rocket launches with SpaceX over the years has always been, you know, blow stuff up quickly. Tony Kynaston AU: Yeah. Cameron AU: apparently that translates into kill people quickly to get them Tony Kynaston AU: Yeah. Cameron AU: He said it’s gonna be volunteer only. Apparently, his answer is to get you, get you there faster. So if you get there faster, you’re exposed to less radiation. But of Tony Kynaston AU: But you’re still exposed when you get there, yeah Cameron AU: you get there, let– and then if you ever wanna Tony Kynaston AU: Unless you, Cameron AU: so Tony Kynaston AU: unless you build underground, I guess. That was the, Cameron AU: Well, Tony Kynaston AU: was the theory Cameron AU: Yeah, you have to build underground, Yeah. Tony Kynaston AU: Yeah. Well, I thought Elon’s play was to get robots to do all that when it was safe to send humans, yeah Cameron AU: Yeah. Eventually you, you, it’s safe for humans to get in there. But, um, Tony Kynaston AU: Mm-hmm. Cameron AU: Well, before we get onto Elon, um, Iran, let’s Tony Kynaston AU: We just did. Before [00:05:00] we get onto Wieland, we just spent the last five minutes on it. Cameron AU: okay. Let’s move off of Elon. Tony Kynaston AU: Okay Cameron AU: Elon. That’s what all of his ex-wives said. Um, the Iran sanctions. So, um- Tony Kynaston AU: Yeah, it’s clown show number two. Clown show number one, Cameron AU: So the Tony Kynaston AU: in space. Clown show number two. Cameron AU: the MOU was finally released late last week, and it was the most fun I’ve had in, I don’t know, a long time reading through that. The 300 billion in reparations had been rumored for a while, and whenever I spoke to my Persian friend, uh, from Kung Fu about it and, or read about it in the forums online, the, the, the, the standard response was, “Oh, that’s just IRGC propaganda. They’re just trying to make themselves sound good. That’s never gonna happen.” Well, it was in the document. Yeah, $300 Tony Kynaston AU: Yeah. Cameron AU: in Tony Kynaston AU: Yeah. But who pays for it? Cameron AU: And [00:06:00] they’re, they’re not very specific on that. Tony Kynaston AU: No. Cameron AU: said, ” No, we’re not paying for it. Uh, the Tony Kynaston AU: Yeah Cameron AU: will pay for it.” And they might. Um, but it’s a big. And then the lifting of all sanctions on Iran is the other big thing. So then, uh, Iran pulled out because Israel kept bombing Lebanon. They walked out of the negotiations, or they said they were gonna, but apparently they didn’t, and I was reading in Al Jazeera this morning. It’s still the place where I go to for my news on this is Al Jazeera. It seems to be, you know, a little bit less, um, problematic than a lot of the Western news sources. But, um, they were saying that, uh, the US has partially lifted Iran’s oil sanctions for 60 days or 61 days maybe. Tony Kynaston AU: Yeah, so it’s basically a 60-day ceasefire, which we’ve had before as well, which didn’t last very long Cameron AU: But it says, uh, “The US Treasury issued a 60-day sanctions waiver on Monday, paving the way for the production, delivery, and sale [00:07:00] of Iranian oil to the US.” So, A, I don’t know how much oil they have sitting around now to sell to the US within 60 days. I don’t know what the situation is there, but. And it’s just like what it does to the oil price, who knows? But it’s just, uh, you know, fascinating that after decades sanctions on Iran Tony Kynaston AU: Mm-hmm. Cameron AU: how bad the JCPOA deal was according to Trump, they’re lifting sanctions on Iran and Tony Kynaston AU: I saw a, Cameron AU: billion. Tony Kynaston AU: I saw a cartoon of Trump copying Obama’s S on, on Iran. It’s like he’s just done the same thing Obama did Cameron AU: No, this is way more, uh, better. Way more better? I Tony Kynaston AU: It’s worse for the US, yeah Cameron AU: Way better for Iran is– and for the IRGC than anything Obama tried to put through. I mean, if Obama had if Obama had tried to [00:08:00] put up this deal, it would’ve been, you know, he would’ve been laughed out of the White House. Uh, anyway, Tony Kynaston AU: Yep Cameron AU: it’s, uh, as we always say, you got no idea what’s gonna happen any day, day to day. Uh, oil price is back down today. It went up a bit over the weekend. It seems to be back down. I think it’s around seventy-seven bucks last I heard. Tony Kynaston AU: Mm-hmm. Cameron AU: So hasn’t gone back up where we’re buying oil stocks again yet, but who knows what will happen. It’s all very fraught and hard to believe anything that gets said by any of the parties, uh, at this juncture Tony Kynaston AU: Yeah, exactly. And, and whether, um, even Israel will be a party to what needs to happen. They seem to be just doing what they want as well. Cameron AU: Yeah. Tony Kynaston AU: And then if you lift the sanctions on Iran, they’re gonna keep funding Hezbollah, which is gonna goad Israel. So it’s not– Maybe it’s a sixty-day circuit breaker, but that’s the, the best way [00:09:00] you can picture it, I think Cameron AU: I was listening to, uh, do you know, um, Switzerland? Um, Sw- Tony Kynaston AU: just mispronouncing Switzerland. Cameron AU: Nah, um, Son Tony Kynaston AU: recently on capping their population at 10 million? Cameron AU: There’s an Australian journalist, uh, Peter Schweizer, Tony Kynaston AU: Yeah. Cameron AU: he was the journalist, uh, his Tony Kynaston AU: I’ve heard of him, yeah. Mm-hmm Cameron AU: I don’t know. He does a, he does a good, uh, podcast that I check out a bit ’cause he has John Mearsheimer on a lot and guys like that. on, on a weekly basis, he has Mearsheimer and guys like that come on and talk about what’s going on in Iran mostly. you know, Schwei- uh, uh, John Mearsheimer is one of the guys that I’ve turned to for decades. I read his book on the Iran. uh, the Israel Lobby, sorry, that he did with Stephen Walt 20 years ago. been one of my go-to guys on international geopolitics for decades. I mean, he’s, he’s been talking just this week about how the Gulf, [00:10:00] uh, states, um, now have a different view about the United States defense umbrella and how it’s non-existent really. Tony Kynaston AU: Mm-hmm. Cameron AU: um, the- their whole relationship with Israel and their relationship Tony Kynaston AU: Mm-hmm. Cameron AU: has to change now because they can’t afford for the strait to be closed on a regular basis. So it’s really reshaping, it seems, the diplomatic relationships between all of these countries in the Gulf and, um, is becoming a global pariah. The Tony Kynaston AU: Yeah Cameron AU: a global pariah, it’s, it’s. and China’s just sitting there licking its lips. So it’s like hilarious really to watch the whole thing crumble. Not hilarious, that’s the wrong word, but it’s fascinating Tony Kynaston AU: Yeah, it is fascinating. I s- I think it was the Lowy Institute who came out in today’s paper saying that more people in Australia now, based on their recent surveys, um, prefer China to the US as a, as a ally. Thought it was interesting. Cameron AU: [00:11:00] Yeah Tony Kynaston AU: I think it’s also fun to speculate what could happen in the Middle East. I mean, you’d have to say that of late anyway, Saudi Arabia has a better relationship with the US than Israel does, and if all the US really wants is a, is an ally in the, in the region, so, you know, Israel might be on shaky ground going forward Cameron AU: Yeah, well, they’ve had a good relationship with the Saudis since, you know, um, what’s his face did the deal during the OPEC crisis. Um, who was the, uh, Nazi who worked for Nixon died a couple of years ago? Kissinger. When Kissinger did the open checkbook deal with the Saudis. Tony Kynaston AU: Right Cameron AU: down, and we’ll just back anything that you want, and, you Tony Kynaston AU: Yeah. Cameron AU: have basically open slather.” Anyway, speaking of, uh, American icons who passed away, Alan Greenspan died today, last night, Tony. Um, 100 years old he was Tony Kynaston AU: [00:12:00] He never looked all that healthy, so that’s amazing he got to 100 years old. Probably ’cause he was in a very stressful job Cameron AU: Yeah. What a, I mean, um, what a career. Uh, Tony Kynaston AU: Hmm. Cameron AU: read that, um, he was chairman of the Fed for 20-something years through, I think, eight presidents or something like that. Just a, an incredible career and, you know, not all good. Like, he copped a lot of, uh, blame for what happened after he left, um, the, the GFC. Uh, copped a lot of flak for that. So in the last 20 years, his reputation hasn’t been as strong as it was during his decades running the Fed. And I was always fascinated. I’ve always been a big fan of Ayn Rand, despite the fact that I’m left of Che Guevara. I’ve always, been a big fan of Ayn Rand and her writing and her thinking. I think she was [00:13:00] flawed in many ways, but I admire her, uh, attempts to provide a moral framework around free enterprise and capitalism. And, know, I’m, I’m one of the few people that can read Chomsky and Che Guevara and Ayn Rand and, and, and, and be happy, you know? My– That’d be my, my favorite kind of a dinner party would be to have Chomsky and Ayn Rand and Che Guevara and Fidel and, I don’t know, Tony Kynaston AU: I’ll be agreeing a lot of things I would’ve thought Cameron AU: Yeah, maybe. Alan Greenspan died. Uh, what are your Tony Kynaston AU: Well, you mentioned, well, you mentioned Ayn Rand because he was part, part of her circle, wasn’t he? Used to go to parties with Ayn Rand Cameron AU: his first wife introduced him to Ayn Rand, I, I learned in the New York obit. And, um, and he argued with her, and then ’cause, you know, he was, um, you know, sort of a classical, um, economist. uh, he– she ended up [00:14:00] convincing him that he was wrong and, you know, he changed a lot of his opinions on how the economy should work based on what he learned from Ayn Rand. So like that, when I first learned about that years ago, that blew my mind, that the guy that was running the Fed basically, you know, got his philos- his philosophical framework from Ayn Rand. Um, yeah Tony Kynaston AU: And that was used as a criticism when it became widely known that, you know, Peter has that money. Um, he. There’s a lot of good quotes about. that came out of the Greenspan years. Um, and, you know, apart from he presided over bubbles, I think is probably the, the main criticism. So you’d have years of market exuberance and then a crash, and that was largely put down to what was called the Greenspan put. Every time the stock market would get into trouble, you could rely on the Fed to cut interest rates and, and, you know, [00:15:00] give it a, a jump, a head start again. So the market bec- There was a bit of a moral hazard there with the way that he was operating or seemed to be operating. And he always. I mean, he famously said that his job was to, was to take away the punchbowl when the party was getting started, and, um, that’s how he saw what he should be doing. But, um, he kinda didn’t do that. He was always late to do that. That was the biggest criticism. But, you know, um, and he also, I think too, was shaped by the fact that I think he came after Volcker, who was, um, responsible for very big interest rate rises to, to, um, clean up, uh, the economy after the ’70, the early ’70s oil crash. But, Cameron AU: Mm-hmm. Tony Kynaston AU: sent interest rates spiking because the, the, the Fed chair before him was slow to put interest rates up. So Volcker went hard, interest rates went up, and Greenspan was kinda shaped by that history as well, that he had to be a bit slower in putting interest rates up to build the economy. So in the [00:16:00] course, that led to the market getting a lot of, um, a lot of, uh, hot air underneath it, and then, um, he was late to take the punchbowl away and rise, raise interest rates and the market crashed. So Cameron AU: Yeah. Tony Kynaston AU: a tough, tough gig Cameron AU: of other things I wanna talk about. Last week, I had to add a bunch of stocks to replace the oil stocks that we sold. One of them that I added was a business that I don’t know much about, LESL, a pool business. Leslie’s Tony Kynaston AU: You did a Pulled Pork on that one, didn’t you? Cameron AU: I don’t think I did Tony Kynaston AU: He did one on a pool maintenance business that, that, Cameron AU: Did I? Tony Kynaston AU: grew and grew and grew in the US. Yeah. Cameron AU: Did Tony Kynaston AU: Maybe a year ago. Yeah. Cameron AU: A Tony Kynaston AU: Anyway. Cameron AU: or so, yeah, I don’t remember. It’s Tony Kynaston AU: No Cameron AU: in my Pulled Pork list, but it maybe it predates that. anyway, I ended up adding them to the live portfolio last week, and they, they’re up 19% since Tony Kynaston AU: Oh, darling. Cameron AU: Yeah. Tony Kynaston AU: Must have been your [00:17:00] buying large leaks that pushed the price up Cameron AU: Well, you joke, um, but remember Zep? Tony Kynaston AU: Yeah Auntie’s watching Cameron AU: Zeppe & The Falcons, a good Tony Kynaston AU: Chinese watch Cameron AU: Yeah, Chinese watch, mother. The Chinese watch. Tony Kynaston AU: Boom. I watched that again recently, Ethel the Frog. It’s a great, probably one of the great Monty Python clips, yeah Cameron AU: Yeah. So, um, Tony Kynaston AU: Tonight on Never The Frog, we visit the violence of British gambling. Cameron AU: Focus, Tony, focus. I did, I did a Pulled Pork on Zeb Health Corporation back in July of last year, uh, when they were trading around about $3. And then they went up 1,500% pretty quickly, and, uh, you know, I took all the credit for it. Tony Kynaston AU: Mm-hmm. Cameron AU: they’ve, they’ve fallen down to $4.84, uh, which is still Tony Kynaston AU: Mm-hmm. Cameron AU: [00:18:00] 62% Tony Kynaston AU: Yeah Cameron AU: we talked about them. But I tried to figure out what happened. why did they go up 1,500% and then drop back down? Did something go right? Did something go wrong? I Tony Kynaston AU: Mm-hmm. Cameron AU: at the time trying to figure out and they, they had, they had announced some pretty good results, and they’d done a deal with Amazfit. they were selling stuff on Amazon, these, you know, like health trackers and their digital watches kind of stuff. But then I. So I jumped into Claude and, and it sort of did an analysis on it. And its conclusion, based on a lot of evidence, but its conclusion is it was something called a gamma squeeze. Now, I, I assume that it’s something to do with the Incredible Hulk, Tony Kynaston AU: Uh-huh Cameron AU: ’cause that’s the only thing I know about gamma radiation, is that it turns you into the Incredible Hulk if you get hit by them. You know what a gamma squeeze is? Tony Kynaston AU: Uh, you don’t make them angry? Will you get squeezed? Cameron AU: I’m angry. Yeah. Tony Kynaston AU: No, I don’t. Never heard of a gamma [00:19:00] squeeze Cameron AU: a gamma squeeze, according to Investopedia, is a rapid, often extreme surge in a stock’s price triggered by heavy trading in call options. forces option dealers, market makers, to aggressively buy the underlying stock to hedge their risk, creating a self-reinforcing loop of buying pressure So the way that Claude decided this is what happened is it could actually, it, it couldn’t find evidence of puts, but it could find o- evidence of shorts happening Tony Kynaston AU: Yep Cameron AU: on. So its theory, and again, I’m saying that this is a theory, I don’t have any evidence to back this up, but its theory is that the price started to go up as a result of. It’s a fairly thinly traded stock to begin with. Um, share price started to go up as a result of, uh, some of the announcements, the profit. You know, the reason they ended up on our buy list is they announced some good numbers, [00:20:00] and then the share price massively went up as people were buying options on it and the market makers, as the price kept going up, the market makers needed to buy shares to cover themselves in case people exercised those Tony Kynaston AU: Right Cameron AU: and it just had this self-reinforcing loop that the price kept going up and up and up and up and up, then eventually it all unwound itself and the price came back down, down, down, down, down to where it should’ve been in the first place. So it’s up 60% in a year, less, little less than 11 months. So not complaining. Not, not sure if it’ll stay there either, but that’s where it seems to have stabilized Tony Kynaston AU: That sounds like a good business model. We find a family trade in stock and take out lots of options on it. Cameron AU: And Tony Kynaston AU: could go wrong? Cameron AU: yeah, yeah, yeah. I think Warren Buffett’s had a few things to say about that. So yeah, by, uh, you know, as I said, we paid about three bucks for it. Well, no, we didn’t buy it. We didn’t actually add it to the portfolio. But when I did the Pulled Pork, [00:21:00] it was about three bucks. It went up to $61 and, uh, has come back down to about $4.83. So there you go. So that was fun to drill into and try and get my head around that. Um, the Leslie’s pool business I already mentioned. And then, um, before I get into my Pulled Pork for the week, Glenn, one of our Australian and US subscribers, sent me this article in The Wall Street Journal. “How Big Tech’s Financials Obscure the True Cost of the AI Build-Out.” uh, a pod- it’s a transcript from a podcast, WSJ’s Take on the Week podcast. Um, they sit down with Kevin Kohaki, principal at CAE Consulting and professor at Purdue University, to pull back the curtain on the opaque world of tech companies’ financial statements. They dig into why the massive infrastructure spent on AI data centers might be obscuring other fundamental [00:22:00] corporate costs, specifically stock-based compensation. Kohaki explains why tech giants like Meta, Microsoft, NVIDIA, and Google’s parent company, Alphabet, need to provide clearer financial reporting. He breaks down the challenge investors face in distinguishing between necessary AI capital expenditure and other underlying costs, and why greater transparency is critical to accurately valuing these businesses in the current market. So I didn’t spend a lot of time on this ’cause I’m not investing in these businesses, and so I don’t really care. But, um, my take is, from the quick read that I did of it, that there might be stuff hidden in the financials for these companies that investors aren’t getting transparency on, and it could come back and bite them on the ass. Did you get a better take on what’s going on here, TK? Tony Kynaston AU: Yeah, look, I, I think it was great of, um, Glen to point it out. It’s something that which I knew about, but it skipped my mind. But it will have implications, I think, for QAV in America because [00:23:00] the accounting standards are different over there compared to Australia in the area of stock-based compensation. So, uh, in Australia, if you– or anywhere around the world, if you pay someone with stock, you’ve got to account for it as a cost somewhere. In Australia, that comes out of operating cash flow because it’s like paying your workers. You think of the coffee shop analogy, paying the barista. If you pay him in stock or if you pay him in cash, it should be treated the same way under account, under accounting standards and go into operating cash flow. Doesn’t work that way in the US. They don’t have to put it through operating cash flow. Um, so it goes much lower down the P&L than operating cash flow. So what that article on the Wall– or the podcast on The Wall Street Journal was saying was that, um, if you look at a company like Meta, uh, a lot of the stock-based compensation isn’t appearing in their operating cash flow. So their top line looks really good, and operating cash flow is [00:24:00] strong, and it flows down to a healthy profit. But if you factor back in the stock compensation, which is, I think, being accounted for on the balance sheet in the US and not going through the, the profit somehow or goes through the profit much lower down, um, it basically Meta doesn’t make any money because it’s got to someday account for all the stock that’s been issuing to its staff and to Zuckerberg and all that sort of stuff. So you’re right in that that tends not to be the case for value stocks. They tend not to have lots of stock-based compensation for whatever reason. But, um, uh, we should really try and put it back into operating cash flow if we can find it. But I’ll have to do some digging to work out how to do that for QAV in the US Cameron AU: Hmm. Well, I’m not sure with the sorts of businesses that we buy it’s gonna have such a big impact. I think your, your Mag Seven type stocks probably have way more exposure to this sort of thing than Leslie’s Tony Kynaston AU: it, it tend to, tends to be internet stocks, and it was a thing [00:25:00] back in the dot-com boom when everyone was being paid in stock options. And that’s when I think the accounting diverged between Australia and the US, and there was much like the debate Australia’s having now around CGT changes and whether it will kill startups in Australia. There was all this debate around the accounting of stock options and, and stock-based compensation in the dot-com boom, and how Australia stuck by international standards when the US went the other way and, and wrote their own rules to try and, you know, um, keep the dot-com boom alive, I guess Cameron AU: Mm. Well, thank you, Glenn, for sending that through. Um, I just, before we get too far into my Pulled Pork, I wanted to just do a quick portfolio check. So I will open up the live portfolio, now fixed, actually live, updates every morning, uh, on the website. The, uh, QAV America main portfolio, inception date [00:26:00] September twenty twenty-three, currently up a hundred and seventeen point six eight percent, uh, versus the S&P 500 up sixty-eight percent over that same period of time. So it’s not quite double market, but not far off it. Hundred and tw– six hundred, yeah, it’d be a little bit more. What’s hundred and twenty? Yeah. Oh, yeah, yeah, yeah. A little bit less than double market. Um, year to date, QAV is up thirty-two and a half percent versus a little bit less than nine percent for the S&P. So doing better than three times market year to date. Um, the last one year we’re up forty point five percent versus twenty-four percent. So again, not quite double, but it’s been a really good year for our main portfolio. The light portfolio, QAV America Light, which I started twenty-second of December Is, uh, up 7.3% versus the S&P [00:27:00] up 8.6 over that same period of time. So it dipped a little bit, mostly because of the oil stocks that we needed to sell. But, uh, then as I said, some of the stocks have done really well. Pitney Bowes, which is in the light portfolio, is up 58%. Uh, Commercial Vehicle, CVGI, is up thirty-three. Kodak is up twenty-seven. Leslie’s is now up 20% since I added it a week ago. Um, Tony Kynaston AU: And it’s a pool business Cameron AU: Yeah, yeah, might be options going on with that too. Tony Kynaston AU: Might be gamma, it might be a gamma squeeze. Cameron AU: squeeze. Tony Kynaston AU: Yeah Cameron AU: we’re doing gamma in your pool. Um, Deutsche Bank is up 16%. Um, some of the ones that aren’t doing so well, BWLPG is down ten, Woori Financial is down eight, Ship Lease is down eight. Couple of the financials are down. Bread Financial Holdings. So couple of weeks ago, let’s see. Well, BFH, I did a [00:28:00] Pulled Pork on Bread Financial Holdings back in February. Didn’t add it to the portfolio at the time, though, but it is up 46% since then. But I did add it to the portfolio this week. I th– can’t remember why I didn’t at the time. I think it was a Josephine or something at the time. But, um, did add it, yesterday to replace one of the oil stocks that I had to sell last week. So, um, unfortunately, we didn’t get that first forty-six percent gain, but it was still at the top of the buy list this week, so I was like, “Okay.” You know, whatever you say, buy list. Um, Tony Kynaston AU: yeah Cameron AU: maybe. We’ll see how it goes. But the one I am gonna talk about this week is a juicy, juicy story, Tony. Not sure, n-not sure what you’re gonna make of it. Um, you know, the, the financials, we. I’ve been through this back and forth, um, as you know, [00:29:00] over the last few months with US stocks where there’s these one-off events that, that bolster their operating cash flow and I go backwards and forwards with Claude on, “Is this legit? Is this not legit?” It pushed back on this one. I argued it into the ground and then it said, “Okay, you do whatever the hell you want, but don’t blame me if, don’t blame me if Tony says you’re an idiot.” Um, so I’m gonna tell you the Tony Kynaston AU: Just so you have an idea Cameron AU: probably. Yeah. It’s pr- it’s a safe assumption. It’s, uh, but it’s, it’s a great story nonetheless. So the company is called Carter Bankshares. Ticker code is CARE because they care, Tony. If you go to their website, it’s all about how much they care about their local communities. Um, it’s, it’s a crazy story. So they’re a relatively tiny country bank based in Virginia, Martinsville, [00:30:00] Virginia. was chatting with my buddy Ray from Virginia this morning. I said, “How far is this from you?” He said, “Oh, it’s about two hours away.” Um, Tony Kynaston AU: with Ca- with Carter Bank? Cameron AU: didn’t ask him about the bank. I, no, I didn’t get into that. I don’t think Ray has enough money to put in a bank, so he, he just puts it, you know, under the mattress. Um, mattress rates he gets. Um, tiny bank that got itself wrapped up in a billionaire US senator story and then had to undo it all, and involves a luxury resort that has a bunker underneath it. It involves two billionaires fighting over that luxury resort and, uh, resulted in an eighty million dollar one-off gain for Carter, um, just recently, which has given their numbers a bump. Tony Kynaston AU: Yeah Cameron AU: or not that’s a bump scoring or not is the decision that we had to make or I had to make on this and I [00:31:00] decided, yeah, it’s fine. Anyway, listed on the Nasdaq. Market cap about six hundred and eighty-eight million, so relatively small. About four point eight billion dollars in assets. Sixty-three branches across Virginia and North Carolina. Pretty much nothing to see here on the surface. Plain vanilla community bank. It takes deposits, makes loans, pockets the spread. Trading around $31. Um, here’s the thing, it was $16 15 months ago. So it’s, it’s had a big run up as it’s unpicked this mess that it was in. And the mess goes back to the founder of it, guy called Worth Harris Carter Jr. Worth Carter. Man called Worth started a bank. Uh, Tony Kynaston AU: What was his nickname? Hi- High Net? Cameron AU: Hi, Ned. Yeah. Um, I read his obit. Uh, he died a few years [00:32:00] ago, um, 79 from cancer. But he was a grocery cashier who, uh, worked at Safeway grocery stores in Richmond and Charlottesville. Put himself through the University of Richmond, graduated in 1958, and then went to the University of Virginia Law School, classes until 1960. Then he worked as a bank examiner at the Federal Reserve Bank of Richmond from 1960 to 1964. Then as vice president and comptroller the Piedmont Trust Bank in Martinsville from 1964 to 1973. Then he founded the First National Bank in Rocky Mount, Virginia, in 1974 with eight employees and $1.2 million in assets, and then ran that for 42 years. Um, built, founded 10 more community banks, and then combined them all in 2006 into the Carter Bank and [00:33:00] Trust. So founded all 10 from scratch, grew them organically, and then rolled them all up into a, into a thing that floated. Ran it Tony Kynaston AU: Isn’t it. Cameron AU: personal kingdom. Hmm. Tony Kynaston AU: you know why, like, you started a bank in the Rocky Mountains and called it First National with six stars? Tends to be a thing in the US where everything’s the First National, isn’t it? Like, it’s like not national, it’s operating in Virginia. Cameron AU: It’s why they Tony Kynaston AU: Even 40 years later. Yeah. Or the World Series. Cameron AU: Yeah, Tony Kynaston AU: World Series. Well, it’s named after a newspaper. Yeah Cameron AU: Was it really? Tony Kynaston AU: Yeah, The World was a New York newspaper that used to sponsor it Cameron AU: Oh, I never knew that. Tony Kynaston AU: Yeah. Cameron AU: Oh, Tony Kynaston AU: Much as I like to think it’s American exceptionalism, it’s not. Cameron AU: Well, the Tony Kynaston AU: But naming your, but naming your six-person ba- yeah, naming your six-person bank First National is probably a little bit of, um, dreaming. Cameron AU: Yeah. [00:34:00] Well, he did well. He, he ran it Tony Kynaston AU: Yeah Cameron AU: kingdom until he died 2017. Um, and this, he was a pro- he was a proper old school conservative, knew every branch manager, knew all the Tony Kynaston AU: Mm-hmm. Mm-hmm. Cameron AU: drove himself to meetings in an old car, Warren Buffett style. did a lot of, um, direct business with people, including Jerry Falwell. He was, you know, fou- funded the Liberty University or, you know, got them out of a bad patch that they went through, all this kind of stuff. Um, old school banking guy and, uh, but the thing has a weird ownership structure. The, the it’s owned by retail investors, moms and dads who own fifty-three percent of it today. Um, small town Virginia families who have held the shares for a long [00:35:00] time. They had the community shares, and I guess it got rolled into the Tony Kynaston AU: Run Cameron AU: when it rolled it all up. Tony Kynaston AU: Mm-hmm. Cameron AU: BlackRock and Vanguard and those sorts of guys have less than ten percent, sort of six, seven percent from what I can see. Um, still based in Martinsville, Virginia, which I looked up. Um, it’s a fairly small town, Virginia furniture and textile country. NASCAR country. I think it’s where NASCAR starts every year is Tony Kynaston AU: Mm-hmm. Mm-hmm. Cameron AU: Um, it, this town used to be the, um, plug tobacco capital of the world and Tony Kynaston AU: I have no idea what that is Cameron AU: Uh, you put a plug of tobacco in your mouth and Tony Kynaston AU: Ah, chewing tobacco. Okay. Cameron AU: I think, that’s what it is. It was the chewing tobacco capital of the world. Uh, RJ, uh, um, Nabisco, who’s the tobacco company? Um, we Tony Kynaston AU: It was, Nabisco does, was, yeah. Cameron AU: Was it [00:36:00] Nabisco? Tony Kynaston AU: I don’t think so. No, I was there in. Cameron AU: with us in Carolina, North Tony Kynaston AU: Yeah, yeah. It was at, um, where, uh, Durham, wasn’t it? Cameron AU: Durham. Yeah. Tony Kynaston AU: Yeah. Cameron AU: the film in Durham, yeah. Wasn’t that Nabisc- RJR Nabisco? Was. What was the name of Tony Kynaston AU: But, mm, I can’t remember, sorry. Cameron AU: I can’t Tony Kynaston AU: It was a, was a local tobacco exec’s apartment, yeah Cameron AU: Yeah, yeah, it was crazy. Anyway, then at one point, Martinsville was the sweatshirt capital of the world Tony Kynaston AU: Before China? Cameron AU: yeah, before Tony Kynaston AU: Right. Cameron AU: Yeah, Tony Kynaston AU: But they outsourced? Yeah. Cameron AU: At one point in the 1980s, 1980s, they boasted of having more millionaires per capita than any city in America Tony Kynaston AU: They have one millionaire and one person? Cameron AU: I think their Tony Kynaston AU: Mr. Carl? Cameron AU: about 15,000 people. So, you know, you only gotta have a couple of millionaires and you’re Tony Kynaston AU: Mm-hmm. Cameron AU: Anyway, um, what the bank actually does today is pretty simple. Before we get into the dirty story, I’ll tell you about the bank. So they take in about $4.2 [00:37:00] billion of deposits. Most of it are in certificates of deposit, CDs, term deposits. They pay depositors a bit over two percent, lend it out at five and a half, keep the, keep the gap. Uh, net interest margin, uh, is about three point o, seven percent, and it’s climbing up from about two point six eight percent a year ago. And they, they are what’s called liability sensitive, which apparently means if the Fed cuts rates, their funding costs drop faster than their loan income. Tony Kynaston AU: Pr Cameron AU: their margin actually widens when rates cut. M-most banks hate rate cuts. These guys benefit from rate cuts. I drilled into this a bit ’cause I didn’t understand it at all. And, uh, for people out there who are like me, their deposits are dominated by certificates of deposit, term savings accounts, fixed rate, but short. They have a maturity of months to a couple of [00:38:00] years. So when the Fed cuts rates, those things keep maturing until the bank renews them at the new lower rate, but that can take months or years for them to do that, they keep the margin in the meantime. And the big chunk of what they lend is fixed rate and has longer terms. Eight hundred and fifteen million of residential mortgages that are locked in for years, plus fixed commercial real estate loans. So the Fed cuts rates, but people keep paying, customers keep paying the older higher rates. They don’t fall, they’re fixed term, so i-it’s a Tony Kynaston AU: they often refinance, don’t they, in, in US? Cameron AU: there are and penalties Tony Kynaston AU: Yeah, yeah Cameron AU: to get out of that. Yeah. Anyway, so that’s the good side of their business. But then they got wrapped up in a guy called, and wait for this, if you thought Worth Carter was a good name, senator, the junior United States senator from West Virginia, Jim [00:39:00] Justice, James Justice, former Tony Kynaston AU: reading, I was reading in my notes about the Justice settlement by the Justice Department. I mean, I’m getting very confused about what was happening. Cameron AU: I know, right? Uh, this is, this, this is, uh. I mean, I could do a whole series on this guy. Oh, it’s Tony Kynaston AU: It was like, it was like who’s on first. Yeah Cameron AU: Yeah, let me drink some smoothie. Mm. Jim Justice, serving as the junior United States senator from West Virginia since twenty twenty five. He’s, like, seventy, but he’s the junior senator. Uh, member of the Republican Party, served as the thirty-sixth governor of West Virginia from two thousand and seventeen to two thousand and twenty-five. Was once a billionaire, but depending on who you [00:40:00] believe, his current net worth is either six hundred and sixty-four million or zero. Um, Forbes in January twenty twenty-five reported that his net worth had fallen below zero because he had over a billion dollars in debt. But if he, but somebody else calculated his net worth last year as six hundred and sixty-four million, which made him the richest US senator that year from West Virginia. Now, he inherited a coal mining business from his father that included ninety-four companies, Bluestone Industries and the Bluestone Coal Corporation. And then some years ago, he and his family bought a luxury resort and national historic landmark called the Greenbrier Hotel. It’s in a place called White Sulphur Springs. It’s been there since nineteen thirteen. And s-since the [00:41:00] seventeen hundreds, uh, people in the United States would go to White Sulphur Springs to take the waters. You ever heard them take, “I’m going to take the waters”? Tony Kynaston AU: Oh yeah, I’ve heard that Cameron AU: I’ve heard that. Never knew what it meant. Apparently, it’s to go and soak in a hot sulfur spring. That’s what taking the Tony Kynaston AU: Yeah. Yep Cameron AU: So this place was built, and you should look at some. Look at a photo. L-look up the Greenbrier. One word. It is. It kinda looks like your house, really. I mean, it’s a smaller version of your house. you know, if you moved into this, you’d, you’d be, like, uh, going backwards. But, um, it’s an eleven-thousand acre property. Dorothy Draper designed the interior, who was Don Draper’s great-grandmother, I think. Um, it features championship [00:42:00] courses that have hosted the Ryder Tony Kynaston AU: say, I’ve heard of the Greenbrier. It’s a classic. Yeah Cameron AU: the Solheim Cup. Yeah. So there you go. Uh, it’s hosted, uh, 28 presidents have stayed at the hotel, but the last I think was Dwight Eisenhower, so it’s been a while. Um, and it is or was the site of a massive underground bunker meant to serve as an emergency shelter for the United States Congress during the Cold War. Project Greek Island was what it was called. Its existence was not acknowledged until The Washington Post revealed it in a 1992 story, and after that, the government decommissioned the bunker ’cause there’s not much point having a secret bunker if everyone knows about it. And the Cold War was over, technically, uh, I guess Tony Kynaston AU: You want to go into a secret bunker and slam the door and not have to listen to people knocking. Cameron AU: Mm. Tony Kynaston AU: just, that’s just rude. Cameron AU: Mm. Tony Kynaston AU: Mm. Cameron AU: Now Trump’s trying to build one underneath [00:43:00] the, um, uh, White House, right? Under the. Is it the East Wing he’s redoing? The ballroom Tony Kynaston AU: I thought there already was one under there Cameron AU: Oh, maybe he’s making a bigger one under there. So anyway, um, Carter Bank, um, blahdy, blahdy, blah. Jim Justice. So at one point, Jim Justice, owner of Bluestone and The Greenbrier, owed Carter Bank at one point $775 million Tony Kynaston AU: Right. And you said before they had how much on the mortgage book? $700 million, was that it? Or $900 Cameron AU: Uh Tony Kynaston AU: million? Less than a billion Cameron AU: Yeah. Four, four. No, they had $4.2 billion of deposits. Tony Kynaston AU: Che Cameron AU: book was about 3.7 billion Tony Kynaston AU: Right. Still Cameron AU: at one, Tony Kynaston AU: a large chunk Cameron AU: Yeah. I mean, at one [00:44:00] point, uh, he paid it down to three hundred million by twenty twenty-three, but the bank had four hundred million dollars of equity at that stage, and three hundred million dollars of it was riding on one family. Um, so how all this came to be is it started in two thousand and one with a single four and a half million dollar real estate loan that Worth Carter personally made to Jim Justice. They were friends, kinda Tony Kynaston AU: Yeah Cameron AU: fellow larger than life, um, Tony Kynaston AU: Mm-hmm. Cameron AU: And then over fifteen years, he just kept le- lending to the Justice family until it got up to seven hundred and seventy-five million. the thing is, banks in the United States have a legal lending limit. There’s a regulatory cap on how much you can lend to any single borrower set at fifteen percent, roughly, of the bank’s capital. [00:45:00] So Carter’s legal lending limit was about $75 million, but Justice got up to $775 million because it wasn’t one loan to Jim Justice, it was dozens Tony Kynaston AU: thinking, yeah Cameron AU: to dozens of separate entities that he controlled: coal companies, agriculture businesses, The Greenbrier, its sporting club, hospitality arms. And each individual loan was about $75 million, all of them personally guaranteed by Jim Justice, his wife Kathy, their son Jay Justice, and all cross-collateralized. So on paper, lots of independent borrowers, in reality, one family. And so that went along. No one really, I guess, asked any questions about [00:46:00] it and until Worth Carter died 2017 professional managers took over, took one look at the $775 exposure that they had and went, “Well, that’s not good.” And so they basically stopped rolling it over. I think what they’ve been doing is rolling over the term, what Tony Kynaston AU: Pr/Op Cameron AU: Carter had been doing is rolling it over for years. They said, “No, no, no, no, no, no, no. You need to pay this, pay this down. This is, this is way too much exposure.” Um, and Justice ended up suing the bank for a billion dollars in late 2023. The Justices said that the new management team kept verbally promising more time, then went cold, stopped returning calls, and basically forced them into default. I love, I, I read a Forbes article on this. It had this great [00:47:00] line: “What does Justice, his family, and companies allege? That Carter Bank, over nearly 20 years, loaned them more than $700 million, then had the gall to expect to be paid back on time.” So, uh, enter three years of litigation and, uh, they ended up cutting it loose. So bank put $300 million on non-accrual in mid-2023, basically saying, “We’re not gonna get the money back.” By their own count, they’d lost $91 million of interest income on those dead loans. And there was also a side plot on this. Do you remember Greensill? Tony Kynaston AU: No, I don’t think so. Cameron AU: this years ago. Tony Kynaston AU: Everybody? Okay Cameron AU: Bundaberg boy, fellow Bundaberg boy, Tony Kynaston AU: Yeah. See, I. Okay. Is that Greensill? Yeah, yeah Cameron AU: Lex Greensill, sugarcane [00:48:00] boy. Surprisingly, he and I never crossed paths. He was born in ’76, so he’s only six years younger than me, but never heard of him before all of that went down. to the UK, started a financial services company called Greensill Capital, becomes a billionaire. Big scandal in 2021, a chunk of Credit Suisse down with it. Prime Minister of the UK, David Cameron, was a lobbyist and advisor to the bank. He got caught up in it. I think, um, Greensill had gotten an OBE or something like that. It was all very messy. Anyway, um, Bluestone, Justice’s coal company, was a Greensill borrower, so Carter Bank ended up getting involved in all of this downfall of Credit Suisse and Greensill. Anyway, a long story short, very, very messy. In March of this year, so three months ago, they sold their entire loan book, the, the Jim Justice loan book, [00:49:00] uh, $289 million in to a Dallas billionaire called Robert Rowling. Robert Rowling, no relation to JK, as far as I know, owns a chain of hotels called the Omni Hotels, Tony Kynaston AU: Mm-hmm. Cameron AU: and he set up an entity called White Sulphur Springs Holdings to buy the debt off of, uh, uh, Carter Bank. Now, at the moment, at the time, sorry, at the time he did this, they had written it down to 209 and a half million of defaulted judgment-backed debt. He paid 289 million in cash, basically 290 million for Tony Kynaston AU: Mm-hmm. Cameron AU: 210 million. Why? Um, get control over the Greenbrier Tony Kynaston AU: Right Cameron AU: So, [00:50:00] uh, he moved for control over the Greenbrier immediately. Basically said, um, “Yeah, this guy can’t pay the debt. We’re just gonna ta-” And the Greenbrier was col- collateralized with the Greenbrier. “We’re just gonna take the Green, Greenbrier and add it to Omni Hotels.” And, uh, just as Tony Kynaston AU: Yeah. So why didn’t, why didn’t Afterpay do that? Cameron AU: I don’t know, ’cause they didn’t know how to run a hotel maybe Tony Kynaston AU: Okay Cameron AU: Dunno. Anyway, bottom line is they sold, they sold all of Tony Kynaston AU: Yeah. Mm-hmm. Cameron AU: family sued over control of the Greenbrier. That’s still going through the courts. Basically, from a Carter perspective, their bad loans went down from 244 million to 24 million in one quarter, and they got ton of cash And that’s the magic trick in this one. So their operating cash flow jumped from 1.78 to 15.1 this year. Um, and all their numbers [00:51:00] suddenly look really, really good. It’s not gonna last, but they’ve got $80 million in cash that Tony Kynaston AU: Yeah Cameron AU: do something with. Tony Kynaston AU: Yeah Cameron AU: I looked at it and I went, “Okay, so it’s not a deep value cigar butt, Tony Kynaston AU: Mm-hmm. Cameron AU: but it’s a business, new management, got themselves out of a hole, sold off a, a problem asset, did a good deal by the sounds of it, um, made 80 million on it. They now have 80 million to do something with. What they do with that is up to them. Tony Kynaston AU: Yeah. We should say the, the net was 80 million because they got the heap of cash for the Greenbrier debt payment, but they’d already provided a lot of, um, losses, provided for a lot of losses on the loan. So the net was an $80 million cash infusion. Cameron AU: Exactly. Tony Kynaston AU: Yeah Cameron AU: And they’re paying their first dividend in 10 years, 10 Tony Kynaston AU: Mm-hmm. Cameron AU: Um, and so they, so, [00:52:00] you know, that’s it. The, Tony Kynaston AU: Yeah. Cameron AU: deal is they got out of this, they made a back, bunch of cash. Like, it’s a good little business in and of itself. Like, it’s not a, it’s not taking over the world, but it’s a profitable, healthy bank. Uh, the numbers look, you know, reasonable on it. It’s not Tony Kynaston AU: Mm-hmm. Cameron AU: win any awards. It wouldn’t be on our buy list without this, Tony Kynaston AU: Mm-hmm. Cameron AU: it did do this. And I thought, you know, this is a legitimate thing. They sold off a thing. They made money out of it. The money’s in the coffers. It’s cheap. So I was like, “Yeah, screw you, Tony Kynaston AU: Well, Cameron AU: this.” Tony Kynaston AU: um, yeah, look, I tend to agree with you. I, I don’t think it’s gonna shoot the lights out from here as, in terms of increasing stock price the way it has in the past. But, um, it’s not gonna. I don’t think it will go backwards in a hurry either, ’cause as you say, they’re, they’re flush with cash. The stock price is probably gonna be well-supported. But it really comes down to what they do with the cash and, you know, the [00:53:00] management’s good enough to be able to invest that eighty million dollars and earn a good return off it going forward. So, Cameron AU: Exactly Tony Kynaston AU: I see it. I don’t like the idea of putting cash windfalls through operating cash. I don’t know why that happens in the US with these stocks. But even if it didn’t, um, the business is gonna look good as an outcome of the settlement, and they wrote down their provisions or wrote off their provisions for bad debt. So it’s always gonna be a good set of numbers on the trailing basis anyway. So PE looks good anyway, all that kind of stuff. So, you know, not, not withstanding the fact that there’s been a cash injection that makes operating cash flow look good, it’s still a better business that we would have analyzed, um, in a similar sort of way if it was, uh, using an Australian accounting standard. And we see this, we’ve seen it from time to time in Australia too, and my rule of thumb is basically, if management were good enough to get that cash injection, then hopefully they’re good enough to spend it well Cameron AU: Yeah, that was my take on it too. Like, they, this new management, um, [00:54:00] have dug themselves out of a hole that the founder had got them in with this Tony Kynaston AU: Yeah Cameron AU: and, you know, come out of it on top. So I give them top marks for that. Um, anyway, so Tony Kynaston AU: Additionally though, Cam, I also, we, I think you did a pulled pork a couple of weeks ago on an Alaskan bank as well, a regional bank. Um, Cameron AU: Um, Tony Kynaston AU: and so I did a quick. Yeah, it was called Northrim, I think, from memory. Cameron AU: Oh, Northrim Bancorp, yeah Tony Kynaston AU: Yeah, so again, a regionally focused bank. A little bit different because they had a stronger business Cameron AU: Hmm, vampires. Tony Kynaston AU: loans than, than Carter Bank does. Cameron AU: Yeah. Hmm Tony Kynaston AU: So Carter Bank, Carter Bank’s kind of niche is that it has a big retail presence, lots of bank branches in an industry which is more and more consolidating and closing branches and going online. So it’s, it’s playing to its strength. Northrim was playing to its strength in terms of loaning local [00:55:00] businesses money. So, but you know, it’s kind of a thematic we’re starting to see on the buy list, and I compared them both, and there’s pluses and minus for both of them. But, um, you know, once, once this injection flows through, I think, you know, it’s a similar sort of situation. It’s a, a niche bank with a good base, and it’s not a bad investment Cameron AU: Well, let me just run quickly through the numbers. Um, I said, the share price is around about 31 bucks. Our IV1 is, uh, $24.62, our first intrinsic value, so it’s above that. But our second intrinsic value is about $50.81. below that, so I scored it for that. Um, price to book is 1.36, so they got a score for that. Um, uh, no, sorry, didn’t get a score for that. Um, they’re above that. They’re also Tony Kynaston AU: Hmm Cameron AU: book plus 30, so I couldn’t score them for that. Um, operating [00:56:00] cash flow ratio, price to operating cash flow is about two, 2.04. So again, it’s largely because of this big, uh, bump that they’ve Tony Kynaston AU: Yeah Cameron AU: them a score for that. Average daily trade is around about nine million, so pretty big. Um, earnings per share about $4.80 at the moment, again, because of the, the bump, but it is what it is. PE ratio of about $6.45. Forecast EPS of $4.90 for next fiscal year. Um, overall financial health and quality, Stockopedia stock rank of 87 and a quality rank of 55, so not great on those. Piotroski F-score at seven, so that is okay. Um, they’re cashed up. Pretty, pretty, pretty solid Tony Kynaston AU: Yeah Cameron AU: They have had positive equity over the [00:57:00] last few years. Don’t have a recent three-point upturn because they’ve been going up for a while now. Dividend yield is around about 0.32%, so that’s lower than the debt rate. Couldn’t score them for that. Bottom line is, um, ended up with a QAV quality score of 58%, so not massively high, but a QAV score of 0.286, which put them pretty high up on my buy list. I think they were second on my buy list this week after BFH. And I was like, “You know what? give these guys a go because I like the cut of their jib Don’t know what a jib is? Think it’s a, think it’s a sail. Is that a sailing Tony Kynaston AU: is. Cameron AU: Yeah? Tony Kynaston AU: yeah. Cameron AU: You would, you would know Tony Kynaston AU: Yeah. Well, I, I just, um, asked Gemini what they were gonna do with their, their bonus cash windfall and, um, they are gonna do, um, a buyback as a share repurchase with some [00:58:00] of the money. They are going to use it to support digital platforms, so IT upgrades, and then organic growth and expansion. So, you know, it’s. They’re not going out and buying themselves golf courses and US senators and things like that. So it’s, seems like a responsible use of the money, and it’s gonna improve the, the bank, you would think, going forward. So yeah, don’t mind buying them either Cameron AU: Yeah, we will see. Tony Kynaston AU: Mm-hmm. Cameron AU: We will see what happens. But, um, anyway, there you go. That is CARE, Carter Bankshares. Great Tony Kynaston AU: Oh, very colorful. Yeah. Cameron AU: colorful Tony Kynaston AU: story Cameron AU: Billionaires buy another billionaire’s debt so they can take over the Tony Kynaston AU: Yeah Cameron AU: It’s a crazy world, America, right? It’s like Succession, these stories. It’s just– Tony Kynaston AU: Yeah. Cameron AU: mad world Tony Kynaston AU: Yeah, and the lawyer in the [00:59:00] background going, “Hey, if we buy this bit for this, then we get control of the hotel over there for our Omni.” Like, you know, okay, and it’s just like all of the dominoes falling behind them Cameron AU: Yeah, yeah. And the lawyers making money on both ends, I’m Tony Kynaston AU: Mm-hmm. Cameron AU: Mm. Well, that’s it, Tony Tony Kynaston AU: All right, I’m gonna go out and plug some tobacco and watch some NASCAR and Cameron AU: Yeah Tony Kynaston AU: some T- buy some sweatshirts. Yeah. Tony Kynaston AU: Yeah. True. Uh, have, I’ve been, I’ve been seeing little clips of, um, Dave Grohl’s daughter and her music, which is interesting. Have you been Cameron AU: I listened to Tony Kynaston AU: that at all? Yeah, it’s good, isn’t it? Yeah. Violet Grohl, yeah. Cameron AU: yeah. Yeah, What’s her name? Tony Kynaston AU: Yeah. Violet. Cameron AU: Violet, yeah. Tony Kynaston AU: Yeah Cameron AU: came up, it came up after you mentioned Grohl or Foo Tony Kynaston AU: Pr/OpCaf Cameron AU: week. I s- I listened to their album, didn’t really dig it, but then she Tony Kynaston AU: Thanks, man Cameron AU: up in, um, Spotify, and I was like, “Oh, okay.” And I, I liked her album a lot more, yeah. It’s Tony Kynaston AU: Yeah. Yeah, it’s good. And there was a clip I saw of her fronting Dave Grohl on the drums ’cause they were [01:00:00] doing a Nirvana tribute when they were inducted into the Rock and Roll Hall of Fame a few years ago. That was pretty good too. Cameron AU: right. I think I’ve Tony Kynaston AU: Yeah. Yeah Cameron AU: Her and Alice Cooper’s daughter’s got a band too Tony Kynaston AU: Oh, Cameron AU: like. Tony Kynaston AU: okay Cameron AU: really the lead. It’s kind of like a g- it’s like a, um, sort of a weird, um, as you’d expect, kind of, um, horror-themed metal band. Can’t remember their Tony Kynaston AU: Run Cameron AU: like Beasts of Death or something like that or something. Um, it’s sort of, yeah, a bit, you know, heavier than Alice, but it’s sort of, you know, Rob Zombie-ish kind of, know, c- theatrical metal sort of stuff, and she does in it, but, like, backup. It’s a male lead singer. She does, like, backup vocals and different stuff, but it’s good. Yeah, I really like it too. So these guys with their daughters, the nepo-baby daughters that are Tony Kynaston AU: Yeah. exactly. Cameron AU: Yeah Tony Kynaston AU: Uh, yeah. Well, but it, but it, [01:01:00] yeah Cameron AU: sorry, j- just to close the loop on Alice and Sparks. So f- I was showing Fox the Sparks documentary last night ’cause he hadn’t seen it, and there was a bit, uh, early on they were talking about how their first album was produced by Todd Rundgren, and they were introduced to Todd Rundgren by Miss Christine from the GTOs ’cause Russell was dating Miss Christine from the GTOs. Christine from the GTOs, the GTOs were living in Zappa’s house when Alice and the band first went to Zappa’s Tony Kynaston AU: Mm-hmm. Mm-hmm Cameron AU: um, it was the GTOs that first put makeup on Alice Cooper, and had, they had a member called Pamela Des Barres who had, um, like spider lines coming out of her eyes, which was Alice’s first eye makeup I think he dated Miss Christine as well. And I had just seen yesterday, there’s a, there’s a Zappa album, can’t remember what it’s called, but it’s a [01:02:00] photo of her sticking her head up. She had like this big crazy perm, her head up Tony Kynaston AU: Mm-hmm. Cameron AU: a, a swimming pool, a dry swimming pool, which was his swimming pool. Um, Alice posted that and said that, you know, she died like in the mid-’70s, very young, OD I think. And he said, “I always loved seeing this photo remembering Miss Christine. She was immortalized in this record cover and blah, blah, blah, blah.” And then that night I was watching this documentary and saw that so Alice dated her, Todd Rundgren dated her, Russell dated her, and I think Zappa probably, I don’t know if Zappa dated her, but he was– So yeah, the connecting Sparks to Alice Cooper isn’t something that I would’ve imagined, but, Tony Kynaston AU: Yeah Cameron AU: go. Hmm. It’s the ’70s in LA, I guess. Tony Kynaston AU: Yeah, right. Cameron AU: Hmm Tony Kynaston AU: um, we watched a movie the other night, uh, called Song Sung Blue with, uh, Hugh Jackman in it. Cameron AU: Hugh Jackman Neil Diamond cover Tony Kynaston AU: Yeah. Yeah. Cameron AU: liked that. Did you like it? Tony Kynaston AU: um, so-so. Like, it, it’s really good except it’s got some pretty bleak drama in it, which I [01:03:00] didn’t like. But, um, I was just gonna say, like, speaking of all those connections that the thing I liked the most about it was it was just a little community of cover artists in Milwaukee, which I really liked. And Michael Imperioli plays the Buddy Holly impersonator who backs Hugh Jackman when he becomes big with his Neil Diamond show, and I thought that was really cool too. But it was really nice seeing this whole troupe of, you know, um. There was a James Brown impersonator they called the Sex God and, uh, you know, they were just all helping each other, and it was– They weren’t making any money, and it was just re- it was probably the nice side of the whole event. Um, yeah, look, it’s worth a watch, but it’s, um, it gets pretty dark in places, which I didn’t like. It didn’t, didn’t need to be that, um, overly dramatic, I thought. Melodramatic. Cameron AU: Did you know that Michael Imperioli was friends with Lou Reed? Have I told you that story? Tony Kynaston AU: No way, really? Cameron AU: They were– Michael Imperioli got interested in Buddhism, I think he and Lou ended [01:04:00] up, ’cause Lou was into Buddhism, they sort of spent a lot of time in Tibetan Bud- no, Zen Buddhist circles I think it was. Yeah. He was, uh, quite close with Lou. He wrote a book about it that I read, like just sort of his. No, he wrote– It was a novel actually, that was about a kid who a relationship with somebody like Lou Reed. But, um, Tony Kynaston AU: Wow. Cameron AU: Anyway. Hmm Tony Kynaston AU: Michael and Tori Imperioli. Okay. I haven’t Cameron AU: Yeah, yeah, Tony Kynaston AU: All right Cameron AU: So what else you got? Tony Kynaston AU: Well, speaking of music, I mean, does it hold a candle to some of the, the music I’m getting on my feeds from the World Cup at the moment? Um, have you caught any of that? Scotland and the Netherlands and Norway doing the row and all this kind of stuff. It’s just great to watch. So joyous Cameron AU: I watched a, a highlights clip of Verde playing Spain and the goalkeeper, ’cause my boys told me that this Tony Kynaston AU: yeah Cameron AU: was insane, and it was like a nil-all draw bec- [01:05:00] draw because this from this tiny island didn’t let anything through, and that was pretty Tony Kynaston AU: Right. Yeah. No, just the fans. It’s, it’s been, um, amazing. Like, just. Like, I used to go to a fair few sporting matches in the US, and they’re great but, um, the Europeans just do it to a much better level, it’s the soccer fans. And I think America, it’s been a bit of an eye-opener for US fans to see the chanting and the singing. Like the, the Tartan Army, apparently they’re based in Boston ’cause all the soccer teams are based, um, in different places in Canada or Mexico and the US. And Iran’s based in Mexico, so they have to keep flying straight in and flying straight out after their games. But, Cameron AU: I heard that Tony Kynaston AU: yeah, so, so the Tartan Army’s in Boston and they went to Fenway Park to watch a baseball game and they just completely took over. Like, the, the, the city ran out of beer on the weekend before a match. They all got together at a statue of Robbie Burns and then they [01:06:00] bagpiped their way across the city to Fenway Park. And then there’s great clips if you can find them of, um, of them singing, um, chanting and singing at, at the baseball game, and it’s just amazing. And so, like, watching that, watching the Dutch do it, like, watching thousands of people sing the same song and, uh, it’s just incredible. And, um, and the Norwegians they do a row where they do a sort of slow at the start and it builds up. And they do it in all, all amazing places. Like, they were doing it up escalators, like sitting on the steps rowing the escalator up. It’s pretty funny to watch. But yeah, just, just really good. It, it just. Such a contrast from watching the US fans just go, “USA, USA,” which I absolutely despise as a chant, but hopefully they’ll improve. And then watching, like, the Japanese. The Japanese fans went to a baseball game and when it finished they all cleaned up their rubbish. They cleaned up the grandstand of all the rubbish, which I thought was nice. So yeah, it’s been great watching all that Cameron AU: I mentioned to you off air that Taylor [01:07:00] has, is in Cannes at the moment, but he was in Copenhagen before that, and he and Adam and a couple of other Aussies went to an Aussie bar in Copenhagen to watch the Australia-US, uh, match and led them all. He sent me a video of them doing Aussie, Aussie, Aussie, oi, oi, oi in the middle of, Tony Kynaston AU: Yeah Cameron AU: Copenhagen, so yeah. Tony Kynaston AU: Which is, which is just a, just as nasty a chant as the USA, USA one too, I think Cameron AU: Well, I said, “Listen, if you see Queen Mary there, tell her I said hi.” Um, but, uh, apparently she, she wasn’t there to support Australia, which was slightly disappointing Tony Kynaston AU: Yeah. Anyway, well that’s been fun. Um, ha- watching the soccer and stuff I came across the Steve Buscemi Telstra ad. Have you seen any of those yet? Cameron AU: No. Tony Kynaston AU: They’re fantastic. I mean, he’s just, he’s, he’s just next level. It’s, um, it’s, it’s, um, very corny. Like, he, he’s playing this [01:08:00] sort of, uh, alien hovering over Earth. He’s trying to, um, you know, uh, take over the planet with a virus, and he’s blocked by Telstra. But he’s, he’s just acting. It’s just like next level. He’s so good. He’s like, he’s like this kind of world-weary alien who walks into the, into the main part of the spaceship going, “Okay, Armatron, pull out the Siva lever. Oh, what’s this? Telstra? Oh, I even know who that is.” It’s just great. Cameron AU: I’ll Tony Kynaston AU: His acting’s fantastic. Yeah, really good. Mm. And then Alex and I finished Spider Noir, which was, um, pretty good. I enjoyed it. Cameron AU: Okay. Tony Kynaston AU: Yep. Cameron AU: might Tony Kynaston AU: then, Cameron AU: back into it Tony Kynaston AU: we finished season three of Your Friends and Neighbors, Jenny and I, and that’s fantastic. I loved it. That’s so good. Cameron AU: up? Okay Tony Kynaston AU: Yeah. Yes. Oh, it’s, it’s, you know, it’s, um, pretty light. James Marsden comes in as a protagonist or an antagonist in the last series. He plays a bit of a, a stealer with lots of a– lots of [01:09:00] shady stuff going on just to keep things moving Cameron AU: where did we run into him? Tony Kynaston AU: In the, uh, New York Metropolitan Art Museum Cameron AU: Right. It was in New Tony Kynaston AU: Remember we were there one day and he was there? Yeah, Cameron AU: Yeah, you, me, and Alex Tony Kynaston AU: yeah. Cameron AU: him. Yeah, Tony Kynaston AU: Yeah. She, she recognized him. Mm. Cameron AU: Mm. Tony Kynaston AU: And Jon Hamm’s fantastic. It’s really, it’s, it’s just great to watch him bumble his way through, you know, um, high-end life. But Jenny and I like it ’cause it reminds us of where we lived in, in Toronto. It looks like it was filmed in our neighborhood. Probably wasn’t, but set in the Hamptons in New York. But yeah, it’s good fun. Really enjoy it Cameron AU: Well, something to add to the list. I’ve just been watching Game of Thrones again after– Yeah, I’m in like season two now of Game of Thrones, and despite myself enjoying it immensely. Tony Kynaston AU: It is good, isn’t it? Cameron AU: The acting is great, and it’s interesting, like the characters I’m enjoying and the acting I’m enjoying. Like the guy who plays Theon [01:10:00] Greyjoy, Tony Kynaston AU: Mm-hmm. Cameron AU: who’s a, a despicable character, like he’s just taken Winterfell, and he’s just. But his, uh, acting, that– whatever that actor’s name is, um, he’s great. Like, he just portrays that pathetic, weak, spineless character who’s trying to act tough and big and impress everybody. He does such a great job. Tony Kynaston AU: Mm-hmm. Cameron AU: and of course, Peter Dinklage is great, and they’re all great. Like all– The Tony Kynaston AU: Yeah Cameron AU: really, really great. Um, yeah. Tony Kynaston AU: Yeah Cameron AU: great. Some of the lines are great. Um, what was– Yeah, Bronn. The guy who plays Bronn, Tony Kynaston AU: Mm-hmm. Cameron AU: uh, is great. He has some great lines, which I probably can’t say on air. But, uh, yeah, most of them involve calling people the C-word over and over again. There’s no Tony Kynaston AU: Yeah, it is good Cameron AU: Yeah. Tony Kynaston AU: Sorry, it was what? Cameron AU: uh, he’s got one line, I can’t remember who [01:11:00] they’re talking about, but, you know, he goes, “There’s no.” I, I think they’re talking about the king, uh, Joffrey, and Bronn says, “There’s no cure for being a C-word.” You know, you know? Yeah. Anyway, lot of good lines in it. Tony Kynaston AU: Mm-hmm. Cameron AU: That’s it. And reading, uh, the Colossus trilogy, which I’m– wanna finish. I want– I’ve got other stuff. I’ve, I’ve been reading Vaclav Havel’s, uh, book on Power to the Powerless. I’ve– I’m doing a, an interview with somebody on the Bullshit Filter about it in coming weeks, and I’m trying to Tony Kynaston AU: Cut Cameron AU: that really. You ever read that? Really good book. Tony Kynaston AU: No. Okay. Cameron AU: Mm. Tony Kynaston AU: I’m still getting through, um, Jefferson. Pretty good. Cameron AU: yeah. Yeah, Tony Kynaston AU: Yeah. Yeah. But it’s like one of those things where, like, every paragraph I put it down and go onto Google and find out more about the history of the time Cameron AU: yeah right? Is Tony Kynaston AU: Mm-hmm. Mm-hmm. Cameron AU: read these days is I’m, you know, flicking backwards and forwards, uh, from AI to find out more. Speaking of Jefferson, so the actor who plays Stannis Baratheon, I [01:12:00] first saw playing Jefferson in the thing you loaned me decades ago, the, Tony Kynaston AU: Oh, John Adams. Yeah. Cameron AU: the John Adams series. He was Tony Kynaston AU: Yeah, right Cameron AU: that, you know? I keep seeing him as Jefferson again Tony Kynaston AU: Yeah, right Cameron AU: in this thing, you know? He was good, really good in that Tony Kynaston AU: I should go back and watch that again just to read the book, just to put it in context. Yeah Cameron AU: Who was, who was the main guy who played Adams in that? John Tony Kynaston AU: Oh, um, Cameron AU: Is his Tony Kynaston AU: oh, yeah, the guy from, um, Billions. Um, Cameron AU: Yeah Tony Kynaston AU: uh, what is his name? Geez. S-slip my mind. Yeah, he is good. Cameron AU: Yeah. yeah, yeah. All right. Well, we’ve got a good US show to do. You’re gonna love this story. It’s juicy. It’s a juicy, juicy, juicy story. Don’t know if you’ll like the stock. I bought it anyway, but it’s a juicy story which we’ll get into Tony Kynaston AU: Oh, hey. Well, we’re gonna cover the, um, question about s- share, share, uh, what do you call [01:13:00] them? Uh, stock payments on this show or the US show. You got a question in your list today about, um, how the accounting for share-based compensation in the US Cameron AU: Oh, this is Tony Kynaston AU: Y- Cameron AU: thing about, um, AI builders. So I Tony Kynaston AU: yeah. Cameron AU: show. Yeah, Tony Kynaston AU: cool Cameron AU: yeah. Yeah, Doesn’t really relate to this. Uh, well, unless people are Tony Kynaston AU: Under Cameron AU: and if they’re interested, they should listen to the US show. Uh, Tony Kynaston AU: Go to the US share or Cameron AU: You know, Tony Kynaston AU: people and you can subscribe via the bundle. Right Cameron AU: stuff on this show, people complained and said, “I don’t care about American stuff,” so they don’t get American stuff. Yeah. Tony Kynaston AU: Well, they can go and take out the bundle now if they wanna hear about stock compensation in the US. Cameron AU: I mean, we did talk about Elon and Greenspan, but. And Iran, but, you know, that, that affects all of us. All right. Thank you, Tony Kynaston AU: I got it. Thanks Cameron AU: hunting, everyone. An hour. Wow, I can’t remember the last Tony Kynaston AU: That’s a quick one, I know Cameron AU: under an [01:14:00] hour. I know. I like it. Oh, I Tony Kynaston AU: Adria? Cameron AU: being made behind me. Yeah. in and out. I like a quickie. Uh, and you’re uploaded nearly? No, 98%. Come on. Hmm Tony Kynaston AU: Oh, I’m not seeing it at my end Cameron AU: Yeah. Happy hunting everyone Tony Kynaston AU: All right. Thanks, Cam Cameron AU: All right Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jun 26, 2026

24m
49

AERO: The Mexican Airline

This week we dig into the SpaceX IPO numbers and they are genuinely terrifying: a Pr/OpCaf of 1,750 times, a $4.9 billion net loss, and a total addressable market pulled straight from a science fiction novel. We also cover the US-Iran deal tanking oil prices and forcing a bunch of sells across the portfolios, then Cameron does a Pulled Pork on Aeromexico (AERO), Mexico’s national airline, freshly listed on the NYSE and trading below its IPO price with a Pr/OpCaf of just 1.55 times.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV AMERICA 57 Cameron: [00:00:00] welcome back to QAV America episode 57 Tony been a big week in the news with the uh Iran deal and the SpaceX float Tony Kynaston: Yes, Cam. Oh, well, big in news with the octagon brawl on the White House lawn and the president’s 80th birthday. Happy birthday, Mr. President Cameron: Do you think he had um somebody like Marilyn sing Happy Birthday Mr President Tony Kynaston: I, I think he had the Ayatollah in Tehran give him a big birthday present. Cameron: Uh we’ll see We’ll see how that plays out the first thing, I would guess, that’s, uh, of direct impact with us is a supposed peace deal, worth the paper it’s written on, between the US and Iran. Uh, we haven’t seen the paper or the terms of the deal yet, but- Tony Kynaston: Uh, I mean, I know rules are rules. I sold, I [00:01:00] sold some, uh, shares in oil companies that I own because the oil price became a sell, but I’m l- I’m doing it hesitantly going, “This is not gonna last. there’s not gonna be Cameron: Yeah Tony Kynaston: But, you know, rules are rules, so I had to sell Cameron: I had to sell a ton of things, both in the Australian portfolios and the American portfolios. Interestingly, the US portfolios, uh, stocks that I sold, we made like 30, 40% on all of them and I’d owned them for like three or four months. So it was okay. I was happy to get out. Um, but hard to replace them. I’ve replaced one, but I’m struggling to find things to buy in the US at the moment. And here too, the buy list here is down. I don’t know what yours looked like this week, but mine had, after I took out the crude oil commodities stocks, which was half of them, the rest were, you know, there was very little and stuff that I’d mostly bought before. Sun, um, Suncorp and, uh, [00:02:00] let’s see, what was the other one? Can’t remember now. Anyway, Slim Pickens. Yeah, CGF it was. Yeah, yeah. Slim Pickens. Every– ‘Cause everything’s sort of Josephines. Tony Kynaston: Hmm. Cameron: it’s been a, it’s been a rough ride. Market’s up today. It dipped a bit this morning, but it’s back up. But, uh, yeah, as you said, like, you know, Is- Israel’s not party to this. They’re still saying they’re gonna stay in Lebanon. Uh, you know, it’s. Tony Kynaston: Was clearly, was wonderful of the Iranians to give Donald Trump an 80th birthday present. That’s probably all it is. Cameron: On– It’s, it’s a wonder they didn’t turn up to his, uh, wrestling match in the front lawn of the White House. Tony Kynaston: The claw. The claw. The claw. Not the claw, the claw on the White House. Wasn’t that amazing? It was. I really, I’d love to have been there. It, it was he introduced as the, the Hammer of Hummus, the Terror of Tehran. Cameron: Oh, you need a. You got a. Yeah. Tony Kynaston: Donald [00:03:00] Trump. Cameron: Oh, you got a, you got a career as a caller of wrestling matches. Uh, yeah, absolute craziness with all of that. Um, the greatest deal ever made to get us back to where we were before it all started, but it looks like Iran’s getting $300 billion in reparations, is one claim. We don’t know the details, but I saw, I saw one analysis today that said that, um, Germany had to pay 5 billion in reparations after World War II, I think, which indexed would be about $100 billion, 90, $95 billion. The US are gonna pay Iran $300 billion for their three-month. That’s one rumor. That’s, uh, probably something the IRGC are looking for, but how much they actually get, giving up sanctions, releasing funds, it’s all. No one knows Tony Kynaston: And what do you think they’ll do with that money once they get it? Or what does Trump [00:04:00] think they’ll do with that money once they’ll get it? Sea mines, landmines, nuclear weapons, Cameron: buying more missiles. That’s, yeah, yeah. Well, the other big new– So that’s been a, that’s been a, a big thing for us, uh, this week, having to sell our oil stocks, which we’ll probably buy again a couple of weeks from now. Uh, the SpaceX IPO, Tony. I, I drilled down into this one a little bit despite myself Tony Kynaston: It feels like we’ve jumped the shark this week, Cam. I’ve gone away on holidays and the shark’s been jumped while I’m away Cameron: It’s like people have been saying, like, which, which f- you know, multiverse are we living in here? So, um, I don’t know if you’ve seen the numbers or saw my TikTok on this, Tony, but, um, what is, uh, what’s our, what’s our Pr/OpCaf cutoff, Tony? Can you remind me again what it is? Tony Kynaston: times. Less than, Cameron: S- Tony Kynaston: be less than seven Cameron: And what’s the average Pr/OpCaf for stocks on the market, Tony? Tony Kynaston: Oh, I don’t know. I’d be guessing it’s [00:05:00] about 16, but that’s just a guess Cameron: 1516 from what I can tell. Tony Kynaston: Yep Cameron: Do you wanna take a guess what SpaceX’s Pr/OpCaf is right now, Tony? Tony Kynaston: Well, I’m surprised it’s, it’s not infinity given that it probably doesn’t have any cash coming in. Not, not much. I guess it’s got the Starlink income, so it’s gonna be like 1,000 times I would’ve thought. Cameron: Close, uh, 1,750 times, Pr/OpCaf Tony Kynaston: Bargain. Bargain. Gina, Gina knows a bargain when she Cameron: Oh, doesn’t she? Gina got a billion in there somewhere, I believe. SpaceX closed yesterday at a near $2.1 trillion market cap. Their 2025 revenue was $18.7 billion. Uh, that’s a price to sales ratio of about 112 times. That’s not earnings, that’s price to sales. They didn’t have earnings. They posted a $4.9 billion [00:06:00] net loss for the year. For context, Apple trades around nine times sales. Nvidia at the absolute peak of the AI mania was around 30 times. SpaceX just IPO’d at nearly four times that while losing money, which Apple and Nvidia aren’t. So the only part of the company that actually makes money is Starlink, uh, of which you’re a subscriber. Tony Kynaston: Correct Cameron: part of their $11.4 billion in revenue that they did Tony Kynaston: could have sent me a share, couldn’t they? Cameron: They could have, yeah. Tony Kynaston: early Cameron: So you’re paying a $2 trillion valuation for what’s basically a satellite ISP company with a rocket on its back and an xAI cash furnace bolted on that they merged two months before they floated. So, but the, the best part, and I think, um, Alan Kohler pointed this out in his article yesterday, the total [00:07:00] addressable market in their S1 document was $28.5 trillion, is their total addressable market Tony Kynaston: Is that the GDP of Mars? Cameron: Uh, that’s– I think Alan wrote, “That’s the number you write down when you need the valuation to make sense and the actual income statement won’t cooperate.” It’s just like dot– like the dotcom b- bubble has nothing on this. It’s just absolute insanity. Insan- not insanity that he had a crack at it, but insanity that people went into it. I heard the investment banks made $500 million in fees out of the whole thing, Tony Kynaston: Yep Cameron: people bought into it. Um, so I did a TikTok saying, you know, our seven times Pr/OpCaf is like, well, it’s seven times, you know, f- the average of 15 times Pr/OpCaf, I was saying on [00:08:00] the TikTok that 15 years to get your money back is a long time. 15 years ago, most people thought AI was 100 years away, at least. 50– A lot can happen in 15 years. Even seven years is a long time these days. I don’t know what the world’s gonna look like seven years from now. 1,750 years, like 750 years ago was like 286 CE. The Roman Empire was still in full effect. Uh, I think Diocletian was probably emperor. The, the, the Christianity was about 10% of the Roman Empire. It was still a relatively small religion. The, the Goths were still on the borders causing a little bit of trouble. I mean, a lot’s happened in the last 1,750 years. Anyway, it’s madness. Absolute madness Tony Kynaston: Well, a bit of growth brings that number down, but you need a lot of growth to bring it down to a reasonable sort of number. Yeah, look, it’s, it’s crowd [00:09:00] psychology, isn’t it? People, people are investing. They’re almost throwing their money at it, not caring what happens to their money. I mean, some people, I guess, treating it like a lottery. It may go up. They might get three hundred times their money like they did with Tesla. So, know, it’s, it’s a bit like Bitcoin, isn’t it? I’m gonna of put my toe in the market and see what happens, is what I think the– most people are saying. But it Cameron: often referred to, you’ve often referred to Elon as a Bond villain. I think, you know, Bond villains had nothing on Elon. Bond villains would’ve loved to. Like, if you had a, if you had a Bond movie where the Bond villain became the world’s first trillionaire by launching a, a company that says we’re gonna send rockets to Mars, Tony Kynaston: He should Cameron: would’ve got laughed out of the cinema. Yeah. Yeah, I’m, I’m sure he pl- played with the idea. He loves naming all of his things after books and films and, you know, Grok Tony Kynaston: But, the Cameron: is off, out of a book Tony Kynaston: it seems like. I, I mean, you never know what you’re buying with Elon because it could be– [00:10:00] he pivots a lot and get, you know, becomes an international boring machine or something like that, or mag- magnetic trains or whatever, maglev trains, um, or brain chips, so you never know. from what I can tell, the concrete plan or the immediate concrete plan is to put data centers in space. Cameron: Che Tony Kynaston: And so that’s a– there’s a business case for that, but they didn’t spell it out, and the analysts that I’ve seen who have tried to spell it out say it’s not gonna work ’cause it’s just too expensive. Um, you know, if they, if data centers stop being built on Earth because of concerns about, you know, electricity usage and water usage and things like that, then maybe space is the answer. But a lot of ifs and maybes in that analysis, I think Cameron: Well, the big thing I think, uh, you know, I think, um, like Elon’s an impressively ambitious guy. You gotta hand him that. He’s, uh, done a lot of interesting things. Certainly not a very stable genius, uh, in the last few years. I’m not [00:11:00] exactly sure I’d be putting my trust in his ability to, uh, get much done, uh, with his, uh, mood swings on a consistent basis. But like, you know, Tesla was interesting, but now the Chinese have stomped all over that. Robots are interesting, but I’m pretty sure the Chinese are gonna flood that market as well, and I think they’re gonna flood the space market too. He’s got a bit of a head start on China. China’s still trying to get their– I can’t remember the name of their, um, satellite launching service, but, um, I have looked into it in the past. They’re a few years at least behind. Uh, I think their, their plan is to have a few, like 500 satellites up this year versus his twen- 19,000 or whatever it is. But, um, it’s only a matter of time before they catch up and, uh, then the economics of everything change dramatically from what was in his S1, I think once the Chinese catch up Tony Kynaston: Yeah look, I agree. And, uh, you know, I’ve seen some [00:12:00] analysis saying there’s so much space junk up and all that now that putting data centers up there is be resisted. So, Cameron: Yeah Tony Kynaston: be a blight on, um, on our sky, in our sky. So Cameron: Well, it only just takes one piece of space junk to hit your data center and, uh, then you, you got problems. Hmm. They do have systems in place to prevent those space junk from running into satellites already, but, uh, yeah. Anyway, moving right along. Big chip sell-off, uh, last week, Tony. Hundreds of billions of dollars wiped off of the value of US microchip giants. Shares in Broadcom, US chip maker building AI processors for OpenAI, slumped 15% after it issued weaker than expected sales forecasts and, uh, all of the other major players went down as well. And this is, uh, interesting timing because both Anthropic and OpenAI are also looking at going public in the n- [00:13:00] near future. So as these chip businesses are all struggling and all the tech giants have not had a good couple of weeks. Share price wise, of course, did you see what happened to Anthropic and their Claude model last week? Tony Kynaston: Uh, the one that was blocked by the US government from being used. Cameron: Yeah. Tony Kynaston: Yeah Cameron: That’s, uh, depressed all of us. It– Claude, I used it for the 48 or 72 hours or whatever it was available, uh, was amazing. It was truly, truly amazing. Tony Kynaston: In Cameron: Stuff– Just its ability to code things that I had been struggling with, with Opus 4.8, their top model before that, for weeks trying to get it. Uh, threw the same problem into Claude, one shot. Went away for an hour, fixed it, wrote it, came back, all done. Tony Kynaston: Hmm Cameron: I was like, “Holy crap, that’s insanely good.” So it was a huge step up, and I [00:14:00] hope we get it back. Taylor was living on it as well. He’s been depressed ever since they blocked it. Um, it j- its, its ability to code Tony Kynaston: available for 24 hours or 48 hours, wasn’t it? Cameron: 4872, but we were all just. But they said at the time they, they were only gonna have it as available as, as part of the plan until June 22nd anyway, and then they were gonna come up with some sort of a new billing model for it. So everyone was trying to get all of their coding done in two weeks, and then it got pulled for very spurious reasons, by the sounds of it. The latest news is today that somebody at Amazon, I think it was the CEO of Amazon, spoke to the US government and said, if you gave it a code base and said, um, “Find the security flaws in this,” it would say, “Sorry, I can’t do that.” If you said, “Fix this code,” it would then tell you all the security flaws. Um, but, uh, uh, people have been pointing out, security analysts have been pointing out that all of the top-tier models will do exactly [00:15:00] the same thing. It would do it in a better way ’cause it was more powerful. But, um, just the fact that the US government, I think, is now, uh, you know, pulling top-tier models off the marketplace, demanding that they pull it out of the marketplace and giving them. I think they gave them 90 minutes to do it initially, to cancel it, is a interesting level of, uh, administrative interference. Particularly, you know, the Biden administration put in some sort of AI guardrail policies, and one of the first things Trump did, like on day one, was sign an executive order saying that they couldn’t interfere with AI. And then I think he tried to get that in the OBBB, Big- One Big Beautiful Bill Act, and then it got watered down before it was signed by the Senate. But, uh, now they’ve gone from, “No one can interfere with AI. We have to rule the AI. We have to be better than everybody,” to, “You can’t have that out there. That’s too powerful.” So, hmm Anyway Tony Kynaston: Well, [00:16:00] I mean, I think it’s, um, you know, you’ve mentioned the two of the three, or we’ve talked about now the three big IPOs that have either happened or are happening, uh, it really reminds me of the peak bubble boom now with this happening. And I did see an article in Business Insider about this, um, which says that the race to go public among mega cap tech companies might be a warning to investors that the tech field stock boom is nearly over. That’s because there’s an important sign that the IPO rush is sending a signal that last flashed during the boom of public offerings from the late 1990s to the early 2000s. to analysts at TS Lombard, the mega IPOs on tap signify a desire among company insiders and early investors to offload stock on the public at the peak of the market. It’s exactly what happened during the dot-com boom. Yeah. So. And a-apart from the fact there’s been a lot of, um, analysis about where’s the money coming from for three big [00:17:00] IPOs, and, Cameron: Mars Tony Kynaston: who’ll go. Yeah, Mas, who’ll go first? Will it be Anthropic or, or, um, OpenAI? Because the second one to market might not get off. all that kind of stuff. And what’s gonna be sold by the indexes to buy into these uh, these, um, IPOs. And that’s the other interesting thing, is that people have been, the regulators are bending over backwards for these IPOs to happen. So the, I mean, the people that benefit, I suppose, are the, are the listing exchanges and the bankers. Um, but there’s typically rules in place. As we saw with the Cuscal listing in Australia, that it doesn’t become part of the index for twel- up to 12 months, we weren’t, we were finding it wasn’t coming in our downloads because it didn’t have a GICS code, is part of that listing index inclusion process. Um, US indexes have said, “Nope, SpaceX can come in a week after listing into the indexes.” [00:18:00] ASX or whoever’s doing it in Australia, I’m not sure if it’s the ASX or the government, has said, “Yeah, sure, we’ll do the same.” So, you know, basically can laugh about this being a, a sort of a crazy chamber of people investing and throwing their money at Elon, but really it’s, it’s everyone, because you’ve got your money in a super fund in Australia, chances are it’s gonna have a share of SpaceX and the other IPOs as they come on and get included in indexes. So one of the reasons why it is a worry that this is potentially peak AI and peak tech bubble, and when it turns down, it’s going to affect, uh, um, a lot of us. Cameron: So um portfolio in the US Tony is doing well I didn’t mention this on our last show but have live portfolio updates now on our websites If you go to qavamerica.com you can see live portfolio updates Well actually it says 12th of June so that’s four days old but it sh [00:19:00] should be relatively live portfolio updates It’s supposed to update every day But as of the 12th of June our main portfolio was up 108 in the US uh which is total return versus the S&P 500 up 67 So we’re not quite double market but still an okay That’s uh since inception which is September 23 Year to date calendar year to date we’re up 27 versus 8 So that’s uh pretty pretty good And our light portfolio since inception in the US with inc inception is uh December 2025 late December 22nd December We were up 88 versus the S&P 500 up 8 so we’re just above it And uh year to date we’re up 917 versus 835 So we’re back [00:20:00] beating the index over there but it’s been a bit choppy I had to sell five stocks yesterday because crude oil became a sell and uh they’ve been hard to replace So I bought one yesterday which is the one I’m gonna do my Pulled Pork on today But was struggling to find stocks that weren’t oil related or financial services related that uh were doing dodgy stuff with their operating cash flow and spiking the numbers Seen a lot of that lately Um price to operating cash flow that we’ve talked about before where they’ll take on a big loan or they’ll get in a bunch of cash and it’ll show up temporarily in their price to operating cash flow and spikes the numbers So I’ve got to figure out how to filter those out in a more effective way It’s really messing with my process You know I I I I have a list and I start going through the list and I just have to go No Dig into this one Oh no [00:21:00] that’s dodgy No this is dodgy This is dodgy Tony Kynaston: Wow. Cameron: Mm Tony Kynaston: it’s interesting, isn’t it? ‘Cause I’m, um, We spoke to Tobias Carlisle last week. He didn’t know why that was different to Australia, but we don’t have that problem in Australia. It’s, um, those kinds of lumpy cash flows tend to be investing or financing cash flows, not operating ones. Cameron: Yeah Tony Kynaston: Hmm. Cameron: Anyway let me get into my Pulled Pork for this week Tony my deep dive Doing another airline this week Um not just any airline Mexico’s airline the Qantas of Mexico um for Australian listeners I think Americans know who Qantas is The national carrier have been flying for 91 years They’re called Aeromexico México Tony Kynaston: Mm-hmm. Cameron: Ticker is AERO I did my analysis on them yesterday which was the 15th of June The price was around about 17.34 They are an ADR [00:22:00] but we’ve accepted ADRs after our chat with Tobias And uh they are an interesting business that’s got a really fascinating history which I’ll get into So th first thing that’s really interesting is they only listed on the New York Stock Exchange in November last year 2025 So been around 91 years but floated on the New York Stock Exchange six months ago Tony Kynaston: Mm. Cameron: Listed at 19 They’re now down to 17 something as I said So we’re belo buying it below the IPO price which is an experience that I’m sure many SpaceX uh shareholders will become familiar with in the uh coming f year when people realize that they’re not making any money the excitement dies down Um according to their website they are the most punctual airline in the world That’s gotta be a good thing [00:23:00] This is from their website They also won the APEX Award the Airline Passenger Experience Association Not sure if they created that themselves I’m assuming they didn’t For the first time Aeromexico has been recognized as the best airline in North America in 2026 by the Airline Passenger Experience Association In addition for the seventh consecutive year we have been awarded the title of five star global airline consolidating our leadership in international travel experience As part of these achievements we were also recognized by APEX with the Best Entertainment and Best Seat Comfort in North America in 2025 awards highlighting the quality of our inflight entertainment offering and the comfort of our cabins designed to provide a superior experience on every flight So when Donald Trump says they’re sending their criminals and their rapists to America at least they’re traveling in style with number one rated entertainment and uh seat comfort It’s very [00:24:00] important when you send your rapists and your criminals somewhere else that they’re comfortable That’s how they get over the wall Donald Trump built a wall They built very very comfortable planes to fly over the wall in Tony Kynaston: you and I have both flown in the US, and I- sure it takes much of a hurdle to be the best providing comfort and entertainment on the, uh, North American flight. Cameron: Well I probably fly a different very different class of flight when I’m flying in the US to you Tony I fly you know in the in the luggage compartment usually Tony Kynaston: wing. Cameron: yeah with down with the animals in uh the hold where you uh travel in front of the pilots Um Tony Kynaston: Backseat driving. What are you doing? Cameron: What’s this knob do What happens if I press this I am serious and don’t call me Shirley I said that to uh Tony Kynaston: Roger,[00:25:00] Cameron: of the guys at one of the guys at kung fu a few weeks ago said uh Surely you can do this And I said I am serious and don’t call me Shirley His his son who’s about Fox’s age has been calling me Shirley ever since Hey Shirley Which is pretty funny Um so these guys uh have a hub at Mexico City Airport They fly 787 Dreamliners to Madrid and Tokyo um as well as the uh US-Mexico routes 91 years old as I said founded in 1934 Market cap about 24 billion US dollars Fleet of 165 aircraft 24.59 million passengers in 2025 They’re part of the SkyTeam alliance Air France Korean Air and Delta who is a founding member of the airline Delta Airlines owns 18.7% of Aeromexico and they have a joint [00:26:00] venture on the US-Mexico route So when you buy a seat on Delta to Mexico City you’re probably on an Aeromexico plane They’re deeply intertwined which adds an interesting dimension uh to this uh as a business because they sort of have this backing of Delta But um the history of it’s uh pretty interesting So uh by the way the etymology of Mexico I looked into Aero obviously from the Greek aer meaning air Uh Mexico from Mexica the name the Aztec people called themselves although the etymology of Mexico is actually debated It could be from Mexitli a war name for the god Huitzilopochtli or from Metztli moon and Xictli navel the navel of the moon So there you go It’s good to know Tony Kynaston: The navel of the moon? I didn’t know the moon had a navel Cameron: Well Mexico City was literally built in the middle of a lake so [00:27:00] they may have considered it the navel of the moon of the lake of the something I don’t know They were in a lake The lake was in the the navel of the moon I uh don’t ask me So founded in 1934 um by the Mexican government Aeronaves de México Airplanes of Mexico was the original name Barry and Stan consulted on that for a long time 100 million fee How about we call it Airplanes of Mexico Genius Uh for the first few decades seminationalized semiprivate It’s always a bit of a political football Mexican aviation apparently And then 1988 happened So by the mid-1980s the airline was a basket case Uh an insider later wrote It was not a secret that Aeromexico was paying wages to people who weren’t even employed there Politicians artists hangers-on of the uh PRI party [00:28:00] that were ruling Mexico at the time It’s a bit like garbage contracting business in The Sopranos Uh a lot of people getting paid that didn’t actually turn up Uh it was lending planes to the president for personal trips It was like Qatar today for Donald Trump It was um paying some of the highest aircraft rental fees in the industry had a very powerful and entrenched ground staff union that the government couldn’t touch And they also were going through the peso crisis at the time Mexico’s peso had devalued 470% in Tony Kynaston: Hmm. Cameron: 1982 alone By 1988 a dollar that cost 46 pesos in 1982 cost 2298 pesos So their foreign currency costs fuel aircraft leases international fees had all gone through the roof And then in April 1988 the [00:29:00] 1988, no what’d I say 1988 the ground staff union went on strike and the Mexican government went full Ronald Reagan They just declared the airline bankrupt and sacked everyone and basically shut the whole thing down for six months There was no there were no airplanes No one could afford airplanes anyway I guess uh sort of uh with the the value of the peso And then they s set up a new company September 1988 Aerovías de México Had the old brand the old logo the old livery but was a completely different entity um and completely different contracts So the old union contracts went nowhere The phantom payroll went nowhere It was all wiped clean and they relaunched with 25 planes and 3500 workers which was vastly [00:30:00] smaller than um what had preceded it six months earlier Since then it’s gone through various ownership structures and alliances and crises including COVID When COVID hit in 2020 they filed for Chapter 11 Mexico’s airports shut down And the Mexican government uh run by a guy called López Obrador AKA AMLO he was known as AMLO just like Madonna He was just AMLO Um Claude told me it was like Scomo in Australia We had Scomo for Scott Morrison or Albo we have today for Anthony Albanese He was AMLO Not sure you he get that out of López Obrador but uh I guess there’s an AM in there somewhere for the LO Unlike our government and the US and European governments no bailouts for airlines in [00:31:00] Mexico at the time He said Tough titties And so they had to do it the hard way They emerged from Chapter 11 in March 2022 and their major lenders Bunch of credit funds and hedge funds and private equity firms like Oaktree uh ended up as shareholders in the airline They loaned the airline money during their restructuring and got equity in return Delta kept its stake and uh that’s basically the layout of the business as it is today And then they floated it on the New York Stock Exchange as I said six months ago to try and get some of their money back I guess with the IPO So the core business is pretty much what you’d expect Uh domestic flights flying Mexicans around Mexico from Mexico City to Cancun Guadalajara uh the beach Competing with Volaris who we talked about back in February and are down [00:32:00] 15 for obvious reasons Uh oil has been probably killing their business in the last six months or four months whatever it is three months They’re also competing with a budget carrier called VivaAerobus Um so that’s big part of their business Then they have the transborder to the US business This is where most of the money is Mexico City to New York Los Angeles Miami Houston This is where the Delta joint venture kicks in They cosell seats and share revenue on these routes And then layer three is the wide body internationals the Dreamliner as I mentioned before um flying to Madrid Tokyo São Paulo Just launched Barcelona and Paris this year And it all goes through Mexico City International Airport AICM one of the most congested airports in the world [00:33:00] Aeromexico has a massive allotment of takeoff and landing slots there which they’ve accumulated over decades That’s kind of their moat Um but it’s also getting them into a bit of a mess with the United States which I’ll talk about in a second So oh World Cup big thing for them recently Tony Kynaston: gonna Cameron: They’ve yeah been flying people in and out It was being cohosted by the US Canada and Mexico So um it’s been a nice little business for them but I haven’t seen that come through in the numbers yet Tony Kynaston: The other thing too I should mention while we’re on that is, um, with the oil price being low, it’s, it’s gotta be a good thing for their business going forward Cameron: You would hope if it stays low but again we don’t know we don’t know what tomorrow holds Tony Kynaston: Yep Cameron: I have seen their unaudited first quarter 2026 results Total revenue growth of 13 year on [00:34:00] year operating margin of 11 So it was a good quarter for them Tony Kynaston: Mm-hmm. Cameron: or it was a bad quarter for them last year one of the two Um so they went bankrupt as I said and part of that is worth mentioning Their current balance sheet still shows negative equity I think they’re sitting on about 3 billion worth of debt Tony Kynaston: Mm-hmm. Cameron: I think their negative equity is about 580 million So more liabilities than assets but they’re generating nearly a billion dollars of cash a year So lot of debt not great but it’s not like they can’t afford to restructure and pay the debt off as they go So it’s manageable I think Uh it’s a real business that’s got real cash flow Um but there’s this thing going on between [00:35:00] the Mexican government and the US Department of Transportation or US DOT Uh there’s it’s called the Slot War which sounds like fun actually Sounds like um something to do with casinos slot machines slot machine war No Tony Kynaston: I’m guessing it’s access to terminals in the US Cameron: Yeah Takeoff and landing slots uh at Mexico not in the US in Mexico Tony Kynaston: Oh, okay Cameron: Yeah so the US uh claiming that Mexico had arbitrarily cut US carrier slots in violation of bilateral agreements and so they blocked 13 routes for Aeroméxico Volaris and Viva Aerobus into the US I think it’s got something to do with the whole Trump trade war Mexico you know tariffs uh [00:36:00] scuffle that has been going on Tony Kynaston: It’s hard for– I mean, you know, you need to abide by the contracts. Shouldn’t be j-just unilaterally tearing up contracts, should you? Like NAFTA Cameron: Yes Um one might think that uh that might be a you know an honorable way to conduct oneself but I guess when one party doesn’t conduct itself that way the other party’s like Well you know guess you’re not landing planes in Mexico then Uh good luck with that Tony Kynaston: good luck Cameron: You’ll have to climb over the wall if you wanna get here that you built So that’s going on Um and the 11th Circuit Court of Appeals has granted a formal stay in November 2025 but it’s still playing out The there’s a hearing happening I think a decision is [00:37:00] expected There was a hearing April May just passed and uh a decision is expected around August September around how this is gonna play out So you know sort of a scuffle between the two governments I’m sure that something will get worked out It it sounds like everyone’s best interest is served by planes being able to fly in and fly out of Mexico and the United States But that is going on at the moment If it goes badly it could be bad for these guys Their CEO a guy called André Conesa has been running the airline for 21 years So uh Yeah that’s interesting You don’t usually get airline CEOs that have been around for more than two decades I don’t know what his story is but that’s a long time I didn’t look into his background but there you go Um what else can I tell you Um yeah that’s basically it Yeah Can’t tell you any [00:38:00] more about it Oh the fuel problem obviously we talked about Fuel prices were up Q1 2026 fuel costs were up 13% year over year But uh they they’re coming down You know where they go what happens is anyone’s guess So full year guidance was suspended after Q1 Too much fuel price uncertainty to forecast the second half Um but mm again no one can forecast the future Tony Kynaston: No. And also too, I know, I know from Qantas’s take on things, and I guess it’ll be the same or similar for Aeroméxico, is that like they’ve managed high fuel prices before. They’re– They’ll be looking at the yields, have– They’ll be canceling un-underbooked flights. They’ll be, you know, throttling back on service, all that kind of thing to try and up for the fact that their fuel price is going up Cameron: Hmm Yes I imagine that they know how to manage these sorts of things Um [00:39:00] and there’s all the other you know political issues going on between the US and Mexico but these things will play out the way they play out We can’t invest by forecasting the future I’m not smart enough to do that Um but these guys uh have a pretty healthy business and you know they they are the national airline of Mexico Got some competition with these budget airlines but uh they they dominate the whole industry as far as I can tell They’re they’re a pretty big deal but they’re cheap Tony Kynaston: Did– Sorry, just while you’re talking about the business, did you get a breakdown of their loyalty points business at all? As, as how much, how profitable it was and how much of a it was to their profit? ‘Cause I know for Qantas it’s a huge contributor to its profit. Cameron: It didn’t come up I did read about it somewhere um but Tony Kynaston: but they don’t declare it[00:40:00] Cameron: yeah I couldn’t get it in my notes for exactly how much it is Um Yeah no there was uh I had something about that but I can’t remember what it was now Anyway that’s about it Tony It’s just uh they’re an airline They’re cheap right now for some of those reasons that I just mentioned Um but the business is uh cranking along by the looks of it as far as I can tell So on the analysis on our scorecard this is from uh numbers I did over the weekend QAV score of 0.21 seven items out of 13 scored Uh quality rank of 72 on uh Stockopedia Stock rank was 85 couldn’t score it for that It’s below the 90 threshold that we have Piotroski F-score of six so I could score for that It’s above 4.5 The price is less than our IV1 [00:41:00] Our IV1 is 34.28 Um price is 17.34 Um price is also less than our IV number two Uh IV number two is uh Oh hold on No the price is not less than that IV2 is 7.73 so couldn’t score it above that Interesting that IV1 is higher than IV2 It’s normally the other way around Tony Kynaston: Mm-hmm. Cameron: Um yeah I guess it’s something to do with the EPS figures uh for next year Um book value uh they’ve got negative equity so couldn’t score them for book value No dividend so can’t score them for any of the dividend stuff Their yield is zero But the price to operating cash flow is 1.55 Uh full year [00:42:00] 2025 operating cash flow was 913 million Market cap was 2.37 billion So generating like nearly 40% of their market cap in cash every year So um yeah I couldn’t find any real gotchas in this one Tony apart from some of the political wranglings and oil price issues that talked about um over the course of the show but it’s just cheap airline And I know airlines are famously Tony Kynaston: Not great Cameron: you know Tony Kynaston: holds, are they? They’re cyclical. Cameron: businesses yeah But we buy them Tony Kynaston: Yeah. And that’s why because, you know, no one wants to be a long term holder of an airline really except for perhaps other airlines like Delta. But COVID shows us exactly why that’s the reason that they can be incredibly cyclical. Cameron: Yeah Tony Kynaston: and, uh, yeah, so but that means that, know, we, we get the market to ourselves sometimes, and it’s, it’s a overwhelmingly good thing [00:43:00] to, um, invest in because it’s throwing off heaps of cash. And yeah, it’s got a lot of debt. We see that a lot with companies, um, on our buy list. Uh, but you know, you, you can repay that debt pretty quickly with a truckload of cash coming in the door every day Cameron: Yeah Now looking at some of the other airlines that I’ve done Pulled Porks on over the last uh year or so American Airlines that we talked about back in October last year is up 12% since we talked about it We don’t hold it in a portfolio but uh we did talk about it Um AerCap Holdings is up uh 7% since November last year It’s not taken over the world but it’s in a positive direction But Volaris is down it’s down 12% as of uh today So um you know sort of a mixed bag there with the airlines that we’ve talked about over the last year As you’d expect it’s been a pretty turbulent period for airlines Tony Kynaston: Yeah. And we’ve certainly held [00:44:00] Qantas in the past and then sold it, um, over and Cameron: of times Yeah So I mean I’m I’m like that with airlines Like I I’m like Ugh really It’s one of those things that I’m never super excited about buying but Tony Kynaston: Mm-hmm. Cameron: The rules don’t say we don’t buy airlines Our rules don’t say we don’t buy airlines You ne you never wrote that into the rules so Tony Kynaston: very profitable, but you just got to realize you’re not gonna hold it for the rest of your life. Cameron: Right So we hold them until we have to sell them Tony Kynaston: Yeah. But, you know, with Qantas I’ve, I’ve certainly had periods where I’ve held it for, know, a short period of time and made thirty or forty percent out of holding it. Cameron: Right Tony Kynaston: yeah, they can be profitable, um, investments just, uh, you know, on a sort of short to medium time horizon usually Cameron: So you buy them when they’re cheap let the price go up and then sell them when they trip a sell trigger huh Tony Kynaston: exactly Cameron: Okay Well that’s all I have [00:45:00] for today Tony That’s uh we’ll see how they go Tony Kynaston: Good. Well, thanks for that Cameron: think that gets us to after hours. Been a few weeks. What’s been keeping you amused? Tony Kynaston: Uh, I think I heard you talk about it while I was away, but I’ve been watching Spider Noir with Alex. It’s, it’s pretty good. Liking Cameron: get f- Tony Kynaston: Cage acting Cameron: got, I only got like three or four episodes into it and then I kind of got distracted. But, uh, Tony Kynaston: out? Hmm Cameron: Fanta said it was worth keeping up with, but how far into it are you? Tony Kynaston: Yeah, we’re at episode three as well, Cameron: Oh, okay. Right. Tony Kynaston: it. I think it’s Cameron: Hmm. I like, um, Nicolas Cage hasn’t had much to do there, but I like, uh, Brendan, whatever his name is, Gleeson. Yeah, he’s always fun to watch. Tony Kynaston: I agree. Yep, playing the bad guy. Cameron: Yeah. Tony Kynaston: Musk character. Cameron: Yeah. Okay Tony Kynaston: Watched another one, uh, uh, episode of, uh. Sorry, documentary on Netflix called [00:46:00] Vardy. Um, Cameron: Hmm Tony Kynaston: don’t know if you’d like it, but I, I quite enjoyed it. Roddy and I watched it. It’s about an English soccer player, um, who was a bit of a lad uh, uh, got into soccer late ’cause he was too busy drinking and, and fighting and all that kind of stuff. then, uh, a manager sort of picked him out as an up-and-coming talent and stuck with him through all the grades, and eventually he started playing for Coventry, then went on to win the EPL as a huge outsider. uh, it’s a bit of a rocky story really, but, um, it was fun to watch. Recommend that to the sports fans out there Cameron: What else? Tony Kynaston: f- uh, been listening to My Favorite Toy, the new Foo Fighters album. Came out, I think, in April. Cameron: Hmm. Tony Kynaston: quite good Cameron: Hmm, didn’t pick you for a Foo Fighters fan Tony Kynaston: Yeah, yeah, I like the Foo Fighters. I Cameron: Hmm. I like kung fu. Is it kung fu [00:47:00] fighters? I’m a kung fu fighter Tony Kynaston: Uh, been reading, um, a book on Jefferson by Christopher Hitchens, which is really good. I recommend that. out for a while, but I came across it recently. Cameron: He’s been dead for 10 years, so I’d hope so Tony Kynaston: Yeah, so it’s been, it’s been out for a while. like his writing style, but, um, uh, I– it’s going into all the detail of, uh, the early days of America, um, which I wasn’t that familiar with, so that’s been Cameron: Hmm. Hmm. Tony Kynaston: Yeah. Um, you know, talking about little things like, uh, how Jefferson cribbed a quote on, um, the pursuit of. called? The pursuit of life, happiness. No. Uh, what’s the quote? The life. What’s in the Constitution? The pursuit of happiness, life. I’m getting that mixed up Cameron: Yeah, can’t remember Tony Kynaston: Yeah, anyway. Originally, it was instead of Cameron: Life, liberty, and happiness for all. Li- liberty and something, yeah Tony Kynaston: But originally, the original quote was from Locke, and it [00:48:00] was life, liberty, and property. um, so given the sort of double-edged meaning property had back then, they decided to change it to the pursuit of Cameron: Ah, yeah Tony Kynaston: which, um, I thought that was interesting. But Cameron: Jefferson, Jefferson liked his, uh, female properties too, didn’t he? Tony Kynaston: He did, and he still, he still kept slaves, Cameron: Hmm. Tony Kynaston: even though he did a lot of work in the Constitution to try and, uh, get around the ownership of slaves. He sort of danced the thin, the, the line there. And that’s– I thought that was interesting, and at the very start, when Christopher Hitchens says, “Look, no one’s all good or all bad.” This, this guy, you know, was all about life and liberty, but he held slaves. So you know, you gotta judge him on that basis, I guess. Cameron: Hmm Tony Kynaston: and but there’s a lot, lot in there about the, um, the reasons for seeking independence to– a lot to do with the English and the French War. Um, uh, how money was required by the English to fight those various wars, and how they were taxing Americans to do that. Um, how, you know, [00:49:00] at the end of some of those wars, they had a chance of, I think, uh, was it Guadeloupe in the West Indies? They had the chance of either taking that or Canada, um, over as a colony, uh, from the French, and they chose Canada. And, uh, if they had have chosen Guadeloupe, that would’ve had a different outcome for the history of America. So yeah, interesting to go through and pick apart all that history that was going on at the time, and the Americans’ reaction to it. Cameron: The original tax dodgers, as I always call them. Tony Kynaston: Right Cameron: The founding tax dodgers. Mm-hmm. Tony Kynaston: And, uh, a couple of good, good results from our horses this week. So Lake Forest broke a track record yesterday at Pakenham. I drove up to Pakenham to watch it, to win a race, which was good. And. Cameron: that mean? Like a record for that horse or like for the whole track? Tony Kynaston: Yeah. Cameron: Wow Tony Kynaston: of different surfaces at Pakenham. They have the, a grass surface, which is what most race courses do, but they also have a, what’s called a poly [00:50:00] track, which is, uh, kind of a sand, rubber, synthetic mix, which, um, is an all-weather track. So, uh, you race there when it’s in winter and the grass tracks get muddy and bogged. Cameron: Right Tony Kynaston: So it set the poly track record for 1,000 meters at Pakenham yesterday, which was Cameron: Fantastic. Congratulations Tony Kynaston: Thanks. was fun. The trainers are the Galagatos brothers, and they were very emotional and all over me after the race. A lot of fun. it very passionately, which was, which is good to see. Cameron: Is that what you want? Tony Kynaston: Yeah. then Stars of Dom, a horse I have, uh, sharing with Steve Mabb, that ran second on Saturday. So it’s had two seconds first two starts. So, um, we’re hopeful it can the, take the prize, in the future. But two seconds isn’t a bad way to start a, a racing career. Cameron: Yeah. Tony Kynaston: Hmm Cameron: named after? Stars of Dom Tony Kynaston: Dom Perignon. Yeah. Uh, it’s a bit of a [00:51:00] pun. We didn’t name this one, but, um, Cameron: Right Tony Kynaston: uh, one of the managers at Lindsay Park, which is where it’s trained, is called Dom, Dom Roden. So Cameron: Uh Tony Kynaston: they kind of named it after him, but also after champagne. Yeah, so that was good. Good, good couple of days to be a horse owner. Cameron: Yeah, congrats. Very exciting Well, I watched the Colossus film that we talked about, Tony Kynaston: Mm-hmm. Cameron: um, after reading the book. Really enjoyed the film. Tony Kynaston: Oh Cameron: it was great. Yeah, really well done. Good sort of classic film. And a lot of, like, great, uh, appearances from stars. Um, Mrs. Cunningham from Happy Days was in it, very young version of her, Marion whatever her name was, Ross. Tony Kynaston: Mm-hmm. Cameron: And James, um, what’s his name? Um, Hong. James Hong. Um, the only Chinese American actor for the last 30 years in Hollywood who’s everything from, [00:52:00] um, Wayne’s World through to Everything Everywhere All at Once, and, uh, Big Trouble in Little China, and all those sorts of films. He– a very young James Hong was in it, which was great to see. He’s always one of my favorites. I think he had one line in the, in the film. Uh, yeah, no, really, really enjoyed it. Thought they did a good job. Changed it from the book a little bit, but pretty much the same story. I’m reading the second novel in that series now, which is interesting, where, um, Colossus. It’s fi- it takes place five years after the first one, and, uh, there’s a religious cult set up around Colossus now. He’s completely taken over everything. He, it. And, um, the human resistance gets contacted by some group that says they’re from Mars, and they’re, they’re building a, a counter system to have them. Tony Kynaston: from Mars. Yeah. Cameron: Yeah, yeah. Tony Kynaston: Right. Cameron: Um, Tony Kynaston: ruled by the Grok [00:53:00] AI on Cameron: Well, as I think I told you, Elon named his data center that runs Grok Colossus based on this book. so maybe he thinks this is what he’s gonna have to do when Colossus takes over, is get to Mars and build the counter Colossus. Tony Kynaston: Do you think, uh, do you think there’s a religion around AI at the moment? Cameron: Uh, there’s been a couple of Tony Kynaston: by the almighty AI Cameron: I think there’s a couple of, uh, actual people playing with the idea of AI-based religions already. But I do think it’s a thing that’s gonna happen. I mean, the way it plays out in the book makes total sense. Like a b- it’s, it’s the all-knowing master of everything that’s running everyone’s lives and has solved crime. There’s no more crime, there’s no more violence, there’s no more anything ’cause it sees everything. It– If you get arrested, you get tried and executed within 30 seconds ’cause it’s got all the facts and all the data and it just, you know, beheads you. So, uh, yeah, I can see that playing out. Tony Kynaston: Hmm. Cameron: Chrissy and I [00:54:00] also watched Poor Things. Tony Kynaston: Oh, that’s a great movie. I Cameron: Yeah. Yeah, yeah. Tony Kynaston: Willem Cameron: Trippy as all hell. Willem Dafoe, yeah, great in it. And, uh, now I wanna see the other one. I think the first one they did together, Kinds of Kindness with Jesse Plemons and Emma Stone and Willem Dafoe, which is, Tony Kynaston: I Cameron: Yorgos’ uh, go-to cast Tony Kynaston: Yeah Cameron: It’s his, um, his go-to people. Willem Dafoe’s always great, always well. Do you hear about this film that’s– There’s a film that’s showing. Where is it? Um, in Tasmania, I think. It’s, uh, the Dark Mofo, Tony Kynaston: Mm-hmm. Cameron: um, Festival that’s on at the moment. It’s a Willem Dafoe film that only 500 people have seen. One person is allowed to see it at a time in a cinema. You get, uh, a, a BMW picks you up, gives you, like, an army tag.[00:55:00] You get taken to a cinema that you, where you didn’t know where you’re going. You get taken to this place. You have to pr- pr- pr- provide your identification, and you sit in the cinema and you see this film by yourself. And oh, before– When you get in the car, there’s a recording by Willem Dafoe that, uh, is played to you that basically is sort of not– is sort of the intro to the film. He’s in character, and then when you get out of the film, there’s another thing that he says to you in a USB stick or something that’s given to you, and it’s a full experience that, yeah, only one person at a time is allowed to see. It’s, Tony Kynaston: has anyone divulged what the movie’s about? Cameron: Yeah, I read a review in The Guardian or something today where somebody saw it, a reviewer, and talked about it. I didn’t read it in detail. I was just skimming through them Tony Kynaston: I have seen a, Willem Dafoe movie set in Tasmania. Cameron: Hmm. Tony Kynaston: out in the last 10 years. I think it was called The Hunter or something like that. He– Cameron: Oh, yeah Tony Kynaston: It was very remote and moody, and he [00:56:00] played a hunter who was looking. I can’t recall if he was trying to find a Tasmanian tiger or he was trying to shoot, shoot one that had been found. I can’t recall now. It was a very, like it was, wasn’t much happening in the movie, but it was beautifully shot and great to watch. Very moody Cameron: Human sacrifices have been made. He had to go shoot Tasmanian tigers. Tony Kynaston: no, I don’t, don’t Cameron: Bob Katter called him up. And I just saw the trailer for the new Paolo Sorrentino film, Parthenope, which stars Gary Oldman. Tony Kynaston: Oh, wow. Okay Cameron: Yeah. Yeah, yeah. Check it out, Parthenope. You’ll love it. Um, looks great. Coming out soon. And then I’ve been listening to Aussie Crawl this morning because they’ve just announced a reunion, the surviving members of them. Yeah, the Raine brothers and some other guy. I thought, “Gee, I haven’t listened to Australian Crawl for decades,” so I pulled out Sirocco and started listening to that. Such a- some catchy riffs. Oh, thank you, baby. Tony Kynaston: Oh, Cameron: Da-da-da-da, da-da-da-da, da-da-da-da, da-da-da-da, da-da-da-da-da. Yeah. [00:57:00] Errol Tony Kynaston: And great lyrics. Beautiful people. Yeah. mean that, yep, where are those, you know, those cynical Aussie bands from the ’70s and ’80s were great. Just taking the piss all the time. Cameron: Che Tony Kynaston: Mm. Cameron: Well, that’s all I got for you, TK. Tony Kynaston: All right Cameron: Okay. Uh, happy hunting everybody. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jun 18, 2026

35m
48

Tobias Carlisle, Soldier Of Fortune: QAV America #56

  Episode Overview This week we sit down with Tobias Carlisle to dig into his new book, “Soldier of Fortune: Warren Buffett, Sun Tzu, and the Ancient Art of Risk-Taking.” Tobias walks us through three of Berkshire Hathaway’s most misunderstood deals (General Re, Burlington Northern Santa Fe, and the Japanese Sogo Shosha trades), explaining why each looked wrong at the time and turned out to be masterstrokes of defensive strategy. We also get into ADRs, the K-shaped US market, small cap value, and why Tobias and Tony both landed on “Quality At Value” as the sweet spot. Timestamps & Subjects [00:00:00] Intro and guest welcome, Tobias Carlisle’s new book “Soldier of Fortune” [00:03:00] The three misunderstood Berkshire deals, starting with General Re [00:10:00] Unpacking the General Re scrip deal, Coke dilution, and defensive strategy [00:13:00] Via negativa, inversion, and the Charlie Munger checklist mindset [00:16:00] Burlington Northern Santa Fe, railways as capital traps, and the coup d’oeil [00:20:00] Accelerated depreciation, the tax carry trade inside Burlington Northern [00:24:00] Wu Wei, mental flexibility, and breaking your own rules when the price is right [00:29:00] Apple as the greatest trade of all time and why scale matters [00:33:00] No master plan, Berkshire’s structural freedom versus niche-constrained investors [00:36:00] The Japanese Sogo Shosha carry trade and zero percent yen-denominated notes [00:43:00] Japan’s shareholder reform, Tokyo Stock Exchange pressure, and cultural resistance [00:50:00] ADRs, the DRAM ETF, and why Americans avoid foreign-listed names [00:53:00] Operating cash flow manipulation, property developers, and IFRS versus US GAAP [00:55:00] Buffett on survival, risk of ruin, and the million-chamber revolver quote [00:58:00] Profitless tech at all-time highs, the K-shaped market, and small cap value [01:02:00] Northrim BanCorp (NRIM) as a real-world cheap-as-chips example [01:04:00] The Acquirer’s Multiple today, quality minus junk, and where Tobias actually invests [01:06:00] Quality At Value as the shared investing philosophy, wrap-up and book plug   Free Podcast Archives Transcription QAV AU 923 VIDEO [00:00:00] Cameron: Welcome back to QAV. welcoming back to the show our old friend Tobias Carlisle, who has a new book out, Soldier of Fortune: Warren Buffett, Sun Tzu, and the Ancient Art of Risk-Taking. And I’m just gonna start with this, and then I’m gonna throw to TK to ask some questions. But one of the blurbs, this is one of the blurbs. Check this out. “Soldier of Fortune is a brilliant synthesis decoding the genius of Warren Buffett through ancient eyes. The book reveals that Buffett’s unparalleled success comes not from following common Wall Street maxims, but rather from the profound, patient wisdom of a warrior philosopher. This book is a revelation, an indispensable guide to the timeless art of strategic risk-taking. Jim O’Shaughnessy, author of What Works on Wall Street.” How the hell did you get Jim to write a blurb for your book? We’re huge fans of Jim. Toby: blurbed a [00:01:00] few of my books. I, I, I, uh, have the good fortune to, uh, know him and have known him for, uh. He blurbed, I think he blurbed “Quantitative Value,” which came out in 2012. But I, I found him on, when he came on Twitter early on, he had, you know, like 100 followers, and I was, I was one of them. And I reached out to him, and I got to know him then, so I’ve stayed in good, I, I love Jim. He’s a good dude. Tony Kynaston: Wow. Can Cameron: We only discovered his book. Tony Kynaston: him on the show. Toby: Yeah, Cameron: Yeah. We’re Tony Kynaston: his chapters. Toby: I’m sure he’d do it. Cameron: We only discovered his book like four or five years ago, maybe less. And I, I think it was during COVID I read it and I was like, “Oh my God, this is just what we talk about to a T.” Like, he absolutely Toby: The Cameron: was way ahead. Yeah. Toby: Yeah. Cameron: Brilliant. Toby: I’ve re, I’ve got a few versions of it. So the. You know, in the original version, he said that the best value metric was price sales, and then in a later edition, he [00:02:00] said it’s EV/EBITDA, is where I get to too. there’s lots of reasons why price sales works well, and then he said not, not any one of them, use a combination is I think what he finally fell to. But that, that sound, like that’s pretty sensible advice, I think. There’s lots of reasons to use price sales. It’s not a bad metric. It’s just you can’t use anything in isolation, I think. Cameron: Well, Tony, I’ll throw it to you because you’ve got a list of questions that I don’t want you to miss out on. Why don’t you kick it off? Tony Kynaston: So congratulations on the book. It’s, it’s, I loved it. It’s fantastic. Love reading books on Warren Buffett and corporate strategy and strategy in general, so well done. Um, I Toby: you Tony Kynaston: wanna start uh, got. The book sort of focuses on three of Warren’s investments, excuse me, and they were large for Berkshire Hathaway and reasonably controversial in that they didn’t sort of fit the normal value investment mold, you know, cause I think when the [00:03:00] first one was probably done people were more used to Warren buying Coke or Amex and having a, you know, big moat around a consumer company that would go on forever throwing off cash. But there were some differences to these transactions. Um, but all the, all the three of them proved to be outstanding in hindsight. So maybe you could just uh take us through what the three transactions were first of all. Toby: These were, I was looking for a way to illustrate some of the ideas in the book, and I’ve written a lot about Buffett, so I didn’t wanna rehash all of the stuff that I had written previously. Uh, though I think that you could use a lot of that to illustrate those ideas. So I wanted to find, that I felt were misunderstood, certainly transactions that were misunderstood at the time that they were done. And I vividly remember all of these transactions. I was a Buffett watcher just in 1997, so I remember this transaction [00:04:00] coming through, and I remember being perplexed. Only, only perplexed in the sense that I knew that this was an insurance deal, and I knew that Berkshire was an insurer. And so it didn’t surprise me that he would do an insurance acquisition, but, uh, I didn’t really have the analytical experience at that time to understand the transaction. Particularly because there are a number of features of it that certainly seemed to go against the grain of what he had been preaching in his letters up to that point. You know, I’d just discovered him, but I’d gone and read all the, the letters and, um, tried to organize them. And I had the Lawrence Cunningham book where he’d sort of put them all into thematically rather than chronologically. So I, I felt like I had a pretty good handle on what he was doing, and then he did this General Re acquisition. So the features of the General Re acquisition that were a little bit unusual were, he did it in stock, and he’d been saying you never do it in stock. always prefers to pay cash. [00:05:00] The other thing that. It, it looked, it looked optically expensive as well. That was one of the other things that, that folks were talking about. And I think that they had anticipated that criticism somewhat by talking about the synergies that they were expecting from this acquisition. And you can go back and find Buffett pre-Gen Re talking about synergies, like never manifesting every single firm. Whoever does an acquisition and slightly overpays said, “Oh, it’s justified because there are gonna be synergies,” and they, they never manifest. And so here he was seeming to be contra, you know, going against what he had previously said that he would do. When you, with hindsight, the deal worked out really well. and I sort of have been investing for long enough now that I can sort of break it down and analyze it properly, which I couldn’t do at the time. But the things that really stand out. The reason he did the transaction, you have to [00:06:00] go back a little bit earlier. He’d, he’d done this deal with Coke very famously. With Coke, where similarly it looked like he’d, he’d overpaid. He was paying a lot for Coke. He’d never really paid up to that extent before. But it was a wild success. He put a third of the equity of the, of Berkshire into Coke, then it pretty quickly, it was like half the equity of Coke, and then it tripled. And by nine, by the late 1990. He so did it like the late 1980s, early 1990s. By the end of the 1990s, was, um, trading at like 60 times earnings. It was a giant part of Berkshire’s equity holdings. Berkshire on top of that, Buffett had been undiscovered, I think, up to that point, but he was well and truly well known by late 1990s. And uh, Berkshire itself was trading at three times what was probably already a pretty inflated valuation that included Coke. [00:07:00] So he can’t sell it because that incurs this huge capital gains tax. He’s also preached not selling, holding these things for the very long run. And he’s received a lot of criticism since then because Coke really hasn’t done much in the 26 years since they did this transaction. But I think that that’s because f, that criticism is, is a little bit unfair when you understand what happened with the, with the Gen Re transaction. And this was Christopher Bloomstran sort of alerted me to this. But in essence, what he did by using scrip, by using stock, he was able to dilute down the Berkshire holders their big holding in Coke, and he got probably a pretty good deal. He certainly paid less for Gen Re than he was giving up in, in the stock that he was to the Gen Re shareholders. So the transaction works like this. In a scrip for scrip transaction, Berkshire acquires Gen Re. The shareholders of Gen Re become shareholders in [00:08:00] Berkshire, and the combined entity ends up with a share of, the, the Berkshire shareholders remain, the Gen Re shareholders become Berkshire shareholders, diluted down a little bit. So the Gen Re shareholders certainly got the worse end of that deal. Berkshire ended up with the better end of that deal. But the essence of the transaction was that he diluted down the stock holding in Coke, he was then able to bring down the overall valuation of Berkshire Hathaway. And Gen Re had a, the synergies were real in the sense that Gen Re, most of its exposure was international or, and it was looking, and it was a little bit constrained by kind of quarterly earnings, so it fit well with, with Berkshire’s insurance book. So that gave him all of this, and their book was mostly bonds. So people who’ve followed Buffett will know that they tend to run with uh, insurance, uh, policies written to equity [00:09:00] holding or, or to, to underlying securities, those policies that they’ve written because they tend to run with equity, which can, which is more volatile but can perform a little better. Whereas Gen Re was running sort of more, in a more traditional sense. They were using bonds to back their policies, and the bonds don’t perform as well over the long run. But they do have this nice feature that when the market goes down, not always, this is, this is not, this is like a little bit of a, a received wisdom in the markets that bonds tend to rally when equity markets collapse, and that’s not true. If you go back far enough, you can see that they, sometimes they go to, sometimes they move together, sometimes they move differently. You can’t rely on it. It’s only in certain circumstances, and this was one of those because the equity market was so overvalued. Bonds were yielding pretty good, pretty well at that point. So the two thousand collapse actually happened, the bonds all rallied, which he was able to then sell down, and he was then able [00:10:00] to invest that long in really cheap equities at the beginning of t- the two thousand. That set them up for the sort of next decade plus, uh, for Berkshire to really outperform. So I thought it was a transformative deal. It was a little bit misunderstood at the time, and a good illustration of being more defensively minded and the power of being defensively minded and thinking about what happens next after the crash. Can you survive the crash? What happens after the crash? And I thought that was a pretty good illustration of one of the things at Sun Tzu, which is that you defend first, and then you think about, you secure yourself, and then you think about doing all the other things you’re gonna do. Tony Kynaston: Yeah. I mean I think from, from um your analysis what I took out of it was it was a, it was a masterstroke of strategy by Warren doing what he did for, for any number of reasons. I mean he realized the market was overvalued in the late nineties. He realized he had a large equity portfolio. He realized Berkshire Hathaway was trading on a to book [00:11:00] ratio which was way above what it normally did, so you know, quite rationally he could have said I’m gonna sell, I’m going to sell my equity portfolio, I’m going to diversify or whatever. But he had always said if I sell I pay taxes and that’s a friction on my earnings. So he didn’t want to do that. What else could he do? Well he could take that overvalued Berkshire scrip and he could use it to acquire Gen Re, even though he’s always said I don’t want to issue more scrip. Um, I don’t want to pay for things with scrip, I want to pay for them with cash. But he did, he broke that rule to I think a better outcome, which was he then diversified into bonds, that was the other interesting thing, is he’s you know always preached that um diversification is diversification but in that case he did diversify away from bonds. And then of course he um. And and Gen Re I think from memory was constrained, it could only invest in triple A securities or something like that to back up its insurance policy, so it it [00:12:00] had to own bonds. Uh so he got a lower price for Gen Re with the scrip bid than he would have otherwise gotten perhaps. And then of course he inherited the the um portfolio that Gen Re had and spent a lot of time unwinding those and coined the expression that derivatives are weapons of mass financial destruction, which was another interesting insight into it. So yeah. But but you raised a point there which I think brings us Toby: think Tony Kynaston: ahead. Toby: I was just gonna say, I think that he tipped his hand a little bit with that when he said that he discovered the, the. He gave the reasons for why he had done it, that it was this sort of defensive move, and then he, after the fact, discovered the, uh, the weapons of mass financial destruction. And he instructed them to unwind them really quickly, and I think they ended, it ended up costing them $400 million, and it sort of Tony Kynaston: Mmhmm. Toby: the them that even in a be, even in a benign market, two parties to the same transaction could both be carrying it in their books at a profit, which is, like, impossible because one [00:13:00] party has. is down and one party is up. And so unwinding it was quite difficult. He said it cost them $400 million, and he started warning about that. But that was well before all of those problems manifest for the other insurers in the great financial crisis, global financial crisis. Tony Kynaston: Exactly. And and that’s again I think a, an example of what you’re saying um about the defensive nature of the Sun Tzu strategy. It’s uh, it’s you know, to, to finish first, first you have to finish, type approach to it. And I think there was a a book written a couple of years ago which summed it up well which said that the art of winning is not losing. I think that was the title of it. It talked about you know if you’re a good tennis player you keep the ball in play. You don’t try and go for Toby: Right. Tony Kynaston: on every sort of stroke. So similar sort of approach. But um and I think that was summed up in your book by the term via negativa, or negativa, not sure how you pronounce that, but via negativa, which which uh Charlie talks about. So could you maybe [00:14:00] outline that and how it fits into these um acquisitions please. Toby: Via negativa is an idea that, it means by way of the negative. And y-y, the idea is that you, you go f, might not know what the right thing to do is, but you might have a pretty good idea what the wrong thing to do is. So you eliminate all of the things that are the wrong thing to do, and that might leave you with the solution to the problem. And that’s very much. it’s a Charlie Munger idea. And he, he says, “Invert, always invert,” which he gets from Carl Jacobi. But the idea is that just do exactly that. You don’t, you have a list of things that you don’t do, and so you could think of this as a checklist. Lots of investors do it this way. I, I like to do it this way. I like to exclude lots of things initially. takes a, takes the mental load down a little bit. You don’t waste time with things that you’re just never gonna do. And so that might be, for m- for me, it’s avoiding statistical earnings manipulation, statistical fraud, all these [00:15:00] sort of little things that have. it makes it very hard for you to fi, to, to be assured of the intrinsic value. So you just take away the donuts, take away the zeros, and invest in what remains and, that’s the, that’s the sort of simple application of it. Tony Kynaston: Yeah Um I think uh in your book you quote Charlie who says We try not to be stupid rather than try to be very intelligent I think was a good summation of it as well Yeah And um I remember hearing an interview with uh with Charlie um not long before he passed uh where he talked about came to him with an example of an investment he would always ask for the case where it didn’t work where it failed Under what circumstance does it fail And he’d start there and then work back into whether it was a good investment or not So the the their mindset is really around how do we avoid ruin um in what we do And you know that leads you to not taking on too much debt for example um you know and diversifying when you need to all that [00:16:00] kind of thing So that I thought that was very a very interesting mindset You also talk about another concept called Wu Wei Um can you tell me about that and how it applies Toby: Yeah, I think– let me, let me, let me talk about the next transaction Tony Kynaston: Mmhmm Toby: uh, Wu Wei into it. So the, the next one was the Burlington Northern Santa Fe, um, that happened in 2009. I remember it being announced. I remember people being absolutely perplexed because Buffett had been this advocate for capital light compounders that grow and throw off cash flow they grow. And here he is buying a railway, which is the exact opposite of that. It’s capital intensive, sucks up an enormous amount of capital. And for 100 years before he had done that deal, had just been where capital goes to die. the, the f- the very first, uh, security analysis is almost entirely about analyzing railway bonds because there [00:17:00] had been this mania for railways at one point where they were the tech stocks of the day that attracted a lot of capital. They’d overbuilt uh, there was no there there at the end of all of that. And so the next 20 or so years after that were people buying the bonds of bankrupt railways and getting control of the equity, through that method. And so, uh. And then they really hadn’t done much for most of the period after that they’re so capital intensive. And so when Buffett bought it, it was, uh, it was truly bizarre, uh, that he had, had bought this thing. But pretty quickly after that, in the few years after he had bought it, um, the, the price that he had paid up front was shown to be much, much lower than he actually had paid because it had a whole lot of excess capital on its balance sheet that he was able to pull out. And pretty quickly it was returning very substantial dividends. And [00:18:00] he li– I think he liked the fact, ’cause this was, this was during 2009, uh, interest rates were very low. Forward returns looked like they were very low too, and this was a way for them to get a regulated 10% the CapEx that they would require, which was very substantial. So it sort of committed them to these enormous capital expenditures inside Burlington Northern that gave them a regulated return on it, which was pretty substantial. And in addition to that, no one’s building new railways, no one’s overbuilding what they have. then I thought that there was this geographic distribution that the US was sort of shifting from primarily a relationship through the East Coast with Europe to relationship with Asia via the West Coast, and that was where Burlington Northern had, had its footprint. And so it gave them this, totally different, geographical distribution. Plus it had these pretty impressive tax, uh, tax [00:19:00] qualities that meant that they could write off a lot more tax than they would otherwise write off. So on a, a cash in, cash out basis and on a return on investment basis, it was, it was a, it was a great deal for Berkshire, even though initially it didn’t seem that way or optically it didn’t seem that way. So I use it as, it– I use it as primarily this, this idea of coup d’œil, which is, they say that the great generals have the coup d’œil, and Napoleon had the coup d’œil that you show up to. it means a stroke of the eye. And so w- uh, old Napoleon, he famously would show up at battlegrounds where one of his generals was doing something, and he would see something that the general hadn’t seen, and it might be the, uh, the enemy was all pushed up against the, lake with water behind them, and so couldn’t move, and they were all, uh, they were, they were, they were stopped. They weren’t doing anything. They were in a truce or something like that. And he would sort of immediately say, “You need to attack them right now,” because he had understood that they had this advantage that would– that could slip [00:20:00] away pretty quickly if they were allowed to get away. Buffett’s the same. He’s– He understands the tax, he understands the regulatory environment, understands the geographic location, and he understands that he can get this regulated return on this investment. And even though railways have been a terrible investment for so long, he sees all of these things, so he can just ignore the fact that railways have been a bad investment, and he can see that he can get this quite substantial return if they move quickly and, and buy Burlington Northern, which they end up doing. And since then, it’s been a, been a stunning success, and I track the sort of payments out of it in the book, which, um, have been extraordinary. Like, it seems to be the Buffett idea is that you make the investment and then the capital comes back. So even though it’s capital intensive, it’s had this great ROI for, Tony Kynaston: You fo you focused on the Toby: I, Tony Kynaston: okay we’ll come back to it But before you do um you focused on uh the tax It’s almost like a carry trade I guess um that [00:21:00] Burlington had for Buffett that he picked up on can you just explain that Cause I I found it a bit hard to follow in the book I don’t know if it’s a it’s a um a unique to US accounting standards but I can’t think of an example of it in Australia that uh matches it Toby: Yeah, sometimes in the States they have these, um, they allow you to write down 100% of an investment in the year that you make the investment. And so your tax in that year is reduced by the size of your investment. So an example for, uh, individuals in the States is if you buy a working– you buy a car that weighs more than 6,000 pounds, which is deemed to be like a truck or kind of working truck, you can depreciate 100% of it in the year that you buy it. it happens that like there’s a lot of luxury kind of SUVs that qualify because they’re very heavy, and so you can buy yourself a luxury SUV and write 100% of it off in the year that you buy it, and it comes off your tax. Just accelerated [00:22:00] depreciation Tony Kynaston: Right And how did that accelerated depreciation benefit Berkshire in this case Toby: Well, they’re, they’re able to write down. It– You, you’re able to make an investment and write down more of it initially the first year or so of, of making the investment, which just gives you more tax cover. So your, your earnings are reduced to the extent that you write down capital gains tax in a, in a, in any given year Tony Kynaston: the the I mean the hypothetically they could invest in Burlington and pay no tax It’s all going back to Burlington really Toby: I-internally in Burlington, they can, they can do that. I, I don’t think it would get. I don’t think they would ever get to the point where they were paying no tax, but you can reduce– You can make of dollars of investment in railway bridges and, and so on, and write them down. I forget the exact detail of, of it because I, uh, I wrote the book a little while ago now, but that the– You can, you can accelerate the depreciation, which is not uncommon for certain in certain industries, you’re allowed to accelerate your depre– [00:23:00] So oil and gas has a similar kind of idea. Tony Kynaston: Yep Toby: think that they’ve introduced something for some of the hyperscalers as well, where we’re able to write down what you have. And so you make a billion dollars of investment this year that has a useful life that might be five, 10, 15, 20 years, but you write it all down this year, and so it gives you some tax cover to the extent that you’ve written it down Tony Kynaston: Yeah right Because I I did wonder whether fact Berkshire may have underinvested in Burlington because they could they could hypothetically invest a lot get a tax benefit from it and I guess get a better offering for their customers and be more competitive have better margins longer term and and gain some kind of advantage which would allow them to scale the business quicker than if they couldn’t get that tax advantage Toby: I think that there’s some limit to how much scaling they can do because there’s not a lot of y- you know, it’s hard to build more railway, but you can certainly fix the bridges, Tony Kynaston: Yeah Toby: it’s, you know, [00:24:00] in pristine condition Tony Kynaston: Right But you you did use that example to talk about Wu Wei so I’ll come back to that maybe explain what that is and how it applies to the Burlington acquisition Toby: Wu Wei is this idea that, um, it’s– it– there’s lots of different interpretations of, of what it means. It’s kind of a nice term. I like the idea. I think it’s good for value investors who are naturally contrarians. Sometimes if you look at a business, the business, has these great tailwinds that, mean that it’s probably worth more than you would pay for something that h-has a headwind or has a permanent headwind. And so the idea is that, like, that you, you allow something to go on winning. Wu Wei is this sort of quality that means that it’s just going to. it’s, it’s effortless success or they, they sort of use it in a, in a, in a social setting. It’s like [00:25:00] sprezzatura or– which is this Italian word for, you know, just like ease of conversation, ease of dressing, like just, just being loose and, um, flexible in social situations or in an investment sense, it would be sort of being a little bit more flexible about the way that you consider an idea and looking at ways that it can, can win over time. I think it is a little– it’s a little bit woo, you know, the, the Wu Wei, I think is a little bit woo, and I’m, I’m not a particularly woo guy, but I’ll– I do like the idea of, um, just having that like mental flexibility in certain situations, just being a little bit looser. And I think that, I think that that w– is what allowed him to sort of break away from this idea that were where money goes to die, and that this was a situation where it sort of met all of his other criteria, did throw off cash. It was going to be this sort of not capital-like compounder, but it was– it sort of behaves that way [00:26:00] because they can invest, uh, with the capital gains tax, accelerated depreciation. They get all these sort of benefits out of it, plus the durability, plus the, uh, the distribution. All of these things together, sort of sum up to something that is a little bit more than the sum of its parts Tony Kynaston: I Cameron: Sorry, I just have to, the, I, I just have to jump in with the kung fu analogy of wu wei, Tony. It’s just too much to give up. Bruce Lee, big fan of wu wei. Anyone who’s ever read any of Bruce Lee’s stuff on kung fu, you pour water into a cup, it becomes the cup. That’s You pour water into a bottle, it becomes the bottle. You put it in a teapot, it becomes the teapot. Now, water can flow or it can crash. Be water, my friend. I do Wing Chun kung fu, uh, Tobias, and we talk about action through no action all the time, you know? Using your opponent’s energy against them, using their force against them. [00:27:00] You know, moving with the force. Don’t fight the force. Flow around the force. Yeah. Toby: Yeah. It’s, it’s, it’s a real, it’s a, it’s a central idea in martial arts, right? And I mean martial arts like Sun Tzu is, is, is the, the head of philosophy of martial arts, and then you find out it’s repeated, that idea of be like water, like that comes from Sun Tzu. He talks about, he talks about that repeatedly throughout the, throughout the text, and then you find it in other things like The Book of Five Rings, and you find it in Bruce Lee’s sayings, and it’s, it’s often taught, this idea that you use the energy of your opponent or use the energy of the thing, or to augment your own. Don’t fight it, sort of move with it Cameron: The famous line from Napoleon is, “Never interrupt your enemy when he’s making a mistake,” right? Toby: That’s a good one Cameron: Yeah. Tony Kynaston: Yeah I Cameron: Yeah, no, it’s a good one. It’s, Tony Kynaston: water Yep that’s that’s Cameron: be water Tony Kynaston: it It’s the water flowing around the rock idea not trying to move the [00:28:00] rock not trying to crush the rock around the rock It’s the way of Cameron: Yeah. Tony Kynaston: I Cameron: Yeah Tony Kynaston: good friend in Canada whose nickname is Wu cause he just goes with the flow and uh you know if you’re g generally calm yep always always smiling and happy doesn’t matter what’s going on with the flow Yeah Cameron: うん。うん。 Tony Kynaston: you’ve taken that out of the transactions be and I think that’s a legitimate take out from these transactions oftentimes with these controversial transactions with um Berkshire Hathaway it’s almost like Warren said one thing for decades and then he’s just turned on a dime and done something different cause it suits him Yeah He’s flexible Exactly Toby: flexibility, like that’s, that is, that is part of it. You have to be mentally flexible, and I think it’s, it– there’s lots of different interpretations of it, but mental flexibility and also like looking at the thing. Some of these businesses have that tail– just have that natural tailwind to them. Some managers have that natural tailwind, and I think if you can [00:29:00] recognize it uh, you know, not fight it too much. Like fighting it might be insisting on too low a price before you do it, going with it might be just you can afford to pay up, and I think he did that with Coke. Um, certainly sort of paid up for it a little bit. Northern just being mentally flexible, and I think it also applies with the, uh, the Japanese conglomerates that I’m sure we’re gonna talk about shortly. Tony Kynaston: are yeah Cameron: we do that, you. Tony Kynaston: sorry go ahead Cameron: Sorry, before we do that, can we talk about Apple? You start the book talking about Apple, which you call the greatest trade of all time, and obviously that’s been one that I think for a lot of, uh, Buffett followers, they scratched their head when he bought into Apple after saying for decades that he didn’t understand technology stocks. Why is it the greatest trade of all time, in your opinion? Toby: Well, I also say that it’s a little bit in the eye of the beholder. It’s like modern art. You sort of– It speaks to you or it doesn’t. And I think that. But I, I, I have, I have– I think I have pretty good, pretty good reasoning. The– [00:30:00] When I say this, people often say, “Well, what about the, uh, Naspers doing the Tencent deal?” Like, that’s the one that everybody comes back to because they put in twenty million and it’s tens of billions of dollars and it’s. They’ve had to split it out from Naspers and it’s like totally misshapen the South African stock market. And then I say, “Well, this was the greatest trade ever because Buffett was a known quantity at the time. Apple was the most famous company in the world. Might’ve been the biggest company in the world at the time. could’ve done the deal. Anybody could’ve put that trade on. a few people did, even though we ha- we had, funnily enough, we’ve written about it a few times in Quantitative Value and other, in other books since as– ’cause it was the, the, the cheapest thing in the, in the screen at the time. It sort of– It used to have this, it doesn’t do this so much anymore, but it used to have this, uh, cycle where every time they issued a new iPhone, it’d run up and do really well, and then in the intervening period, it’d sort of fall back. So [00:31:00] in 2013, it got cheap and then it had a good run. 2016, got cheap and then had a good run. And same thing was happening in sort of the 2019, 2020. But I think it’s moved away from that a little bit. It doesn’t have that behavior so much anymore. I say he put in an enormous amount of money, I think it was forty billion dollars or something, in pretty short order. If you think about the entities that can do transactions on that scale, there aren’t very many of them. But I’m sure that, you know, maybe, uh, who’s the Japanese guy, uh, who. He’s the Japanese gunslinger. He w- he had a, he did a great– had a great run in 2000 and almost blew up, like went back ninety-nine percent, and then he’s had a great one more recently. Name’s just escaping me. He runs SoftBank. Cameron: Oh yeah Toby: Uh, Masa Son Cameron: Oh, Masa Son. Yeah, right. Toby: What’s this? Cameron: it’s n- Toby: Anyway, Masa. Masa– There aren’t very– Like, maybe big private [00:32:00] equity firms could have done that. Masa could have done that. aren’t very many folks who could have dropped a forty billion, but, like, they– I’m sure that they would all have loved to have had this insight and put the forty billion to work. Because pretty quickly, he’s three X’d, five X’d on an enormous sum of money, and then he’s sold that down enormously, and it’s given him a big part of that three hundred and seventy billion dollar war chest that they have now for a rainy day, if we ever see another rainy day, uh, for his– for Greg Abel, G- for Greg Abel to run. And he sold it down very significantly. It’s still one of their biggest holdings, but it’s not nowhere near as big as it could have been if they just in it and hold it. So I thought for all those reasons, he was a known quantity. It was a very big investment. It paid off very, very quickly, and it was a break from what he had done in the past. It just, again, it demonstrated that mental flexibility and, and it worked really well. And I’ve just thought in, in terms of the sheer scale of the return on the size of the investment, that distinguished [00:33:00] it from the Naspers investment, which was a smaller investment, and perhaps they got lucky. Like, if you, if you had to think about all of the made around the world on every stock market, and you had to go to the South African one and a Chinese, you know, to find something that was, like, equivalent, then I think it sort of illustrates the point that Buffett’s was a great investment. Tony Kynaston: yeah no just uh I guess talking about investments and what we were talking about before about opportunistic investments the link I think to the Japanese investment is is the quote you mentioned uh from Buffett that he talks about not having a master strategy or a corporate planning department and that acquisitions can seem haphazard So why do you think that’s an advantage for a company like Berkshire Toby: You could, you could compare it to. So Masa sort of is a technology investment, investor. So Masa is sort of constrained a little bit. Masa couldn’t go out and do Burlington Northern. That would just– people would say he’s lost his mind. That’s not a technology. He couldn’t do [00:34:00] Gen Re. Masa might have been able to do the Japanese conglomerates, but I don’t think so. Masa’s sort of constrained to tech. There are lots of other investors out there who are. They’re well known in their niche. They’re not really allowed to step outside their niche. By sort of saying at the outset, “We, we got, we got no plan. We, we.” You know, so what, what I think about the conglomerates like Constellation Software, they, they are– they may now step outside their niche, but they’ve historically been vertical VMS, vertical market software. you think about some of the conglomerates like Ropers or Danaher or those kind of. They’re allowed to do transactions in their niche, but they’re not allowed to step outside that. Berkshire has always said, “We’ll do whatever comes along that makes sense if it’s cheap enough.” And so they’ve given themselves that cover, that flexibility to do whatever they want. There’s no master plan. They’re not trying to build out the energy department necessarily. If something comes along, they would do it, but there’s no urgent need to, to take, you know, the, the cleanest dirty [00:35:00] shirt in any given industry, which is something that a lot of investors who are. I have friends who are healthcare investors or they’re constrained to. And so they’re trying to find the best thing, but the industry– if the industry is overvalued, then, um, uh, that’s sort of, that’s sort of bad luck. You have to do, you have to do the best deal that you can. So I, I, I think that it just gave him that. That mental flexibility is a big part of it. And I think that Sun Tzu says something similar where he’s, “Don’t, try and force it.” Again, this is like that Wu Wei idea. You’re looking for. They’re often trying to find the, the soft point or the weak point. So you test a little bit, you look at what’s cheap, you look at what’s moving away, moving down, and then that might be the place where, uh, that, that is the most interesting. So I, I didn’t, I didn’t use that necessarily for the Japanese, the Sogo Shoshas, but Sogo Shoshas, but we can, we can talk about that one Tony Kynaston: I think um before I leave the quote on the corporate planning department the other side of that coin is [00:36:00] that they don’t have the expense of a corporate department planning their strategies They don’t have all these people running around who have to justify their existence by buying something that probably wouldn’t buy Cause these transactions the big ones we’ve been talking about they come along once a decade on average for Berkshire They’re not out in the market every day know trying to find something So I think that’s a big advantage for them as well and that brings us to the Japanese conglomerate which is kind of this decade’s big transaction And it also is again a head scratcher for Berkshire followers because Buffett’s always said I’m gonna back Team USA I’m gonna back the US economy And then suddenly he’s a major investor in Japan again is another bit of woowah I guess But um but it’s also an aboutface from what he’s always said Toby: I think he had done He’s done Iskar, which is, which is Israeli. I think he might have done it personally. He’d done some Korean. I think maybe that was his personal capital. I don’t know if he put Berkshire into it, but he, he had gone and got the Korean [00:37:00] version of whatever the, you know, the just the guide, and you go, go through A to Z, and he’d just gone through A to Z and found a few net nets and bought them for himself. I think, I think Buffett has about a billion dollars outside of Berkshire that he’s just run his own capital and run it up to that sort of scale. That’s, that’s what I have heard. That’s what I understand. But the– I really like the Japanese deal. Again, anybody could have put this– Tony Kynaston: Mmhmm Toby: could have put one part of this transaction on. But the thing that makes it so was the carry part of the, the transaction. So the Japanese have these trading conglomerates that were set up during the Meiji era. And because Japan is a small island and it’s resource-constrained, they got these conglomerates which were supposed to go out to the world and find natural resources and bring them back to Japan. And the way that they’ve developed over the years is that they have become vertically integrated. So they go and find the, the resource in the first instance, and [00:38:00] then they, process the resource, and then they build it into these higher order goods until they’re, they’re making technology at the other end, and they’re selling cars and, and so on. And so there are five of these, uh, trading houses that sort of do this thing, and they, they are dominant in Japan. If you go to Japan and you wanna do business in Japan, it’s highly likely that you’re, you’re doing business with these guys. And I was in Japan last year and I met with, with one of them. I, I think it might have been Marubeni. a private equity group that does, that does of every size from the smallest to the biggest, and they, they have the Marubeni kind of stamp on everything that they do. They have this process. Peop– It’s, it’s a common way for folks to leave leave university, start an apprenticeship, and sort of grow inside these organizations. So finds them trading very cheaply. They’re like single-digit PEs. all pretty good dividend payers. Uh, like might have been, [00:39:00] dividend yields of sort of seven to nine percent, which is, which is very fat. At the same time, they– you can borrow in Japanese yen at virtually nothing because the Japanese yen has been so crushed for so long, or the BOJ has intervened in that market for so long. So they– You can– You could– I think anybody could get, uh, debt for sort of like half a point, half a percent, to a few percent. And so if you put these transactions on, and that’s what, that’s what Berkshire did. Berkshire actually had some zero percent notes that they were able to issue. So they paid no interest at all on these notes, then they invested that into these five conglomerates. So they’re reasonably safe because there’s– each one is a conglomerate already. They’ve got very diversified income streams, highly likely to keep on earning the way that they had. Highly diversified income streams globally across industries. Like they’ve, they, they l- they’re big mach- they’re big sort of enterprises that are [00:40:00] very stable and, and throw off cash pretty, pretty well. so he’s getting carried in these positions where the dividends coming back in the order of six or seven hundred million dollars a year, and their cost to finance this was, was virtually nothing. So he was immediately carried on this position. So it’s another sort of Buffett deal where the cash goes in and it’s almost immediately cash flow positive back to Berkshire. And so I just thought it was a, a great transaction that, as you say, had sort of been– was a little perplexing to folks because they expected him to be primarily a US investor, and he had said that he understood the US, he understood the regulatory en- environment, understood the, the cultural environment, and here he was making a big departure. And so I thought it was another like i- illustration of how mentally flexible he was. Tony Kynaston: Yeah it’s interesting I mean it’s another example of what what I think is one of the secret sources of Berkshire Hathaway It’s it’s being able to find sources of funding without doing a capital raise or without taking [00:41:00] on debt as you say the carry trade has from a you know again from hindsight was a nobrainer in the way of getting money back into Berkshire for the investment But um you know I guess other people have done it but no one on the scale that he has So he’s always good at finding these other ways of getting capital that he can then redeploy Toby: I also used it as an illustration of, um, there’s this idea in Sun Tzu that, um, you, you do the right thing, you get a reputation for doing the right thing, you do it for the right reasons. And then when you go to invest in these Japanese companies and he bought up to sort of the limit that he was allowed to take as an outside shareholder. then he goes to meet with them and his reputation is sterling, and so they, they welcome him with open arms because they know that he deals fairly. know the terms on which he deals, and so they increase their shareholding limits to allow him to buy more. then that turns into other synergies where there, there’s going to be ways for Berkshire to work with them sort of behind the scenes rather than [00:42:00] just being an equity shareholder Tony Kynaston: Question Cameron: And he did these deals, if I. Sorry, if I remember correctly, he started doing these deals during COVID, right? When the share prices had bottomed out, interest rates were next to nothing. He was able to just, you know, swoop in, borrow a lot of money at, like, 0.5 or 1% interest rates and Yeah just swoop in. Like, it was perfect timing Toby: Again, I think that lots of people around the world could have done these deals, and it’s just– it was still sort of shocking when he did it on the scale that he had done it, just sort of showed what a great investor he was, what a sort of whole worldview he has Cameron: And, you know, for years before that everyone had quoted Warren as, you know, you know, “You make money when there’s blood in the streets,” or whatever it is he had said. And he was literally doing it during COVID, literally what he’d been preaching for decades. And again, but, [00:43:00] uh, only Warren, not only Warren, but he’s one of the few people who’s prepared to go and buy, uh, during periods like that. When everyone else is running for the hills, he’s swooping in and doing deals Toby: Yeah. I think to be fair, he did initially, uh, balk a little bit and sold out of all of the airlines, which they, they had that little basket of airlines, and they probably got the lo- hit the low on punching out of those. But I, I don’t know. I think maybe they were concerned that there was, that, that it was gonna be something more perhaps than it was. That, know, if it’s like a, it’s like a 1916 Spanish flu, then that’s not good for the equity markets. But as it turns out, it wasn’t that bad, and so they were prepared for that kind of outcome, particularly because they’re insurers. They might have been, uh, they might have needed some capital there. But, uh, pretty quickly after that, I think that they announced the Japanese deals and that they were, you know, amazing deals as they always are Cameron: Hmm. Tony Kynaston: I remember reading about these Japanese conglomerates I’m gonna show my age here after the 1987 [00:44:00] uh bubble burst in the stock market and there was uh a couple of writeups I read about how I think there was a similar sort of structure in some German companies but certainly the Japanese ones were conglomerates But they’re different to conglomerates as you and I know them They also had a lot of crossholdings and so when the market crash happened they supported each other and there was no large selldown in their stocks and they rode out the market troughs pretty easily and they survived So that’s that was an interesting I think take on those two But question for you is um in the last sort of five years the Japanese stock market’s kind of waking up to more Western ideas of being more shareholderfriendly unwinding crossshareholdings Did Buffett know that was coming or did he or did he help agitate for change or was it just simply happening anyway Toby: Yeah, I think that they had been, uh, you know, they– s- the Japanese stock market topped out in 1992 or something like that, and it’s fallen pretty consistently since then and might [00:45:00] have been close to the all-time lows in the late early 2020s. And I think that they had realized that they needed to do something to attract international capital again. So uh, Shinzo Abe had begun these reforms and the Tokyo Stock Exchange was sort of actively trying to find some way to cause them to become more shareholder-friendly. We met with the Tokyo Stock Exchange when we were there about this time last year, a little bit earlier than this last year. And, you know, they have lots of, uh, they have lots of reforms that they’re trying to implement, including this one that most folks know about, which is that you have to get your price to book. You know, you have to get your price to book over one. Otherwise, they publish this list of Tony Kynaston: Yes Toby: at a discount to book. Tony Kynaston: That’s right Toby: sort of trying to get them to get rid of the, the cross-shareholdings because, [00:46:00] uh, it sort of prevents them from being taken over. It insulates the, the management team from sort of external forces. When we went there, uh, when I first got there and we sort of met with some of the private equity firms and the activists and including Murabeni, like they were telling us the ratios that they were paying for these companies, and I was ready to write it all down here and move to Japan and start doing this ’cause it was like, I thought it was like the US in the 1980s and it was gonna be. And I think that to some extent that has happened. But we pretty quickly cooled down when we actually met with some of these companies. When you talk to them, you sort of understand how difficult it is culturally to shift them because their rationale for the cross-shareholdings and also they all have, you know, they might. Uh, these numbers are wrong, but you know, they have huge cash holdings that are just disproportionate to the size of the market capitalization. And so once you back out the cash, you’re paying virtually nothing and then they’re, they’re pretty well earning. [00:47:00] But they have this view that they won’t be good partners to their, or to their customers rather, and their suppliers, if they don’t have that big cash buffer, that they could go out of business ’cause they could have a bad year or decade or something like that, and that might send them out of business. And so they were very unwilling to consider paying that cash out to shareholders. And in their sort of, you know, like a Porter’s five forces or if you think about the stakeholders in a Japanese firm, like it’s customers and suppliers and employees, regulator and shareholder, and shareholder was right at the bottom and last, and they had their obligations to all the other ones superseded those. So it was gonna be a very difficult lift, a real difficult process to get them to shift. I think that you look at the, you know, the thing that they had had, they had no inflation for so [00:48:00] long that it was really difficult to put up prices and it was considered, you know, it was like, uh, it was socially unacceptable to put up prices. So over the, the last, even the last 12 months, maybe slightly longer than that, the, um, inflation has now started to pick up in Japan pretty significantly, and it’s meant that they’ve seen this quite significant rise in the yields on, uh, Japanese bonds, Japanese government debt. Inflation is sort of there. The yields are coming up. That means that, uh, the, the fire may have been lit and they may have to start raising prices and, and moving and doing things. So Japan, uh, probably that, that difficulty in shifting it means that it’s going to take a decade or two decades to sort of resolve the issue, but they’re probably moving in that direction now. And it’s one of the great world’s great economies. They’ve got incredible, um, technology. So I think it’s, it’s probably gonna be a good place to invest for, [00:49:00] for the next few decades. Having said that, you know, folks had the same view about a decade ago, and a lot of people went and bought Japanese net nets, and so I think they worked out okay, but they didn’t sort of work out anywhere to the extent that people thought they were going to. But, you know, this time’s different. Tony Kynaston: Yeah. Um, interesting, interesting change in Japan. I think, don’t they have a concept now with a VIP club for shares trading above book value, where you get access to a special rate on debt and things like that, you get benefits from doing the right thing? Toby: Yeah, they were trying to shame for not going through with these things. And, uh, and we would say, you know, because they, they gave them like a two-year grace period to get themselves sorted out, and we would say, “What happens if, you know, they don’t do that?” And they’d say, “Oh, they’ll be shamed.” I’m like, “Oh, well then, and then what?” Tony Kynaston: Mmhmm Cameron: Have to commit harakiri. Toby: There’s, that’s it. There’s no enforcement mechanism. It’s just Cameron: I apologize to my ancestors. We talked about that about a year ago, [00:50:00] Tony, on the US show when we talked about Orix Corporation. I remember us talking about all these deals. By the way, Orix is up about 90% since we talked about it in June last year, so it’s been all right. Yeah. Tony Kynaston: Tobias Cameron: did well Tony Kynaston: um I’m gonna wrap up my discussion around the book. It’s a wonderful book and I recommend it to anyone who likes reading about Buffett like I do. But I had some questions about just generally investing in the US because in the last year Cam and I have been doing a value investing US show and there’s a couple of concepts which we’ve puzzled over and you might be able to help us out. Um, the first one is ADR. So a lot of the value we’re seeing in the US market comes from overseas companies who have a listing in the US. Is there a reason why as a class they might trade below what say a local competitor might trade at in the US? Toby: Yeah, it’s not, again, it’s cultural. It’s not no [00:51:00] tax reason that it would do that. And there’s, I can give you a, a funny story about the ADRs. So Americans can invest in the ADRs of these Korean chip makers. Um, but they have sort of resisted doing it because they’re ADRs. And so there’s an ETF run by some friends of mine, Roundhill, called DRAM, D-R-A-M. It’s the fastest-growing ETF launch in history. They’ve raised something like. Last time I checked, it was thirteen point eight billion dollars, and that was a few ago, so the number could easily be over that now because every time I check, it’s so much higher. The underlying stocks have done really well too because they’re really AI Tony Kynaston: Mmhmm Toby: kind of names. But the big innovation that that ETF had, were investing through the Korean ETF because it gave them access to these two chip makers. And DRAM just showed up and said, “We’ll give you a.” [00:52:00] You know, DRAM is the memory. “We’ll give you access to these two Korean names, pretty concentrated, and some other chip makers.” And the, the, money has flooded in because you can now invest through an ETF into these Korean names when they, previously, you could have done that through an ADR, but the aversion to ADRs seems to be so great that they wanted to do it through a dedicated ETF and now it’s been a great success for those guys. Tony Kynaston: Yeah. I find that strange. Is it, is it a bit of Peter Lynch that people wanna be able to walk up the street and see what they’re buying? Or is there like an extra commission in there cause it’s an ADR? You know it just seems really strange to me. Toby: I don’t think so. It might be a foreign exchange, it’s possible that it’s hard to invest through some brokerage accounts. If you have an Interactive Brokers account, I think it’s pretty easy. I think most brokerage accounts allow you to do it Tony Kynaston: Yeah Toby: simply. It might be that. I, I just think it’s a, I just think it’s an aversion to, to doing anything. It, they look, it just looks a little bit weird in your brokerage account, and [00:53:00] I think that that’s been the main reason they haven’t done it. Tony Kynaston: Well maybe Berkshire Hathaway will scoop them all up because they tend to try to discount to similar listings in the US. Yeah. Yeah. And the other question I’ve got for you is that um, you know we focus on operating cash flow when we’re looking at investments. Um, operating cash flow is my preferred metric rather than price to earnings because of the ability to manipulate earnings. But um, we are coming across companies that seem to be putting investing cash flows in the operating cash flows. We had a property development company we looked at and when they flipped a transaction the income went through the operating cash flow statement. Have you noticed any difference between US accounting standards and Australian ones that would cause that? Or know any other reason you can think of why it would happen? Toby: Well, I, I grew up in the IFRS system, and I did accounting at, at [00:54:00] university and, and learned IFRS when I did that. I think it was just being implemented at that time. Uh, IFRS has a, has a local implementation all around the world. So Canadian IFRS is slightly different to Tony Kynaston: Mmhmm Toby: but pretty, pretty similar. When I moved to the States, I had to get my head around that, and I, there are some subtle differences between the two, but they’re really not that significant. They’re, they’re pretty similar. What you’re talking about might be a specific thing to REITs, like a, but I don’t know why a sale of a building, is that what it was? Tony Kynaston: No. So this company in particular and we’ve seen other examples but this guy was a property developer. They go and buy, they go and have a land bank and then they develop it. They put a syndicate together um and use the last land bank sale to fund the next one. But that sale was going through operating cash flow rather than being an investment cash flow entry. Toby: Maybe that’s their business and so they have to do it that way. I don’t know. Off the top of my head, I don’t know. I don’t invest in REITs, so I don’t see, [00:55:00] don’t really have to think about that problem. Tony Kynaston: Yeah. Okay. All right, I think that’s my list. Cameron: Yeah, the suit Tony Kynaston: questions Cameron: Oh, not, well, not a question as such. Just a couple of quotes from the book that we’ve sort of touched on. We, you were talking before about, um, not doing anything stupid. It was in chapter five, you mentioned that Buffett’s fundamental goal is survival, and this really resonated with me. Um, a couple of quotes that you got that I just thought were worth reading out. “Buffett explained his view on the risk of ruin in these terms. ‘Even in 1965, perhaps we could have judged there to be a 99% probability that the higher leverage would lead to nothing but good. Correspondingly, we might have seen only a 1% chance that some shock factor, external or internal, would cause a conventional debt ratio to produce a result falling somewhere between temporary anguish and default. We wouldn’t have liked those 99 to one odds and never will. [00:56:00] A small chance of distress or disgrace cannot, in our view, be offset by a large chance of extreme returns.'” Then later on in the chapter you say, it’s got a quote for him, I think at a University of Florida School of Business in the late ’90s. “If you risk something that is important to you for something that is unimportant to you, it just does not make any sense. I don’t care whether the odds are 100 to one that you succeed or 1,000 to one that you succeed. If you hand me a gun with a million chambers in it, and there’s one bullet in the chamber, and you said, ‘Put it up to your temple. How much do you want to be paid to pull it once?’ I’m not gonna pull it. You can name any sum you want, but it doesn’t do anything for me on the upside, and I think the downside is fairly clear. I’m not interested in that kind of game.” And, you know, I think about that a lot, uh, whether it’s, you know, uh, uh, Bitcoin, people saying, “Yeah, buy Bitcoin,” or it’s Mag Seven stocks and all this [00:57:00] kind of stuff. And it’s just this, this idea that I’ve learned from Tony over the last six or seven years we’ve been doing this show. It’s about just the philosophy of investing, risk versus reward, not getting sucked into doing stupid shit. Um, you know, following a thesis that is rational and logical and is relatively risk averse, and just following it day in, day out, ignoring the hype, ignoring the noise. And with that, uh, can you get me into the SpaceX IPO? Because, uh, I’m super excited about Elon getting us all to Mars. Toby: Yeah. I, I, I think that’s, that’s, it’s a real shift that you have to make in your mind, and not, maybe not everybody’s built that way. Not everybody. I, I sort of think the more experience you get, the more you, the more times you get burned with something that doesn’t work, the less willing you are to do it. And [00:58:00] so you get used to, like, looking at the downside first and seeing why, of these. You can have a look at the, the US stock market right now. Like, just ignoring even the SpaceX IPO, the, the Goldman Sachs tracks this index called Profitless Tech, which is exactly what it sounds like. In ’21 it ran up to these all-time highs, and then they all collapsed, as you’d imagine, through ’22, ’23, ’24. But they’ve all run back up again to all-time highs. They’re almost where they were in 2021, probably get there before the whole thing’s said and done. I don’t really wanna play that game. I, I think that you could pick out some of these names, and they will probably be pretty good returners over the long term, but I don’t know which ones they are, and I think that there’s plenty of chances that there’s a lot of landmines in there. And I, I think that the more you do it, the more you get burned by the downside. When I started, I [00:59:00] started investing in 2000, walked into that recession, depression. Fortunately, value did really well through there, so I got entirely the wrong message about how you just be a value investor and never worry about drawdowns in your life. 2007, eight, nine came along, value got smoked along with everything else then. Um, so that taught me a lesson that even value gets smoked in most drawdowns. So I, I just, I don’t wanna, don’t wanna do things that don’t work, so I try to avoid stocks that have shitty business models, too much debt, crazy people running them. Unproven business models, there’s a lot of that around now. You look through the Russell 2000, the top names in the Russell 2000, they’re all things that they’ve got no revenue. They’ve got, they’re science experiments. They’ve got an idea to do something. They will perform really well ’cause the idea is really compelling. It’s a great idea. Like, one of these guys is gonna build nuclear reactors in the States. Great idea. I think the, the US needs nuclear reactors, but they don’t have one yet, and it’s hard to build a nuclear reactor, so probably [01:00:00] let that one go through to the keeper. Tony Kynaston: What’s your Cameron: we, Tony Kynaston: at the Cameron: yeah, that was gonna be my question. Yeah. Tony Kynaston: like it’s AI, the market, and then Main Street is tanking. Uh, does that worry you at all? What’s your feeling and prognostication for that situation? Toby: Yeah. So, so does it worry me? I mean, it’s irritating in the short term. I don’t like underperforming, and I’ve been doing that a lot recently. So I’ve been doing that a lot since I launched the funds, but I’ve been doing it particularly recently. But I think that the forward returns for small value are exceptionally good right now. There’s this K-shaped market you– that everybody talks about, and I posted this chart today on Twitter, where it shows that basically every industry except for tech thinks that it’s going through a pretty substantial drawdown. Like everything’s down thirty or forty percent except for tech, which is, which is off to the races and sort of covering over, uh, the gaps in the market. For everybody [01:01:00] else, it’s a, it’s a, it’s a pretty significant, um, bear market. That situation just doesn’t persist for long. It’s, it’s either tech catching down or everything else catching back up again. I think that the forward returns in the. I, I– The way I think about forward returns is just the, the amount of money that they’re sort of making collectively, what they’re– the rate that they’re reinvesting at, what the returns are likely from those reinvestments, then you add that to what flows out. So there’s no multiple required for pretty good forward returns here. That’s the way I like to, to, to think about it. So when you get those situations, that means get some multiple re-rating alongside that. But even if you don’t count on it, you’re just looking at the, the– without multiple re-rating, I think the returns are really good. I think that that’s not true for the index because it’s– a lot of these names occupy a big part of the index, and they are priced for perfection. They’re not throwing off a lot of free cash flow because there’s so much reinvestment going into the AI [01:02:00] CapEx. It’s a strange market, and really, when the money runs towards those, the big end of town, it does get sucked out of all the small and micro. And there’s some great businesses in there that are just gonna ch-chug away for years and years and years. But they’re not exciting, and there’s no sort of overwhelming narrative that you can say to somebody, “Hey, I’ve got this– I’ve got these great little businesses.” But it’s not– Like I can’t say it’s AI, which is much sexier. There’s no way to sort of pitch it to anybody. You just say, “Well, it’s small cap value.” Like, “How much do you want?” ‘Cause it’s, it’s there. You can fill your boots. Cameron: Hmm. The, the stock that we did, uh, this week on our US show was, uh, an Alaskan bank, Northrim Bank Corp, NRIM. It’s just, you know, it’s relatively small, 500 million market cap. It’s been around for 35 years. It’s throwing off cash. The price to operating cash flow is 3.6 and we’re [01:03:00] like, you know, no AI within sight. It’s just, you know, cheap as chips, throwing off money. Market doesn’t give a shit. You know, it’s, uh, there for the taking. It’s crazy. When you say you underperform, remind me what you benchmark yourself against? Toby: I mean, I would look at the– I would look at everything. I’m looking at the index, the SPY, but, I really bank– With ZIG, which is my mid-cap, large-cap, I benchmark against the– it’s, it’s more like SP600, SP400, which are mid and small indexes. Cameron: Right Toby: And for deep, uh, it’s Russell, Russell 2000 are the real indexes. Those are the universes that it’s being drawn from. So those are probably the right indexes. Yeah, it’s a, it’s a funny market. There’s a, there’s a lot of very good quality, um, businesses that just don’t have any sex appeal whatsoever. And so, you know, forward returns are like CAGRs as far as the eye can see, but 15% in a market that [01:04:00] like you, you can get a double pretty easy. Like no, no one, no one, no one’s a buyer at that level. Cameron: We are. Tony Kynaston: Yeah it’s Toby: Me too. Tony Kynaston: Like it’s. There are, there are different definitions of value I know but we’ve been outperforming the market with the, we call it the dummy portfolio that we put together of the stocks we talk about and, and know, um, into a into a spreadsheet portfolio. So it’s interesting that um, uh, there’s different versions of value and some outperform and some don’t. And I know Cam trolls the Reddit uh subreddits on um investing and people complain about, you know, that’s not working but it’s been working for us so it’s just surprising. Cameron: Hmm. Tony Kynaston: But speaking of different versions of value, you, I, I came across your writings when you put out the Acquirer’s Multiple many years ago. How is that going now? Do you still track that and have a portfolio uh that uh invests like that? Toby: Yeah. So the– I, I don’t do it. The, the way that I actually invest is [01:05:00] not Acquirer’s Multiple. I do different– They do differ from the website, the Acquirer’s Multiple. Um, it has been– I think that’s a great intro to sort of statistical value, and if you buy a basket of those names, I think that over time they do pretty well, and you, you’re gonna be holding your nose when you do it. They’re all heavy industry miners, energy, those kind of names that have their day in the sun. I prefer a little bit more quality in the business. I do think that. So for example, you could look at Cliff Asness’s paper called “Quality Minus Junk,” and that came out in about two thousand and sixteen. And his definition of quality is threefold, but basically it’s the extent of profitability, the safety of the balance sheet, and then some other factors that might not appeal to value guys, but they’re– he looks at the beta of the stock and so on, which, you know, you can probably ignore those, ignore those things. But [01:06:00] the idea is that looking for a risk-adjusted return. You’re looking for. A- and, and the quality– I should say that the quality is like, is like a factor that performed very well, um, ignoring the value of the, of the quality portfolio. But you do better if you handicap it, and so you– when quality gets really cheap or when there’s individual names in a portfolio, you can buy them for a value price. I think that that sort of overlap the– might not be the best returning strategy, but I think it’s the safest, and it’s the one that appeals to me intellectually that. And quality is not growth, although that is a component of it. There’s a small component of growth in there. Quality is its own sort of thing. Um, and so I like quality and value. I like that intersection. It’s sort of where I try to play. Tony Kynaston: That’s what we call our portfolio or our service, Quality At Value, exactly how I look at it too. Toby: We Tony Kynaston: Yep. Well, thank you. Cameron: All right. [01:07:00] Better let you go, Tobias. Tony Kynaston: Always good to Cameron: Thanks, again for coming on and chatting and sharing your wisdom with us. So the book, it give the book another plug, Soldier of Fortune, Tobias Carlisle. Oh, there you go. Tony’s got his holding up too. Toby: sale version. Cameron: Uh, mine’s a Kindle version. It’s harder to hold up. Uh, thanks, mate. Happy hunting out there. Stay well. Toby: Likewise. Thanks, gents. I for having me. Thanks, Cameron. Thanks, Tony Kynaston: Bye Toby: you next Tony Kynaston: Yeah Cameron: Seba Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jun 10, 2026

1h 09m
47

Anchored Down in Anchorage: NRIM – QAV America #55

This week we dig into why our US portfolios have taken a hit over the past month, with oil and shipping stocks giving back their war-premium gains as Middle East ceasefire hopes bleed the disruption out of the market. We also take a hard look at the US economy, the AI bubble eating 45% of the S&P’s market cap, and the arrival of Kevin Warsh at the Fed. Then Cameron does a Pulled Pork on Northrim BanCorp (NRIM), a quietly profitable community bank that is basically the financial backbone of Alaska, with a surprisingly juicy factoring business tucked inside it.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV AMERICA 55 CLUB VIDEO [00:00:00] Cameron: Well, welcome back to QAV America, Tony, episode 55. It is the 2nd of June, 2026. Tony Kynaston: And the Cameron: Tony, Tony Kynaston: are open Cameron: no they’re not. no. In fact, I Tony Kynaston: on Cameron: read this Tony Kynaston: and Cameron: I read this morning that the Iranian negotiators have walked away from the table in, uh, Pakistan. Um, Tony Kynaston: Entitled Cameron: ” This is a waste of time.” Yeah. And the same day in The New York Times, Trump said they’re very, very close to a deal and it’s all going terrific, and the Iranians are basically can’t wait to do a deal. And then in somewhere else, BBC I think, it said the Iranians had walked away from the table Tony Kynaston: Well I saw a headline last week that Trump was about to go into the situation room to make a final determination Cameron: Yes Tony Kynaston: must have been to put out a tweet Finally [00:01:00] determined to put out another tweet Cameron: Apparently he forgot to notify the Iranians that, uh, he was making a final determination because they’re not interested. Who he’s negotiating with remains to be seen because I also see the President Pezeshkian is offering to resign because he can’t get anything done because the hardliners from the IRGC are sort of running things. So anyway, it’s a, it’s a bit of a mess. Um, well before we get into my Pulled Pork, Tony, I just wanted to talk about some, uh, market news from the US and also go over our portfolios, ’cause our US portfolios have taken a big hit in the last three weeks, four weeks. And I did some analysis last night trying to figure out why. Not that they’re doing badly, but they’re not doing as well as they were doing. So I’ll start with the light portfolio, which we started in late December last [00:02:00] year. It’s currently up about 6.5% versus the S&P up 10.5%. We were up 12% versus seven on the 6th of May. So we’ve lost half of our gains since then. Tony Kynaston: Mm-hmm Cameron: And, um, I had a look at the stocks and which ones had gone backwards and which ones hadn’t, and it’s b- I think it’s basically all, uh, oil related, was my final analysis. Um, giving back some war premiums. Um, you know, the, the bit of froth that the portfolio had. Like it was up 10% after four or five months, and a lot of that. Uh, we have a fairly high concentration in the light portfolio of oil related stocks because that’s what was showing up on the buy list, Tony Kynaston: Yeah Cameron: over the last five months, so that’s what we bought. Tony Kynaston: Yep Cameron: And obviously the oil pr- the oil price took a big hit in [00:03:00] May as Trump, uh, teased us with this idea that there was gonna be peace in the Middle East and the Strait of Hormuz was gonna open. I think, uh, WTI finished the month down like 17, 19%, something like that. $87 I think it finished May. Brent was down to 91. They were both off about sort of 20% from their 2026 high. And our portfolio’s about 43% invested in energy stocks, so they’ve all come back as a result Tony Kynaston: Mm-hmm Cameron: But as I said, they’re still up and, you know, obviously it’s not over yet. So they could go, those stocks could go back up 20%, uh, tomorrow the way things are going, so. But it’s interesting because we’re so concentrated in energy stocks, the market is hitting records. [00:04:00] S&P hit records north of 7,500, ninth straight up week, uh, despite the fact that the US economy looks like it’s heading towards stagflation. I’ll get to that in a minute. But so our stuff fell while the broader market rallied. Cheaper oil everyone got excited about, uh, but not good for our stocks. So look at BWLP, the LPG company that I added a couple of weeks ago, was actually the worst of the lot, down 4.5% yesterday. Cord Energy, EcoPetrol, Neighbors, Murphy Oil, all oil and gas names were down. The tankers not offshore and BWLP again as a sort of a second layer for them. When Hormuz was shut, freight rates spiked, as we talked about when we did, um, the LPG company, because everyone had to reroute. If it, if it reopens, that spike normalizes and ships are already repositioning across the Atlantic apparently [00:05:00] to take advantage of the strait opening. And there are. I have heard rumors that the US Navy have, have been, um, shepherding ships through the strait, but I don’t know if that’s real or if that’s just more fake news from the region. But anyway, Tony Kynaston: numbers even Cameron: tanker analysts. No, I mean, I’m talking, you know, handfuls of ships. There’s still mines that have to be cleared up and all that kind of stuff. Tanker analysts are still split as far as I can tell on whether reopening sinks rates or supercharges them. So there’s still a lot of flux to go on in this space and no one knows where oil’s going. No one knows what’s happening. The, the ceasefire seems to be held together with sticky tape if, if it is in fact still there. And Israel seems to have continued to be bombing the hell out of Lebanon. I see Trump today said that he’s got some sort of agreement from Israel that they’re gonna cut it out, but, you know, that’s worth the, uh, [00:06:00] paper that it’s written on as we know, so Tony Kynaston: Sure we’ll cut about Sure Yeah Cameron: Yeah. So that’s the light portfolio. The dummy portfolio, uh, for all time is, uh, which, you know, we started it in, uh, September 2023. It is currently up 94% versus the S&P up 71%. So we’re outperforming quite well, but we were up 130% a couple of weeks ago, a few weeks ago, uh, versus the S&P which was up 63. So we’ve gone from double market down to being up 20 points or something like that. So this is a bit of a different animal. Uh, again, it’s sort of froth coming off a high, not damage to the portfolio, and half the book here just in recent weeks is still green. But I think some of this one is profit taking. So we have shipping. [00:07:00] Four of the stocks that are down are shipping companies. Again, you know, we’re sort of heavily invested in shipping and financials is basically the split of this portfolio. So the shipping one again connects to the oil story, but it’s broader than oil. I think the Middle East potentially calming down is bleeding the disruption premium out of all shipping, not just tankers, ’cause we know that, you know, it’s been, um, not just for oil tankers a problem with the Strait of Hormuz, but then you also have tankers that, uh, are charging premiums to get stuff around the place. It’s been a heyday for shipping companies of all sorts in the last, um, four months, five months because they’re having to take longer routes for stuff. Tony Kynaston: Yeah Cameron: So our four carriers, Tsakos, we’re all tankers, StealthGas who are gas carriers, uh, carriers, not [00:08:00] offshore. Um, same Strait of Hormuz story as the ones in the light portfolio. And then the container one, Euroseas, is off about 2.3%. Different waterway, but the same logic. The Red Sea and the Suez are reopening. Ships go back to the short route and all that capacity coming back has shoved long term container contract rates down to the lowest before the whole Red Sea crisis kicked off, which is, uh, different to the Hormuz crisis, but it seems to be opening up as well. So peace is bad for business if your business is getting paid to sail ships the long way around essentially Tony Kynaston: Yeah it’s interesting Cam because Cameron: The other Tony Kynaston: all of what you said is true but one thing that’s still in the back of my mind is we haven’t seen the figures yet on what the mo what what the shipping down what the shipping clog has meant to their profit So you know I [00:09:00] think people who are selling now maybe they are doing the right thing and taking a profit but they’re we haven’t seen the numbers yet I mean there’s gonna be outsized profits I would’ve Cameron: Yeah Tony Kynaston: this half from those companies as well and and does that change people’s minds Cameron: Yeah, so when those numbers come out, these things could get a tick up again, you’re saying? Tony Kynaston: Yeah Cameron: That’s a good point The other story with our dummy portfolio is, uh, RenaissanceRe, RNR. Nothing to do with oil. This one’s an insurance company. And the 1st of June is the big midyear reinsurance renewal date, and the renewals came in soft. Apparently, property catastrophe rates are down 15 to 20% in the US. Florida’s down closer to 20%, which is the sharpest fall since 2014. Apparently, uh, too much capital has flooded into the sector, turning it into a buyer’s market, and that’s affected reinsurers’ pricing power. So different driver from the, from the war related [00:10:00] stuff, insurance based. Um, Willis Lease is down 3%, and I can’t find any underlying reasons for that. These are the, um, aircraft engine leasing guys. I think that’s– We know they’ve been up, like, 300% at one point. They’re currently up 260% since we bought them. So I, I do think there’s a bit of profit taking maybe in that. Um, and the lenders and the banks that we hold, Anova, Regional Management, UBS, and Jackson are all up. So they’re doing well despite all of this So that’s sort of the portfolio story. Um, the US economy, as we know, it’s a one-trick pony over there at the moment. Um, sort of Nasdaq was up 8% in May, but if you strip out all of the AI names out, the whole thing’s basically gone nowhere [00:11:00] since February. AI stocks are now 45% of the S&P’s entire market cap, Tony Kynaston: Wow Cameron: which is just insane. So when people say the market, when, you know, Trump says the market’s at all-time highs, there’s a dozen companies that are propping the whole thing up and, uh, the rest of it’s basically along for the ride and not doing that great. You know, the, there’s a lot of problems in the economy over there. Uh, uh, when Anthropic and OpenAI float, which is sort of happening at the moment, they’re going through the process of getting ready for that. I’m sure that’ll be another sort of hysterical bump in that end of the market, but, um, stagflation is where I think things are going over there, uh, and it sort of doesn’t hit with the everything’s going great narrative that the Trump administration like to push. Inflation’s running at double the Fed’s 2% target, [00:12:00] and the jobs market seems to have stalled. The latest numbers from April was 115,000 jobs, um, and it seems to be going backward. Payroll, they were– I think those were job ads. Payrolls have basically gone nowhere for a year. February went backwards. Unemployment’s at 4.3%. Hiring is down. Um, so we’ve got slower growth, faster inflation, and now Powell’s out. Kevin Warsh is in, who was sworn in on the 22nd. Confirmed 54 to 45, which apparently is the narrowest margin in the history of the job. And I read up on him a little bit more. Apparently, he’s traditionally been an inflation hawk. Tony Kynaston: Hmm Cameron: So, uh, apparently his first stint at the Fed, he left over quantitative easing, thought it was the wrong play. He’s, um. And Trump’s brought him in obviously to [00:13:00] cut interest rates at a time when the economy is slowing down. So it’s gonna be interesting to see how that plays out. Got any thoughts on that? Tony Kynaston: Oh uh I think you summarized it very well It’s It’ll be interesting to see what happens to Warsh because he’s a bit like J.D. Vance They’ve become They’ve come from being Trump critics to being Trump acolytes um perhaps just to get a job I don’t know what Warsh’s re uh motivations are But yeah if he cuts rates now he’ll be at odds with all the published uh all he’s published in the past Maybe he’s had an epiphany But um yeah Uh I mean to There’s an argument to say that they should be raising interest rates because inflation is up Um that will make unemployment go up So there’s a lot of moving parts to go through in the States but I would have thought the last thing they need is an interest rate cut over [00:14:00] there Um the AI front I think uh it’s you know it I’ve thought it’s been in the bubble for a long time now as you’re saying if it’s forty-five percent of the market when that bubble bursts and who knows when that will be it’s gonna be a it’s gonna be a big downturn in the US uh stock market which will be you know I hate to use the word but devastating for um for the index And as we talked about in the Australian show just recently their dotcom bubble um wiped out a lot of companies and and saw big downturns in stock markets and this is starting to smell exactly like a dotcom bubble to me Um I don’t know what the percentage of the stock market dotcom companies were but um know having having even one sector forty-five percent of your market is concentrating yourself into into a corner really And as soon as that side even if if it’s a bubble it doesn’t burst As soon as it stops growing the US market’s in big [00:15:00] trouble Cameron: I did some analysis on the P/Es of the Mag Seven a week or two ago, ’cause I was looking, um, I was comparing it to when I worked at Microsoft before the bubble burst, dot-com bubble. Microsoft’s P/E in late ’99 was running at, I think it was about 75. Um, when I looked at the Mag Seven today, most of them are sort of in the 28 to 50, 55 range. So not as high as Microsoft was back in the day. And, oh, a- and Tesla’s the outlier. Tesla, when I looked at it, was a P/E of 355. So Tony Kynaston: Mm-hmm Cameron: leaving that one out, the rest of them aren’t as bad as Microsoft was. And, you know, Microsoft wasn’t a bad business in 2000. It was, it was a great business, and it continued to be a great business, continues to be a great business. Was making money, market share dominance, all this [00:16:00] kind of stuff. Uh, so it’s. But it’s not. But their share price collapsed and took, I think, 15 years to get back to where it was, not because it wasn’t a good business, not because it wasn’t making money, because it was overvalued at the time, regardless of, you know, what kind of a good business it was. So, uh, you know, I think that these companies that are behind the AI boom, some of them at least will continue to do well. They’re good businesses. They make money. Google’s not going away. Microsoft’s not going away. Meta probably not going away. But the point is, are the, are they, can they justify the sort of valuations that they have, Tony Kynaston: Correct Cameron: and you know, how they will hold up? So Tony Kynaston: And there are s I mean there are all there are articles all the time in the paper these days saying that uh are starting to question the value they’re getting out of paying for AI Um [00:17:00] local area communities are trying to block data centers from being built So it it’s not gonna be smooth sailing for the Mag Seven going forward I wouldn’t have thought and it’s usually a couple of speed bumps which derail high PEs and bring them back to a more reasonable level and they could be close Cameron: And I still think, you know, China’s gonna catch up and, um, I don’t know if we’ve talked about this on the show, but there was a story when Trump was meeting with Xi a couple of weeks ago. Um, Jensen Huang from NVIDIA went over along with all the other tech CEOs, and there was a story how, you know, the Biden administration banned China from buying NVIDIA’s H200s. And Trump, when he got in, uh, got rid of that ban and allowed China to buy them. Jensen Huang convinced him that it was, for some reason, better for the US if China was using American chips rather than Chinese chips. And no Chinese company has bought them, even though they can buy them, because Xi told them all, “No, we don’t wanna be relying on American chips. Uh, build our own.” So there’s been a huge amount of focus and investment in China to catch up to NVIDIA. I don’t think they’re there yet. They probably won’t be there for a while, but I feel pretty confident they’ll get pretty close pretty quickly. So Tony Kynaston: All Cameron: yeah Tony Kynaston: do is buy one chip then just go out and mass-produce it themselves Cameron: Yeah. So anyway, the other thing that’s, uh, happening over there is the tariff bill, I think, is coming due. Manufactur- you know, the, the tariffs were gonna bring manufacturing back to the US. Um, manufacturing is apparently shedding jobs. Had somebody say to me a couple of weeks ago, “Oh, everyone’s onshoring manufacturing again.” I, I tried to find evidence for that and I couldn’t. In fact, I found the opposite. Every study I saw said that manufacturing in the US is still shedding jobs. Small businesses are wearing the, uh, the cost of the tariffs the [00:19:00] worst. They’ve been losing jobs for 13 months straight because of the impact of tariffs on their business, and tariffs have worked out to roughly a $1,500 a year tax on the average American household. So, it’s a great day in America. Make America great again. It’s going so great. Tony Kynaston: You Cameron: So great Tony Kynaston: dollar bill with Trump’s face on it now for um $100 probably I don’t know what they’re charging for it but yeah Cameron: And a f- Tony Kynaston: can go along to the 250th Cameron: phone Tony Kynaston: hear Cameron: and a watch. He started selling, started selling Trump watches too, so you can tell what time and time it is and how great it’s going by your watch Tony Kynaston: to the nearest next uh bubble burst Yeah look I I hate to predict Cameron: They Tony Kynaston: I remember in the dotcom boom days that the boom went for probably a good two years after everyone thought it was silly Um but people kept buying Cameron: Yeah Tony Kynaston: Uh there’s It uh Cameron: [00:20:00] Che Tony Kynaston: years Who knows But um yeah Cameron: Yeah Tony Kynaston: disconnect both in the stock market and the economy between AI and the rest of the place And the rest of the place I think is struggling Cameron: Well, speaking of struggling, uh, I’ll get into my Pulled Pork for the week and I struggled to find something. Um, I went through a bunch of companies trying to find something to talk about this week. There’s a lot of companies on the buy list, Tony Kynaston: Mm-hmm Cameron: but all the top ones were either ADRs or they had these weird look. They were financial services companies with these weird looking Pr/OpCafs we’ve seen crop up lately, where they’ve brought in a bunch of capital and it’s ended up in operating cash flow for some reason, or they’ve sold off something that’s turned up in operating cash flow. So this one that I’m gonna talk about is about a third of the way down my list. That’s how far I had to go down, like 30 stocks before I could find something to talk about. It’s a company called Northrim BanCorp. Ticker code is NRIM. They’re on the Nasdaq. [00:21:00] And, uh, you heard of these guys before, Tony? Tony Kynaston: I have not no North Rim Cameron: You ever, you ever lived in Alaska, Tony? Tony Kynaston: Alaska I have not been to Alaska no I did Cameron: You lived close to Alaska, but not in Alaska. Tony Kynaston: set in Alaska That was a good series That’s as close as I’ve come Cameron: Well, those characters, those characters in that, at that Jodie Foster series would’ve probably known who Northrim were. They’re basically the bank of Alaska these days. Um, they are, are very boring, Tony. Um, boring, boring, boring business and, you know, we l- we like boring. We like boring businesses. Tony Kynaston: don’t have to decide whether AI’s gonna burst or not with a boring business do you Keep it simple Cameron: Yeah. And banks are boring enough, but this is a bank in Alaska, so it’s about as boring as you can get, I think. No disrespect to people living in Alaska. Tony Kynaston: No Cameron: I’m sure it’s [00:22:00] very beautiful the three weeks a year you have sunshine. Um, Tony Kynaston: Which lasts Cameron: so Tony Kynaston: day The Cameron: yeah. Yeah. Tony Kynaston: yeah Cameron: That’s right. Um, now I, I do want to point out before I start that it is a Josephine today. It dropped about 70 cents overnight. Wasn’t yesterday when I added it to our portfolio, but it is today. Um, market cap of about 550 million US dollars, so relatively small by US standards. Share price is around about 24 bucks today. They opened in Anchorage in December 1990, so they’re only about 35, 36 years old, and they were set up to be a local alternative for Alaskans. Alaska’s banking up until that point had been dominated from the banks down in the mainland part of the USA, which Alaskan banks call Outside banks with a capital O, [00:23:00] apparently. And Northrim’s whole deal is, “We’re local people.” Sorry, were you gonna say something? Tony Kynaston: I was just gonna say it sounds like Far North Queensland doesn’t it The other Cameron: It does a bit, yeah. Tony Kynaston: Mm-hmm Cameron: Yeah. Do you ever watch that, uh, League of Extraordinary Gentlemen British sitcom series that Mark Gatiss was part of? Tony Kynaston: Yep Cameron: They were, they were– The u- the undercurrent was they were all cannibals eating the tourists that came to town. The butcher shop was selling, like, uh, at the back room selling tourist meat to the locals, and they were like, “This is a local shop for local people.” Anyway, uh, that’s what these guys are. So they, they, they’re the local bank with local people, and they will lend to Alaskans that the big banks from the rest of the US won’t lend to, essentially. Tony Kynaston: I think some of the big Cameron: so for those- Tony Kynaston: but what I saw their niche was also they [00:24:00] understand the local marketplace So it’s I know we did a pulled pork on Bank of Queensland here they had a bit of a a niche because they were operating in Queensland so they understood the local industries which were basically agriculture But I think the the the proposition for this particular bank is that it understands um you know the oil fields in Alaska and the other Alaskan businesses up there and can pr can provide local services to businesses that really help them Cameron: The h- how to survive with vampires and zombies in the, um, six months of night that you have. Shout out to, uh, uh, my old mate who was the artist for the comic book 30 Days of Night, which was set in Alaska, Ben Templesmith. He lives in America these days, but he’s from Perth originally. Great comic book, great art. He, the, sees a picture on my wall he did as a custom for me. You can’t see it unless I turn [00:25:00] my phone. I’m not gonna do that. So, um, okay. So a little bit of, uh, Alaskan history for people. I know we have a bunch of Australians that listen to this show, s- so f- excuse me if you’re an American and you know all about this, but for the rest of us, it only became a US state in 19. No. Yes, 1959? No, that can’t be right. 1959? 1859. No, 1959 must be right. Is it really 1959? Just before Hawaii. When did Hawaii become a state? I guess they were, they were a, uh, a territory before that of some sort. Uh, bought off the Russians in 1867 for $7.2 million. Seward’s Folly, they called it, after the Secretary of State who did the deal, who is, uh, related to my good friend Michael Seward’s, uh, down in Melbourne. He’s the CEO of, uh, the bus company that takes you from the airport to the city. [00:26:00] Uh, shout out to Michael if he’s listening. Then the Americans found gold and oil in Alaska, so didn’t look like it was a folly anymore. Turned out to be a pretty good deal. The whole Alaskan economy basically rides on two things, oil and money flowing up from the federal government. And hold that thought because it, it matters later on. So the core business of Northrim, the three basic engines. Engine one, the big one, is basically community bank. Takes deposits from Alaskan households, fishing operators, oil services, contractors, small businesses, et cetera, then lends it back out. Core banking business. About 77% of their profit comes from that. Net interest margin’s about 4.77%, which is pretty good because the average little American bank gets about 3.5%. So Tony Kynaston: Mm-hmm Cameron: [00:27:00] they’re earning a full percentage point plus because I guess they’re locals for local people. They’re able to. And they’re up in the darkness, and they’re able to charge more. It’s too dark. People can’t see what they’re agreeing to on the forms in the middle of the night. Tony Kynaston: They turn the heating down Cameron: Yeah. Tony Kynaston: you make you deposit Cameron: Too cold to read the forms. Tony Kynaston: can leave Yeah Cameron: And e- engine number two is home loans. Uh, they write the mortgage and then usually sell it on within weeks, keep the right to service it, collect the monthly payment, take a little clip. That’s a pretty good little business. They’re servicing about $1.6 billion in loans. The most interesting part of the business, though, is the third part. In late 2004, they bought a business called Sallyport Commercial Finance for about [00:28:00] 54 million, and Sallyport does something called factoring. You know what factoring is, Tony? Tony Kynaston: Yeah So if you have a lot of trade receivables you uh you bundle them up and sell them to the bank and they pay you usually pretty high like eighty-five ninety percent for that receivables you you you get guaranteed cash flow if you run a small business that needs factoring and then the bank goes and tries to collect all the money back and make a margin on and what it gave you uh from your receivables That’s factoring Cameron: Yeah. So it reminds me of like a debt collection business, but it’s not Tony Kynaston: much Cameron: debts, it’s just, but it’s just, yeah, um, outstanding terms, long-term receivables. Tony Kynaston: Hmm Cameron: Uh, now the yields on this business are 27 to 36%, apparently. So it’s a profitable little business. Um, the flip side is they write off more of it, apparently. Tony Kynaston: Mm-hmm Cameron: And [00:29:00] they operate this one, though, across the US, Canada, and the UK. So Sallyport went from a $1.8 million profit in the year that they bought it to over $10 million in the following year. So I guess they bought it and then expanded it right across their operations and across a couple of different, uh, countries. Um, profit was up 75% for the company from 2024 to 2025. This is, this is for the whole business, not just Sallyport. It’s sort of the headline for this. Net profit jumped from 37 million in 2024 to 64.6 million in 2025. Now, this is partly a one-off. In the third quarter of 2025, they sold off some assets of a wealth advisory business that they had and booked a $14 million gain for that. Uh, if you [00:30:00] strip that out though, the real earnings power is about $2.38 per share, which is actually the normalized EPS that you’ll see in Stockopedia, so that checks out. But the proceeds from the sale didn’t end up in the Pr/OpCaf like we’ve seen with other businesses, like I think it was TriMas, TRS, that we looked at a few weeks ago. Uh, they put this through on the investing line, not on, uh, the, um, operating line. So the operating cash flow that you see in Stockopedia is ridgy didge, which is an Australian term for real. Sorry, Americans. Um, it’s not a fake Pr/OpCaf number. The real. There’s a couple of risks though with these guys. Uh, the credit side of things is starting to wobble. Bad loans crept up from 0.35% to 0.6%, and their team is flagging the loans business as risky. The actual losses are still tiny, but they’re forecasting that they could get bigger [00:31:00] over the next 12 months. I guess for the same reasons we were talking about before, the US economy is starting to struggle unless you’re an AI company. And I think they’re sort of flagging that it could be, you know, they could see losses increase in the next year or two if things go awry, if inflation keeps going up and the economy keeps stagnating Tony Kynaston: The banks in Australia are starting to write up their provisions for bad debts Um and part of it is Cameron: Right Tony Kynaston: rate rises which haven’t happened in the US yet So if they all if they do get interest rate rises on top of other things which are affecting the economy oil prices tariffs whatever yeah it could be a um an increase in bad debts for these companies Cameron: Typically they make more money off the loan book though, don’t they, when interest rates go up? Tony Kynaston: So typically banks do well in a high interest rate environment just just simply because they’re making more dollars out of the same margin as the as the um [00:32:00] numbers numerically go up for the the percentage But yeah they do face increasing bad debts because of that as well Cameron: Right. So that’s just how they manage it really, at the end of the day Tony Kynaston: No exactly Oftentimes the best time to buy a bank is when it’s decreasing provisions on its loan book cause that’s just writing back cash um without having to sell one more loan So that’s a good thing this is kind of the reverse We have to balance the fact that the banks will do better in a high interest rate environment with the fact that they’re increasing their provisions for bad debt which is like writing profit to their own balance sheet rather than paying it out as dividends or reusing it to expand the bank So it’s a a bit of an anchor on performance Cameron: Mm-hmm. Or bit of an anchorage on performance even in, in the case of these guys Tony Kynaston: an anchor in an anchorage What was that song Tied Down no Anchored Down in Anchorage Yeah Cameron: Beats me. Tony Kynaston: Okay Cameron: be a title, could be a title in there somewhere for the, for the episode. Um, but you know, what [00:33:00] happens to the economy in the future is outside of my remit. I’m, I’m not gonna that or how the bank reacts to it. The other risk is, gets back to something I said earlier, the whole bank is Alaska, basically. Um, and Alaska is oil plus federal money. So if oil tanks, which it has been, uh, that could have an impact on the Alaskan economy and therefore the prospects of Northrim. And if Washington tightens the tap on how much money they’re giving to Alaska for whatever reason, that could m- make it difficult. Apparently they get a lot of federal funding and, hey, you know what, uh, the Trump administration’s like, it’s, uh, fly by the seat of your pants what’s happening one day to the next, so nobody knows. But they’re all things that require future predictions and as I said in the last [00:34:00] show, Philip Tetlock pointed out in his book on forecasting, even experts don’t know what’s gonna happen in the future, so I’m not gonna try and predict. Tony Kynaston: Yeah You wonder if Cameron: We’ll just look at the numbers as they are today Tony Kynaston: should it be especially experts don’t know what’s gonna happen in the future Cameron: Yeah. Monkeys throwing darts at a dartboard. Tony Kynaston: Yeah Cameron: So a couple of notes on the management before I go. The founding era chairman, Joe Shearhorn, retired at the end of last year after 35 years. The CEO and the CFO continued on, though. CEO is a guy called Mike Houston. CFO is a guy called Jed Ballard. They have been buying shares in the company in the last few months, which is good to see, but they’re not huge amounts. We’re talking tens of thousands of dollars. Neither of them nor Shearhorn holds, holds a major stake in the company. I think they’re all way less than 1% of the company, which is interesting. For a company this young, I expected it to have sort [00:35:00] of big founder shareholders, but, um, I couldn’t find anything So that’s it. Um, who’s Michelle Shocked, Tony? Tony Kynaston: Well she’s the singer who sang But you know you’re in the largest state in the union when you’re anchored down in Anchorage Anchored down in Cameron: Thought she was telling me she was a senior executive or a major shareholder in the bank or something there. And I’m like, “Oh, I missed her name.” Tony Kynaston: all her money in there Cameron: I’ve never heard of Ms. Shocked. Tony Kynaston: You haven’t Oh okay Cameron: No. Uh, so that’s it, basically. I’ve got the scorecard to go through, but I don’t, I, I couldn’t find anything really exciting or interesting. They’re just a boring, boring bank in Alaska that’s coming up quite cheap for some reason on our buy list. Probably because they’re a boring, boring bank in Alaska Tony Kynaston: couple of things I noticed when I had a look at it Um uh y I wondered whether it was a monopoly but it’s not But it does certainly have a um lot of a lot of k monopoly-like [00:36:00] characteristics because uh the Alaskans do like to bank with a local company a local bank funnily enough Wells Fargo did have the biggest share in Alaska so people are also interested in getting the best price I guess too they also face competition This bank faces competition from credit unions so it’s like that kind of local flavor to people uh in the North They wanna bank with with locally owned businesses Um yeah but uh a as as my analysis said like yours the factoring business was the surprising one for me that had grown so quickly and also the business banking side of things I think is their their sort of secret sauce that they can the local businesses with um local knowledge to back it up And that that allows them to be better at writing loans to oil drillers or fishing companies and that kind of thing cause they know the industry much more intimately than someone who hasn’t grown up in Alaska [00:37:00] and and worked with it all their lives Two key advantages Cameron: Well, um, just to get into the numbers, Tony Kynaston: wow it’s just started raining really hard here Can you hear that Cameron: I can hear it. Yeah Tony Kynaston: Coming down now Cameron: These guys have, uh, a quality rank on Stockopedia of 75, so I scored them for that. Their stock rank is 92, so I scored them for that. Their, uh, F score is a seven out of nine, so they got a score for that. Their price is above our IV number one, but below our IV number two. The price is not less than book or less than book plus 30, so I couldn’t score them for those. Book value growth is positive. They do not have a new three-point upturn. Their PE is not less than the yield. The yield is not greater than the bank [00:38:00] debt. The yield is 2.59%, by the way. Um, their forecast IV is not greater than twice the price, but they do have positive sentiment, of course, or they wouldn’t be on the list. Well, they’re slightly below the, um, uh, Josephine cutoff today, but they’re doing okay apart from that. So they ended up with a QAV quality score of 75%, which makes them sort of in the sweet spot for us, and a QAV score of 0.20. Price to operating cash flow, I forgot to mention, was 3.66, so that’s the key one, so quite a low Pr/OpCaf for us. And, um, again, I couldn’t really, you know, couldn’t really figure out why the market was shying away from them. There was nothing, no scandals, no sort of. Nothing that untoward that I could see, so I don’t [00:39:00] know. It’s just a deal, I think, Tony. Got any more thoughts? Tony Kynaston: or you can put your money in SpaceX instead of putting it into a profitable bank Cameron: Sure Tony Kynaston: a monopoly-like characteristic about it in a big state Yeah Or you can watch it burn Cameron: And if, and if you look at Elon’s never going to Mars. The Mars thing is a pipe dream as far as I can tell. Uh, if you look at their chart though, like the share price has been going up pretty consistently since middle of 2023. Uh, so it’s, it’s been on a tear for nearly three years now, um, from like about $9.50, I think, in 2023, up to 24 bucks. Cameron: So the market tends to agree with us, tends to think that it’s been a good investment for the last couple of years. Good luck to anyone who got in it back in middle of 2023. But still coming up as a good quality buy for us, [00:40:00] despite the fact that there’s already a lot of, uh, been a lot of growth in the share price. So we’ll see how it goes, Tony. I have added it to our light portfolio, and we’ll keep an eye on it Tony Kynaston: Good Well I’ve just queued up Michelle Shocked sing Anchorage which I’ll listen to after this Cameron: Right. I’m gonna– Tony Kynaston: You Cameron: I’ll listen to that on my way to kung fu Tony Kynaston: this Cameron: with Fox this afternoon Tony Kynaston: I said Captain I said What It’s Ruddy believe you haven’t heard it Cameron: Look at you bringing, bringing back all the classics. It’s a shame we can’t play music on the show like I used to on my old podcast. That’d be fun. We could have a singalong. All right. Well, um, thank you Tony. Have a good week. Glad to have you back, and, uh, happy hunting everyone Tony Kynaston: Okay I’m good to see you again Talk to you next week Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jun 3, 2026

16m
46

Straw Mattress to Steel Bumper (MGA): QAV America #54

This week Cameron (with guest co-host Phil Muscatello from Shares For Beginners) runs a full QAV deep dive on Magna International (MGA), the Canadian-born automotive giant that quietly makes everything from your car door to the entire vehicle itself. He covers the wild founder story of Frank “Straw Mattress” Stronach, the EV overreach that cost the company over a billion dollars in writedowns, the tariff headache courtesy of Trump, and why the numbers are now looking good enough to add to the portfolio. Plus a quick look back at how previous stock picks from the show have performed, with NBR up 31% leading the charge.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV AMERICA 54 – MGA 2 [00:00:00] Corrected Cam-PC-01 (1): Today, Cameron from QAV America joins me to unpack MGA Magna International, a major Canadian-based global automotive supplier and mobility technology company founded in 1957 and headquartered in Aurora, Ontario. It ranks amongst the world’s largest tier one suppliers, I don’t even know what a tier one supplier is, but with 156,000 employees across 28 countries and 327 manufacturing assembly facilities. And do you think I can get a headlamp that will work in my car, Cameron? Not for any longer than about eight weeks is my experience, and then you have to replace them again. Yeah, yeah, that’s right. So hi, Cameron. How are you? Good, Phil. Machinations of Magna, is that the title? The Magna Machinations. Is that what you’re doing- Yeah. Yeah, that sounds good-. to me today? I like that. Yeah, yeah. Yeah. Is it machinations or machinations? I don’t know. Uh, whichever you choose. Um, and a tier one supplier is a company that supplies lots of tier ones, I think, Phil. They just. They have like a, a, a [00:01:00] warehouse stacked full of tier ones. Um, what does Magna mean in Greek, Phil? You’re, you’re an erudite, uh, educated, literate person. Uh, great, isn’t it? The great, yes. Yeah. Like, uh, Magnus Carlsen is the greatest chess player of all time, and that’s why he has that name. He lived up to his name. Mm-hmm. Um- And, um, who was the, um, Roman history, who was the enemy of Caesar? Uh, Pompey the- Pompey the Great. Yeah, Pompey the Great. Yeah. Pompey, Pompeius Magnus. Yeah, good one. MGA Magna International: So, uh, Phil, Corrected Cam-PC-01 (1): uh, I thought before we get into this week’s deep dive, uh, I, I just went back and had a look at some of the others that we’ve done on the show over the last few months. Do you ever go back and look at how they’re performing, all the stocks that you talk about, or you have your guests talk about on the show? No, no, I haven’t, haven’t done that. Uh, just, um, are, are, are we going to have one of those, um, um, snapping your braces with pride moments? Uh, well, some of them have done very well. Couple haven’t, but that’s normal. You know, [00:02:00] Tony and I always talk about having a 60% success rate, which I think is what Buffett, uh, aims for as well. So I think we’ve done five stocks on your show over the last few months, and three are up and two are down. So the three that are up are NBR, Nabors Industries. It’s up 31% since we did it a couple of months ago. I think, like, early March we talked about NBR. 31% in a couple of months isn’t bad. EC, Ecopetrol is up 18%. DB, Deutsche, which we did last time, I think, is up 8% since we talked about it. The two that haven’t done so well are PAGS, PagSeguro. They’re down 13%. And SHG, Korean energy company, I think. They’re down 7%. So three good ones, two not good ones. Eh, it’s about what you expect, you know. Things happen in the market. Wars happen. Tariffs happen. Can’t predict the future. It’s worth, it’s worth noting though, isn’t it, that it’s a, it’s a numbers game as well. It’s [00:03:00] not, you’re not gonna get everything right, you know? Um, we, we- Well, that’s why I said, like, a 60% success rate. Yeah. And it’s why we have rules to sell the ones that go the wrong way. You know, uh, we don’t stick around and wait to see what happens. We have hard rules to sell them and keep the winners. Anyway. Yeah. What’s that, what’s that old- I thought that was- what’s that old joke, you know? Uh, yeah, sudden- a short-term trade which suddenly becomes a long-term holding. Right. Yeah. Yeah, that’s, uh, I take the same approach to stocks that I did to my first few marriages. Like, you cut your losses and you keep going until you find the winners, and then you stick with the winners. A trail of broken hearts. MGA Magna International: Oh, Corrected Cam-PC-01 (1): well, I hope not. I hope they’re all doing very well. Anyway, let’s talk about Magna. Uh, so as you said, company’s been around for nearly 70 years, market cap of roughly 18 billion US dollars, 156,000 employees. MGA Magna International: Well, as Corrected Cam-PC-01 (1): as you said, one of the biggest auto parts suppliers, but, uh, I also read that they like to call themselves a mobility technology company, which I think sounds way sexier. Uh, I think [00:04:00] their, their share price went up, like, 10%. Uh, it sounds sexier than auto parts supplier really, doesn’t it? Mobil- no, no, no, we’re a mobility technology company. Oh, okay. Sure. Right I don’t know. I was thinking, I was thinking old people on mobility scooters. Oh, yeah. Yeah. It’s not as sexy. Well, unless you’re into that kind of thing. Who knows? Um, like lots of companies that appear on our buy list, particularly in our US buy list, by the very nature of value investing, it’s a bit of a turnaround story. It’s had a couple of rough years, bit of a founder scandal going on. I don’t think that’s affecting the business at all ’cause he’s been out of the business for some time. But it’s sort of a classic value stock in it’s a brand that most people have never heard of because they’re behind the scenes, but they’re running a great business. Been around a long time, very deeply embedded in their industry, which is part of the reason they had a rough couple of years. We’ll get into that. Listed on New York Stock Exchange and also the Toronto [00:05:00] Stock Exchange. Price today is around about $64.58 US. That’s on the New York Stock Exchange. Founded in Canada, as you said, Aurora, Ontario, sort of north of Toronto. So Tony. It’s a shame Tony’s not, uh, with us today. He, there’s a couple of things he’d like about this. One, he lived in Toronto for, I think, five or six years. Uh, he probably knows Aurora well. Probably might even know Magna. Uh, maybe he MGA Magna International: played Corrected Cam-PC-01 (1): golf with people from there. I don’t know. But, uh, also the, uh, founder of this is into thoroughbred horse breeding and, uh, Tony’s not with me this week because he’s buying and selling horses on the Gold Coast. According to their website, Magna is one of the world’s largest automotive suppliers and a trusted partner to automakers in the industry’s most critical markets, North America, Europe and China, with a global team and footprint spanning 28 countries MGA Magna International: So Corrected Cam-PC-01 (1): So they’re a big deal. The founder [00:06:00] is a guy called Frank Stronach. MGA Magna International: Now, he Corrected Cam-PC-01 (1): he was born Franz Strosack. MGA Magna International: How’s your, how’s Corrected Cam-PC-01 (1): how’s your German? I know your Italian’s pretty good, Phil. Not very good, no, no. How’s your German? No. We don’t like Germans in Italy. Well, my wife, uh, speaks German. She tells me that Strosack means straw sack in German, which is what people used to live on, like a sack full of straw. So his name is literally straw mattress. Have to imagine that somewhere in his genealogy there was a, the local guy in the village that made beds for people. He was born in 1932 in- And, and I just wanna, and I just do wanna. I do love Germans, okay? I do love- Oh, okay. Nice backpedaling there, Phil. Born in 1932. Well, we know, you know, Mussolini and Hitler got along famously for a little while anyway. Long, long history- Yeah. of the Italians and the Germans getting along. Born in 1932 in a little village called Kleines [00:07:00] Semmering in the Austrian province of Styria MGA Magna International: Working Corrected Cam-PC-01 (1): class family, left school at 14 to become an apprentice tool and die maker. Precision metalworking. You make the metal molds, cutting tools factories use to stamp out metal parts at high speed. Incredibly skilled work, and stood him in good stead when, in 1954, 22 years old, he moved to Canada, arrived in Montreal, gets on a bus to Kitchener, Ontario, gets a job as a dishwasher. Nothing to do with making metal parts at first, but built his first company from a rented garage in Toronto only two years later, 1956. He’s 24 years old. Company was called Multimatic Investments. Slept on a cot in the corner of the shop. Classic Silicon Valley startup story, but [00:08:00] in Ontario, not Silicon Valley. Gets his f- In, in, in greasy overalls. yeah. Gets his first automotive parts contract in 1969, so takes a, takes a while to get to automotive parts. Then he merged with a company that he had a contract relationship with, I think called Magna Electronics, and in 1973 the whole thing gets renamed Magna International. MGA Magna International: So he Corrected Cam-PC-01 (1): So he was making actual metal parts in his garage and selling them to car companies. And what’s fascinating, among many things about this guy, is real- like it’s a real classic sort of, uh, story of a guy who built an enormous business. Still alive, by the way, in his 90s. He, his management philosophy is what he called fair enterprise. He was a bit of a commie, I think, by the sounds of it, very suspicious about how companies treated their workers, so he built a formal system in [00:09:00] 1971 where a fixed percentage of profits every year was pre-allocated to employees, management, investors, and social causes. 1971 MGA Magna International: it’s Corrected Cam-PC-01 (1): It’s written into the corporate charter, 10% of profits go to employees every year before anyone else gets their cut. MGA Magna International: And Corrected Cam-PC-01 (1): And this was the thing that made Magna different, because employees and management had skin in the game. They produced better parts. They worked harder. They had more incentive. There was less waste, less industrial action, and it turned into a $40 billion company. So MGA Magna International: Based on that Corrected Cam-PC-01 (1): on that- So you can do, you can do good and make money? Yeah, that’s what I was gonna say, but wait till we get to the sex scandals before you, uh, pass judgment on how much good MGA Magna International: he Corrected Cam-PC-01 (1): he did. Um, still going through the courts, uh, as it turns out. But the m- anyway, the, the [00:10:00] mechanism of how the employees get paid seem to be changing. I tried to figure out where it’s at. It’s, it’s a little bit murky. So 10% of pre-tax profits, pre-tax too, to, uh, to employees, still technically embedded in Magna’s corporate constitution. It can’t be changed without management and shareholders and employees all coming to a consensus about the change, so it’s pretty interesting. You weren’t here. Um, oh, we haven’t done the show about Germany, speaking of Germany. I don’t think you and I did that. No. Tony and I. Oh, well, I, I did a, an American show, uh, a couple of weeks ago. We were talking about Deutsche Bank. Oh, we did do Deutsche Bank. No, we, we, we- So it must have been Deutsche Bank. we’ve done Deutsche Bank. Yeah, that was the last one. We did do Deutsche Bank. Yeah. Yeah. Mm. Remember they have that system in place where the, there’s two boards, and the employees get to vote for one of the boards? Yeah, that’s right. Well, this is a bit, bit like that, but different. Um, so they, they, they have to all agree, uh, if they’re gonna change this, uh, structure for how the, the profits get divvied out. The full original formula was 10% to employees, [00:11:00] 7% to management, and a minimum of 20% of net profits returned to shareholders as dividends. MGA Magna International: And Corrected Cam-PC-01 (1): And because changing it requires employee consent, it makes it quite hard to just unilaterally remove as the company started doing well. Still in the corporate constitution, but how it plays out in practice is a little bit hard to figure out. So it’s like there’s deferred remuneration and shares and a share structure and all this kind of stuff. I really didn’t have time to break it all apart. But I did note in one of their corporate documents that they crow about the fact that for eight consecutive years they’ve been named one of Fortune’s World’s Most Admired Companies, and for four consecutive years, one of Ethisphere’s World’s Most Ethical Companies. So they’re doing something right, however it works. I also like this, talking about management. There’s a statement in this, one of the corporate, uh, reports I read. “We believe it is [00:12:00] important that each director be economically aligned with shareholders. We try to achieve such alignment in two principal ways. Equity maintenance requirement. Each director at large is required to hold a minimum of $825,000 of Magna common shares and/or deferred share units, DSUs, within five years of joining the board. Each committee chair is required to hold a minimum of 900,000 of Magna common shares and/or DSUs within five years. The board chair is required to hold a minimum of 1.5 million of Magna common shares within three years of becoming chair.” MGA Magna International: So Corrected Cam-PC-01 (1): So we like to see skin in the game. When we do our Australian checklist, we actually score companies based on how much of the company the board holds. The owner/founder metric we call it. Um, Warren Buffett’s always been a big fan of seeing directors have skin in the game. Uh, we don’t do it in our American show because it’s hard to get that number programmatically out of Stockopedia, but it’s something I am [00:13:00] planning on MGA Magna International: coding Corrected Cam-PC-01 (1): into my process at some point. I didn’t actually get a number on these guys at the end of the day, how much of the stock their s- their sh- directors own, but at least they’ve got the right policy in place. MGA Magna International: A Corrected Cam-PC-01 (1): A couple of things on Stronach, straw mattress. Um, so he became extremely rich and also extremely controversial. He, uh, by the early 2000s, he had a dual class structure in place, Rupert Murdoch-esque, uh, classic founder king succession style thing where there were Class A shares, which the, uh, general public could buy, and then a special share class that he controlled that gave him dramatically more power in the voting than his economic interests warranted. In 2010, shareholders pushed back hard enough that the dual class shares were eliminated. He got a massive payout in compensation, billions of dollars, and stepped away from operational [00:14:00] control of the business MGA Magna International: So Corrected Cam-PC-01 (1): So he’s been gone for, mm, decade and a half. MGA Magna International: um, and Corrected Cam-PC-01 (1): and has had quite a complicated later life. As of right now, May 2026, he’s 93 years old. MGA Magna International: He’s Corrected Cam-PC-01 (1): mid-trial in Toronto on sexual assault charges, 12 counts involving seven women, allegations going back to the ’80s and ’90s. He pled not guilty. Verdict is expected in the next couple of months, and then there’s a second trial after that which has been delayed to 2027. MGA Magna International: Uh, Corrected Cam-PC-01 (1): another sexual, uh, assault allegation. So, um, not great. You don’t wanna be going through that ever, especially in your early 90s. MGA Magna International: But Corrected Cam-PC-01 (1): he’s been away from the company, as I said, for a long time, so has no impact really on the business, but just part of the, uh, messy story surrounding Mr. Straw [00:15:00] Mattress. MGA Magna International: So, Corrected Cam-PC-01 (1): uh, this is a MGA Magna International: very Corrected Cam-PC-01 (1): very interesting business in terms of the shareholding. There’s no controlling shareholder. Pren- Pe- uh, no, Pzena, P-Z-E-N-A, Pzena Investment Management’s a value investor. They own about 10%. Vanguard own about 9.8%, but it’s broadly held. There’s no single, uh, person or company now that owns a controlling interest in the company. Aside from all that, as I mentioned earlier, Stronach is into thoroughbred horse racing, which Tony would love. Uh, breeding and racing. Started a business decades ago with his daughter MGA Magna International: And Corrected Cam-PC-01 (1): And then ended up suing her for mismanagement. So, you know, there’s all of that kind of Succession-esque stuff. Did you watch Succession, Phil? No, I never, no, I was never into Succession, I gotta say. Oh. Yeah. Great show I should give it a go, but I’m just, I don’t know, I’m just not trying not to spend my evenings, um, you know, sitting in front of the idiot box too much. Yeah, no, it’s ’cause you’re doing kung fu and reading annual reports. No, [00:16:00] wait, that’s me. Um, so four divisions of the company. So imagine you’re a car company, um, BMW, Ford, Stellantis, whoever. Every year you decide you’re gonna build a new vehicle model. You design it, and then you go to Magna and say, “Build this for me.” That’s basically it. Um, either the parts or in some cases the entire car. They basically go, “Yep, we can make everything that you need for your car.” So a lot of times these companies, these car companies don’t actually make their own cars anymore. They just design it and then outsource the manufacture of it to somebody else. MGA Magna International: Uh, we’ve Corrected Cam-PC-01 (1): we’ve seen that a lot on this show over the last couple of years. It’s sort of the very common business model. You do the marketing, uh, you, you own the brand, but you outsource the manufacture or the maintenance, whatever it is, uh, the underlying hardware part of the business to people who specialize in doing that.[00:17:00] So they’ve got- However, however- Hmm. on that point, um, I believe that companies like Tesla, um, do all of their own manufacturing in-house. They don’t outsource anything, and that could possibly be a risk in the future of, uh, car manufacturing in this business. Yeah, I think, you know, Elon’s big on getting efficiencies from. He does it with SpaceX too. I think he has vertically integrated all of that side of stuff too. He’s MGA Magna International: a Corrected Cam-PC-01 (1): A different cut, as we know, as, as a businessman and as a human being. How many kids has he got? 14? He likes to vertically integrate population control as well. Just do it all myself. I can’t wait for other people to do it for me. So they have a couple of, about four different divisions essentially. Body exteriors and structures, that’s the biggest division, does about $16, $17 billion a year. Everything on the outside of the car, so door panels, bumpers, hoods, the structural pillar that goes up beside the windscreen. If you bump a shopping [00:18:00] cart into a car door, you’re probably bumping into something that Magna made. This is the bread and butter side of the business. Margins are about 6.7%. They were in Q1 2026 anyway, from what I could tell from the report, so solid little business. The second biggest is power and vision. Uh, good David Bowie, uh, album from the mid to late ’80s, I think it was. Uh, no, that was Sound and Vision. Sound and Vision. Yes. Sound and Vision. Close. Close. It was a compilation really of stuff from, uh, the Berlin albums, I think, wasn’t it? And some other stuff. Yeah. Yeah. Anyway, uh, this is about $15 to $16 billion a year. This is where it gets more interesting. They have cameras, driver monitoring systems, mirrors, also transmission systems and eDrive systems. That’s the electric motor and gearbox combinations in EVs. They also used to get into the lighting business, but as I’ll come to in a minute, they [00:19:00] sold or they’re in the process of selling the lighting bit off. Margins for this division jumped from 3.4% to 6.5% in the last year, which is a big improvement. The, the current CEO’s been doing a lot of work to, uh, streamline the business. But this is also a division that caused them a lot of pain and angst over the last few years, so I’ll get to that soon, too. MGA Magna International: The Corrected Cam-PC-01 (1): The third division is seating systems, about $5.5 billion a year. Seats, that’s basically it. They, they make seat asse- full seat assemblies delivered just in time to a car assembly line. That division was losing money a year ago, but now it’s back to positive, so that’s good story. And then the fourth division is complete vehicles, about $4.5 billion a year. This is the weirdest one. This is where they actually assemble entire cars, soup to nuts. MGA Magna International: You Corrected Cam-PC-01 (1): You say, “Hey, uh, got this BMW we wanna make. Can’t be bothered. Volumes aren’t big enough for us to get involved in any aspect of it. Just make the whole thing for me.” “Sure, no problem. Can do it.” And that’s what [00:20:00] they do. So bit like, MGA Magna International: I don’t Corrected Cam-PC-01 (1): I don’t know, who’s, who’s a company that doesn’t make stuff? Coca-Cola just outsourcing the manufacturing of all of their Coke to somebody else, and they just own the brand. So that’s it. Total revenue for the first quarter of 2026 was about 10.4 billion annualized, doing sort of $41 to $43 billion. Guidance for the full year is 41.5 to 43.1 in fact. So why are they a value buy? Well, the share price has dropped a lot, uh, in the last four or five years. I think it went from like 98, 99 bucks in 2021 down to 33 by April last year. So that’s a haircut and a half. MGA Magna International: And Corrected Cam-PC-01 (1): And it’s doubled though in the last year because it’s sort of in a turnaround. So I mentioned the part of the business where [00:21:00] they do, uh, power and vision, the David Bowie division. MGA Magna International: You know, Corrected Cam-PC-01 (1): You know, the, MGA Magna International: everyone, all Corrected Cam-PC-01 (1): all the car manufacturers got excited about EVs, uh, four or five years ago and, you know, I think Tesla put a fire underneath them and they all decided that was the future. So ’21, ’22, ’23, everyone was in a frenzy, “Oh, we’re gonna need all these EVs. We’re gonna be selling all EVs.” So Magna went and spent a ton of money building out EV manufacturing capability, battery enclosures, electronics for EVs, e-drive systems. And MGA Magna International: as Corrected Cam-PC-01 (1): as you can probably guess, we actually. I don’t think we’ve done Ford on your show, but Tony and I did a thing on Ford a while back, maybe a year ago now, and the same thing happened with Ford. They built out a huge EV division and then they took a multi-billion dollar haircut on it. These guys, same thing. The EV programs ended up getting canceled or deferred or scaled back. [00:22:00] Ford pulled back, GM pulled back. They went, “Oh, you know what? People aren’t actually buying EVs. They want big petrol drill baby drill trucks.” MGA Magna International: And Magna was Corrected Cam-PC-01 (1): was left sitting on a pile of EV manufacturing assets that weren’t gonna return them the, or generate the returns that they had hoped. MGA Magna International: So in Corrected Cam-PC-01 (1): in 2025, they took a $591 million writedown. That’s US dollars, real money. And then, uh, then Q1 2026 last month, they took another writedown of $485 million, this time on the lighting and rooftop business that they’re selling off. So in the last 18 months, they’ve written off over a billion dollars of asset value. Then MGA Magna International: President, uh, Donald Corrected Cam-PC-01 (1): Jesus Trump came into power and, uh, whacked tariffs on a- anything coming in from Canada and Mexico, and guess where all of their [00:23:00] stuff gets made? Oh, Canada and Mexico. So big tariff hit on them. It was like 25% tariffs on everything that they were, uh, manufacturing that had to go to America. So that knocked them around a lot. I think the $33 low in April 2025 sort of aligns perfectly with peak tariff uncertainty and madness. As we know, though, the Supreme Court has told Trump, “No, uh, you can’t do that. You have no authority. Roll them all back. Pay them all back.” Not sure how that’s going, but that’s probably corresponded with a little bit of an uptick in their business, apart from the fact that they’re selling off some of these divisions and done some major write-offs. Uh, interestingly, no major executive turnover as a result of all of this loss, but the CEO, Swamy Kotagiri, been there for decades. He’s an [00:24:00] engineer by background. He took over as chair in 2021, right at the peak of EV frenzy, and he’s the guy cleaning it up now. MGA Magna International: So the Corrected Cam-PC-01 (1): the Q1 results actually show the business is running better than it has in years. Uh, the EBIT was up 58% year on year. Margins are expanding, as I mentioned earlier. So the operational business is recovering strongly. Balance sheet is still absorbing the costs of the EV disasters. But, um, you know, it, it’s a business that’s getting back to core focus and seems to be run as well as it’s always been run. I think at heart, it’s a very good business. A lot of really big, well-entrenched customers. They’re dominant in their space, MGA Magna International: and they Corrected Cam-PC-01 (1): they just, MGA Magna International: uh, you know, had a Corrected Cam-PC-01 (1): had a bad run with this EV/uh, tariff stuff in the last four or five years. So I told you they’re selling off, uh, the lighting and rooftop [00:25:00] stuff. That’s bringing in about $1.1 billion, MGA Magna International: which they Corrected Cam-PC-01 (1): they can use to, uh, run the business or pay off debt or whatever they wanna do. Um, that’s basically all I have to tell you. It reminds me of some of the other companies that we’ve talked about on the American show over the last couple of years. The most, uh, common, or the most obvious one is one that I didn’t do with you, but I did with Tony. A company called Commercial Vehicle Group, CVGI. They make inside parts for truck cabs. I called them the, uh, the sausage in the truck bun, I think. Um, so you make a truck. It’s basically a, a hotdog bun, and these guys make all the stuff that goes in. It’s just like it’s an empty template until they come in and they put the very, very plush seats. And, and apparently truck cabs are like MGA Magna International: Uh, deluxe, Corrected Cam-PC-01 (1): uh, rock and roll- Yeah. The Hilton. The Hilton on the Gold Coast Yeah. Hotel suites. Yeah. Uh, but I, I talked about them on our show, [00:26:00] uh, at the beginning of April, uh, this year, and they’re up 40% then. So, uh, fingers crossed they continue to do well. MGA Magna International: So, Corrected Cam-PC-01 (1): uh, the scorecard, let me get into that. I’m gonna scroll down my notes here ’cause I think it’s down the bottom. Here it is. MGA Magna International: So Corrected Cam-PC-01 (1): So as you know, and as people have heard me talk on your show before know, the way that QAV works is Tony built a, a spreadsheet checklist. Over 30 years he’s been refining it, and we take all of their fundamental data and we run it through this checklist, and it provides a bunch of scores for us. And- It’s all about the published numbers as released in, uh, reports MGA Magna International: Yeah. We d- Corrected Cam-PC-01 (1): We d- we don’t really care much about the story. We don’t try and predict the future. We do look a little bit at, you know, what analysts are saying about future EPS and that kind of stuff. It’s a score and a whole suite of scores, but we’re looking historically. The, the questions that we’re trying to [00:27:00] answer really are, does this seem to be a business that’s being run well? Is it generating cash? And do we think we can get it at a discount to its intrinsic valuation? And we have a number of ways that we create intrinsic valuations. We have a current IV, we have a future IV, and we have a, a bunch of other metrics that we score it on. Then we add up all the scores, and the stocks with the highest score are the ones that we tend to look at buying. MGA Magna International: So Corrected Cam-PC-01 (1): So these guys, when I did my analysis on them a couple of days ago, share price was about $64.58. Average daily trade, by the way, is about $120 million, so big enough for most of us to buy, even Tony. MGA Magna International: Uh, Stockopedia Corrected Cam-PC-01 (1): stock ranks 99, which is pretty good. Stockopedia quality rank was 86, which is pretty good. The Piotroski F-score measure of financial health was seven, which is pretty good. MGA Magna International: Their Corrected Cam-PC-01 (1): Their price was not less than our IV number [00:28:00] one, so I couldn’t score it on that, but it was less than our IV number two, our future IV, so I could score it for that. The price wasn’t less than the book value or book value plus 30, so I couldn’t score them for that. Their price to operating cash flow was 4.22. That’s really quite good. We, we won’t buy anything that has a price to operating cash flow over seven. We, we use that instead of PE for new, uh, listeners. Um, we think price to operating cash flow is a cleaner metric than price to earnings because earnings can be toyed with and manipulated a little bit more easily than operating cash flow. So 4.22 is good. Basically means you’re gonna get your money back in about four years if you just look at operating cash flow. So that’s a reasonable amount of time to expect your money back. Um, the yield, their dividend yield is about 3%. It’s not better than the bank rate in the US, so I couldn’t score it for that.[00:29:00] They do have a new three-point upturn, so we look at sentiment charting, and if a stock has recently turned around since its last financial reporting, we’ll score it for that because we think that’s a good early indicator that the market might be getting behind it. And it does have positive book value growth, so we could score it for that MGA Magna International: So all Corrected Cam-PC-01 (1): all in all, I gave it a QAV quality score of 76.92%, and we really like anything over 75%, so it got over that benchmark, and a final QAV score of.182. We look at anything over.10. So it wasn’t at the top of my list, but it was not too far. I think it was in, like, the top 10, and I checked it again before we came on the show this morning. It’s still in buy territory for us. Current price is $65.20 this morning, so it’s up a little bit since I d- did my analysis on [00:30:00] Monday. MGA Magna International: And Corrected Cam-PC-01 (1): that’s it. I’m gonna add it to our portfolio this week, and we’ll see how it goes. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

May 28, 2026

18m
45

The Gas That Moves the World: BWLP – QAV America #53

This week we do a full deep dive on BWLPG (ticker: BWLP), one of the world’s biggest LPG shippers, and why the Strait of Hormuz closure is sending their spot charter rates into the stratosphere. We also cover the bond market’s grim verdict on Trump’s economic record, oil heading toward $140 a barrel, and the fascinating story of Y.K. Pao, the banking clerk who built the largest privately held shipping fleet in history.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription [00:00:00]Cameron: Ba-dum-bum. Welcome to QAV America, Tony, episode 53. It’s the 19th of May, 2026. Trump went to China, Tony.Tony Kynaston: He did.Cameron: with a nice T-shirt and some knockoff Nikes, and that’s about it.Tony Kynaston: He was, he was flogging, uh, copies of Art of the Deal in, uh, Tiananmen Square.Cameron: Yeah. Um, it sounds like it was a bit of a nothing meeting. They had nothing really to announce. A few sort of minor things, but nothing about opening the Strait of Hormuz, nothing really about, uh, trade deals. Trump’s g- I think China’s gonna, excuse me, China’s gonna buy some more beef, US beef. Uh, I think that was it, really.Tony Kynaston: my read on it was between the lines was that Xi Jinping said, “Hey, [00:01:00] gonna take over Taiwan at some stage. Don’t get involved.” And Trump said, “Hey, sounds good if you can help us get the Straits of Hormuz open.”And they wouldn’tthat formally either of those two things, I wouldn’t think.Cameron: No. But, you know, technically speaking, Taiwan is already part of China. Everyone agrees to that.Tony Kynaston: roadCameron: Everyone agrees to that, including the US, including Australia. It’s the One China policy. Everyone’s always agreed to that since the ’70s.Tony Kynaston: Mm-hmmCameron: agrees with that. They just think they run China. They think they’re the– They just believe they’re the real Chinese government.Tony Kynaston: Uh-huhCameron: Anyway, um, it, it– You know, it was sort of a bizarre trip, like the leaders of the two major economies meet in secret and really have nothing to announce afterwards.Tony Kynaston: Yeah So that leads me to think [00:02:00] something was going on behind the scenes that they can’t announce So ICameron: Or nothing, or they reach no agreements on anything.Tony Kynaston: yes that of course that’s possible But it’s still it’s good to see the two leaders get together They’re not sniping at each other from across the Pacific OceanCameron: Yes.Tony Kynaston: thing What did Trump say He said uh I like it here I could I could live here for a long time here It’s greatCameron: He might have to, depending on how things play out.Tony Kynaston: That’s what I thought I thoughtI’m gladChinese foodCameron: Mm. Like Latin American dictators, after they got kicked out of their countries, had to go to Florida, the guy from Florida might have to go to Beijing to live. Uh, you know, it was– I, like, I don’t know what went on, but reading between the lines for me, he went there to try and get support to get Iran to bow down, and they went, “No.”And, you know- reach a deal and cut it out because this is annoying [00:03:00] and,Tony Kynaston: II thoughtlike You want that Have a look over here at Taiwan You know Don’t get involvedCameron: Yeah, maybe. I, again, I, I don’t think they need to worry about Taiwan. I think Taiwan’s just gonna, you know, knock on their door and ask to be part of it the way things are going, but we’ll see.UhTony Kynaston: a bit like Cuba knocking on the door and wanting to be part of the USCameron: no, not like that at all, no. No, but, uh, you know, the– Taiwan, like every country, they’re gonna need to pick a side at some point. They’re gonna need to decide where their future is best placed. Is it by an alliance with the United States or an alliance with China?Tony Kynaston: I I’m not sure alliances with the US are worth much at the moment so HmmCameron: Yeah. So anyway, um, we talked briefly about this on the last show, the, the Australian show, but, uh, the, it’s more appropriate to talk about it here. So the bond [00:04:00] market in the US is going through some friction at the moment. The US 30-year yield went above 5% for the first time since 2007.You know, Trump, in his campaign for his, uh, second term, promised to fix the economy, eliminate the debt, crush inflation, no wars, peace everywhere. He’s 16 months in,Tony Kynaston: HeCameron: growth has slowed, debt has grown by $4 trillion, inflation is rising, manufacturing has shrunk. The Supreme Court has thrown out his tariffs that were going to bring in so much money that America wouldn’t know what to do with.His economic approval rating is the worst of his career, down to 30%, so going about as well as you would expect when you put a reality TV star in charge of the world’s leading economy. ButTony Kynaston: A and I think [00:05:00] Amazon are looking at rebooting The Apprentice starring one of the Trump boys so the succession the succession plan’s in placeCameron: yeah.Tony Kynaston: But anyway likethe bond market’s having nothing of it isn’t it That’s the that’s the real important thing for investorsCameron: well, you know, on one hand, the S&P is booming. On the other– although it’s back a bit over the last few days. But, uh, on the other hand, the bond market is pricing in the reality of the long-term picture, which isn’t pretty.Tony Kynaston: No Uh uh including the fact that uh US debt’s up um no sign of it being reined in But also the oil price is gonna be higher for longer I think than people are are factoring at the moment too Except for the bond market they can see it or at least they’re guarding against it happening But um yeah the the bond market rules the roost really If if interest rates on or or if yields on bonds keep going up [00:06:00] that raises the cost of borrowing for corporate America and and so the growth slows Uh yeah if the problems aren’t fixed by the government then it just leads to a collapse somewhere down the trackAndCameron: And Warsh has now been confirmed as the new Federal Reserve chairman. Jay Powell is on his way out or is out. Not exactly sure what the timeline is on that. But y- you know, there is, there was this expectation that Warsh was gonna come in and cut interest rates. But with inflation going upTony Kynaston: YeahCameron: to 4% now, and people think it’ll go over 4%.Apparently, historically, when US inflation crosses 4%, the S&P falls 4% over the next three months, and then 7% over six months. But maybe this time it’s different, Tony.‘Cause AI.Tony Kynaston: three of the three of the most [00:07:00] unreliable words in the English language time it’s differentCameron: It’s four words, but yeah. Um, there’s, uh, uh, Helima. Look, e- every economist I’ve read in the last month or six weeks has said even if the Strait opened tomorrow, we’re gonna see at least six months of higher oil prices. Uh, there’s a lady called Helima Croft, who runs commodities for RBC Capital Markets.It’s the Royal Bank of Canada. Used to work at the CIA on Middle East stuff. She reckons oil is heading to $140Tony Kynaston: HmmCameron: the way it’s going. There’s no sign that the Strait’s gonna be open anytime soon. It’s still nacho. Uh, Trump did say today that he was going to authorize more bombing of Iran this week, but then didn’t again because he claims Middle Eastern countries asked him not to, and negotiations with Iran are going tremendously well, better than, better than any [00:08:00] negotiations have ever gone in the history of negotiations.You wouldn’t believe how great these negotiations are going. US Treasury Secretary Bessent called this. Yeah. Instead of Taco Tuesday. Yeah, Nacho Monday. S- Bessent called this inflation transient, which apparently is the same word Powell used in 2021 coming out of COVID, but it turned out not to be transient, so apparently it’s the T word.Markets reacted badly to the T word being used, which I thought was Trump, but it’s the other T word. It’s transient.Tony Kynaston: wasn’t Taco It’sCameron: So many T wordsTony Kynaston: YeahCameron: Well, I was looking for a stock to– I don’t really have any company news this week. I was looking for a stock to do a deep dive on and to add to our portfolio this week, and it was tough.I went through 20 stocks at the top of the buy list, and everything was having a down day when I was looking at [00:09:00] them on s- uh, Sunday, Monday. Until I finally found the company that I am gonna talk about today, which is, uh, BWLP is the ticker, BWLPG Limited. And, uh, you know, it’s kind of a interesting story.Again, it’s sort of a pretty boring, classic value investing stock, I think, in many ways. The numbers are a little bit, uh, interesting, but we’ll, we’ll get into the whys and wherefores. Nothing as complicated as some of the ones I’ve looked at in the last couple of weeks. By the way, there were some more of those when I was trying to find a company.A lot of financial services companies on the buy list in the US this week, but a lot of them just had massive dumps of new capital, which is affecting their operating cash flow, and we [00:10:00] decided to put the kibosh on those. But BWLPG, as you might be able to tell from the name, is an LPG company. They ship gas.Uh, we always say we’re looking for mass, not gas, in terms of investing, but well, they have mass and gas.Tony Kynaston: YeahCameron: Their gas brings the mass. Uh, they’re on the New York Stock Exchange, also listed in Oslo as BWLPG.Tony Kynaston: AndCameron: they specific.Tony Kynaston: It’s aCameron: Yeah.Tony Kynaston: a very transglobal companyCameron: Yes, very interesting. We’ll get into the history of why that is shortly. But, uh, they specifically ship LPG, propane and butane, as opposed to LNG, methane.I had to remind myself, uh, what the difference is between the two. So for people out there who don’t know their gases, LPG, easier to liquefy, [00:11:00] 42 degrees, minus 42 degrees Celsius, or moderate pressure at room temperature. Used for cooking, heating, auto gas, petrochemical feedstock. LNG, much harder to liquefy, 160, minus 162 degrees Celsius, cryogenic.It’s used for power generation, city gas grids, industrial applications, industrial level heat, that sort of thing. So BWLP ships the LPG stuff, similar to a company that we already hold in the dummy portfolio, GASS, G-A-S-S, that we have held for quite a while. Let me just remind myself. GASS, um, transaction.When did I buy GASS? Added GASS back in October 2023, one of the first stocks I added [00:12:00] to our US portfolio. It is up. Hmm?Tony Kynaston: does that make it classical gas if you’ve had it for that longCameron: Wow. It’s a, it’s a ’70s joke. Is that a ’70s classical GASS? How does it go? You wanna sing it?Tony Kynaston: Well you can’t sing it It’s uh instrumentalCameron: Instrumental. You can sing an instrumental. For. Okay. I’ve been l- You should have prepared for this. You should have pulled your guitar out and been able to play. Uh, GASS is up about 100%, uh, since I added it October ’23, so it’s had a good run.Tony Kynaston: good yeahCameron: Yeah. Um, but these guys are much, much, much bigger. Same industry, different pond.Um, they both transport LPG by sea, but in different parts of the country and different philosophies. So to give you an example, GASS [00:13:00] has 29 ships across three smaller classes. BWLP has 50 VLGCs. A VLGC is a very large gas carrier. Uh, GASS mostly deals around Europe, Mediterranean, intra-Asia, that kind of thing.Uh, BWLP does US Gulf to Asia and Middle East to Asia long haul. Market cap wise, GASS is about 375 million US. BWLP is about $3 billion US. So these guys are really, really big, as are the ships that they have. A VLGC, very large gas carrier, is about 230 meters long,Tony Kynaston: WowCameron: and they carry about 44 to [00:14:00] 47,000 tons of LPG, which is chilled down to minus 42 degrees Celsius down in the hull so it stays liquid Anyway, that’s what they do.Um, been listed on the New York Stock Exchange only since April 2024, so only two years on the NYSE, but listed in Oslo since 2013, which is the primary listing. Not an ADR in the US, I checked that. They have common share trades on both exchanges. And as you said, they’re Singapore incorporated. They moved their domicile from Bermuda to Singapore in July of 2024, and they report in US dollars.Tony Kynaston: So they liked head offices in low tax environmentsCameron: That’s got nothing to do with it, Tony, at all. Purely, purely, purely coincidental that those things would be happening, I’m sure. So what do they do? Well, imagine you’re a Korean utility or a Japanese petrochemical company. [00:15:00] You burn propane as fuel, or you use it as feedstocks to make plastics and chemicals.You buy it from a trader. That trader has bought it from a producer in the US Gulf or from Qatar or from Iran. You have to get it from the place that manufactures it to your facility, and you do that on a really big ship. I was gonna say boat, but I know they’re not boats, they’re ships. And so you can hire a ship from BWLP.How do you say, how would you. BWLP? Bullop, bullop. That’s what I’m gonna call them, bullop. You can hire a ship from Bullop to do that.Tony Kynaston: White LPCameron: Oh, yeah. Good. Yeah, yeah. The Bullop. It takes about 40 days from the US Gulf to Japan via the Panama Canal or the US Canal. The American Canal as it sh- the Trump Canal as it will be by the time he’s finished.Tony Kynaston: WellCameron: AboutTony Kynaston: it the [00:16:00] Hormuz, Hormuz Canal so then Trump can say Hey I’ve opened the straitCameron: yeah. That’s clever. Good thinking. Yeah. Or about 18 days from the Middle East to India. And there’s basically two ways that Bullop, uh, rent out these vehicles. The first is spot charters, where you hire a ship for a single voyage at the going market rate quoted in dollars per ton or dollars per day, and that price bounces around enormously.Particularly high at the moment for some strange reason. Andpurely coincidental. Or, uh, the second is time charters, where you have a fixed period, six months, two years, five years, at a fixed daily rate. And these guys are roughly 50/50. You know, they, they kind of have a balance of the two strategic, for strategic reasons. Right now, getting [00:17:00] back to the spot charters, the Houston to Chiba, uh, named after Sonny Chiba in Japan, voyage is in the region of about 300 US dollars per metric ton, which converts to about 170,000 US dollars per day.And that’s a record. Um, the lows are more like 15 to $20,000 per day.Tony Kynaston: RightCameron: that’s a it’s a big, that’s a big hike in the cost of getting gas moved around because you can’t move it through the strait, and so you’re having to get it from other parts of the world, takes longer to get to there from the US and there is less ships available, et cetera, et cetera.Supply and demand kicks in.Tony Kynaston: mean it’s um more oil has to is being exported by the US now cause it can’t come from the Middle East SoCameron: Gas.Tony Kynaston: on oil gas it’s it’s all [00:18:00] interrelatedCameron: It’s all all. It’s all oil. All oil. Petrochemical and byproducts, yeah.Tony Kynaston: backed up Needs toCameron: really?Tony Kynaston: of prunes yeahCameron: Needs an enema? Yeah.Tony Kynaston: yeah so much uhCameron: Did I tell you about my back, my constipation story?Tony Kynaston: Luckily noCameron: Well, you know, I’ve been. You know, I’m hardcore with my diet and my smoothies. I got a little bit overzealous with the, uh, the fiber, the chia seeds and the psyllium husk that I was having. I was like, “Well, if, you know, 10 grams a day is good, 50 grams is gonna be excellent.” So I, uh, and I had a very uncomfortable two hours,Tony Kynaston: Oh dearCameron: c- couple of months agoTony Kynaston: UghCameron: Thought I was gonna die.Anywho, uh, the relevant performance measure for these guys is something called TCE, time charter equivalent income. [00:19:00] It’s the revenue from chartering the ship minus the voyage costs, fuel, port charges, brokerage expressed per day, and that normalizes across spot and time charter mixes. So at the end of the day, what you’re looking at is TCE.BW’s full year 2025 TCE income per available day was just over $45,000 across the fleet. Q4 2025 specifically was $50,270 per available day. So running hotter than the full year average because the spot market accelerated in the back half of the year. And the numbers that we’re using are their full financial year numbers, uh, and I’ve got their quarterly numbers as well, but none of.The, the strait didn’t close until March, so it hasn’t really flowed through to their reported numbers yet.Tony Kynaston: [00:20:00] RightCameron: with Iran when the US and Israel were bombing Iran in the middle of last year, so that flowed into the 2025 numbers. But there was also tariff wars and all of that kind of stuff going on.I, I read the CEO’s, um, opening to the annual report and, you know, for guys like this, obviously it’s been a very tricky year. A lot of, lot of geopolitical conflicts and, uh, things to have to navigate. Uh, for comparison, the prior FY 2024 figure was 48,300. So the full year 2025 was 45,000. It was down about 7% year over year.But the fleet grew. They bought a bunch of ships, so their total earnings grew. Q4 2025 alone was up 33% over Q4 2024, even though rates [00:21:00] were down, so that shows you how much they grew the fleet. Um, for full year 2025, only about 28% of the fleet days were on fixed time charters, not really 50/50. The rest were on the spot curve.But that changed by Q4 to 44% as they locked in more at higher rates. Um, so the, it’s roughly, what’s that? 56/44 now, as of Q4 anyway. Uh, so they also have another division which I found interesting. They have a separate trading division called Product Services, which is actually in competition with the people who supply the LPG.It’s a physical LPG trading business that they run in-house. They buy LPG cargoes themselves at one port, then move the cargo across the ocean, usually on their own ships, sometimes on other people’s ships, but usually on their own ships, sell the cargo at the other port and [00:22:00] hedge the price exposure with derivatives.So yeah, we, we’ve talked about this before in a lot of these shows, people looking at share of wallet. Well, you know, we’re already in the LPG business. Why not have a. I think they bought these, they bought this trading arm from another company a couple of years ago. But, uh, so that’s, that’s basically the business.Renting out ships either at spot rates or long-term rates and they also have a trading arm. Trading arm’s not huge. Made about, in 2024 it made about $145 million in gross profit. In 2025 it made $16 million gross profit, which is a lot less than 145 million if I’ve done my maths correctly. Uh, most of that was mark to market on the unrealized derivatives book.Basically, value of their hedges moved against them year on year. But it’ll wash out over time, I think. So the company itself, um, hasn’t been listed that long and is [00:23:00] only about 12 years old as a separately listed entity, but goes back to one of the great shipping fortunes of the 20th century.Two businesses came together to make the BW Group, Pao’s Worldwide Shipping and Bergesen d.y., which is a Norwegian shipping business founded in 1935 by a chap named Sigvald Bergesen the Younger. I think that’s what the d.y., de younger, actually means. Um, I’m being serious. Uh, he had a falling out with his father, Bergesen the Elder, and set up his own shipping company.Uh, so but that, you know, the, that had been around since 1935. Worldwide Shipping was founded in Hong Kong in 1955 by Sir Y.K. Pao, Y.K. Pao, who ended up one of the richest guys in Hong [00:24:00] Kong. He had come to Hong Kong from China in 1949 during the Chinese Civil War, much like my grand master’s master, Ip Man.You ever seen any of the Ip Man films, Tony? Donnie Yen as Ip Man? Ah. Should watch it.Tony Kynaston: All rightCameron: went to Hong Kong and started teaching Wing Chun Kung Fu. Y.K. Pao went there and set up a shipping empire. He’d been a banking clerk in Shanghai, went to Hong Kong with nothing more than the shirt on his back, and then ended up building one of the.Well, not one, the largest privately held shipping fleet in the world by 1979. 202 ships, 20.5 million deadweight tons. Yeah, sorry.Tony Kynaston: story So as as I read today when I was preparing for the the um podcast Uh I think he When he went to [00:25:00] Hong Kong he was struggling to find career He was working in the bank but he was also to import things after World War II into Hong Kong sort of led him to to buy his first ship because he was an importer And then he expanded a little bit But um he he locked in long-term low rate contracts with the Japanese and that was the making of him because the shipping companies by and large were run by the Greek tycoons at that stage the Onassises and people like that And they were the reverse They were a bit like what you were describing before They were trying to maximize their margins and charge spot prices and you know uh control the market all that kind of thing um Pao said No if I just if I slow and steady wins the race If I can get long-term contracts which benefit the customers I make a little bit of money and then they’ll give me more work and I can expand my fleet and I’ll make a lot of money out of a little [00:26:00] bit of money on each ship eventually after a couple of decades he just dominated the shipping lanesCameron: Wow.Tony Kynaston: HmmCameron: Slow and steady wins the race. Bit like the, um, Ray Kroc story. Just look after your customers, look after your suppliers. Good for him. He got knighted by Queen Elizabeth in 1978, was personal friends with Ronald Reagan and Margaret Thatcher. Newsweek magazine put him on its front cover in 1976 with the headline, “King of the Sea.”I think that makes him Aquaman or The Deep, if you’re watching Yeah. Had less sex with octopuses, but apart from that, he was just like The Deep.Tony Kynaston: I’m just trying to find He had a If I can find it quickly He had a quote Here it is here When he passed away in 1991 he lived his entire life by an unyielding personal motto Exercise persistently use [00:27:00] sparingly work diligently That was his mottoCameron: Yeah. Say that again. Exercised persistently.Tony Kynaston: Use sparingly and work diligentlyCameron: Oh Pretty good. Yeah. Um, so Bergesen, I mentioned, um, comes out of Norway, another sort of, uh, large shipping enterprise. They combined in 2004. Owned at the time 93% by the Schullman family and 7% by HSBC. Schullman is from Helmut Schullman. He’s an Austrian lawyer and businessman, or was in Hong Kong. Was chairman of the BW Group and a Hong Kong lawyer, uh, or legislator and lawyer.And he comes into the picture because he married Pao’s eldest daughter, Anna Pao Hing [00:28:00] Pao, and, uh, ended up sort of taking over the, the family business. He stayed at the helm until 2014 when he handed over to his son, Andreas Schullman Pao. He’s got a double-barreled last name for both of his grandparents, I think.And, um, one of the reasons they did the NYSE listing in 2024, I think, is that the buyer base for LPG shipping equities is largely American institutional money. Most LPG demand growth is in Asia, but the production growth is in the United States, particularly the Permian Basin in Texas and the Bakken in North Dakota that we talked about back on the Cord episode, which we did a while back.And Cord is in our light portfolio and doing okay. Doing okay. It’s up [00:29:00] 56.6% since we added it in January. That’s not bad for a few months.Tony Kynaston: just before the warCameron: Just before the war, that’s right.Tony Kynaston: I’m shocked that an oil company went up in value after the Straits of Hormuz closed orCameron: Gas.Tony Kynaston: US Is Cord gas or is itCameron: No, I think they’re oil. I think you’re right, yeah. So when natural gas comes out of the ground, propane and butane come with it, which is why the US has become the dominant LPG exporter over the last decade.Tony Kynaston: Mm-hmmCameron: Uh, so there’s a couple of things to talk about with these guys that is interesting. Um, August 2024, they announced they were buying 12 VLGCs from a Norwegian competitor called Avance Gas for about a billion dollars. Um, and they, it [00:30:00] wasn’t an all cash deal.It was sort of cash and stock deal. So Avance ended up with a big chunk of BW stock. And then they also got a CEO in the process. Um, so the guy who was the CEO of Avance Gas, Christian Sorensen, um, just before this deal went down, had moved from Avance to become the deputy CEO and then the CEO later on at BW.So yeah, you get our CEO, we, we, we get your CEO, we get your ships, you get some stock. I don’t really know, um, how that works, but, uh, it’s not really a, not really a merger, but sort of a, kind of a combining of forces. Anyway, they increased the size of their fleet from 51 [00:31:00] VLGCs to 53 as a result. You know, 53 doesn’t sound like a lot of ships, but apparently it is, uh, a big, a big deal.Interesting too, 22 of their ships are LPG dual fuel, which means they can burn LPG cargo as the ship fuel instead of heavy fuel oil or HFO. So load it and burn it. Apparently it’s a much cleaner ship. Apparently HFO is like one of the worst things,Tony Kynaston: Yeah it’s like below diesel in the in the and um it’s sludgereallyYeahCameron: So these ships, uh, can burn LPG instead, which is interesting. Anyway, uh, there was another guy that came over as part of this deal. Uh, John Fredriksen’s Hemne Holding ended up owning 9.4% of BW. He was the controlling shareholder of Avance Gas, so he got some of the [00:32:00] shares in the deal. I don’t know, it’s all very convoluted, but, um, he’s, I think, the second largest shareholder now.The Schullman-Pao family own 32%. Fredriksen family owns 9.4%. So these are two of the great Norwegian Asian shipping dynasties of the 20th century who now together own about 41% of BW LPG. This is, um, another interesting component of the business. They have a 100% of shipping NPAT dividend policy.Tony Kynaston: HmmCameron: The annual report says shipping NPAT is calculated as profit attributable to equity holders of BWLPG minus BWLPG’s share of BWPS’s net profit loss after tax.So the yield numbers look good. They pay out a pretty big dividend. Um, depends on the, you know, the yield depends on the share price [00:33:00] obviously, but at the time of the Q4 release in early March, the annualized yield was about 12.5%.Tony Kynaston: WowCameron: pretty strong.Tony Kynaston: Yeah And if the um if the latest oil prices haven’t rolled through in terms of shipping income anyway the next quarter will be even higherCameron: Depending on the share price, yeah,Tony Kynaston: HmmCameron: happens with them. But yeah, the dividend will be higher. Um, so yeah, that’s, it’s directly tied to the spot market and, um, at the moment that’s going bonkers through the roof. The other interesting point about this is about 18% of the group income comes from a division called BWLPG India.So these are Indian flagged, Indian operated, qualifying under India’s self-reliant India [00:34:00] preferential cargo scheme. It’s eight ships, but it means those eight ships can transit HormuzTony Kynaston: AhCameron: because India, uh, has a friendly deal with Iran. whereas the rest of BW ships are Singapore flagged and don’t get that privilege.So they still have some ships that are able to. I don’t know how they navigate the mines, but, uh. Oh. how do you get around the the mines? Like apparently the strait’s full of mines, so I don’t even know if you’ve. Like do the Iranians know where the mines are? I guess they might have some idea.but yeah, I don’t know. Do, do they– I guess they know where they are. They have them on a map somewhere. They have Apple Maps telling them where they are.Tony Kynaston: They put air tags on themCameron: Yeah.Tony Kynaston: And they call up Find My Sea Mine It’s an app on their iPhonesCameron: [00:35:00] uh, the flip side of this is they don’t own all of BWLPG India. Um, there’s another company called Mass Capital Shipping that holds about 42% and a residual third party. But they own about 48% of them that it flows through. So what’s going on in the market right now? Uh, as we said, spot rates are crazy, about $300 US per ton for the Houston to Chiba route. Um, hard to know exactly what impact the Hormuz closure is having on BWLPG.As I said, most of their fleet is Singapore flagged. Um, but, you know, some of the things that I could figure out is that the closure forces Asian buyers to source LPG from the US Gulf instead of from the Middle East. So that long haul from the Pacific via the Panama Canal. Canal? Why did I say it like that?Canal. Connect. Now I’m in my head. [00:36:00] Panama Canal is, uh, takes longer, right? So from the Middle East, going from Saudi Arabia to Japan is about, uh, 18 days, I think. To get it from Houston is about 40 days. So you’ve got less ships. It takes more than twice as long to transport it, which is more than double the day rates.Plus you’re paying more expensive day rates. Shipping industry calls this ton miles, total cargo volume times distance. So you’re doubling the length of the voyage and the day rates because there are less ships going through the roof. Yeah, it’s a, it’s a economic nightmare for everybody involved.Tony Kynaston: AndCameron: good though, if you’re the guy selling the ships.Tony Kynaston: theCameron: Hmm.Tony Kynaston: the export ports for the Gulf are obviously on on the Gulf of America side the Gulf of Mexico side which is the AtlanticCameron: [00:37:00] Okay.Tony Kynaston: the moment trying to get oil ships and gas ships through you’re forced to go around the um the bottom of South America if you can’t um If you if you’re the hundredth ship in line for the Panama Canal and it’s quicker to go around the you do that But I don’t know if that’s figured into your 40 days but it’s got to add extra days to the trip tooCameron: Just pick him up and carry him. That was your plan for getting across, uh, Saudi Arabia, wasn’t it? Just sort or,Tony Kynaston: CorrectCameron: Just pick him up and carry him.Tony Kynaston: YeahCameron: yeah. Easy. Uh, so.Tony Kynaston: Well if if they’re two hundred meters long you just line them up end to end fifty-five of them through you know through the Panama Canal and then you just roll the barrels down from one end to the otherCameron: Like a slippery slide. Why, why, why doesn’t Elon put them on rockets? That’s what I wanna know. He could just put them on BFR rockets and fly them over. Actually, that would be [00:38:00] cool. His rockets are reusable. They can land. Just have a fleet of rockets flying fuel around.Tony Kynaston: That’s that’s entirely feasible yeahCameron: get Elon on the phone. He’s probably not having a good day since he lost his lawsuit.Tony Kynaston: What do you mean statutes ofCameron: Ah.Tony Kynaston: youCameron: Yeah. Yeah, Grok told me that was fine. Um, so I went down a little bit of a rabbit hole on LPG because I read their annual report and they s- they, they say, “Cleaner fuels for a better world.”Tony Kynaston: It’s allCameron: So I. It is all relative. That’s pretty much it. Yes, yes, yes. Um, and it is. You know, LPG is cleaner than a wood stove or HFO ship fuel or the coal-fired industry.Tony Kynaston: Mm-hmmCameron: clean compared to LNG or renewables or electrification, [00:39:00] but, you know, it’s clean-ish, I guess. Uh, depends on what you’re comparing it to. But a lot of the developing world, Asia, is using much dirtier sources of fuel, so I guess they can get away with it. It’s not really greenwashing.That’s basically it, Tony. That’s, uh, the, the backstory of the business. Nothing more to tell you. I can tell you about how I scored them. Uh, they got a QAV score of 0.16. As I said, it was fairly low down on the list. I had to go down 20, 30 stocks to find it. Luckily, there’s a lot of companies on the list.But, uh, everything else that I looked at, uh, was having a, a bad day. Quality rank is 89, scored for that. Stock rank is 99, scored for that. F score is seven, scored for that. Uh, our IV1 came out at $6.36, and the price was about $21 when I looked at it, so well and truly above our IV1. However, our IV2, our forecast IV, was $26.78, [00:40:00] so scored it for that.Uh, price was not less than book or book plus 30. Did obviously have a three-point uptrend. Also had a new three-point uptrend, so that’s good. We’re catching it as it’s, uh, turning up. Growth over PE was about 0.1, so couldn’t score it for that. But book value growth was positive. It’s about 7.4% year over year for three years.Yield, uh, is definitely, uh, greater than bank deposit rates. The average yield over the last year is about 7%. So not the 12% for the last quarter, but still comfortably above the bank rates, so could score it for that. And, uh, forecast intrinsic value is not greater than twice the price. As I said, it’s, like, 26 bucks, so couldn’t score it for that.Um, and the Pr/OpCaf was 5.41, so not the lowest we’ve seen, but lower than the [00:41:00] seven that we look for. So we ended up with nine out of 13, uh, for our quality score and, uh, yeah, as I said, quality score was 84.6% from our end and came in with a QAV score of 0.16. So their next AGM is on the 28th of May.They’re gonna be voting on a share buyback mandate of up to 10% of the issued shares, which we like to see. That’d be about 334 million at the current price. Good to know that that’s on the table. But that’s basically it, Tony. It’s a relatively, uh, cheap company that has been doing it for a long time in one way, shape, or form.They’re shipping gas around. I don’t think that’s going anywhere.Tony Kynaston: NoCameron: one of the biggest in the biz and, uh, they’re making money.Tony Kynaston: Yeah that they’ve got a high yield I mean that was the thing that came out of my analysis Even when you know you go back over the [00:42:00] years when there wasn’t um problems with the Straits of Hormuz there was still a high yielding stock It’s sort of seven type yieldCameron: Hmm.Tony Kynaston: and they have that payout ratio of a hundred percent of shipping profits So that says to me they think they’ve maximized their fleet They’re not gonna capital to you double the flipping the the shipping fleet which is kind of interesting too Ithought Um I guess if they need to raise capitalthey’ll just go into the market and raise it if they have a, you know, acquisition opportunity or something.But, um, yeah, just interesting that most companies would keep something aside for growth, but this is kind of suggesting that they’re maxed out.Cameron: Or like the Advanced Gas deal, they did it with stock.Tony Kynaston: Yeah.Cameron: cash and stock, but they were able to do a lot of it with stock, so maybe they figure that they can buy stuff with stock if need be. But yeah, if you look at their revenue, 2020, 800 [00:43:00] mil, uh, up to 3.6 billion in, uh, 2025. For some reason, Stockopedia says their 2026 estimate is only 958 million.I didn’t really drill into why that is, but their operating profit, hmm?Tony Kynaston: Sorry. I, I mean, like with all of these stocks at the moment, they, all– it depends what your forecast is for the price of oil really, or, or gas, whichCameron: Yeah, but how’s it gonna go from 3.6 billion to 958 million in the current climate?Tony Kynaston: Es-especially since if they open the straits tomorrow, it’s gonna take months and months and months for the re- the world to return to normal.Cameron: Yeah.Tony Kynaston: Mm.Cameron: I didn’t really drill into why that is. But, um, their operating profit has gone from 282 million in 2020 up to 348 in 2025. Their net profit is about the same actually. It did go up quite a bit in 2023, but it was [00:44:00] 244 million in 2020 and 242 in 2025. Interestingly, that’s forecast as being 400 million next year, but with the revenue dropping by 70%.So that makes no sense. Hmm. Hmm. Uh, but anyway, the numbers look good. There’s nothing really strange or bizarre or worrisome about it. They just are a company that have a lot of big ships and move gas around. So kind of boring, kind of cheap, and, uh, they’re not AI. Uh, that’s probably why they’re cheap. No AI in there whatsoever, but, uh, I added them to our live portfolio yesterday and we’ll see how they go.Tony Kynaston: Very good. Interesting story too if anyone wants to go and read about Mr. Pao. Great, uh, great founder story.Cameron: Yeah. One of the, one of the behemoths of the Hong Kong story in the late 20th century.Tony Kynaston: One of the things I saw was that, uh, [00:45:00] when oil glut happened in the 1970s, I guess it was, um, 1980s, late ’70s, early ’80s, he, um, he sort of sensed it coming and, uh, sold off a lot of his tankers and paid down debt and was really well positioned to, to go through that downturn in the industry. And he started buying up, uh, physical companies on land in Hong Kong and became a big player in Hong Kong and the first Chinese director and eventually vice chairman of the Hong Kong and Shanghai Banking Corporation, HSBC.Cameron: Right.Tony Kynaston: Yeah.Cameron: Who ended up having a big stake in BW.Tony Kynaston: Oh,Cameron: Interesting. Yeah. Okay. I didn’t make that connection. Yeah, I’ve, I’ve read a bit in the past about both Hong Kong and Singapore’s rise in, you know, the last 50 years of the 20th century. Both amazing stories. Like [00:46:00] China’s rise since 2000. You know, the last 25 years of China’s growth is amazing and different scale and all that kind of stuff, obviously.But Hong Kong and Singapore went from these tiny little fishing port backwaters of nothing to incredibly rich and successful islands.Tony Kynaston: Yeah, and largely on the back of one or two people or a family, um, and on the back of setting themselves up as financial hubs, uh, withlow tax ratesCameron: Hmm.Tony Kynaston: Because as you say, it could have been Malaysia, it could have been, um, India, it could have been any number of probably a hundred areas in that Asian that, uh, could have gone ahead as mu– like Hong Kong and India did, uh, and sorry, um, Singapore did, they did it.Cameron: And Singapore did it basically as a, under a dictatorshipTony Kynaston: Hmm.Cameron: run by a single guy [00:47:00] who the West loved. He was adored around the West, even though he ran a pretty fierce, you know, not taking any prisoners dictatorship in Singapore. But as, uh, Hyman Roth says in The Godfather Part II, “Hyman Roth always made money for his partners.”Tony Kynaston: Yeah, well, I had a– I’ve had a number of people who went across to Singapore for work, um, with Shell and with other companies. Uh, yeah, that’s pretty true. They made money in Singapore, largely for tax reasons, but was a, a Western trading hub in that Asian region, region.Cameron: Mm.Tony Kynaston: they had good lifestyles. I’d, I’d ask them, “What do you think of the, of the family running things?”And they’d say, “Don’t have much to do with them. They stay out of our way. We stay out of their way. But hey, the place is clean and tidy and there’s no, no lawlessness, so it’s great.”Cameron: [00:48:00] Mm. I read a good book by Graham Allison a few years ago. He, um, did a lot of interviews with Lee Kuan Yew and, um, you know, wrote a couple of books about him and his style actually. And he, Graham Allison, funnily enough, is getting a lot of attention this week because he’s the guy that coined the term, uh, that’s been getting a lot of media since Trump met with, um,Tony Kynaston: IsCameron: Jinping this week.The, um, what’s it, the Athenian general, um, term?Tony Kynaston: Peloponnesian, uh,Cameron: Yeah.Tony Kynaston: uh, not Thermopolis. Thru-Cameron: Thucydides trap. Yeah, the Thucydides trap. It was Graham Allison that coined that term, and I think he coined it, um, based on [00:49:00] something that Lee Kuan Yew said about China’s rise and how America would eventually react to China’s rise as a challenging power.Um, but anyway, yeah, really. But just the, the, reading about Lee Kuan Yew and his admiration for China, and particularly, you know, the way that China ran things for thousands of years by getting the smartest people in the country and ge- and putting them in the government. So you w- you had a government run by the smartest, not the most charismatic, um- And then after Deng Xiaoping took over China, he went and met with Lee Kuan Yew and figured out how China should relearn those lessonsTony Kynaston: Yep.Cameron: back from Singapore.So it went backwards and forwards, the intellectual trading, I guess, of how to quickly build a [00:50:00] very, very successful country.Tony Kynaston: right. Pity we couldn’t do that here.Cameron: Isn’t it? Yeah. Yeah. What are you saying? All right. That’s it for QAV America this week, Tony. Have a good week.Tony Kynaston: Thank you. You too. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

May 21, 2026

23m
44

PUMP AND DUMP – QAV America #52

On this episode we run through the dummy portfolio , which is crushing the S&P at 125% time-weighted return, and dig into this week’s Pulled Pork: TriMas (TRS), a Michigan-based maker of hand pumps, dispensers, and packaging components that’s been quietly dumping divisions and sitting on a billion dollars in cash. The numbers look great on paper until Cameron and Tony notice the operating cash flow figures in Stockopedia are wildly inflated by the aerospace divestiture proceeds; the classic data quality trap. They also cover market news, Michael Burry’s doom outlook, the Nacho trade, and wind down with Red Dragon, paintball, and the Rolling Stones.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV America 52 CLUB VIDEO [00:00:00] Cameron: Welcome to QAV America, Tony. Episode 52, the 12th of May 2026. The title of this episode, Tony, Pump and Dump. Tony Kynaston: You keep titling these episodes before you’ve even spoken yet. So Cameron: It’s ’cause I’ve Tony Kynaston: title Cameron: my– Uh, we could swap it out, but Tony Kynaston: okay. Cameron: the working title of this episode, let’s say that. Tony Kynaston: You put a thumbtack in Cameron: Mm, mm. The Pump and Dump, Tony Kynaston: Pumping Cameron: which will become clear later on. Um, big week in, uh, news, Tony. Um, surprising to everyone. Tony Kynaston: we can use in the US? Cameron: You heard of the Nacho trade? Tony Kynaston: I have, but I’m just struggling to remember what it stands for. Cameron: I just read about it in the Fin just a minute ago. No, it’s not a chance of Hormuz opening, is the Nacho trade. There was an article in the Financial Review this [00:01:00] morning, uh, Michael, Michael Burry from The Big Short, basically talking about how the US market is headed for a massive disaster, but they also had somebody mentioning the Nacho trade. Not a chance of Hormuz opening. Trump, Trump says Iran’s offer is totally unacceptable. That was yesterday, and today he said, “The Iran ceasefire is on life support.” For weeks, all I’ve heard from him is, “Oh, they, they can’t wait to do a deal. They’re begging to do a deal. They wanna, they’d love to do a deal. They’re desperate to do a deal.” Apparently, they’re not so desperate to do a deal. Tony Kynaston: H- you name one war the US has gotten into in the last 100 years that hasn’t lasted for, like, at least five or six Cameron: Yes. Yes, uh, Gulf War one. Tony Kynaston: Ooh, that lasted a while though, didn’t it? Cameron: Nah, it was over in, like, two weeks, but [00:02:00] just went in, surprise attack, massive overwhelming force, signed a, signed a deal with Saddam, and got out. Um, but yeah, it was, it was a rare one. But, you know, as I’ve talked about on my other shows many times, you and I have talked about off air, you know, the US is driven by military Keynesianism. The US economy survives on military Keynesianism. Tony Kynaston: Mm-hmm. Cameron: it is now, $1 trillion Pentagon budget he’s got it at, uh, people don’t realize how much the US economy relies on that and how campaign financing for senators and congressmen and women rely on that, how it’s, uh, uh, the centerpiece of the US– uh, how the US economy works. Doesn’t get talked about much, but when you drill down into it. And you can’t justify that kind of a budget endlessly unless you’ve got a [00:03:00] big war at least every five to 10 years. Tony Kynaston: No, that’s all true. But my point is that every time US, uh, exceptionalism thinks they’ll get in and out of a war within a week, it generally lasts Cameron: But they don’t think that. That’s what they say publicly. They don’t really think that. I mean, the planners I don’t think, think that because there’s no profit in a quick war. I mean, okay, you do 24,000 missile strikes and you need to go and rebuy all those missiles, but there is some profit in it. But there’s a way more profit in a long drawn out war for everybody involved militarily. Not for the people who die, but for the people who make the money on the back end of the military industrial complex, that’s where the profit is, right? Tony Kynaston: Uh, yes, but I don’t think Trump saw things that way. I think he saw a way of stamping his authority and, Cameron: Oh, yeah, “ Tony Kynaston: I’m a Cameron: Yeah. Tony Kynaston: than anybody else, and I’m a better deal-doer than anybody else,” and he’s just proving that he’s not. Cameron: Well, I [00:04:00] don’t think Trump knows what he’s getting into most of the time. He just… Yeah. Uh, so anyway. Tony Kynaston: in the shoes and goes, “Ooh, what have I gotten into now? Cameron: Yeah. Tony Kynaston: Look at Cameron: Yeah. Tony Kynaston: Best shoes Cameron: mean, and a lot of it I do believe, like there’s also the element of distraction of the day, so deals are getting done on the back end and building hotels in Gaza and, uh, probably in Venezuela and the Epstein file distraction and all that kind of stuff. Tony Kynaston: Yep, definitely. Cameron: Uh, uh, I’ll just cut, I’ll just cut and paste all the news in later. Tony Kynaston: Okay. Cameron: Tony, there’s been a lot of news in my US news report that I run a couple of times a week. Uh, too much really to go through. These are stocks that we’ve, that we own in our portfolios or we talk about. I’ll get into those in a minute. Before we do that, let me just talk about our portfolio performance in the US. Our, uh, dummy portfolio, which as you know, has been running since [00:05:00] September 2023, is currently tracking at 125% time-weighted return versus the S&P 500, 66% over that period. So doing double market on that one. The QAV America Light portfolio, which has been running since the end of last year, s- December 22nd, is currently at 7% versus 7% for the S&P. So we’re neck and neck. We have come back quite a bit. Uh, we were doing way better than it a week ago. What’s fallen in the last week? Hmm, couple of things. Hmm, PAGSEGURO Digital has dropped. But a lot of s- a lot of, uh, stocks have had a rough week with oil prices and all this kind of nonsense going on. The Nacho trade or the Nacho [00:06:00] market, whatever we wanna call it. But that said, um, a lot of our stocks are doing very well. Uh, let me, let’s run through some highlights from the dummy portfolio. Uh, uh, let me, listed by that. Number one performing stock in our dummy portfolio is still Willis Lease Finance, and I’ve got some news from them in the news section. They’re up 350% since we bought them. Enova International is up 183%. Euro Seas is up 156%. SASCO Energy Navigation, TEN, is up 148%. Banco Latinoamericano BLX, Blaze, uh, Blade, Blade, BladeX, I think. It’s up 115%. StealthGas is up 98.8. But you know when I always say invest in mass, not gas? They’re the exception, um, StealthGas. They’re up 100%, 98.8% since we bought them. The others are all doing well, too. The one that’s not doing [00:07:00] well o- out of our portfolio is Korea Electric Power, KP. They’re down 11.8%. In the light portfolio, Cord Energy, they’re also in my news today, is up 46.6%. Pitney Bowes is up 46.4. Commercial Vehicle is up 46.3. Tony Kynaston: That’s amazing. How does, how does Pitney Bowes go up forty-six percent? Cameron: I’ll tell you ’cause they’re in my news, uh, today. Kodak was up 80%. It’s now only up 35. Tony Kynaston: Oh, that’s volatile, isn’t it? Cameron: That is volatile. I mean, I’m s- I’m not complaining about being up 35% in a month, but still. Nabors Industry is up 28. Uh, all the rest are up, too, except for a few. Shi- Shinhan Financial is down four and a half. Opportune Financial, OPRT, is down seven, and PAGSEGURO is down 8.7. Not coincidentally, they’re all not American-based companies. They’re all f- you know, foreign, [00:08:00] um, entities. But so is, uh, I think GeoPark, uh, so is Danaos. They’re all doing well. Ecopetrol is up now 4%. Deutsche Bank that we did last week is up 2%. But, uh, everything’s doing quite well. Um, the other stocks that we’ve talked about on the show, Pulled Pork’s, that aren’t in our portfolios but stack ranking them in terms of how well they’ve done since, uh, we talked about them. At the top of the list is Zepp Health Corporation, the, uh, digital watch manufacturer. They’re up 278% since July 25. Sasol is up 166%. Chemex is up 134. Precision Drilling is up 92. POSCO’s up 82. ORIX Corporation is up 75. Long, long list of stocks doing very well. [00:09:00] On the not so good side of things, uh, Cal-Maine Foods is down 20. Controladora Vuela Compania de Avion is down 20. Bausch Health are also in the news. No, not Bausch, it’s Dausch that’s up. They’re down 15. AMC is down 14. They still haven’t worked out how to sell Mad Men. Um, couple of others. But yeah, generally speaking, yeah, most of them are doing really well. So I’m gonna, uh, too much news to go through in detail. I wanna get to my Pulled Pork, but, uh, just some quick highlights. Kodak shares fell. They came out with their quarterlies. Uh, US commercial print and chemicals maker rose 7%. Revenue rose 7% year on year. Operational EBITDA jumped to 15 million from two million, driven by improved pricing. But net loss widened to 16 million from seven million a year earlier. So the share price dropped, but as I said, we’re still up 35% from [00:10:00] when we bought them a little over a month ago, so I’m not complaining. Jackson Financial, a stock that we’ve, hold. They’re an annuity provider. Q1 retail annuity sales rose 31% year over year. Adjusted operating EPS from Q1 rose slightly, $5.15 from $5.10 a year ago. But the company posted wider net loss due to less favorable hedging and higher volatility. So their shares took a little bit of a hit as well. Um, Willis Lease Finance, I mentioned, Q1 revenue rises 23% on higher lease and maintenance income. UBS, who we hold, climbs after a stellar Q1. Uh, ro- went up 4.5% after profits beat market expectations. Net profit attributable to shareholders rose 80, rose 80% to $3 billion, [00:11:00] beating an average analyst estimate of 37%. Uh, RenaissanceRe, based in Bermuda, good Q1 operating income. Gray Media, the, uh, television company that we’ve, uh, held for a while, their performance was good, driven by core advertising exceeding guidance and political revenue reaching the high end of expectations. Good old midterm spending. Tony Kynaston: Yeah. Cameron: Dowsch reports first quarter results, they were good. Callaway Golf Company announced their results. First quarter, I know you like this one. First quarter net sales up 9%, net income from continuing operations up 18%, adjusted EBITDA up 31%. Q1 non-GAAP net income from continuing operations increased 96%. Sounds good. [00:12:00] Pitney Bowes released their results. Uh, management attributed strong Q1 results to a broad-based recovery, specifically noting that SendTech is nearing a sales inflection point while Presort builds momentum towards a return to growth. S- these are the guys that do all of the Tony Kynaston: Franking. Cameron: mail franking, yeah. And Cord Energy, that we also hold, came out with their results. Delivered oil volumes above the high end of guidance despite adverse weather and midstream constraints, supported by solid cost control and the Strait of Hormuz being closed. So thank you very much for that. So, um, good results all around, but as I said, market’s sort of up and down like a bride’s nightie over there at the moment, so you never know what’s going on. But generally speaking, the market is still going bonkers. As I said earlier, Michael Burry is saying it’s massively [00:13:00] overpriced and, uh, he’s expecting a disaster, uh, to come. But, you know, we don’t try and predict the future, we just play it day by day. Tony Kynaston: Well, I hope it doesn’t come to pass ’cause that will impact us, but we’ll deal with it when it does, if it does. Uh, interesting though that Willis Lease Finance is doing well. I wondered whether they would come off because aviation worldwide is, is coming off. It’s slowing down. I think Qantas recently said they were down twenty percent internationally in capacity maybe. So, uh, you know, sometimes the first thing they do is to and save costs and extend their current fleet rather than lease new engines or whatever they do with Willis. But, uh, seems not to be the case. Cameron: Well, Willis lease commercial aircraft and aircraft engines, but I imagine they have long-term contracts. I can’t remember from when we did the deep [00:14:00] dive on them, but I think they have long-term contracts in place, so they’re probably a little bit hedged against short-term fluctuations in demand. Don’t know. But anyway, they’re doing okay, apparently. Tony Kynaston: Mm. Cameron: So let me get into my deep dive today, Tony. TRS, not the Reject Shop as it would be in Australia. I don’t even think they’re listed anymore, are they? Tony Kynaston: No, they were taken over. Cameron: we did well out of them for a while during COVID. Tony Kynaston: Mm-hmm. Cameron: This is TriMas. TriMas, T-R-I-M-A-S. Never heard of them, and for good reason. Oh, well, yeah. They’re, they’re like… This is an interesting one, as I said to you earlier. Like, they’re in some ways a classic QAV stock. Uh, a company that makes bits and bobs that you’ve never heard of because they’re behind the scenes. Tony Kynaston: Mm-hmm. Cameron: a, uh, slimming down exercise, [00:15:00] refocusing activist investors that are forcing them, well, not forcing them, but pushing them to sell off bits of the business that don’t really fit with their main goal. But their numbers are a little bit screwy. So, um, I didn’t buy them because I wanted to run it past you first. Uh, like you put the kibosh on Milrose, MRP a couple of weeks ago. We’ll see what you think of this one. But it did come up pretty high on my buy list this week. QAV score of 0.4, quality score was 9 out of 13, stock rank of 99, quality rank of 93, F score of 8. So on paper, pretty good, about as good as you get. Manual, the, the PropCaf came in at 1.88. But as you’ll find out, the operating cash as it appears in Stockopedia is, is, um, [00:16:00] maybe not to be believed, not to be taken at face value. Tony Kynaston: okay. Cameron: Um, but we’ll get to that. So market cap’s about 1.53 billion. Shares are trading around about 43 bucks. So what do they do? Tony, got a question for you. Do you like to be clean, Tony? Do you like to wash your hands? Yeah. Do you like to smell nice? Tony Kynaston: Hmm. guess so. Better than smelling bad, but go out of my way. Cameron: Do you like your wife to smell nice? Tony Kynaston: Y– Uh, same thing. Yeah, as long as she smells clean. Cameron: Post-COVID, do you like to keep your hands clean? Do you like to squirt stuff? Okay. Well then, you, you are the end customer for TriMas. Tony Kynaston: Oh, all right. Cameron: time you pump hand soap or spritz some perfume, if you lived in America, which you don’t, but if you did, you’d probably be a customer of TriMas. Um, all the little squirty bits in [00:17:00] bottles, somebody has to make those. The little, the pumps, Tony Kynaston: Dispensers, Cameron: dispensers, these guys make that. Um, been doing it since 19… Oh, nice. Yes. Good job. Boom, boom. Is that what you’re doing so much? Is that your, is that your, is that your suggestion for a title? Indispensable Tony Kynaston: Mm-hmm. Cameron: Been doing this since 1986. They’re based out of Michigan. Uh, not a household name, don’t need to be. Their website says, “TriMas designs, manufactures, and supplies a broad range of innovative and high quality products for the consumer packaging, life sciences, and industrial markets through its TriMas Packaging and Specialty Products Group. With approximately 2,500 employees in 12 countries, TriMas is committed to blah, blah, blah, blah, blah.” Get into the divisions a little bit more in a minute. They were spun out of a company called Masco, [00:18:00] M-A-S-C-O. They’re a big building products giant in the Detroit area. They make plumbing and decorative architectural products, things like kitchen faucets. They’ve been around since 1929 and they spun TriMas out in 1986. Mas from Masco. Tri because there were three business segments that they’ve rolled out into this thing. So Barry and Stan, who came up with the name for this, easy day. Easy day at the, easy day at the office. Tony Kynaston: I guess you don’t need a marketing executive in the company if you manage– if you’re marketing dispensers. Cameron: Yeah, not really. No. They got taken in private in 2002, then re-IPO’d in 2007, originally on the New York Stock Exchange, later moved to the Nasdaq. Tony Kynaston: ‘Cause it’s a high-tech company. Cameron: high tech. You wouldn’t believe how high tech. Actually, yeah, as we’ll see, they actually do have some high tech factories now in China. At least one, you know. [00:19:00] Um, Tony Kynaston: So Cameron: so yes. Well, yes. Yes. Well, some, you know, I drilled down into that a bit. Some of the tariffs were hit on the head by SCOTUS, other ones not. So there are tariffs that are still maybe legit, although they are being challenged. It’s complicated. No one knows. This is, uh, you know, Trump 101. Keep them guessing. Tony Kynaston: yeah. Cameron: So, uh, as I mentioned earlier, a bit of activist investor activity that’s caused them to slim down the business a bit. So, uh, I like that. So a couple of things already that I like. They, they manufacture things you’ve never heard of them, but they’ve been around a long time. They make money and they’re tightening their belt, streamlining, all that kind of stuff. Classic, classic value investing, Tony Kynaston: Yeah. Cameron: in January of 2025, a guy, [00:20:00] well, a firm called Barrington Capital, run by a guy called James Mitarotonda, took a relatively small stake, 1.5%, but sent a very public letter to the chairman Guy called Herbert Parker saying, “Hey, you’ve got a CEO transition coming up. The timing is perfect. Let’s think about strategic allocations…” Sorry, “… strategic directions for the business.” And it was well received because Herbert Parker himself was originally put in on the board by another activist investor, a guy, a company by the f- name of En- Engaged Capital, nearly said Enraged Capital, which is a pretty good name for an activist investor. Engaged Capital back in 2015. So you’ve got activist on activist action, Tony, and there’s nothing much sexier for a value investor than activist on activist action. Sexy activists. Tony Kynaston: of value [00:21:00] investing camp. Cameron: Yeah. It’s like a shake and bake in, uh, Talladega Nights. Activists building on activists. So Parker’s now the chairman. So this was in January of 2025, um, and around about this time they, uh, were already onto this a little bit with the previous C-suite. They sold a division called Arrow Engine. It was a natural gas engine maker for the oil and gas pumping industry, so didn’t really fit with pumps. So they dumped it. This is where I got the pumps and dumps from, right? Tony Kynaston: It, was, a really big dispenser of gas. Like you had to find a really big… Had to get Hulk Hogan in to push the dispenser there. Cameron: They were like, “The gas pumping industry, we make pumps. Perfect fit.” Tony Kynaston: Yeah. Cameron: Yeah. So they offloaded that. Um, then in February last year, they announced they were gonna review all of their portfolio and then at the end of the year, November 25, after they had swapped [00:22:00] CFO and CEO, they made a deal to sell an aerospace segment for $1.45 billion. It was made up of things like fasteners, blind bolts, and machined parts for Boeing, Airbus, Lockheed, and the defense supply chain. Had been part of TriMas for decades and was actually its highest margin segment, but was capital intensive, not many customers and, you know, had to deal with commercial aerospace cycles. Didn’t really fit with, you know, uh, uh, hand pumps. So… And they decided they could get a good price for it, and they did. New management decided to dump it. Previous CEO had apparently done a good job- Making it a good business is, you know, making it very profitable. They flipped it, uh, to a company I think called PenAero. Um, [00:23:00] sold it at 20 to 22 times earnings. So good deal. Yeah, did really well out of it. So new CEO or the old CEO was a guy called Thomas Amato, he’d been there since 2016. He was replaced by a guy called Thomas Schneider June of last year. He came from a company called Silgan Holdings. They’re a major US metal and plastic container manufacturer. He was the president of Silgan Containers. Tony Kynaston: It seem– Is it just me or does US corporate, the US Cameron: S- Tony Kynaston: dose of Barry and Stan? Cameron: Ah, wouldn’t Barry and Stan love this? What do you make? Uh, containers. What do you generate them out of? Silicon. Well, Silgan Containers, that’s your name. Oh, that’s brilliant. Tony Kynaston: Uh. Cameron: who Barry and Stan are, it’s a, it’s an old joke. I- inside joke. So, um, he was the president of Silgan, so [00:24:00] they basically hired a packag- packaging industry veteran to run what is now a packaging pure play, huh? They also got a new CFO. Old CFO left last year as well, replaced by a new guy, Paul Swart, in December 2025. So 2025 was a big year. They sold off a couple of divisions, new C-suite, um, new focus. They’re Six Sigma-ing the business, which I only know of because of “30 Rock.” Did you ever watch “30 Rock”? Tony Kynaston: No, not really. Cameron: Oh. Tony Kynaston: be around a lot of people who put a lot of s- emphasis on Six Sigma. Um, especially when I did some deals with GE, they were right into it. Cameron: Well, “30 Rock” is about GE, um, ’cause it’s… Right, it’s about… You’ve never seen “30 Rock”? So Tina Fey… Tony Kynaston: here and Cameron: Oh, right. Tony Kynaston: Didn’t really get that Cameron: Really? Oh, it’s brilliantly written. Really great. Yeah, yeah, it’s really great. But Tina Fey runs, like, a “Saturday Night Live”-type [00:25:00] show, 30 Rockefeller. It’s owned by GE. And, and Alec Baldwin is, like, the head of the television part of the business. He’s, and he’s all about Six Sigma. He’s always, like, tr- trying to Six Sigma up, you know? Turn the entertainment business into Six Si- He’s always talking about Six Sigma this and Six Sigma that. It’s a really good show, and he was really good. Surprisingly very funny in it. Um, never thought of him doing comedy, but he was good. And then he went and killed someone. But, you know, what are you gonna do? No, not allegedly. He fired the gun that killed Tony Kynaston: Okay. Cameron: or not he was culpable for it, you know, you know Whoo. So, um, big year. Um, so what can I tell you about these guys? So they got these, uh, three divisions. Packaging is pretty much 84% of revenue, growing at about 9% year over year.[00:26:00] Like, um, apparently packaging is a good business. Making hand pumps and sunscreen bottles or perfume samples or caps on buckets of paint, all of that kind of stuff they do. And apparently it’s a pretty sticky business as well. So when … no pun intended. When you get a customer and you build a mold for their Tony Kynaston: Mm-hmm. Yeah. Cameron: it’s quite expensive to build a machine and a mold and all of that kind of stuff. So once you get ’em, you apparently get ’em for a long time. They’ve also got a life sciences division, which is interesting. They design and manufacture precision, pr- pr- why can’t I say that? Precision injection molded components and assemblies for applications in the life sciences market. Includes prototype production models, molds, production… I can’t talk, and custom [00:27:00] medical related components such as consumable vascular delivery, patient monitoring, and diagnostic test components, which reminds me, I have to go get a 24-hour blood pressure monitor installed. I should be… Hey, Siri, remind me tomorrow to get a blood monitor installed, blood pressure monitor installed. Keep putting that off. Surgical devices and pharmaceutical closures, that’s sort of the growth end of the business, but it’s not a big part of the business right now. Operating margins are 10% to 13%. Not bad. Not terrible. And then they’ve got… Oh, they built a, a tw- 225,000 square foot beauty packaging facility in China, which is all clean room, robotics, all that kind of stuff. So it is high tech, despite you making fun of them. Tony Kynaston: I Cameron: Then, Tony Kynaston: fun of them. Cameron: edge technology, you’re saying. It’s all AI. They’re gonna change their name to TRSA, or TriMas AI, Tony. That’s where, that’s the big [00:28:00] bucks are. May I, may AI. Yeah, yeah. And then, uh, they’ve got this thing called Norris Cylinder. High pressure steel and aluminum cylinders for industrial gases, oxygen, nitrogen, CO2, propane and propa- propane and propane accessories. Do you ever watch King of the Hill? Tony Kynaston: No. Cameron: Uh, Chris is a huge King of the Hill fan. Propane and propane accessories, that’s what he deals in. And refrigerants, that’s, uh, the third part of their business. Steady, low growth, mature market, not gonna move the needle much. Okay, but here’s the thing Cash hoard distortion. So they sold the aerospace business for $1.45 billion. Tony Kynaston: Right. Cameron: And if you look at Stockopedia year-on-year operating cash, in 2025 it was 2.88. Their TTM is [00:29:00] 22.7, which is a big jump. Tony Kynaston: I can see it now. Yep. So that’s interesting. So you’re saying the sale of the aerospace division went through operating cash flow? Cameron: In Stockopedia. Now, Tony Kynaston: Right. Cameron: not how the company’s reporting it. Tony Kynaston: No. Cameron: business disposal proceeds go in investing activities, not operating, which they did correctly in their cash flow statement. I pulled up their report. Their actual Q1 2026 operating cash flow from continuing operations is negative 19 million. Tony Kynaston: Okay. Cameron: Their TTM operating cash flow is roughly 125 to 130 million, but it’s not 890 million like Stockopedia’s reporting. By the way, Claude, I got it to read the annual report and it said, “Look, the negative 19 million is just sort of messy accounting.” It said, “They’ve got [00:30:00] discontinued operations from these two divisions they sold. It’s just gonna be messy GAAP accounting numbers for at least a few quarters while stuff flows through from the divestitures, special items, charges, et cetera, et cetera.” But Stockopedia’s operating cash flow numbers are wonky. For some reason, they’re showing this up as operating cash flow when it’s not really, and that’s not how the company’s reporting it either. Anyway, total debt’s about 396, uh, million, but they’re sitting on a billion dollars in cash, so they could pay that off if they wanted to. They’re not going to. Tony Kynaston: Mm-hmm. Cameron: gonna use the cash for strategic acquisitions in consumable, consumer packaging stuff. Tony Kynaston: I think they’re also– Aren’t they also doing some buybacks and other Cameron: But, Tony Kynaston: initiatives? Yeah. Cameron: hmm, they have done that. Tony Kynaston: [00:31:00] Yep. Cameron: they’ve done… Well, they’ve approved a big buyback. They’re about a third of the way through it. Share price is at an all-time high at the moment, up around 42, 43 bucks, so some of that is flowing through to it. Also, the market has liked the fact that they’ve offloaded this stuff. Tony Kynaston: Yep. Cameron: But- The 2025 annual report cites about $117 million of cash flow from operating activities, but that includes aerospace, which they’ve just sold off. So if you strip that out, it’s about 40 million. Tony Kynaston: Mm-hmm. Cameron: with something like 70 to 80 million. So the OpCaf per share would be around about two bucks. Tony Kynaston: Yep. Cameron: Share price is 42 bucks. Tony Kynaston: Yep. Cameron: So the Pr/OpCaf, if you were basing on that, would be like 20 times. Tony Kynaston: Yep. Cameron: We have a cutoff of seven, so this would be an immediate fail, Tony Kynaston: Mm-hmm. Cameron: uh, on our checklist if we were using those numbers. But as I said to you, um, I think in the last [00:32:00] show, we normally don’t drill down into this level of financials. So it showed up on the buy list. I would’ve bought it if I hadn’t have done the Pulled Pork on it, just looking at the, the scoring. But in terms of the business, like I like the business. I like what they do. I like the management. They, they, you know, they seem to be slimming it down. They’re focused. They brought in this guy who knows, seems to know what he’s doing, comes from packaging. They’re sitting on a massive amount of cash that they can use for acquisitions. Um, mm, you know, it’s a good story, but if I backed all of that stuff out, it wouldn’t be on our buy list, Tony Kynaston: No. Cameron: on merit. Tony Kynaston: I wonder why Stockopedia is reporting the operating cash flow to include investments. That’s just very strange. Cameron: Claude said, look, they get their data feed from whoever they get it from these days. Um, who was that company that you [00:33:00] used to have a subscription with? Tony Kynaston: Was it Reuters? Cameron: No, it was some, it began with an R. Um, re- reinvest. Refinitiv, Tony Kynaston: yep. Cameron: who I think changed their name or got bought or something there, not that. But yeah, something to do with their data feeder. Like we see this with stock, uh, Stock Doctor all the time in Australia, right? We have dodgy numbers that come through, so data feeds do things for various reasons and screw up sometimes for various reasons. Um, so, Tony Kynaston: at the, the, company when you sent through the, the notes this morning, it was, me, my, my sort of top line summary was it’s great when good management gets a, um, a cash injection. Cameron: right. Tony Kynaston: a good lump, lump of cash often means good results. Cameron: Right. Tony Kynaston: at this stage, you’re right, you should back out that windfall and look at the underlying business, I think, until they invest it and see what they’ve bought. Cameron: Yeah. That was my concern with it. Like, everything looks [00:34:00] good, but that number doesn’t really Tony Kynaston: Yeah. Cameron: You know, pass the sniff test if we’re gonna break it down. The rest of the numbers are good. As I said, they pass all of the Stockopedia stuff. Tony Kynaston: Mm-hmm. Cameron: than book plus 30. Book plus 30 is $52.61. Price is $42.72. Doesn’t pass, uh, price, uh, less than book. Um, book value growth is positive, um, over the last three years. Good sentiment, uh, et cetera, et cetera. IV1 is actually negative because of a trailing 12-month EPS loss. Tony Kynaston: Mm-hmm. Cameron: is 17, well below the price. The yield is only 0.37%, so that’s, they’re not gonna score for that. But, you know, everything else scores well, Tony Kynaston: Yep. Cameron: but, uh, doesn’t really, we can’t really honestly score them for Tony Kynaston: No. That’s Cameron: PropCaf. Tony Kynaston: a coffee shop which is doing well because I sold the, [00:35:00] sold the land. like, Cameron: No. Tony Kynaston: It’s not… It’s… Cameron: Although Tony Kynaston: not– Cameron: they Tony Kynaston: the, you can’t add the land income to the, uh, operating cash flow of the business and then make an assumption about the worth of the business based on that. Cameron: do have Tony Kynaston: Yep. Cameron: a lot of cash, but that’s, doesn’t necessarily mean it’s operating, tr- gonna translate into operating cash flow, right? Mm-hmm. Tony Kynaston: Yeah. Cameron: So another one, you put the ca- the, the TK kibosh on. Tony Kynaston: Well, it’s interesting, we talked on the last Australian show about whether Pulled Pork’s a, for show or whether they’re actually worth the analysis, but I think this is another case of where they’re worth the analysis. Cameron: Yes. Yeah, yeah. Um, and whether or not, you know, this is interesting ’cause as, as, as I said a couple of times, normally we don’t do this level of analysis and these things would sneak through. But, [00:36:00] you know, it’s my AI analysis that, um, pulls these things out. You know, I have a script that Claude runs, and the first thing that it said when it, I said, “Go do a deep dive on this for me,” was it raised this as a red flag immediately. The, the first thing I have it do before it does the pulled pork is look for anything that looks, um, screwy. It’s called phase zero of the analysis. Phase zero is check for anything that doesn’t pass the sniff test, and it did that on Millrose, and it did it on this too. It went, “Whoa, whoa, whoa, whoa, whoa. This operating, this price to operating cash flow is dodgy,” right? Tony Kynaston: I thought Cameron: Mm-hmm. actually Ah, yeah, well, I’m smart enough to use Claude. Yeah. Tony Kynaston: Yeah. So what are you doing? You like comparing Stockopedia to the balance sheet on the, on the annual report or something. You’re looking for discrepancies. Cameron: Yeah, I have it, uh, I have it pull the recent, most recent financial report, read it and, you know, do some analysis on that and compare that [00:37:00] with my scoring. Tony Kynaston: Okay. Cameron: Yeah. It’s the bullshit filter mechanism on it. Tony Kynaston: good. Yeah. Cameron: it sneaks through sometimes, like with Millrose, right? You know. Tony Kynaston: And I Cameron: Okay. Tony Kynaston: something, I don’t run Claude over it, but I do have a look at it and see if, Cameron: Yes. Tony Kynaston: if there’s something a bit wonky about it. Why is it throwing up such a high Pr/OpCaf, or anything else about it? High dividend yield or whatever. Cameron: Right. Tony Kynaston: the pub test. Yeah. Cameron: Yeah. And I’m not sure I would’ve picked … Like, I’ll normally look at the revenue line and the operating profit line in Stockopedia, net profit, see if they all look above board. I normally wouldn’t drill down seven or eight layers to look at the operating cash flow per share history, but, you know, this one, it goes 2.92, 3.1, 1.71, 2.11, 1.58, 2.88, 22.7! Tony Kynaston: Yeah. Cameron: Hmm. Okay. Tony Kynaston: done. Okay. Cameron: there’s another one [00:38:00] that’s two in three weeks that you’ve said no to. Um, I, uh Tony Kynaston: Well, I think you’re saying no to them as well, aren’t Cameron: my gut feeling as soon as I was like, “Hmm, look, I like it, I like it, but, um, I don’t think that’s, uh, you know, apples with apples.” Tony Kynaston: It’s interesting that your… You know, my first response would be there’s something different in the US accounting standards compared to Australian companies, putting those lump sum windfall numbers through operating cash flow. But if you’ve checked that out against the balance sheet, then that doesn’t seem to be the case. to be a problem with the data provision. Cameron: Yeah. Yeah, no, the, um, the company reported it, um, appropriately. Hmm. Tony Kynaston: Okay Cameron: Okay. Well, I don’t know what I’m gonna buy this week then. I’ll have to go back to the drawing board and see something else. But I think in future when [00:39:00] I, uh, find something like this that has a dodgy flag, I won’t bother doing a pulled pork on it. I might just, Tony Kynaston: Yeah. Cameron: um, run it, run it past you via an email and pick something else. Hmm. Tony Kynaston: Yeah, cause there’s plenty of other stocks on the, on the buy list, so Cameron: Yeah. Tony Kynaston: Yeah. Cameron: But it is interesting to sort of see these anomalies, Tony Kynaston: Yeah, Cameron: the buy list and, you know, we don’t see this happen in Australia, right? Where there’s … I can’t remember a single time we’ve had a stock on the… Well, yes, we have, News Corp. Yeah. Tony Kynaston: number of shares Cameron: Yes Yeah, we have had data quality issues, ’cause that’s really what these things are, they’re sort of data quality issues. Tony Kynaston: Yeah. Cameron: Hmm. Tony Kynaston: and far between, but they do happen. Cameron: Yeah. Tony Kynaston: Mm. Cameron: Okay. Well, Tony Kynaston: All right. Cameron: What have you got for after-hours, TK? Quick one. Tony Kynaston: Yeah, not a whole lot [00:40:00] today. I probably, um, wanna focus on Red Dragon. Have you seen that? You probably have. It’s like 40 years old or something, Cameron: That’s one of the sequels to “Silence of the Lambs.” Tony Kynaston: that’s the interesting thing. So I, I hadn’t seen it before, and it came up on, um, one of the streams. Jenny and I watched it, Jenny said, “Oh, this is a sequel to Silence of the Lambs.” No, it’s the original. The Silence of the Lambs is a sequel to Red Dragon. Cameron: Right. Tony Kynaston: interesting to see that the, um, Anthony Hopkins character was fully formed and his backstory, uh, that, um, the FBI agent this time was played by, um, his name? Ed, uh, Norton. Cameron: Right. Tony Kynaston: of role to the one that Jodie Foster played in Silence of the Lambs. But, um, yeah, it was just– It was– I always thought Silence of the Lambs was so original and a breakthrough and interesting, but it was, it was a sequel to Red Dragon. Cameron: But “Red Dragon” is a prequel. Tony Kynaston: [00:41:00] No, I think Red Dragon came out first. Cameron: No. No way. Tony Kynaston: Yeah. Cameron: No. So “Red Dragon” came out in 2002. “Silence of the Lambs” came out in 1991. Tony Kynaston: Oh, really? I got that wrong, have I? Cameron: Yeah. Tony Kynaston: Okay. Sorry. Cameron: Yeah, it was a prequel, um, that, um, Brett Ratner made. Yeah. Hmm. Tony Kynaston: Oh, well that, that makes sense then. I thought it was the first one that came out. Now, is there an earlier version of Red Dragon? ‘Cause I seem to recall it was out first. Cameron: So Michael Mann, Heat, made a film called Manhunter in 1986, which is based on Hannibal Lecter Tony Kynaston: Okay, maybe that’s what I was thinking of. Cameron: and Will Graham. Brian Cox was in it. Um, who else? Uh, looking at the thing here. No one. Joan Allen. Hmm. Tony Kynaston: Yeah. Cameron: Um, [00:42:00] but actually Hannibal Lecter’s– Does it say Hannibal Lecter’s in this? But it’s kind of loosely based on the– that story. never seen it. I’ve always tried to track it down to see it. Um, but yeah, Silence of the Lambs then was made. And you know, I, I’ve told you the story about meeting Anthony Hopkins, right? Remember that one Tony Kynaston: one of the reasons for raising it today. Cameron: Mm-hmm. Uh, great actor. Great actor. I, I remember see- I did see Red Dragon. I don’t remember it being great. Did you? Yeah. Tony Kynaston: just the acting. It fa- a lot of famous, uh, people are in the show. Um, Fiennes plays the bad guy. Hannibal Lecter was played by Anthony Hopkins. Ed Norton’s in it. Yeah. Cameron: Harvey Keitel, Mary-Louise Parker. Tony Kynaston: Parker. Yeah. So Cameron: Philip Seymour Hoffman. Tony Kynaston: Mm-hmm. Cameron: Yeah. There was another one that they made too, [00:43:00] with, uh, what’s his face in it, Tony Kynaston: Okay. Cameron: there’s another sequel, I think. Try- scrolling through IMDb, trying to find out who that was, but it was, it was really bad. Anyway, hmm. Oh, Hannibal, it was called. Yeah. 2001. Gary Oldman. Ray Liotta, that’s who I was thinking of. Julianne Moore, Gary Oldman, Ray Liotta. Hmm. Tony Kynaston: Oh, I do recall seeing that one. Yeah, that’s a sequel. Cameron: Yeah. Um, Julianne Moore played Clarice Starling in that one. Tony Kynaston: Yeah. Cameron: What else? Tony Kynaston: Uh, have you seen the movie called “The Hunt” from two th- two, uh, from 2020, I think it is? So the, uh, series that’s out, I think on Apple TV, called “The Hunt.” It’s not that. is on Netflix and [00:44:00] it’s a movie. And, uh, I watched it last night. Um, I really kind of enjoyed it. Uh, the only sort of actor in the cast is Hilary Swank, and she plays a small part in it. Um, and it’s a sort of… I, I was c- I was looking at The Hunt and trying to work out whether I wanted to watch it, the TV series on Apple, and then I saw the short for the movie and I thought, “That looks much more interesting.” Even though it’s a, it’s kind of a cliché trope of having a secret place to take humans to hunt for sport. Cameron: Oh, yeah. Tony Kynaston: this movie is like a black comedy and it turns the whole trope on its head, one of the, one of the people they’ve kidnapped is the wrong person, and she runs amok and kills all the billionaires. a spoiler alert, but, um, it’s actually really, really good. Cameron: The, the new series that’s got, um, what’s her face in it from the thing. Mad Ma- the [00:45:00] Mad Max, uh, sequel. Tony Kynaston: Charlie’s? Cameron: Charlize Theron. Yeah, yeah. Is it the one with Charlize Theron in? Tony Kynaston: No, no, that’s a different one again. I think it’s called Apex. Cameron: Oh, she’s getting hunted in that one, isn’t she? That’s Tony Kynaston: a Cameron: a different Tony Kynaston: but, Cameron: thing. Tony Kynaston: thought it was quite good. Cameron: Right. Uh, no, I haven’t heard of it. Sounds good. Tony Kynaston: I hadn’t heard of it either, so Cameron: I like– I, I totally like the idea of hunting rich people. Oh, no, it’s the other way around. It’s rich people hunting poor people. Yeah, Tony Kynaston: goes and Cameron: yeah. Tony Kynaston: so it’s, Cameron: Hey, listen, maybe that’s the next season of QAV. You and I will hunt each other in Cape Schanck. Just with paint- paintball guns. Nothing, nothing lethal. Just give us, uh, each a paintball gun and then, you know, it’s like capture the flag. We, we, we, uh, hunt each other across the golf course. Have you ever played paintball? Tony Kynaston: I haven’t Cameron: Ah. Tony Kynaston: not Cameron: Should get you into a paintball course Tony Kynaston: [00:46:00] Uh, Cameron: and the, me and the boys. It’s, uh… We used to do that on their birthday every year. It was fun. Tony Kynaston: Speaking of that, like last night there was a, someone lit off a flare down the street and I was like, sit like– ’cause at home here at Cape Schanck it’s just quiet and dark. see this blue flare, couple hundred meters away go, go across it was just, you know, really eerie. Couldn’t see anything, couldn’t hear anything, just this flare. So one of the local kids I suppose is having fun on the golf course. But Cameron: Oh. Tony Kynaston: really eerie.” Cameron: Hmm. Well, I don’t have much to report this week. I did watch Waiting for Guffman on Mother’s Day with Chrissy. You ever seen that? Tony Kynaston: Oh, I think I saw 10 minutes of it and turned it off. Cameron: Not your… Tony Kynaston: guys. Cameron: No? Okay. Yeah, that’s right. You said you weren’t a big fan of Catherine O’Hara, so that tracks. Tony Kynaston: No, or any of those, um, mockumentary best in shows and all those. Cameron: [00:47:00] Hmm, Christopher Guest films? Hmm. Tony Kynaston: And didn’t they remake, uh, um, what’s the Australian show? Um, with Kath & Kim. I think they remade them as well, and they were terrible Cameron: He did that? Tony Kynaston: Well, I don’t know if it was him, but certainly some of the actors from all those mockumentaries are in Cameron: Oh, okay. Yeah. Tony Kynaston: style of, Cameron: Right. Tony Kynaston: just hammy overacting from, you know… don’t know if they’re trying to make fun of people who are American and don’t have much of a brain, but yeah, it’s just I don’t, I don’t find it funny. Cameron: Uh, okay. Um, let me, uh, tell you about a book that I heard about s- Tony Kynaston: You can recommend Welcome to Gomorrah if it, if it Cameron: No, no, no. It’s, it’s fine. We’ll move right along. Um, you know, uh, well, maybe you don’t know, but Elon’s big data centers that he builds for his AI operations, he [00:48:00] calls, um, uh… What does he call them? Colossus. Tony Kynaston: From the Forbin Project. Cameron: Yes! Right. So you do know it. Tony Kynaston: No, I know the movie. I don’t know about Elon’s data centers. Cameron: Oh, okay. Well, um, I had never heard of, um, Forbin and or the, or the movie. I didn’t even know there was a movie until you just mentioned Tony Kynaston: Hmm. Cameron: based on books Tony Kynaston: Oh, okay. Cameron: which I started reading the first one, uh, this week, you know, uh, knowing that you’re a science fiction fan, I wondered if you had read it. Tony Kynaston: Haven’t Cameron: read it? Tony Kynaston: the movie. The movie came out when I was a kid Cameron: 1970, I just looked it up. Tony Kynaston: that, uh, imprisons a man to study him. think he was the inventor of the AI from memory. Cameron: Right. So the original book was written in 1966 by a guy called D.F. Jones, Dennis Feltham Jones. Wrote Colossus: The [00:49:00] Fall of Colossus, and Colossus and the Crab. Um, so yeah, I’m sort of… Uh, I, I, I’m enjoying the first one. It’s, it’s kind of hilarious to read, you know, AI books from that period. The AI when it gets turned on, um, you know, it’s communicating with the humans via, uh, ticker tape that’s coming out of the side of the machine. We were visionary enough to imagine artificial intelligence, but not visionary enough to imagine a world without ticker tape machines. was talking in natural English like our computers do. The AIs do talk to us like that today, so at least those guys got it somewhat right. Had lots of flashing lights, which we don’t seem to need on our computers these days. I do love a, I do love a sci-fi [00:50:00] film with lots of flashing lights on the supercomputers. Kind of miss that, to be honest. Kind of wish my computers did have, like, flashing lights and spinning tape reels and everything. It was so much more aesthetically pleasing than just a- Nondescript black box. Tony Kynaston: It’s better for movies, isn’t it? When you can see things actually Cameron: Yeah, it’s cooler. Tony Kynaston: Yeah. Like in Star Wars or Star Trek where there are all these lights that just flash. Cameron: Yes, give me lights that flash and beep. Tony Kynaston: Yeah. Cameron: what have I been listening to that I can share with you? Um, nothing comes to mind. Tony Kynaston: issue of The Aints which was really good. Cameron: The Aints. Tony Kynaston: Ed Kuepper Cameron: Saints without that S. I’ve never heard of that. Tony Kynaston: style of music. It’s good. Cameron: Well, good. Uh, do you see The Stones have got a new album coming out? Tony Kynaston: I, [00:51:00] I’ve been seeing it on my streams. Yeah. The Cameron: I listened to the first track that they’ve released, uh, off of that. It’s not bad. Tony Kynaston: Mm-hmm. Yeah, it’s all right. Cameron: And, uh, I’ve been listening to a lot of Yes this week. Do you like Yes? Tony Kynaston: Oh, not– I haven’t heard a whole lot of them. I did a lot when I was a kid, but I can’t remember much of it. Cameron: Hmm. I like. Tony Kynaston: from Cameron: Wow. Tony Kynaston: people who were still in Yes of about 10 years ago. Cameron: Wow. Why? Tony Kynaston: one of my Canadian friends got it for me for a birthday present. Cameron: Because they thought you were a big Yes fan or just… Tony Kynaston: I think he’d been to, like, some kind of corporate gig with Cameron: Oh, Tony Kynaston: where they were playing. Cameron: right. Jon Anderson are those guys. Tony Kynaston: No, I got no idea. Cameron: Thanks TK. Have a good week. Tony Kynaston: you next week. You too. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

May 13, 2026

24m
43

THE HAUSBANK THAT CAME IN FROM THE COLD (DB) – QAV America #51

This week we run through a stack of Pulled Pork results that are absolutely cooking — Pitney Bowes up 40%, Eastman Kodak up 81%, and the US dummy portfolio now sitting at 110% since inception versus the S&P’s 62%. Then Cam does a deep dive on Deutsche Bank — 156 years old, scandal-ridden, and somehow posting their best year ever. Plus Spirit Airlines collapses, the Iran War drags into its ninth week, and Ford beats estimates by three times but still slides.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV AM 51 Cameron: Welcome back to QAV America, Tony, episode 51. We’re recording this on the 5th of May, 2021. No, 2026. Uh, I Tony Kynaston: In a bit of a time warp there aren’t you? Cameron: Good, good, di Good. Good time to be a value investor. 2021. Tony Kynaston: As is. As is 26. Cameron: Yes. As is 26. Well, now that you mention it, let me just talk about how our portfolios and stocks and whatever are doing, um, the, uh, Pulled Porks that we’ve done over the last couple of months. Some of them are doing great, some of them not so well. Um, PAG, Seguro Digital PAGs is down eight or 9% since we covered it. And in fact. I added it to the light portfolio and it’s become a three point sell today. I just noticed, but. Commercial vehicle group is up 20% since we talked about it on the 6th of April. Pitney Bowes, [00:01:00] PBI is up 40% since we talked about it on the 30th of March. Eastman Kodak is up 81% since we talked about it on the 23rd of March. Geo Park 11% since the 17th of March. Murphy Oil is up 22% since the week before that. Neighbor Industries is up 33% the week before that. Bread Financial is up 18% since the 28th of February. Things are just going bonkers. Uh, Tony, and of course, none of these are even remotely AI related stocks. Universal electronics that I added to the light portfolio last week after we put the kibosh on MRP, it’s up 5%. Since I added it and can’t even remember what it does, um, not Tony Kynaston: No. Me neither. Cameron: week. But, uh, well, I didn’t talk to you about it. You wouldn’t know. We didn’t do it in the show, but it’s, Tony Kynaston: Oh, okay. Cameron: a great week. The US dummy portfolio though, Tony, which, uh, as you know, has been running since September, 2023, [00:02:00] currently up 110%. Time weighted return over that period of time versus the S&P 500, up 62%. So, uh, not quite double, but pretty damn close to double market over that period of time. The QAV light portfolio that I started a week before Christmas, uh, well a few days before Christmas, actually. December, 2025. Is currently up 11% versus the S&P 500, up 4.6899999999999995%. So that is doing double market even though it’s only over, say, four months or so. Um, yeah, so the US market, as we know, absolutely going bonkers at the moment despite bite. The what’s going on in the US economy and the global economy. We read some articles out on our Australian show people talking about the fact that it’s the AI stocks. Oh, by the way, the RBA did lift interest rates for the third time this year. Tony, I just saw it on the [00:03:00] Financial Review Tony Kynaston: So we can make out on our, on our prediction market bets. Cameron: Well, I, I was gonna bet the opposite, so I would’ve lost money. You would’ve won. Congratulations on your Polymarket bet there. Betting against yourself before yourself. Um, we were talking about Tony Kynaston: sorry, I was just gonna, Cameron: Yeah. Tony Kynaston: yeah, before you go leave the portfolio results, I mean, it’s, you talk about the S&P 500, but that includes the AI stocks. If you back those out, Cameron: Yes. Tony Kynaston: you know, we’re running way above the rest of the market. Um, but, but, but buying rest of the market stocks, so we’re really picking the eyes out of what’s left. Cameron: And it’s like there’s just so many stocks turning up on my US buy list every week. And you know, we’re just picking the ones at the top and buying them. And most of them, vast majority of them, are just doing very, very well. Um. You know, in the last, since we started adding or doing, Pulled Porks on these every week deep dives in March of [00:04:00] last year, so a little over a year now, I’ve talked about 48 stocks on the show. 34 of those are positive since then, 14 and not, so it’s a 71% win ratio. the average profit across them in a year is 35%. Tony Kynaston: Wow. Cameron: So I mean, the outliers being Zep Health, which is up 500%, Sasol ISS up 178%. Chemex is up 110. Couple of losers Cowain Foods is down 21. I think it’s the worst. I know. Controladora. Um, the Latin American airline, VLRS is down 23%, but, uh, nearly everything else is doing very, very well. American Airlines is down 14%. I see that the, uh, United merger is definitely off the table there this week. Speaking of airlines. Spirit Airlines has shut down the collapse of the carrier following a doubling in [00:05:00] jet fuel prices during the two month old Iran War will cost thousands of jobs. Um, no US carrier of Spirit’s size. It accounted for 5% of US flights at one point, has liquidated in two decades. Tony Kynaston: Wow. Cameron: So congratulations to Donald Trump. I do believe the reason he started. The, uh, war with Iran. It was, uh, because he thought there were too many airlines in the United States. Uh, it’s five D chess, Tony, this is how he plays five D chess. He’s like, how do I get rid of one of these, uh, discount budget airlines thousands of jobs? I know I’ll start a war with Iran on. Tony Kynaston: Well, I don’t think Donald would’ve been a frequent fly with Spirit Airlines, so he’s not, he’s not concerned. Cameron: to fly. They Tony Kynaston: He’s not concerned. Cameron: you’re saying? No, it had to pay for three seats instead of the one. Well, but is that like, uh, a sign of things to come? I mean, I know that they were [00:06:00] already doing it a little bit tough, I think before all of this happened, but, uh, that was the death nail for them, the doubling in jet fuel Tony Kynaston: Yeah. Cameron: But I wonder if they’re the canary in the coal mine in terms of the US economy. Tony Kynaston: Well, potentially, I mean, uh. Jet fuel has gone up a lot, and they were a low cost operator, so they didn’t have a big margin to, to buffer it with. Um, but you know, you wonder about other airlines. Airlines are pretty good at hedging their costs, but hedges do come with a time constraints. So, you know, as the war goes on for, as a two week war goes on for its ninth week, uh, it’s, you know, you wonder when the. Hedging might start to unwind and it might affect other people. Yeah. It’s a shame. Cameron: Well, speaking of affecting other people, Spirit had 4,119 domestic flights scheduled between May one and May 15th, offering [00:07:00] 809,638 seats. All of those people obviously have lost their flights. I believe some of the other airlines are offering them deals to help out, which is nice of them. But I’m not sure how much are gonna get back in terms of refunds, Tony Kynaston: Yeah. Cameron: uh, for all of these flights. Like the, uh, tariffs that Americans have been paying for the last year, which they’re probably not going to get. Uh, apparently the Trump administration had been offering $500 million in financing in exchange for warrants equivalent to 90% of Spirit’s equity. There had been disagreements inside the Trump administration over whether and how to fund the bailout. The Wall Street Journal reported, but it didn’t help at the end of the day for some reason. It, uh, fell through, but interesting this, these moves by the Trump administration, as we saw by the Obama administration. After the global financial [00:08:00] crisis of intervening directly in Tony Kynaston: Yep. Yep. Cameron: corporate socialism will come and will, uh, you out. Tony Kynaston: Yeah, well, I mean it sometimes it can be, um, just a zero sum game if we, the government works out how much it has to pay in welfare for the employees who aren’t gonna be there. And, and the knock on effects for people who, uh, are in that industry might be cheaper to bail the company out, especially if it’s a short term problem, if they expect, you know, ’cause it’s, like I said, the ninth week of a two week war, they expect jet fuel to prices to drop. Uh, maybe it is worth bailing it out, but they looked at it and it didn’t happen. Cameron: I told you, I’ve told you before about my, my, my Iranian friend, uh, who I go to kung fu with, we talk Iranian politics all the time. And, uh, you know, a few days before the war, said to him, he was all for it. He wanted it to. He wanted it to happen ’cause he hates the regime and he wants the regime to go and he wants to [00:09:00] take the leadership of the country. And before the war, I said, how many? How long do you think it’ll last? He goes, two days, three days, tops. And after the first week, I said, how long now? He goes, two weeks. Two weeks tops. It’ll all be over. after the end of the first month, I said, how long? He goes, two to three months. Two to three months. That’s it. As soon as Trump puts boots on the ground. I know we about two months in when, when’s he putting boots on the ground? Any day now. Any day now. Boots on the ground. Yeah. Well there were tons of earnings announcements this week in the Tony Kynaston: Yeah. Cameron: Tony. Uh, absolutely tons. I didn’t have, we don’t have time to talk about all of them ’cause I want to get into my deep dive of the week. But one I will mention Ford. Ford beat their Q1 profit estimates and lifts guidance, but shares tumble. It’s like a NZ Tony Kynaston: Yeah. Cameron: bank that you just talked Tony Kynaston: Yeah. Cameron: But um, I remember when we talked about Ford. Back, [00:10:00] uh, when did we do the Ford show? Let me see. Uh, may of last year, almost a year ago, people were saying, uh, when I mentioned it on the value investing subreddit, that Ford was a dog and had lots of problems and huge amounts of debt, et cetera, et cetera, et cetera. But they managed to do good numbers. Tony, Tony Kynaston: Yeah. Cameron: all of that, yeah. Tony Kynaston: And I think they even banked some tariffs, tariff refunds as well, which helped. Yeah. Cameron: nice. But the company’s share slid around 3% in pre-market trading, as investors may have anticipated a strong outlook hike, so it was sort of baked into the price. Automaker posted, adjusted earnings per share of 66 cents significantly surpassing the analyst consensus of 19 cents. Wow. Beat it by over three times. Revenue reached [00:11:00] 43.3 billion, up 6% year on year and slightly above the 42.96 billion estimate. The results included a 1.3 billion one time IEPA tariff benefit reflecting amounts Ford paid between March, 2025 and February, 2026. Uh, so we, we added them to our portfolio back when they were $10 80. $11 50 at the moment, so they’re up six point a half percent in the course of a year. All things being told. Not one of the better performing stocks that we’ve talked about, but, uh, not a huge disaster Tony Kynaston: No, and you know, a large, you know, company, it’s been around for a long time. I’m kind of hedging around using the word blue chip, but it’s a, it’s probably is a blue chip company really. Cameron: yeah. Well, um. Last week we talked about a company [00:12:00] that you didn’t like MRP. You put the kibosh on it. It was a shadow. Shadow banking land banker. Tony Kynaston: I didn’t like its operating cash flow Cameron: Yeah. We’ve, Tony Kynaston: Yeah. Cameron: well, this Tony Kynaston: is it? Double in price over the week. Cameron: I haven’t actually looked to see what’s happened with MRP in the last week. Let me see. MRP, uh, last week. Um, no, it’s plummeted. Tony, you put the kibosh on it. It was $30 87, now it’s $29, 55, so there you go. Gone down a whole buck almost this week though, Tony, I’m talking about DB Deutsche Bank. Tony Kynaston: Oh, not decibels. Cameron: No, but I’m gonna yell, so hopefully the DB will go up when I do it. Tony Kynaston: Does have a colorful career. Cameron: hit. Oh, man. Well, look, I, I learned a lot actually from doing this, um, [00:13:00] stock, uh, which I’m, there’s some really interesting bits and pieces that I’m looking forward to getting into. Gotta do it quickly though, ’cause I’m going to see the new Mortal Kombat film in half an hour, so Tony Kynaston: I di didn’t know you were a Karl Urban fan. Cameron: I am a big Urban fan and a big look. I’ve been playing Mortal Kombat since. The early nineties, I remember, you know, uh, when I had a job, uh, in banking in Melbourne in the early nineties, every afternoon after I finished work in Russell Street, going to a little cafe around the corner, a little gaming actually like Tony Kynaston: Oh, really? Cameron: arcade. And they Tony Kynaston: you played the Rackers. Cameron: Mortal Tony Kynaston: Yeah, Cameron: and very, very early Mortal Kombat. I’ve been playing. Um. Uh uh, not Scorpion. What’s his name? The freezing guy. I should Tony Kynaston: don’t ask me. I don’t play computer games. Cameron: Oh man, God. Sub-Zero. Sub-Zero. Since I [00:14:00] was 22 and now I’m 55. So long time me and Sub-Zero go way back. Anyway, um, a lot of interesting stuff about this now, really my impression of Deutsche Bank before I did this was scandal of the week. Tony Kynaston: Okay. Yep. Cameron: Every time I think of Deutsche Bank, it’s just been scandals, connections with Trump. Jeffrey Epstein, money laundering, uh, the LIBOR scandal. The Malaysian one 1MDB fund, US sanctions violations. The Panama Papers, I remember I did a lot of shows on that when they came out. Deutsche Bank was all over that German police seemed to raid their head office every couple of years, and there’s billions and billions in fines that they’ve paid. But it turns out, Tony Kynaston: Oh, not just that though. Go back further. Go back to the, you know, they funded Auschwitz, they, uh, turfed all the Jews outta the bank during the 1930s. Yeah, it’s a, Cameron: times. Good times. [00:15:00] Well, they go back, I’ll get into their little bit of their history in a minute. Um, turns out 2025 was their best year ever in 156 years. Not many companies can say they’ve had their best year in 156 years, Tony Kynaston: No. True. Cameron: but Deutsche Bank is one of those, and. it turns out that they’re like one of the stocks that we have covered here so many times, particularly in the American show. Um, old, old businesses that are in the middle of a turnaround. Tony Kynaston: Yep. Cameron: Deutsche Bank. Surprisingly, Tony Kynaston: Right, Cameron: uh, this year, 9.7 euro billion, billion Euro profit before tax up 84%. Net profits, 7.1 billion Euro basically doubled. So they had a good year in 2025. Um, and Jeffrey Epstein’s, uh, you know, not responsible for a lot of it. Uh, so. [00:16:00] Oh, I’ve got a whole Jeffrey Epstein story could tell you. Do you know? Do you know? I, I gotta pause, you know? Tony Kynaston: Do I know Jeffrey Epstein? No. Categorically not. No. Cameron: Where you want his play? I don’t have time to tell you my Jeffrey Epstein story. I’ll have to wait. Um. Uh, before we get into it, they’re not an ADR that was the first thing I checked. Tony Kynaston: Yeah. Cameron: did run an ADR for a long time, but then they moved to a common stock, uh, 16 years ago or something like Tony Kynaston: It’s a dual listing, isn’t it? Yeah. Cameron: as a common stock. So they were founded in 1870 in Berlin right after Bismarck, or he was gonna unify Germany, but before he actually unified Germany. So I think German unification didn’t happen until 1871. They were founded in 1870, but as part of Bismarck’s unification process. And they were set up explicitly to break the Anglo French dominance of trade finance in Europe and around the world at the [00:17:00] time. Picture Germany, 1870 Bismarck is gearing up to declare the German empire. German industry is exploding. Chemical companies, steel mills, the whole thing Tony Kynaston: Yep. Cameron: the of, of Napoleon and Napoleon III and the Franco Prussian Wars and all this kinda stuff. But every time a German exporter. Sold goods overseas. The trade was financed through a British or French bank because they had basically in Tony Kynaston: It’s, yeah. Bit hard to bank with them when you’re at war with them. Cameron: Eh, yeah. Tony Kynaston: Yeah. Cameron: I mean, China and the US seemed to be coping okay, but still London was the center of the world financially at the time. The sterling was the trade currency. It was the, the, the US dollar of its day and German bills of exchange were supposedly pretty much unknown in international commerce. [00:18:00] Generally disliked They, they attracted a higher rate of discount than English or French bills. So German manufacturers and, and, um, businesses were kind of getting screwed, left, right, and center. then their English competitors were in the same market, so they set up, uh, this new statute to create, uh, a German bank. The Prussian government granted them the banking license in 1870. And the whole point written into the founding statute was to promote and facilitate trade relations between Germany, other European countries and overseas markets, and their first offices, I love this, were in Shanghai and Yokohama Tony Kynaston: Right. Cameron: so they went straight to where they were doing business didn’t set up until London, till like 1873, 1874 or something like that. Tony Kynaston: Well that would’ve been about the time that those countries were opening up to Western, um, traffic, I guess Western Enterprise. Cameron: [00:19:00] yeah, I mean, China had been opened up by the Opium Wars, uh, in 1860, and Japan was on the verges of opening up as well. So German industry was going global and they described themselves still as the global Hausbank. which literally means house bank. It’s basically your principal banking relationship. Um, if you’re a corporate, you do everything with them. Um, lending payments, trading advice, custody, the lot. That’s been their strategy since 1870, but they had a period over the last 20 years, 30 years, where they thought they could grow. And we’ve seen this story a lot of times before. People are going, you know what? We’re leaving money on the table here. We should be in this business, that business, we should be leveraging our brand, our customer base, our et cetera, et cetera, et cetera. They. Decided being a dominant German bank, the dominant German bank wasn’t enough. They wanted to [00:20:00] be a global investment bank. They bought Bankers Trust in New York in 1998. I remember Bankers Trust from my days working for Citibank in the late eighties. Yeah, hired armies of bond traders and for 15 years they pretended they were Goldman and it all ended very badly. of the scandals I mentioned in my intro mostly tied up with that play Tony Kynaston: Mm-hmm. Cameron: in 2019. They eventually gave up in all of that. They killed their global equities trading business. Tony Kynaston: I don’t know if they killed it or the GFC killed it. Cameron: Yeah. Tony Kynaston: Yeah. Cameron: They, whatever it got killed and they just shut it down. Sold the prime brokerage business to BNP Paribas, sacked like 18,000 people Tony Kynaston: Hmm. Cameron: a course of a number of years from the investment bank and have been refocusing ever since then on core business, uh, being the house [00:21:00] bank for European corporates wealth management for rich people. Their CEO the last, um, whatever years, nearly 10 years, a guy called Christian Sewing, S-E-W-I-N-G. Sewing. So he, Tony Kynaston: Saving Cameron: he in, he invented the savings account. Tony Kynaston: and he saved the company. Yeah. Cameron: Saving the company. Yeah. He’s been in the job since 2018 and his contract’s just been extended to 2029. Long time as the CEO, but he started at the bank in 1989 as an apprentice. He’s a lifer. Tony Kynaston: Yeah. Right. Cameron: in the Hausbank German kid who came up through back office, internal audit, retail banking, all the unglamorous bits and ended up running the joint, [00:22:00] not an MBA from Wharton with flashy ideas. Uh, he’s sort of an old school guy. So the 2019 reset part of his plan and their best year they’ve ever had in their history is his doing. Tony Kynaston: Yep. Cameron: He, he had a partner who, uh, a CFO who just left in March of this year. James von Moltke, this guy, he’s an American. Um, but interesting story. He, he’s the great grandson of the Prussian General Helmut von Moltke the younger who started a little thing called World War I. Tony Kynaston: Oh, Cameron: And, and they were both related to Helmut von Moltke the elder, who was a disciple of von Clausewitz, Tony Kynaston: oh, Cameron: basically modernized the Prussian army in the 1800s. Um, for people who, unlike Tony, [00:23:00] didn’t listen to my Napoleon series, and you should go listen to my Napoleon series with J. David Markham, Tony Kynaston: that’s a very good series. Cameron: friend. J. David Markham. Uh, von Clausewitz was a Prussian general who studied Napoleon’s campaigns, wrote a great book On Strategy, I think from memory, the English title of it. um, von Moltke the Elder, used those principles to modernize the Prussian army. And what the hell are you doing there, Tony? You’re Tony Kynaston: Sorry, I just got a, Cameron: banging the mic. Tony Kynaston: I’m sorry. I just got a message saying my camera actually was about to run out, so I’m plugging it in. Cameron: Oh yeah, you gotta plug it in. Yeah. This eats up the battery, Tony Kynaston: Yeah. Cameron: the new CFO Anyway, as Raja Akram came in from Morgan Stanley, where he was, the deputy CFO, he took over as the CFO in March. So their Q1 2026 report, which came out just uh, a week ago, was his first quarter as CFO, [00:24:00] and that had a record profit posted a record quarterly. Post-tax profit of 2.2 billion euro up 8% year on year. And, uh, the private bank division saw pre-tax profit jump 39% to 681 million Euro. Tony Kynaston: Hmm. Cameron: And it’s interesting because, you know, your new CFO usually kitchen sinks, Tony Kynaston: Yep. Cameron: everything takes all of the provisions they can to make things look as good. He didn’t do any of that, at least with his first quarter. Just basically gave it a clean record. I don’t think he had to, ’cause everything’s looking so good. So there was no, um, creative accounting with this, with this, as far as I could tell. He could still do it as time goes on, but, um, seeing as he, you know, I think the CEO’s got a plan. Von Tony Kynaston: Yeah. Cameron: Moltke, no von not von Moltke successor. Sewing and Akram, the new, the new team there have, um, got a plan that he’s sticking to. Tony Kynaston: Well, before [00:25:00] you leave discussions about CEOs and CFOs, interesting, CEO. I think maybe before the well, uh. Anyway. Interesting. CEO about 10 years ago, uh, was Jain, who was the cousin of Ajit Jain, who runs the insurance business for Berkshire Hathaway. Cameron: Wow. Tony Kynaston: And uh, I saw a, I saw a quote when I was doing a bit of research on Deutsche Bank that Warren Buffett back in the year 2000, had a meeting with Ajit Jain. May have just turned up to meet Buffett with his cousin, and Warren came away and said That boy’s gonna run an investment bank one of these days. About 10 years later, he was running, uh, Deutsche Bank. Cameron: There you Tony Kynaston: Hmm. Cameron: And, uh, ran it into the ground and then they needed to fix it. Tony Kynaston: I dunno about that. Cameron: So, um. What they actually do four divisions [00:26:00] basically these days. The investment bank is the biggest piece, about 39% of group revenue bond underwriting, fx, corporate debt advisory. quietly killed their equities trading in 2019, so they’re no longer competing with Goldman on that stuff. 3.4 billion euro in revenue last quarter, 1.4 billion profit before tax. This is probably last quarter before this quarter, last quarter of the full year. I’m talking about here, the private bank. The German retail bank has branches in every German town past, plus something called Postbank, which I’ll talk about in a minute, in a minute. Something they took over from the postal service, which has been a little bit messy. they do wealth management for high net worth Europeans. profit is on that one, as I said, was up 39% year on year. They’ve got the corporate bank, cash management, trade finance, commercial lending, relationships, good returns on that. Asset management is the [00:27:00] fourth part of it. uh, they have a thing called DWS, which is separately listed, and Deutsche owns about 80% of that. It’s got about 1.1 trillion euro in assets under management Q1, they delivered a 49.6 return on tangible equity in this division. Sounds insane, Tony Kynaston: It does on a trillion dollars of investments. Wow. Cameron: yeah. Tony Kynaston: Or a trillion euros, I suppose. But yeah, same thing. Cameron: So all four divisions hit about 13%, um, return on tangible equity in Q1. Uh, that was a big milestone for them. So it’s a bank. It’s, you know, it’s a, it’s, it’s, it’s pretty much a basic Doing well. Tony Kynaston: covers the waterfront though, doesn’t it? Like it’s, it’s not a sa it’s not just a savings and loan bank. It’s not just an investment bank. It, it’s got Its Cameron: bank, Tony Kynaston: a house bank. Yes. It’s the German bank. They do everything. Yes. Cameron: So the Postbank takeover, so as I [00:28:00] said, they acquired that from the German Postal Service in 2008, 2009, paid 25 Euro a share initially, then raised the offer and then got sued by long standing Postbank shareholders claiming the offer was still too low. dragged on for 15 years. In April, 2024, German Appeals Court ruled against Deutsche Bank in a key case, forced a 1.3 billion Euro provision in Q2 of 2024, which was why the 2024 numbers didn’t look so good and the 2025 numbers a good year on year to some extent, Tony Kynaston: Mm-hmm. Cameron: they’ve started settling that. I think they’ve settled about 60% of the claims at 31 Euro a share. Yeah. Um, but there’s still some more to pay off out of that, but I think it’s probably mostly settled these days. Um, good money for lawyers though, 15 years of fees fighting that. So they had a heyday. [00:29:00] Probably the biggest risk side of it that I could see, Tony, is their commercial real estate division. They’ve got about 30 billion euro of high risk commercial real estate loans on the book. half. Just under half of that is office properties and a large. Component of that is on the US West coast, San Francisco, LA Seattle, which is the worst office market in the developed world right now. Apparently, apparently, um, people decided they were gonna work from home during COVID and haven’t gone back large extent. They’re still well below pre COVID norms, office occupancy on the West Coast. And a lot of those loans are coming up for refinancing at much higher rates than they were written. This is the same problem apparently, that a lot of US regional banks have been facing. Uh. Tony Kynaston: Yep. Cameron: Deutsche is on top of it. They sold about a billion US dollars of US commercial real estate loans to outside investors in 2024. [00:30:00] And, you know, they’re handling it. That’s their job. Bloomberg ran a story in March. Deutsche Bank says commercial real estate remains key risk. You know, they, it could go badly, Tony Kynaston: Yep. Cameron: and the market might be factoring losses therein or some, some big hits to their profit. But that’s about it as far as I could tell. Um, in terms of bad news stories, you know, they haven’t killed anyone recently. Um, well not since Jeffrey Epstein, but, um. Tony Kynaston: And the, and the banker, um. There, there was a, a, uh, there was a banker who was allegedly involved in the Russian, um, because Deutsche Bank was the bank of the, the Trump family. And, uh, Cameron: Yes. Tony Kynaston: Mueller was investigating, um, Cameron: Yes. Tony Kynaston: Russian collusion, the Deutsche Bank banker killed himself in California. And people tried to tie those two things together and we still dunno whether they [00:31:00] should be or not, but it was an interesting timing. Cameron: He shot himself twice in the back of the head while his hands were tied behind his back. It was really an amazing piece of Tony Kynaston: Yeah. Ricocheting. Cameron: Yeah. Um, look, uh, we, we are not claiming that they had any of those people, including Jeffrey Epstein, assassinated. That was comedy. Comedy gold. Comedy gold. But, um, as I said, uh, it, it’s very similar to some of the other stories that we’ve talked about in recent months. Kodak, Pitney Bowes, Tony Kynaston: Hmm. Cameron: established Tony Kynaston: Ford. Cameron: um, too big for its boots in some areas. You know, got some things wrong, tried to, you know, get involved in businesses that didn’t belong in or couldn’t execute on. Tony Kynaston: I think you summarized it beautifully before they, they tried to grow and they went back to basics. It’s so, it’s like it’s, there’s only ever two chapters in the history of businesses, isn’t it? They try and grow. They either [00:32:00] succeed or they go back to basics, and then they become profitable again. Yeah. Cameron: yeah, it off. Refocus. And if you can do that. know, pull it off. It’s a great story. Tony Kynaston: Yeah. And Cameron: you will pull it off, but Tony Kynaston: no, Cameron: to be doing a good job. Tony Kynaston: but how many times have we seen boring company throwing off lots of cash? New CEO comes along and says, Hey, we can grow. Completely ruins the company. And then they toss the CEO out and go back to being a boring company, throwing off lots of cash. Cameron: So in terms of ownership of these guys, nothing really. Um, surprising About 76% institutional, no majors here. Qatar, the country holds 6.1% Interesting. Sovereign linked funds, but they’ve got a pretty big, uh, free float. But here’s the Tony Kynaston: Yeah. Cameron: interesting thing. I wanted to talk about this really. Um. It was interesting. Um, there’s a thing called the German co [00:33:00] determination Law. You ever come across that, Tony Kynaston: I have not, no. Cameron: I love this. So the company has two boards. They have, um. What they call the Vorstand, which is the management board runs the company day to day and an Aufsichtsrat which is the supervisory board that oversees the management board, Tony Kynaston: Mm-hmm. Cameron: has the power to appoint and fire the members of the management board and the supervisory board. Supervisory board is. elected by shareholders and half elected by employees. Tony Kynaston: Okay, that’s different because I, I had come across that concept. It’s if you put AG after your name, I think if you’re a German company, um, which is the, like proprietary limited in Australia or limited in America, [00:34:00] it’s limited liability for the shareholders to the capital that they put in. Uh, I think it’s the, the two board structure is a requirement under the corporation’s law of Germany to. To, um, be able to limit your liabilities as a shareholder. Cameron: Right, Tony Kynaston: I didn’t know it was half elected by the staff though. Cameron: Half elected by the staff and the history goes back apparently to, um, after World War II when the allies were running everything over there. They didn’t want a concentration of power in the hands of the elite like they saw during the Nazis. Uh, Tony Kynaston: Right. Cameron: it was set up this way. So any company with more than 2000 employees, according to this 1976 Co-determination Act has to have this, um, structure in place. Um. they’re not advisory, they’re not non-voting. These are actual Tony Kynaston: Yep. Cameron: votes. They get to, uh, they have power, real power line workers, senior staff, trade union officials, [00:35:00] whatever the relevant union is, actually get to determine who the Tony Kynaston: Wow. Cameron: company is. Like it’s, I wish we had that here and make things here. One thing it means though is you don’t, uh uh, you don’t get a lot of activist positions, and these companies are a little bit more. Conservative in, um, how they deal with employees and how they deal with, uh, you know, cost cutting and those sorts of things. meaning that they’re, they’re not, you know, taking big swings and probably gonna fire everyone to, uh, replace them with AI to bring costs down or something like that. For companies between 500-2,000 employees, employees get one third of the supervisory board. 500. No co-determination is required. Um, the shareholder side has one structural advantage. The chairman of the supervisory board is from the shareholder side and gets a tie breaking vote in deadlock. Tony Kynaston: Mm-hmm. Cameron: [00:36:00] But in practice, these things usually never get to a tied vote. It’s sort of, um, managed in a way so that never needs to get deployed because that would sort of mean something goes nuclear. So normally they reach a consensus. So yeah. Anyway, I thought that was a really interesting corporate structure that I’d never heard of before. Tony Kynaston: Similar to the industry Super Funds in Australia, which are now large companies, which have half elected reps from the staff. Cameron: Do they? I didn’t know that. Okay. There you go. Um, so it’s what economists call the Rhineland model. Stakeholder Capitalism with banks, workers, and long-term shareholders, all having seats at the table versus the Anglo-American model of shareholder primacy. What it translates. Two though is hostile takeovers are nearly impossible. You’re not gonna win a, uh, a board fight when half the directors are [00:37:00] workers who’d lose their jobs. Tony Kynaston: Right. Cameron: Mass layoffs are politically expensive. thinking is structurally enforced. Uh, activist investors have a much weaker hand than they might have in New York, also means that returns on equity tend to be structurally lower than US companies Tony Kynaston: Really. Okay. Cameron: I said, yeah, that’s the trade off. Germany trades on average at lower price to book and lower PE multiples than the US partly because it produces more stable, but less dynamic Tony Kynaston: Yeah. Okay. Cameron: allocation as a result. So anyway, I thought that was fun. Um, let me get into the numbers. Um, stock was trading at about $31.11 on the NYSE. When I did my analysis, market cap was about 59.5 billion USD. Down about 19% year to date, despite record numbers, [00:38:00] um, for whatever reasons might be due to the European Central Bank being expected to start cutting rates in 2026 the Trump tariff drag on European corporates or the Eurozone recession scare or. Iran or who knows why the, why it’s down, but it’s down. Citi recently called the sector cheap and recommended buying the dip. Um, they’re doing a $1 billion euro buyback at the moment. It’s about 60% complete. Expected to wrap by the end of August. They’re paying a dividend of one euro per share. X date is May 29th, yields 3.85%. So that’s all good. Um, getting into the QAV numbers, um, F score is a five, so I scored it for that. The price is, [00:39:00] price is. Less than IV2. I had to do the EUR conversion to work out IV2. After the Euro conversion, it turned out to be about $41 versus the price of $31, so it’s price is lower than IV2. I could score for that. Prices lower than book. Uh, and Book plus 30, book value growth is positive. Three year CAGR is about 3.69%. Um, Pr/OpCaf three point trend line. Obviously it scored well for those. And it couldn’t score for quality rank or stock rank. Prices above IV1 didn’t score for growth over PE being greater than 1.5, yield greater than bank debt, PE less than yield or forecast IV being higher than twice the price. So it ended up with a quality score of nine outta 13 a QAV score of [00:40:00] 0.65. Tony Kynaston: that’s high. Cameron: It is high. Yeah, it is high. Um, did I, I don’t have the price to operating cash flow in my notes here. That’s weird. I normally copy and paste it in. Let me just grab that. price to operating cash flow 1.05, which is, um, kind of insane. Tony Kynaston: Yep. Although I’ve got, you know, you’ve gotta point out that banks have a differing operating cash flow model to your typical coffee shop. So, Cameron: they Tony Kynaston: yeah. So you, I, I, I’ve debated for years whether or not to use the metric, we use price to operating cash flow for banks, and I’ve persisted with it Cameron: Yeah. Tony Kynaston: the basis that it tends still to correlate to a good. A good valuation when the operating cash flow is high in a bank. Cameron: yep. Tony Kynaston: even though it’s not the same as having a, you know, a high gross margin in a coffee shop, for example. They [00:41:00] are different things. Cameron: Yep. Tony Kynaston: yeah. So it’s kind of almost like it’s a correlation for good valuation with a, with a bank rather than being as, um, numeric, I guess as a quantifier as we do for industrial companies. But I’ve still, I still persist with it. Cameron: Yeah. Yeah. Well I know that we’ve done banks before, Tony Kynaston: Mm-hmm. Cameron: and, and you know, they work out okay Tony Kynaston: Yeah. Well what what they’ll often find though is the operating cash flow might be high this, this month or this half, and it may not be next half. Cameron: Yep. Tony Kynaston: ‘ cause it, it’s, it’s got to do a lot with, you know, bonds being issued and, um, proceeds from, uh, you know, other things. Um, not just straight margin that, that we would look at in a business sense. There’s a few other things in there. Cameron: And the title for this episode is The House Spank that came in from the cold, Tony. Tony Kynaston: The House of Trump Bank, the. Cameron: Oh, no, we don’t wanna, we don’t wanna do Tony Kynaston: Did, did you see that, um, on the, [00:42:00] as a tangent, did you see that? Uh, Amazon is thinking of reviving the Apprentice, but starring date Donald Trump Jr. Cameron: I saw that in your notes. Yeah, that’s, uh, terrifying. Well, with that, I need to go to Mortal Kombat, Tony Kynaston: All right. Cameron: thank you TK. Have a good week Tony Kynaston: Enjoy the movies. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

May 7, 2026

27m
42

The $3.6 Billion Illusion (MRP) – QAV America #50

On this episode we hit episode 50 and celebrate with a portfolio update showing we’re nearly double the S&P 500 all-time, before diving deep into Millrose Properties (MRP) — a brand new REIT spun out of home builder Lennar that had the AIs screaming “stay away.” We dig into the weird world of land banking, shadow banking, private credit, and why a company can show $3.6 billion in operating cash flow while only pulling in $600 million in revenue — and whether that should ever pass the QAV sniff test. Spoiler: it doesn’t.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV America 50 Club Cameron: [00:00:00] Welcome to QAV America, Tony, episode 50, big five zero. Tony Kynaston: Wow. Cameron: Yeah, Tony. Um, it’s been an interesting week in the, uh, stock markets and in the news and in, uh, presidential affairs. Tony Kynaston: hmm. Always is. Cameron: Failed assassination attempt on Donald Trump. Tony Kynaston: But it’s, it’s like, what was that, uh, movie Edge of Tomorrow where Tom Cruise gets like moves one step closer to his goal of killing the, the aliens, but gets killed and then next day wakes up again and does it, bearing in mind what he knows isn’t gonna work. So we’re like, we’ve had the guy on the roof, blah, blah. He’s gone. We got the guy running fast through the checkpoint, so he made it through but didn’t get a shot away. So kind of the golf course. So like the next one is gonna run through quickly and get the shot off. Knows what’s coming. Cameron: Yeah. [00:01:00] Well, listen, I, uh, as I said to you on the last show, I dunno what the Secret Service is doing. Um, I think they should all be fired, but I think Tony Kynaston: Hey, they saved. They saved the president. How much of those guys getting paid though to go and stand in front of JD Vance and between him and a poet? Cameron: The guy shouldn’t have been, you know, able to get into the hotel with a Tony Kynaston: Oh yeah, Cameron: Should have security on the front of the hotel. Like not a guy running through the place with a, how did he get a shotgun into a, how do you get a shotgun into a Hilton hotel? That’s what I wanna know. I know it’s America, but still. Anyway. Tony Kynaston: Hmm. Cameron: I just think it was fascinating that Trump didn’t do any of the White House correspondents’ dinners during his first term. Didn’t do one in the first year of his second term, agreed to do this one, doesn’t even get to get on stage before it all gets shut down and he goes home. It’s, uh, [00:02:00] very strange. Any who, Tony Kynaston: The universe doesn’t want him to talk to White House Correspondents, obviously. Cameron: Yes, some people, some people are saying it’s staged, Tony, a lot of people, a lot of Tony Kynaston: Really? Cameron: A lot of people, Tony, a lot of people are saying they’re staged Tony Kynaston: to distract. Okay. Yep. Cameron: from the Iran war, to distract from the economy, to Tony Kynaston: Ah, Cameron: you know, Tony Kynaston: hadn’t thought of that. Cameron: who made money off of Polymarket betting that there would be an assassination attempt on that day, which it literally happened. Tony Kynaston: Well, that’s one of the difficulties of Polymarket, isn’t it? If you bet there’s gonna be an assassination attempt, you could be the assassin. Cameron: Yeah. Check the alleged assassin’s, uh, bank account. Anyway, let’s, uh, so the market, uh, in the last week in the US, Tony, is up. In Australia the market is down significantly. In the last week in the US it’s [00:03:00] had a few dips, but it’s ended up, despite the fact that the latest news today is that offered some sort of a deal. Trump said he doesn’t like that deal. Nothing’s moving forwards with the Strait of Hormuz as far as we know, but the US market does not care. It’s just trundling along, happy campers. Tony Kynaston: Cares more about forecast earnings, I think, which AI is driving up. So and Cameron: driving up for seven businesses. What about the rest? Tony Kynaston: Yeah. That’s right. Big disconnect between those businesses and the, and the Main Street type businesses. Isn’t there? Cameron: Now the, the, the deep dive I’m gonna do today is a tricky one. I’m not sure if you’re gonna like it. In fact, I was so unsure about it. I didn’t add it to our portfolio this time. Tony Kynaston: Ooh, Cameron: Uh, did my head in, Tony Kynaston: really? I, I had a look at that. It’s definitely an interesting topic to talk about for sure. Cameron: Very different from anything that we’ve done recently. [00:04:00] Um, I had lots of conversations with AIs and they were all trying to talk me out of it, telling me this Tony Kynaston: Oh, Cameron: stay away, really bad. I was like, I dunno. Tony Kynaston: If AI tells you it’s bad and says to stay away, must be really bad. Cameron: Well, maybe. Um, so we’ll get into that in a minute. Before we get into that, I just want to do a quick update on our portfolio. So in the last month, our main US portfolio is basically neck and neck with the S&P. They’re both up about 12%. We’re a little bit below, we’re up 11.76. The S&P 500 is up 12.64, slightly underperforming it. Uh, in the, uh, last 12 months, uh, our dummy portfolio is up about 36%, 37% versus the S&P up just under 30. So we’re outperforming [00:05:00] slightly, Tony Kynaston: Mm-hmm. Cameron: I don’t know, 20%, um, over the course of the last year all time. We are up now a hundred and, arrows not working on this thing. And uh, it looks like we’re up 90, 97% versus the S&P up a little bit less than 51%. So all time, not quite double, but almost double. So that’s, that’s not too bad. Tony Kynaston: Yeah. Cameron: with that. Tony Kynaston: Yep. No Mag Seven stocks. Cameron: Sorry, what? Tony Kynaston: And we don’t have any Mag Seven stocks. Yeah. Cameron: The QAV Light portfolio that’s only been running since just before Christmas is up about 8% since that time. Uh, versus the S&P’s up about, uh, four. So it’s doing double, only over a few months. Some of the, some of the big winners in [00:06:00] that one. Uh, Kodak is, uh, up Tony Kynaston: Wow, Cameron: is up Tony Kynaston: That’s developed, hasn’t it? Cameron: I know. It’s crazy. Oh, I see what you’re doing. I see what you did there. Very good. Yeah. Very, very good, Tony. Uh, yeah, all you know, Pitney Bowes is up 44, Quarters is up 44. Scripps is up 33, Commercial Vehicle Group, CVGI is up 21. Nabs Industries is up 16. Um, so yeah, doing quite well considering it’s pretty new. Some of the stocks that we’ve done pulled porks on that aren’t in our portfolio though. But, um, we’ve covered in this, I just had incredible runs. Of course, the, the big one is still Zep Health Corporation, which is up 466% since we talked about it in July last year. Um, ChemX, uh, we talked about in March last year, over a year ago, is up [00:07:00] 116%. Uh, just too many to talk about. So many winners. Lots of winners. Out of the 47 stocks that we’ve done a deep dive on, 34 are up, 13 are down. It’s about a 30, no, 72% win rate and about 34% average profit of those over the last little bit over a year. We started doing deep dives in March last year, Tony Kynaston: Pretty good. Cameron: Yeah, like it’s just been a bonkers year. Tony Kynaston: Hmm. Hey, before I forget too, we, I spoke about, uh, Berkshire Hathaway on the Australian show. Um, I think it’s the Berkshire Hathaway AGM May two, which must be this weekend in Omaha, Nebraska. Cameron: Will he be there? Tony Kynaston: Oh, I think, I think he’ll be there, but it’s actually gonna be run by Greg Abel who’s answering questions this year, not Warren. Cameron: I mean, Tony Kynaston: Interesting to see the turnout. Yeah. Cameron: What will he do? Sit on the [00:08:00] stage and not talk? I don’t know. Tony Kynaston: I Cameron: Just eat his, uh, candies and drink his Coke. Tony Kynaston: Maybe talk to Bill Gates in the, in the crowd, in the front row. Cameron: I think he and Bill are on talking terms right now. Tony Kynaston: Oh, okay. Cameron: Uh, well, you know, he, he dropped out of the foundation after all of Bill’s, uh, problems came to light. Tony Kynaston: What problems? Like, doesn’t Bill know how to launch spaceships around the moon to deflect from the problems, block the Strait of Hormuz and things like that. Cameron: Assassination attempts, Tony Kynaston: Yeah. Cameron: make him popular again. So the company we’re gonna talk about today, Tony, is MRP, Millrose Properties. Now I, oh, I was gonna do a company called Vate, by the way, VATE is the ticker code. I started doing a deep [00:09:00] dive on them. Is the name of the business. They were, uh, higher up in the buy list. But then when I was running my analysis, I found out they actually had a problem with their audit. Claude actually flagged that they had a Tony Kynaston: Oh Cameron: problem with their audit. So, uh, that was good to find out. Not, it’s the first time since we’ve been doing these pulled porks and I’ve actually had a company that had a dodgy audit. So Tony Kynaston: Wow. Yeah. Cameron: picked it up. Tony Kynaston: Hey, whoa, whoa. So I clicked on the link that you sent me, which was taking me to KLM, not Millrose. Cameron: What link did I send you? Tony Kynaston: He sent me four links and the first one is to, Cameron: Clem. Yes. Tony Kynaston: Yes. Oh, okay. Thank you. Because I looked at Clem. I haven’t looked at [00:10:00] Millrose. Yep. Cameron: So they’re one of, or one of the companies behind Millrose, one of the interesting ones. So let’s talk about Millrose. So. Tony Kynaston: Yep. Cameron: This is a bit of a weird one because they’ve only been around for a little over a year in this form. You look, if you look at their chart, it’s uh, a year old. They became a standalone public company on the 7th of February, 2025. So only got really one full reporting year under their belt. And we’ve done stocks like this from time to time in Australia that have floated. Not often that we see a floated company turn up on our buy list, ’cause usually, you know, when companies float, you know, they’re, they’re startups or they’re whatever, tech companies and they, they don’t score well on our checklist. These guys do. Yeah, because they were spun out of an existing business. Tony Kynaston: Yep. Cameron: This is a, an [00:11:00] unusual one. Well, for me. You, you might not find it so unusual, but for me it’s uh, an unusual one. Got spun out of a company called Lennar Corporation, LENNAR, who are one of the largest home builders in the United States. And what Millrose is, is what they call their land banking arm. You familiar with land banking, Tony? Tony Kynaston: I am. Yeah. Cameron: See there. I knew you would be. I, I figured that’s when you dig a hole in the ground and put your money in it. Tony Kynaston: No, no, no. You, you buy up land and sit on it waiting for it to appreciate and then you develop it. Cameron: Right. Well, that’s not exactly what these guys do, but part of it’s right. Yeah. Tony Kynaston: Yeah. It’s often, often the case that like a golf course can be seen as a land bank because, uh, you know, it can be sold to a developer at exorbitant amounts compared to running it as a golf course. Cameron: Right. Well, Lennar Corporation are developers, but they had to, they had to buy property [00:12:00] and then buy like vacant land and then sit on it until they were ready to build on it. Tony Kynaston: Yeah. Cameron: What they’ve done is just got that off their balance sheet and spun that off for somebody else to worry about that. So now they only buy it when they’re ready to build. They’re not carrying it on their balance sheet for a year or two years or whatever it might be. So Millrose is basically a real estate investment trust. Um, we’ve talked about REITs on the Australian show from time to time over the years. I think these are a little bit different the way this one runs, which is why I wanted to flag it with you and, and I dunno if this is the same in Australia, but the tax pass through structure that these guys have in the US is that they have to distribute at least 90% of taxable income to shareholders, Tony Kynaston: A trust. Yep. Cameron: In order to get tax benefits approved by [00:13:00] the, um, IRS in the US or whoever approves these things. Um, yeah, they have to check a bunch of boxes and one of those is they have to distribute all of the income to shareholders. But for people like me who don’t know what a land bank is, uh, here’s the basic setup. So you have a home builder like Lennar, they identify land they wanna build homes on. Let’s say they’ve got 500 acres in Florida, but instead of buying it directly, they ask Millrose to buy the land. Millrose pays cash, takes the title, and then starts what is called horizontal development. Basically clear the land, grade it, they put in the roads, the water, the sewers, the utilities. The land is then broken into finished home sites ready for houses to actually be built on. Lennar don’t take it until all of that’s been done. In this case, Tony Kynaston: Yep. Cameron: Lennar come in when they’re ready to [00:14:00] go vertical, that’s when Lennar get involved and actually pay for the Tony Kynaston: Right. Yep. Cameron: Up until then, it’s Millrose’s problem and Lennar has an option to take the land, which they pay for, pay a rate to hold an option, Tony Kynaston: A premium. Cameron: at a pre-agreed price plus a fee called the option fee. And that’s how Millrose makes its money, is those, that sort of option fee that the builder pays. So the builder has a cleaner balance sheet, lower land risk, faster inventory turns, and Millrose gets a predictable cash yield that they’re getting off this, uh, you know, this, this rental fee, option fee, whatever Tony Kynaston: Yep. Cameron: on what is effectively one of the few scarce assets left, which is land that’s not gonna be replaced [00:15:00] by AI or robots. Um, or, you know, any other sort of technology. Um, it’s one of the only construction inputs that can’t be imported from China. Uh, so free from all that kind of stuff. So in the case of Millrose, when it was set up, uh, a year, well, it was set up officially, uh, a little bit before that when they started doing the planning, but when it went live in February last year, part of the deal was that Lennar is the, uh, anchor tenant. Tony Kynaston: Right. Cameron: Lennar has like 84% of their revenue. 84% of Millrose’s revenue in the last year came from Lennar. Tony Kynaston: Right? Cameron: They spun it off. They’re backing the majority of it, but the plan is for Millrose to bring on other builders and Lennar’s weighting, I guess, in their revenue to [00:16:00] decrease over time. They have a multi-year contract with Lennar at an 8.5% yield. Could be renegotiated, I guess, when the contract is up, but that’s where it holds right now, and they have brought on. I think about 19 or 20 other builders in the last year who were paying a higher rate. Lennar gets the mates rates because they were the founding member of the whole thing. And then Millrose itself basically has no employees outside of a team of executives. CEO, CFO, legal counsel, uh, I think a board of directors. That’s about it. Their CEO, a guy called Darren Richmond, doesn’t have a background in building. He’s the co-founder of Kennedy Lewis Investment Management. Tony Kynaston: Yep. Cameron: or your Clem, [00:17:00] Clem RA. According to their website, a multi-strategy private credit platform Tony Kynaston: Hmm. Cameron: with $30 billion in holdings. Private credit, you wanna call it that. They have a division called Home Builder Finance. They are a pioneer in land bank financing. So one of, if not the pioneers in this idea of, hey, you don’t need to buy the land, worry about all that. Give it to us. We’ll take care of it all. We’ve seen this before in other companies that we’ve done deep dives on, like oil development companies that don’t own the oil rigs, Tony Kynaston: Yep. Cameron: somebody else comes in and we’ll just take care of all of that. You don’t have to worry about it. Or mobile phone companies that don’t own the mobile phone towers, they just, somebody else runs the infrastructure. Kind of [00:18:00] that kind of a play. Outsource the stuff that isn’t your core business to somebody else who can take it off the balance sheet. We did. We were talking about somebody, I can’t remember who it was, couple of episodes ago that doesn’t own their own factories or buildings anymore. They outsourced, they sold it Tony Kynaston: Sale and leaseback. Yeah. Cameron: that thing. Tony Kynaston: Yeah. It is similar, yeah. Cameron: a common theme that we, uh, seem to come up in shows o over and over here. Tony Kynaston: Oftentimes driven by ROE, the metric, which a lot of Wall Street analysts focus on, because if you don’t have as many assets on your balance sheet, then your return is quite high. Cameron: so if you can get, if you can offload these sort of non-productive assets or things that Yeah. Sitting around for a long Tony Kynaston: yeah, and classic management says why tie your capital in something earning 8% when you should be out there getting 15 from [00:19:00] other operations. Yeah. Yes. Cameron: So Kennedy Lewis, uh, Clem actually run this, run the, the the land banking side of the business, for Millrose. So. Tony Kynaston: Right. Cameron: You’ve got Lennar, you’ve got Clem, you’ve got Millrose, which is the baby of the two of them. Millrose has no employees apart from small team of executives, and it’s the same executive. So the CEO of Millrose is also of Clem, and it’s a little bit incestuous. Tony Kynaston: Clem’s, the Shadow Banker, it’s, it’s one of these private credit companies that. That listeners would’ve heard of, uh, from an Australian point of view, they’ve cropped up over the last few years because banks have gotten out of anything but asset backed lending. So they don’t lend to business very much any Well, they do, but they don’t lend [00:20:00] in the way they used to. Um, they don’t lend to startups, all that kind of thing, which has opened up a void in the market. And so these companies have sprung up because generally they have deep experience in the niche that they’re operating in. So, uh, these guys, so Clem was a shadow bank. They’ve got all this, these billions of dollars to invest. Um, one of the things that this opportunity gives them is they do have an asset backing. They’ve got the land that they’re, they’re buying and developing, and they’re just sort of slicing and dicing that they get. You know, they loan money to get the land purchased and then they get the holding cost paid for, ’cause it’s cleared. And, and the, then the builder that they unsell it to is paying for it with the option in advance. So it’s, it’s kind of a neat model for Clem really. Yeah. Um, cause one of the, when I was looking at Clem, um. Um, and, you know, not talking about them in particular, I started to do some research on this, on private credit and [00:21:00] what are the issues with it and, and, um, it calling them Shadow banks kind of tells you what the issues are. They’re, they’re operating as, as lenders without having all the regulations that protect consumers from, um, either investing or uh, taking out the loans. Um, there is still a lot of regulations, but not as much as if, as if they were a bank. So, um, Clem, I think. From what I saw, I did a quick sort of sketch of them looks, you know, like they’re well managed and honorable, uh, and everything’s working fine. But there must be other players out there who can use the fact that there’s less regulation in this, in the private banking industry, um, to their advantage. And uh, that’s something that I think will eventually come back to bite. The economy because, um, shadow bankers are still linked into the banking system at some stage often, uh, ’cause they’re borrowing money from banks to go and buy the land banks that they’re getting options from [00:22:00] builders to clear, et cetera, et cetera. Cameron: has never gone badly, ever in the history Tony Kynaston: unregulated lending on a large scale. Yeah. Cameron: Never ever, I dunno what you’re talking about. You’re just making shit up. Tony Kynaston: like I said, this is probably a very good example of how shadow banking could work, but it doesn’t take much to tip people, um, you know, into negative territory with the whole industry. If, if there’s a, someone goes broke because they weren’t undertaking the risk adjusted pricing or the asset backing of a company like this is, Cameron: And with these guys, like anything could go wrong, like a Tony Kynaston: oh, yeah. Cameron: the state of the global economy and the US economy, which you, you wouldn’t know if you just looked at the stock market. But as we’ve talked about on the show over the last few months, are ringing alarm bells all over the place. Tony Kynaston: Well the two big risks in this case that I can see straight off are interest rate moves. So if. F uh, interest rates rise [00:23:00] in the US that that Donald Trump’s trying to hold them down. But, and the new Fed chair’s trying to, you know, is coming in, saying he’s gonna hold them down, but eventually they may go up and that’ll change the. Pricing risk for all of these kinds of assets. Um, I don’t know what the contract says about repricing, but they may have to. So that’s risk number one. Risk number two is that, um, you may have done your deal thinking that it would take five years to buy and clear the land and get the approvals, but as we know from experience here, councils don’t work to a timetable. They may. Um, hold you up. They may put the price up for applications. They may like. The local green group might get involved and say that this is gonna spell the end of the line for the white spotted green tree frog that lives in the area and everything gets held up in court. So there are a lot of risks in this business model, even though it seems to make sense. Cameron: Yeah. Not to mention collapse of the economy for a whole other reasons, and AI [00:24:00] taking people’s jobs sorts Tony Kynaston: Yep. Yeah. Cameron: but we can’t predict the future. Um, so. getting back to Clem their, their website, they say we partner with builders by acquiring and managing land on their behalf, enabling them to adopt an asset light model and focus on their core business of constructing homes. Our publicly traded REIT Millrose Properties is the dedicated vehicle for this innovative approach. That’s off the Clem website. Tony Kynaston: Yeah. And so this is a, this is a model which developers have used for ages, and we see it in Australia too, that they form syndicates to go and buy the land. Um, oftentimes they’re off market, but there are listed syndicates in Australia and trusts. Um, so this is, you know, kind of happening on an industrial scale so it can, uh, be large enough to list and, and cover all the costs of listing and, and, uh, compliance and all those kinds of things. Cameron: So, uh, what can I tell you? Okay, so here’s where it [00:25:00] gets, um, tricky from a QAV perspective. their total revenue in FY 25 was 600 million Tony Kynaston: Sorry, Millrose or uh, Clem. Millrose. Okay. Cameron: Yeah, Tony Kynaston: Okay. Cameron: actually Millrose. Tony Kynaston: Sorry, Millrose, Cameron: but I see how Tony Kynaston: we’ll call it Millhouse for now. exactly. Thank you. Cameron: uh, revenue was 600 million. As I said, 84% of that came from Lennar, but they brought on 15 other builders, nine of which are in the top 25 in the US. Tony Kynaston: Mm-hmm. Cameron: And they’re, uh, charging or earning higher rates from them than they are from Lennar. 11%. As I said Tony Kynaston: Oh wow. Cameron: across their book for year end 2025 was about 9.2%, Tony Kynaston: Right? Cameron: focused in the Sunbelt, Florida, Texas, Arizona, Carolinas, and Georgia. This was where most of the new home construction is [00:26:00] apparently happening in the US. And that’s all I’ve really got on the business and the business model. It’s not very complicated. Um, the main problem with these guys from a QAV perspective is the nature of their operating cash flow Tony Kynaston: Yeah. Cameron: they have a very attractive price to operating cash flow. Their 10-K shows their OCF as 3.67 billion. But their revenue was 600 million and Tony Kynaston: Right. Cameron: profit was about 380 million. Tony Kynaston: Okay. Cameron: So this is where the AI freaked out when I was getting them to do some research, they were like, well, this isn’t really operating flow Tony Kynaston: Yep. Cameron: think operating cash flow Tony Kynaston: Yep. Cameron: it’s basically. They buy a bunch of land. They sell a bunch of land and all the money goes out and then they, you know, go borrow more money and they go buy more land. And so it says it’s operating cash flow, but it’s not. And I was like, well, [00:27:00] isn’t that what every business Tony Kynaston: Yeah. Cameron: and they Tony Kynaston: Yeah. Cameron: they value add to it, then they sell it, and then they get money and they go and spend it on more raw materials. And it was like, yes, but this is different. But I haven’t quite figured out how or why and how it impacts on our price to operating cash flow. So they’re basically rolling this money over every time they sell it, they’re buying dirt, clearing dirt, then selling the dirt, and then reinvesting all of that money into new dirt. Now. One of the reasons as far as Claude tells me this is different is under GAAP rules in the US. If your primary business is selling land, that land is inventory Tony Kynaston: Yep. Cameron: and inventory sales are operating cash [00:28:00] flow. Tony Kynaston: Right? Cameron: But if you have a standard REIT that owns an office building. Tony Kynaston: Yes. Cameron: The rent is operating cash flow, Tony Kynaston: Huh. Cameron: the value of the office building that you have. If you sell the building, that’s investment activity, not operating cash flow. The operating cash flow is from the rents, so Millrose is effectively treating the sale of the building as. Cash flow, as rent, as Tony Kynaston: Yep. Cameron: whole thing, so not really sure. I, I, I did try and do some analysis on how that’s different from Australian REITs. This is what I got under Australian accounting standards. A passive REIT selling an asset would almost always record the proceeds as investing cash flow. Their [00:29:00] operating cash flow is mostly pure rent. It’s clean and predictable, but with MRP, because their inventory is land, they record the entire sale price of the land as OCF. why their OCF is 3.6 billion, while their revenue is only 600 million. It makes the company look like a cash generating monster, in reality they’re just liquidating their assets to buy more. Tony Kynaston: All right. Cameron: In Australia an REIT is a landlord. Millrose is a shadow bank for home builders. It’s a high yield credit fund masquerading as a property trust, and it’s using US GAAP accounting rules to make its cashflow look significantly more efficient than it actually is. The truth is that MRP is a property company. It’s a leveraged yield wrapper, so. Tony Kynaston: wrap Cameron: Yeah, this is from Claude or Gemini, Tony Kynaston: ra Cameron: of the two. I can’t remember. Tony Kynaston: max and yield to the max. Cameron: so the, so as I [00:30:00] said, 600 million total revenue, 486 million in operating profit, 380 million in net profit. The difference between the total revenue and the net profit seems to be the management fee. So there, Kennedy Lewis charges 1.25% of gross tangible assets, which is apparently outrageous according to my AIs, but that’s the deal. Um, so that’s where a big chunk of it’s going. Sort of 90 to a hundred million. And then there’s the financing and tax gap, which is about 106 million. Tony Kynaston: Yeah. Cameron: So the question at the end of the day, Tony, is, and if I look at, sorry, if I look at their 10-K, which I’ve got a screenshot here, flows for the years ended December 31st, 2025, 2024, and 2023. Can ignore the earlier ones because they weren’t really up and running. 2025 it says cash flows from operating activities, 3.672 [00:31:00] billion investing activities, negative 5.722 billion activities, 2.084 billion, net cash, 35 million. So they’re making money. Tony Kynaston: Yeah. Yeah. Cameron: me. But they score really well for us because their price to operating cash flow is 1.39 Tony Kynaston: Right. Cameron: cash flow is massive. so I couldn’t, after spending all day in this yesterday, I couldn’t get my head around whether or not this was dodgy or, or fine from a QAV perspective. And I thought, bugger it. I’ll just throw it over to Tony. Tony Kynaston: thanks. Yeah. Cameron: your system. Tony Kynaston: Well, uh, my first comment would be to do some more research, but, um, on the face of it, I think, I think it doesn’t look like [00:32:00] normal operating cashflow. To me, it looks more like investing cashflow. And the operating cashflow would be the fees and the option premiums and coupons. Cameron: Right? Tony Kynaston: Yeah. Cameron: it Tony Kynaston: Yeah. Cameron: Yeah. Tony Kynaston: And the is, the rest is, even though it’s treated as inventory, it, it’d be lumpy, I would think. Um, which means if it’s had a good year, it, as long as they reinvest the cash, well it’s, we can still treat it as a good thing. But, um, yeah, I, I, I’m a bit suspicious of the, the way they’ve allocated operating cashflow there. Cameron: So Tony Kynaston: It’s a, it, well, it, assuming that land banking is a perpetual motion machine, that they can always buy new land and, and therefore the operating cash flow keeps going. But I suspect that that won’t happen or that there’ll be lumpy lumpiness in the operating cash flow. So it’s, it’s kind of a misnomer, I think. Cameron: but we [00:33:00] don’t score a business on its future operating cash flow. We score it on its past operating cash flow. But I guess there is an underlying assumption there that this is a. Healthy business that is operating cash flow. Tony Kynaston: correct. I mean, this, this is a healthy business from a, from how it’s classified. It’s operating cash flows as long as they sell some land and put that land, that money back into buying some land, and they can keep that going and that, that really is their business, I Cameron: yeah. Tony Kynaston: um, is that really operating cashflow or is that just like an investment? Cashflow, but cycling through? Mm, Cameron: Yeah. So no, we’re gonna say no to this one. This is the first time we’ve said, no. Tony Kynaston: I think so. Cameron: agreeing with the AIs, Tony? ’cause Tony Kynaston: Oh, yeah, I don’t think Cameron: They were, It’s a skeptical Tony Kynaston: one, isn’t it? Cameron: [00:34:00] about this as being a good, good investment. Tony Kynaston: We have had some other ones that we, I mean, if we look at it, the first analogy that comes to mind is the operating cash flow for a fund manager that we took out of QAV in Australia because the operating cash flow, the way they account for the operating cash flow, if someone does a big investment or a big redemption into the fund, it goes for operating cash flow. Um, and that can make the fund manager look really good from a QAV point of view when in fact. They could be doing terribly from a, you know, a business point of view. So Cameron: not revenue really. Tony Kynaston: yeah, money moving. Yeah. So yeah, I, I think, I think it’s more of an investment cash flow myself, the land banking. But anyway, Cameron: I started to think about it, you know, because you’ve taught me how to do this a little bit. I started to think about it yesterday as, okay, let’s, let’s break it down to something small that I can understand. let’s Tony Kynaston: yeah. Cameron: Joe Blow has a business where he says, um, [00:35:00] people, people give me money and then I go and invest that money, for them they pay me to invest that money for ’em. So it’s like, I dunno, it’s a fund or a Hathaway Tony Kynaston: Yep. Cameron: and they Tony Kynaston: Yep. Cameron: you know, some, somebody gives me a million dollars. And then I go and invest that million dollars and then I get a fee out of that and I, and, and they off, they give me an opportunity to buy into it. You, you wanna take a share of the business Tony Kynaston: Hmm. Cameron: and they value it based on the million dollars, um, that they’re getting to invest. Uh, using that as the valuation metric. It would be like. Well, no, you don’t actually own that million dollars. It’s not like million dollars you can do something with. You are, you are investing that on behalf of other people. not the, what I’m interested in is how much money are you getting out of that Tony Kynaston: Yeah, correct. Again, again, it’s, I think it’s treating an asset like an I like which is, which? It is inventory, but it’s treating an asset like a, [00:36:00] A cash flow. Like a revenue. Yeah. And, and again, it is revenue that they are selling land, but they’ve gotta keep doing it on a perpetual basis for it to be really operating cash flow, I think. And they’ve gotta be to have positive operating cash flow. The last land they sell has gotta be more than what they paid for the new land. Um, ’cause like they could go out and borrow some money and buy. Land, more land than what they sold last year, in which case the operating cash flow looks negative. So it’s a bit screwy. I think if I’m, I’m trying to put this in the coffee shop analogy somehow. It’s almost it’s almost like the coffee shop is the end product at the end of a big pyramid where there’s a new sub development, um, where someone’s borrowed some money and cleared the land and then our developers come in and built housing and they put a. Um, you know, a convenience store and some other shops at the middle of the housing development and one of them happens to be a coffee shop. [00:37:00] So, Cameron: literally, you, you, did a deep dive Tony Kynaston: yeah, Pete. Cameron: week about that, Tony Kynaston: Yeah, exactly. And, and it’s a similar sort of question that they had because they were successful in. In offloading their balance sheet. So Pete, the company, which was the developer, was, was successful because they would offload their balance sheet of land acquisitions or land banking, uh, into syndicates that were off the books, but they still controlled and took a management fee. So similar sort of thing. I, you know, I wouldn’t think the operating cash flow for each syndicate was buying and selling the land. It’s, it’s the, it’s the fee revenue, the management fee revenue is the operating cash flow. Um, yeah, so I, I’m saying no. Cameron: Well, it’s interesting if, if I, um, if I look at the rest of their scoring, we couldn’t score ’em for quality rank or stock rank. They did score for F-score, score for IV number one, did score for IV number two, did [00:38:00] score for prices less than book and prices less than book plus 30. over three point uptrend. Obviously have a new three point uptrend, um, yield. Is higher than bank debt, what’s their yield to 8.29%? Tony Kynaston: Yep. Cameron: yep. Uh, couldn’t score for forecast IV greater than price. Couldn’t score for PE less than yield. But if I take, but the, I and I haven’t recalculated the prop calf, but I, I’m assuming it would be, um, probably too high for us Tony Kynaston: Yeah. Six. Yeah, I would think so. Cameron: 31 bucks. So, um, Tony Kynaston: 50 odd times. Yeah. Cameron: By, uh, 31, let’s say. Yeah. So it, it, it, it, yeah, it, the rest of the scoring might be okay, but it just would’ve been way too [00:39:00] expensive for us if that price to operating cash flow was readjusted. Tony Kynaston: I mean, again, going back to the Pete example in Australia where they have a a different syndicate set up for each time they buy land to land bank. Cameron: Hmm. Tony Kynaston: This is almost like each syndicate rolls over into a new one. That’s, that’s what Millrose is, is doing, isn’t it? It’s saying that I’m gonna have a continuous cycle of inventory, which is I’m buying land, selling land, buying land, selling land. But if you, if you break it down to kind of, it’s the equivalent is I have a syndicate to buy some land that takes five years. I sell that land, but the day after I start that syndicate, I start another syndicate and buy some more land. So I’m always on a cycle of every year selling some land and buying some land. Cameron: Okay. So the question then, Tony, is uh, um. This doesn’t make the cut, but it was on our buy list. So what do I do move? Like if I hadn’t have done a deep dive on Tony Kynaston: Yeah. Cameron: look at it. Tony Kynaston: Yeah. Cameron: What can I [00:40:00] do to keep Tony Kynaston: Well, Cameron: list? Tony Kynaston: again, I can’t speak to American, the American system in Australia, we used to click the box saying GICS, unclassified. You know, wouldn’t appear in our downloads, which eliminated the fund managers. There must be a similar GICS coding that we could look at in the US to take those people out. That’s option number one. Option number two would be, uh, if the revenue’s less than the operating cash flow. There’s something screwy going on different going on. I shouldn’t say it’s screwy. I mean, it makes complete sense, but it’s, it’s not how we’ve set up QAV to, to work. Yeah. So that’d be the, the other test is revenue lower than operating cash flow. Hmm. Cameron: I might, um, try and figure out how to add that into the checklist. Good pickup. Well, yeah, and it was Claude, so thank Claude for that. went, [00:41:00] whoa, I don’t think so. And I was like, Hmm. I know we’ve done REITs before show, but then I was trying to between ours and theirs. Tony Kynaston: we very rarely have a REIT though Cameron: Yeah. Tony Kynaston: on the buy list. Cameron: and of Tony Kynaston: Yeah. Cameron: okay, but Tony Kynaston: Yep. Cameron: like that. Tony Kynaston: Mm-hmm. Cameron: Alright, well the show. I gotta go, Tony Kynaston: All right. Cameron: to kung fu. Thanks Tony Kynaston: Yeah. I, I’ll have to find something else to add to QAV Light in America this week. Happy Nasdaq everyone. Cameron: Happy Izzy. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Apr 30, 2026

33m
41

Subprime Time: Lending to America’s Underbanked at 36% APR – QAV America #49

On this episode we run through our latest portfolio numbers — the QAV dummy portfolio is up 115% since inception versus the S&P’s 60%, and some individual picks like Kodak and Scripps are going absolutely bananas. We dig into the week’s big news including the Iran war’s economic ripple effects, the tariff refund mess, and the Cal-Maine antitrust saga. Then Cameron does a full Pulled Pork on Oportun Financial (OPRT) — a subprime FinTech lender to underserved Latino communities that’s dirt cheap, freshly activist-investor-cleaned, and either a turnaround gem or a cautionary tale.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV America 49 ClubCameron Reilly: [00:00:00] Welcome to QAV America TK. It’s the 21st of April, 2026. Before we get into the news of the week, TK, I just thought I’d do a quick update on our portfolios ’cause it’s a crazy time in the markets at the moment. The QAV dummy portfolio, uh, all time, which is September 23, is currently up 115%. Over that period of time versus the S&P 500, which is up about 60%.So that’s, uh, September two and a two and a half years, not gonna lie. The S&P being up 60% in two and a half yearsTK: it’s good.Cameron Reilly: is not a bad, not a bad couple of years. Um, we are doing pretty much double that, so, yeah. Crazy, crazy time over there. Uh, at the moment, for the last 30 [00:01:00] days, our portfolio is up 14% versus the S&P up nine.Our QAV light portfolio, which we started in December last year. Is up 6% over that period of time versus the S&P up 3%. So again, sort of double market, but it’s only over a few months. Um, I did mention to you on our last show that some of the stocks that have been doing well, we’ll talk about Topgolf in a minute, but our, our friends at Kodak.Um, that we talked about a few weeks ago are now up Conex up 65% in our light portfolio. Um, in a matter of,TK: bid or something for them?Cameron Reilly: I dunno, it didn’t come up in my news search. Yeah, we added them on the 23rd of March, which is a month ago, less than a month ago, but almost a month ago. It’s up 65%. No idea why [00:02:00] Scripps is up 48.7% since we added them, uh, on the 25th of February, two months ago.TK: Well, of course it’s, uh, corporate reporting season over there now, so they could be putting out some goodCameron Reilly: It’s always corporate reporting season. They do it every three months. I did see that Scripps announced some sort of deal came up in my news. Well, it didn’t seem like that big a deal, some sort of a thing that they did. But yeah, I mean the market is just absolutely bonkers. you know, we’re gonna start a new segment on this show this week, which is, uh, Tony reads the Bible uh, that’s what Donald Trump’s doing this week. Uh, America reads the Bible. Have you heard about that?TK: No.Cameron Reilly: He’s doing a televised session where he reads from the Bible. I’m not sure if it’s a daily thing or a weekly thing.I’m not sure when he is gonna learn to read, but that’sTK: picture book? Oh, look at that. That’s a very ugly guy. There he is. Got terrible clothes, bad hair,Cameron Reilly: very low IQTK: [00:03:00] straggly beard. Yeah.Cameron Reilly: Very low IQ loser. Yeah. Iprefer my TK: that’s Jesus.Cameron Reilly: killed. Yeah.TK: Look at that. He’s not to a cross. It’s a very basic cross. Not even the gold cross. Well, I see. He’s obviously doing penance for the AI post of him being Jesus. He’s trying to get back into good books with the Americans. Yeah, the Christians. Mm.Cameron Reilly: Well, uh, Tony, crazy week, uh, as has become the norm. Um, York Times article in front of me. White House shrugs off shaky economy as war exceeds Trump’s timeline. Stocks may be soaring again, but the war in Iran has started to pinch the finances of many Americans. Uh,TK: Was that White House or Wall Street did you misquote there?Cameron Reilly: no, says White House.TK: Really well, of course they’re gonna shrug it off. It’s bad news.Cameron Reilly: roughly seven weeks into the war with Iran, investors have shrugged off the [00:04:00] sky high price of oil, sending the S&P 500 this week to a fresh record high. This is dated AprilTK: Yeah, so that’s WallCameron Reilly: old.TK: Street shrugging off the wall.Cameron Reilly: exuberance on Wall Street has offered a sharp contrast with the hardships facing many Americans who are feeling the financial blowback of a conflict that President Trump once promised would be brief, but seems to have no end in sightTK: You once promised there wouldn’t be any foreign wars too. Forget about it being brief. That’s like,Cameron Reilly: Oh,TK: that’s like a, an excuse you give when you didn’t do your homework. Well, I’ll be brief. It was brief anyway.Cameron Reilly: so. 2024. Thinking of you Tony, have changed with high gas prices cutting deeply into many families’ budgets. The US economy is under increasing strain, raising the odds that inflation will worsen, unemployment will rise, and growth will slow. This yearTK: All completely correct, but look, Americans are whinging bitches. I, uh, [00:05:00] I compare the cost of, um, petrol in the US or gas as they put it to Australia. And uh, the $4 a gallon is equivalent to a dollar 50. Even taking into account the currency changes exchanges. Dollar 50 per liter, which is half what I’m paying at the moment at the bowser.So, you know, get over yourselves. AmericansCameron Reilly: $3TK: pony up. Yeah. For diesel. Absolutely.Cameron Reilly: got a diesel car.TK: Yeah.Cameron Reilly: I was surprised. I filled up our car yesterday or the day before and it was only, I think two bucks.TK: Okay.Cameron Reilly: It was likeTK: That’s good.Cameron Reilly: a few days earlier or a week earlier. Um, whinging bitches. I guess that’s the new, um, title for the episode. Uh, so yeah, like as we’ve said before, I think week after week after week after week, the stock market doesn’t seem to care. Uh, Washington Post article, here’s what the, uh, it wants me to pay for it. God damnit.TK: Stop shouting at [00:06:00] clouds.Cameron Reilly: Okay. Hold on a second here. Uh, letTK: Yeah. You sent me, you said listen to this. Cameron sends me all these links to the behind paywalls and I don’t get to see them.Cameron Reilly: you’veTK: Alright.Cameron Reilly: Post subscription. I know it’s WallTK: No.Cameron Reilly: You’ve got, yeah.TK: I do find a way to get around them, but yeah.Cameron Reilly: Here’s what the stock market might’ve gotten wrong about the Iran war. surge in optimism contrasts starkly with continued energy supply, challenges that threaten long lasting economic harm, and a market reckoning as stocks soared.This week in oil prices dropped amid an apparent cooling of tensions between the United States and Iran. It may have left the impression that the energy shock that rattled the world is quickly fading along with the risk of sending the global economy into a recession. But beneath that surface, a starkly different reality is unfolding.It is defined by disrupted supply lines and damaged infrastructure, sparking increased [00:07:00] concern among the people who produce, transport, and depend on energy. The people closest to the industry are far more concerned about these disruptions and recognize the length of time it will take for things to return to normal.If they ever do, said Jerry Morton oil and gas co-chair at the law firm, Baker Botts. The further away you get from actually being involved in producing oil, the less you seem to be concerned about the physical reality and problems that are there. is the thing that gets me, Tony, is like, there’s just this sense of exuberance and optimism in the markets.That makes absolutely no sense to me.TK: It, it doesn’t, and unfortunately, I, yeah, I don’t like to predict, but it, it’ll catch up with us, with us at some stage and the market will retrace dramatically, I think. Um, not just, so a couple of points on what you just reported. Uh, I [00:08:00] can’t see the oil majors relying on the Straits of Hormuz if they can avoid it going forward, because even if, even if they have to, in the short term, they’re possibly gonna have to pay a toll.To use it, whether that’s a toll on Iran’s permission or whether that’s some kind of support for the US keeping the straits open. Um, there has been plans to build a pipeline down the western side of the Strait so that oil can get through without having to worry about intervention. That’s a. Big, big cost, but I, I’m sure that that is being dusted off and they’re having a look at that, or they’ll find some other way to, to get the oil out, which will be more expensive.Um, so that’s problem number one. Problem number two is that the Straits of Hormuz aren’t the only narrowing in the supply chain for oil. There’s also other places like the Straits of Malacca, which um, could be shut down by China in a sort of similar way that [00:09:00] Iran’s controlling supply chain, uh, the supply chain.And given China’s moving away from its dependency on oil and gas, it’d be a really neat trick to go for the electric and then close down the Straits of Malacca, which would stop oil from getting to Southeast Asia and possibly to us as well. So it’s, it’s not just one choke point. I, I would think that the oil industry’s looking at all the chokepoints and building plans and they, the problem is not gonna be the lowest cost plans.They’re gonna be the risk free plans and not cost money. And it’s not just oil. It’s gonna flow through to plastics, chemicals, fertilizers. Almost every part of the supply chain has a cost increase because of this.Cameron Reilly: I was reading a little bit about the idea of building a pipeline across, well, what a cartel or Oman or whatever is down onthat other side of it. And yeah, it doesn’t sound like a weekend project.TK: No it doesn’t.Cameron Reilly: go to Bunnings, get some pipe, throw it down. there’s some pretty big mountain [00:10:00] ranges through there, soTK: right.Cameron Reilly: I read like hundreds of billions of dollars and decades to build a pipeline through there.TK: Really.Cameron Reilly: yeah, It’s not a, not a short term solution.TK: Right.Cameron Reilly: Elon can just fly rockets, some rockets there. Rockets can come up and come down on the other side. Reusable rockets.TK: Yeah, he’s, he’s pretty good at finding economies and infrastructure, isn’t he? In government? Government departments?Cameron Reilly: Well,TK: think I’ll be relying on Elon, but I mean, they might do something like put it on rail, for example, rather than ship it in in big tankers, which should be, again, costlier, but less risk.So I think that’s gonna be the, there’s gonna be solutions like that until more permanent ones are found, but they’re gonna be costly.Cameron Reilly: Hmm. Well, speaking of government departments dealing with money, uh, New York Times today, uh, Trump administration takes steps to refund $166 billion in tariffs. [00:11:00] The government debuted a system to repay importers. Two months after the Supreme Court struck down tariffs at the heart of the President’s trade policy. Uh, but guess who’s not getting any money back is the people who paid their money. Um, the consumers,American consumers. They’re not getting refunds.TK: Yet, you gotta expect there to be class actions, wouldn’t you?Cameron Reilly: wow. Yeah. I mean, lawyers have gotta make a buck, somehow. Gotta feel sad for the lawyers. Um,TK: of the American economy. The lawyer?Cameron Reilly: Um, yes. Like just what, what a debacle like, uh, complete, complete and utter debacle.TK: Yeah.Cameron Reilly: guy has doneTK: Yeah.Cameron Reilly: and utter mess any who [00:12:00] in a sign of the expected demand. More than 3000 businesses, including FedEx and Costco, have already sued the Trump administration in a bid to secure their refunds before the application website launched, with some cases filed even predating the Supreme Court’s ruling, but only the entities that officially paid the tariffs are eligible to recover that money.That means that the fuller universe of people affected by Mr. Trump’s policies, including millions of Americans who paid higher prices for the products they bought, are not able to apply for direct relief. You’re tired of the winning yet America.TK: Well, it’s, that’s an interesting point as well. ’cause if, if, uh, there is a precedent set that the end user gets to pay for a, a government acting illegally, in this case it’s tariffs, then it must apply to oil as well. So it’s like governments acted illegally, Congress hasn’t approved this incursion to the Straits of war, whatever you wanna call it, and it’s pushed up all the prices for Americans.[00:13:00] There’s another set of. Legal actions pending, I would’ve thought,Cameron Reilly: Yeah. Yeah, you’re probably right. Well, moving closer to home. Um, big article in the financial review about Hamish Douglass, formerly ofTK: sorry. Be, can I make one more point? I was gonna,Cameron Reilly: Hmm.TK: in my notes talk a little bit about the fact that in the earning season that’s happening in the US I saw an article reporting on that for the banking sector. And the headline was something like, volatility is our friend. And so the banks have been making huge money out of buys and sell during this period of volatility.Um, so someone’s winning out of it, and if someone’s winning out of it, it’s probably not gonna stop soon.Cameron Reilly: Yeah, well, not to mention the people that, playing arbitrage with theTK: Yeah.Cameron Reilly: uh, you know, who obviously have a bit of an inside track, I imagine.TK: Mm-hmm.Cameron Reilly: Yeah. It’s just a, like, it’s just such a huge grift. [00:14:00] Um, I was talking to one of my American, uh, TPN listeners, uh, on chat there, actually. You, you, you, you met him, uh, Tim in the, uh, Vegas days.I think you were there years ago. Tim Henning, back when Markum and Ray and all of us were in Vegas, Tim was there. He was checking in and he was saying like, the whole thing is just a pyramid scheme. Like it’s just the guys at the top making all the money from the people down the bottom. And yeah, it’sjust, he’s disgusted with the whole thing.TK: Well, but we’ve seen this before with the US elections. They put a useful idiot in, they make lots of money. The useful idiot can make a bit of money as well themselves, andCameron Reilly: Hmm,TK: the machine just keeps grinding on.Cameron Reilly: . Uh, one of the stocks that we’ve talked about, uh, Cal-Maine Foods are in a bit of hot water. The US Justice Department is preparing an antitrust suit against a few major egg producers, including Cal-Maine Foods and Versova. Over [00:15:00] alleged price coordination.The Wall Street Journal said on Friday, citing people familiar with the matter matter shares of Cal-Maine Foods, were down nearly 5% in extended trading. Following the news. Now call me crazy, call me stupid. But, uh, I, I do think there’s a little bit of a political angle in this because you remember when Donald Trump was campaigning.He was very big on talking about the price of eggs and how the price of eggs were gonna plummet. Immediately he became president and then they didn’t. And, uh, so I think the Justice Department is going after the egg companies for making the president, uh, look bad. Would, what do you think would he, would he be that petty?TK: Who can say I’m, I’m just, I’m just struggling to think of a promise he made that’s been kept [00:16:00] after two years or nearly two years. Uh, no foreign wars.Cameron Reilly: Yeah,TK: a war. It’s gonna finish soon.Cameron Reilly: the tariffs are gonna be great for America. Oh, we’re gonna pay them all back. It was actually illegal, uh, doing that. Yeah. Um, I’m just asking, uh, Gemini, what’s happened to the price of eggs? The price of eggs in the United States over the last two years, April, 2024 to April, 2026, has been a study in extreme volatility.As of March, 2026, the average retail price for a dozen grade, a large eggs is approximately $2 35. This represents a dramatic decline from the historic highs. Seen exactly one year ago.TK: Well done, Donald.Cameron Reilly: So,TK: Does that mean the case has dropped?Cameron Reilly: uh, December, 2024. They were $4 15, March, 2025, $6 23. August 25, $3 59. March [00:17:00] 26, $2 35, soTK: Oh, I must see a reelection campaign right there. Cam. Winning the War against EggsCameron Reilly: yeah.TK: winningCameron Reilly: Yeah.TK: the war againstCameron Reilly: Yeah,so, uh, what drove up the prices before that was the, uh, avian flu, apparently, the HPAI highly pathogenic avian influenza began in 2022. An outbreak, particularly lethal wave hit in late 2024. Then the greed, deflation debate. Anyway, I don’t know what the prices have come down. No.TK: What drove the prices up was Sleepy Joe.Cameron Reilly: Sleepy Joe. Yeah, heTK: Joe.Cameron Reilly: loved his eggs.Um, also in the news, American Airlines rejects United CEO’s merger proposition. Apparently, according to the Wall Street Journal, the CEO of United Airlines, uh, suggested to President Trump that, uh, [00:18:00] would be a really great idea if they merged the two largest US carriers. Industry officials have said such a merger would create significant antitrust concerns and likely face pushback from consumers, lawmakers, and state attorneys general. United and American overlap on hundreds of routes, including at Chicago’s O’Hare International Airport, where they’ve been locked in a fierce battle for terminal gates and passengers.Analysts said any merger would likely require significant divestitures. And apparently, uh, American Airlines not all about this idea. They’ve said no. We did, um, cover American Airlines on the show a while ago, the share price. We, we talked about them in October last year. Share prices down 11% since then.TK: Yeah, of course. Mainly due to oil prices,Cameron Reilly: Uh, I would imagine there’s, there was also some [00:19:00] problem with, uh, engines I seem to recall, and, you know, problems with, uh, some engines. Somebody who’s done much better since we talked about them. Uh, is Topgolf, Tony. Callaway, one of your favorite stocks that we’ve talked about? I had mentioned in recent shows that since we talked about them, their share price had gone bonkers.We, we covered them on the 12th of November, 2025. Share price is up 43% since then, and I didn’t really look into it. They did pop up yesterday and something else I was looking at, um, there was an article that came out six days after we did our show, Topgolf, to be acquired by private equity firm, Leonard Green and Partners, the long awaited spinoff deal has finally been announced.Parent Topgolf Callaway Brands plans to drop Topgolf from its name when the $1.1 billion deal is completed in early 2026. And remember, they did. [00:20:00] Change their, uh, ticker code to CALY from TOPG, I think it was.TK: Mm-hmm.Cameron Reilly: And that’s why. And the share price. TheTK: well.Cameron Reilly: market loved it. So the share price has done well, not as well as easement. Code Act 70, 60.So 66%. Remember Pitney Bowes we talked about at the, uh. Uh, it says 30th of April here. That’s not right. It’s the 30th of March. We talked about Pitney Bowes. They’re up 21%, uh, commercial vehicle groups up 16% since we talked about ’em on the 16th of April. PagSeguro we talked about last week, is up 6% since then.Just we can’t do anything wrong. Tony, apart from American Airlines, apparently everything’s going bonkers.TK: if you’re a CEO out there, send us a brown paper bag and we’ll talk about you on the stock on the.Cameron Reilly: Either I’m a complete genius when I pick these stocks or, uh, the [00:21:00] US market. It makes absolutely no sense. Right now. You decide. I report the facts, people you decide. So my stock this week, Tony, is an interesting one. I think you’re gonna like this one. Um, Oportun Financial Corp, OPRT is the ticker code. They’re on the, uh, NASDAQ.Look ’em up. OPRT. I’m gonna do this quickly ’cause I need to go jumpstart a car with a dead battery, uh, and then go to kung fu. But Oportun is a financial services company according to Stockopedia, the company offers access to a suite of financial products offered either directly or through partners, including lending and savings, powered by artificial intelligence.TK: Important to say that these daysCameron Reilly: You know, it’s good.TK: it’s worth aCameron Reilly: it’s good.TK: in your stockCameron Reilly: Yeah. Maybe that’s what Kodak did. Maybe they turned themselves into an AI company, code ai. Put [00:22:00] an I in the brand name. The company’s credit products include unsecured and secured personal loans. Its unsecured personal loan is a fully amortizing installment loan with fixed payments throughout the life of the loan.Its secured personal loan is a personal installment loan product secured by an automobile. It also offers automated savings through its set and save platform. Its set and save product is designed to understand a member’s cash flows and save the right amount on a regular basis, quote unquote. Using AI, it reaches incremental members through its lending as a service lead generation program, it allows consumers to become members and access its products through the Oportun mobile app and the oportun.com website.Which serves as its primary platforms for onboarding and providing member services. So, uh, interesting business that’s had a bit of a rough run as [00:23:00] most of the companies that we talk about here have for one reason or another. Not a lot of dead people, but, uh, a lot of, a lot of sued people. Um.TK: Oh.Cameron Reilly: There’s the story here.Company goes back 20 years. Co-founded in 2005 in California by James Gutierrez. He was a student at Stanford Graduate School of Business and his co-founder, Gabrielle Manez, the original name of the business was Progreso Financiero. Financial progress, I guess, in Spanish, rebranded to Oportun in 2015.It, it basically started off as a, a social enterprise to try and provide credit to people in America that didn’t have access to credit. Basically, unbanked and underbanked Latino population, primarily in California and Texas. These are people that couldn’t get credit under the. [00:24:00] Typical banking system in the us, undocumented immigrants or people that just struggled to get enough of a credit score, high enough credit score for the traditional banks to look at them.TK: Mm-hmm.Cameron Reilly: The company’s original mission was to help its customers build credit in the United States, and gain access to better lives and mainstream financial services. And over the years it grew and grew and developed a reputation for being one of the most litigious debt collectors targeting Latinos,TK: that’s, um.Cameron Reilly: particularly during COVIDTK: it doesn’t matter how much marketing you do, you do, it’s goingCameron Reilly: one.TK: negate it pretty quickly.Cameron Reilly: Yeah. Well, um, and yesterday they got a new CEO. ’cause the CEO that they’ve had for the last 14 years got rolled by an activist investor.TK: was repossessed? No. Oh.Cameron Reilly: Yeah. He was [00:25:00] evicted from the premises by the sheriff, uh, which is the interesting part of the story. We’ll get to Fin. They’re an activist investor group that basically took a 10% stake in the business and then.Sort of got rid of the board, uh, and, uh, or some of the board anyway, and the CEO. So they went, uh, Oportun, went public on the NASDAQ in 2019 at $15 a share. Currently trading around $5.88. So big decline. And, uh, the outgoing CEO has been blamed for a lot of that, not only by this activist investor, Mr.Finn, but also by the founder or the co-founder I mentioned before, Mr. Uh, Gutierrez. I read a letter that he wrote basically saying, yeah, the, these, the current management has screwed the business, screwed the pooch, and we need to get back to basics. So, um, first thing to know [00:26:00] in terms of their core business is they’re what you would call a subprime and near prime consumer lender.They lend small amounts of money, typically two to $10,000, to people who can’t easily get a personal loan from a mainstream bank because they have a thin credit file, no credit file or damaged credit history. They pay the loan back in fixed monthly installments over two to four years at a fixed interest rate.For those people who dunno what subprime means, it means borrowers whose credit scores are below the threshold that you would, uh, normally. Need for mainstream banks, which is called prime credit. Near prime, you sit one tier above subprime. Their typical borrower’s a Latino working age income, roughly 45 to $55,000 a year in a service sector job.Um, and quite often a first time formal credit user. And they’ve got a number of products, as I said, but the main [00:27:00] one is this fully amortizing personal loan. Now in July, 2020, they publicly committed to capping their annual percentage rate APR at 36%, which seems high.TK: That’s generous of them. They capped it at 36%.Cameron Reilly: Yeah. Now, uh, I did some sort of analysis between that and what the caps are in Australia, the caps in Australia are, uh, a bit higher, but in the US it’s kind of crazy. Uh, it, in Australia, our rates are capped federallyTK: Mm-hmm.Cameron Reilly: the US they do it state by state. And some states, I think about 16, have got caps in place, others don’t, and you could be paying six, 700%TK: mm.Cameron Reilly: APR, uh, in some places.So it’s. Kind of typically [00:28:00] American outrageous. Yeah. I was mentioned in the last show our, um, the guy that was with us in Vegas, I don’t know, 10 years ago, whenever it was, Tim told me that he just had a, an ultra, he’s 74. He just had an ultrasound done on his heart. Cost him $19,000.TK: For an ultrasound,Cameron Reilly: Yeah, I said I had my stress test and ultrasound and echo done a few months ago.TK: equipment?Cameron Reilly: I had mine done a few months ago and it cost me, I think six or 700, maybe $800, and I was kind of pissed that it cost me that much.TK: I was gonna say,Cameron Reilly: Yeah,TK: yeah, I have aCameron Reilly: ITK: CT scan done recently on my sinuses, and it was free. It was bulk billed.Cameron Reilly: right.TK: Yeah.Cameron Reilly: Yeah. So anyway, that’s America for you. Um, now the 36% is apparently what the Military Lending Act, which is a federal law in [00:29:00] 2006, uh, that’s the limit that they set for interest rates for the military. It’s considered the, the good rate, 36%. Um, so anyway, and they did that. They voluntarily did that.Because they got outed by ProPublica and the Guardian as being one of the most litigious,TK: Oh dear.Cameron Reilly: uh, lenders to Latinos. And then a few days later came out and said that they were dismissing a lot of their lawsuits and capping it at 36%. So they got shamed into it. Basically, the CEO at the time said, I had no idea that, I’m shocked, shocked to hear that there’s gambling going on in this establishment officer.So, yeah. So how they make money, uh, breaking it down.TK: I think it’s pretty obvious how theyCameron Reilly: Yeah, yeah, yeah, yeah. We’re gonna break down the business,TK: don’tCameron Reilly: divisions.TK: you’re talking about [00:30:00] this.Cameron Reilly: Uh, they’re what’s called a monoline lender. So they have a single product line as opposed, as opposed to a diversified bank. So personal loans, unsecured, as I said, that’s, that’s the historic core of the business and the bulk of their loan book secured personal loans, which is a relatively new product, which is where you pledge your car as collateral.You get lower loss rates, or they get lower loss rates as part of that. Uh, credit cards. They have a smaller card product. It’s pretty modest, but they do offer a card and then they got the saving. App, but this is kind of a bit of a dud. In 2021, they acquired a company called Digit. It was a FinTech app that automatically took money from your bank account and saved it for you, but that’s largely been wound down.It was a bit of a disaster.TK: Mm.Cameron Reilly: But the way that they raise money, and this is part of the risk of businesses like this, is they raise money via what’s known as [00:31:00] warehouse lines and securitization. Tony’s nodding sagely because he knows what that is. I didn’t, I had to look it upTK: Uh.Cameron Reilly: and I’ll get into it in a minute.For people who don’t know how that works, so they borrow, it costs ’em about three to 7%, uh, to access the funds, and then they loan it out for. 36% or more as we said. Uh, and the difference is the net interest margin or the NIM, the NIM, and that’s what they live on. Obviously risky for a bunch of reasons, as we discovered in 2008 with the subprime mortgage disaster, which I’ll talk about more in a second.But the thing that these people call their moat is their, their, uh, machine learning model, their proprietary machine learning underwriting model is what they call it. They’re currently on V 12 of that. And that’s the credit decision system, which they say is their [00:32:00] magic. And I’ll get into, you know, how realistically much of a moat that is.A little bit later on. But lemme talk about the subprime thing. ’cause that was my first reaction. I was, oh, subprime, um, alarm bells went off. So subprime is obviously risky for obvious reasons. These people, um, are doing it tough and when things go tits up, the, these people that have subprime mortgages are probably gonna be the first people that can’t pay back their loans.In 2008, uh, we had subprime mortgages that were layered into collateralized debt structures. That were sold then to other parties and they didn’t have a lot of visibility in what was inside of those. I remember in the, um, whatever that film was, Big Short, I remember, um,TK: MargotCameron Reilly: no, I was thinking about, um, uh, [00:33:00] the chef whose books I’ve read and now I can’t remember his name.TK: Bourdain.Cameron Reilly: Bourdain. Thank you. Talking about. Like weak old fish heads that you then put into a bouillabaisse stew or something.TK: Yeah.Cameron Reilly: it all up as the analogy.TK: I just, can I pull you up there? I just ask the question, is Oportun actually offering mortgages or is it just loans?Cameron Reilly: No, no mortgages. Just personal loans. Yeah. Um, so back in 2008, what happened was these mortgages were, you know, people were buying mortgages on. Speculating on price appreciation for the property, and they were being loaned out on that basis. Then the real estate market collapsed and the mortgages collapsed and they, they had been funneled up and off on, sold to other banks, and then all that collapsed and it was this systemic.Contagion that spread through the financial system. Oportun makes small [00:34:00] personal loans, as I said before, two and a half to $10,000. They get paid back over two to four years. So no securitization daisy chain really, although they do securitize them, which I’ll get into. But it’s a, it’s, it’s very different.Um, I think to the, the mortgage level risk that we saw in 2008. Although you would expect that when things go tits up, and as we said earlier, all of the economists who, and in Australia we were talking about the fact that the banks here are starting to prepare for,TK: Yeah.Cameron Reilly: higher losses. They’re upping their bad debt buffers, the bad debt, Warren Buffer, as you said.Um. So big businesses and economists and the banks here are all assuming that it’s gonna be a rough trot thanks to, uh, President Trump’s, uh, adventures in Iran, among other things.TK: Well,certainly in Australia and there’s, there’s been two rate cuts here. I don’t think there has been in [00:35:00] the US so it might be a little bit different or delayed in the us but uh, yeah, it’s not gonna be as sunny as it was before the war.Cameron Reilly: yeah, not according to the articles we read earlier. I mean, you know. I think every, all, all of the economists in the US are thinking that this is not gonna end well.TK: The thing about subprime no camp, from my experience and I had a bit of experience running store cards or not running store cards, being involved with the running of store cards past careers, which are unsecured, and a line of credit to allow someone to shop in a department store, for example. as long as it’s all transparent and it’s priced properly, it doesn’t matter if things go tits up. Right. You’ve baked that into the price, the high interest rate you’re charging, and also into the provisions for losses that you’re, you’re making. if you are warehousing and getting funding from someone else, as long as they’ve got transparency of the who’s who the borrower is, then they can price it appropriately as well. The difference with the, with the GFC was that that [00:36:00] stuff was rolled up into,Cameron Reilly: Yeah.TK: CDOs and then rated as if it was all Prime Plus when it wasn’tCameron Reilly: Yeah.TK: heads? Yeah.Cameron Reilly: Yeah, that’s right. Yeah. So I mean, it, it, it’s not going to lead hopefully to, uh, a huge market disaster. But it could be bad for the business. I mean, they could lose money in the, in the process. Right. So from an investor’s perspective, yeah.TK: yeah.Cameron Reilly: So the, the flip side, the contrarian angle to that is when you look at the share price for this, the market is already overpricing tail risk into their business model and at their current prices.And as you’ll see, when we get to the, uh, price to book and the price to operating cash flow, it’s, it’s insanely cheap. Um, so there’s, there’s potential upside here as well as potential risk as there always is. Also this borrower base, the, um, Latino immigrants without credit [00:37:00] scores is underserved by FinTech and banks in the US as far as I can tell.And it’s a pretty large total addressable market. Although once ICE is finished, it is shrinking. Yeah.TK: Is it literally going south?Cameron Reilly: Yeah. What happens when your customers get, uh, picked up and deported? I’m not exactly sure what your out is for that. Let me quickly talk about warehousing and securitization. So let’s say Oportun wants to lend out a billion dollars to borrowers and they don’t have a billion dollars sitting in the vault.They have to borrow the money. So they go to a big bank and they borrow money and they get it short term. So. Citi or Goldman might say, listen, we’ll lend you $200 million short term. Go make loans with it. Use those loans as collateral. So Oportun goes and makes 80,000 small loans to borrowers. Those loans are now sitting in a metaphorical warehouse.They’re real assets. People owe them money. The problem is that those [00:38:00] warehouse lines are expensive and short term. They can’t just sit there, so they then roll those up. Once they have a big enough pool of them, they bundle them together into a package and sell bonds. As a package to investors, typically pension funds, hedge funds, et cetera, and they buy the bonds because they’re gonna receive the monthly loan repayments from Oportun borrowers.So they, the Oportun then gets a lump sum of cash from selling the bonds. They use it to pay back the warehouse line and the cycle resets. So it’s a, it’s a interesting business model. Uh, it’s, you know, particularly risky during hard economic times because it depends on the banks being willing to give them warehouse lines and investors being willing to buy the bonds that, uh, they’re trying to package up and sell that.Hit a wall, obviously not only just in 2008, but also during COVID 2020.TK: Right.Cameron Reilly: And if you can’t make new [00:39:00] loans, you can’t borrow money, you know it, your, your whole business model can go up in smoke pretty quickly for an unknown period of time. So anyway, that is how that side of it works. Now, the, the other, the dirty part of the story is the Consumer Financial Protection Bureau that was created by the Dodd-Frank Act in 2010 in response to the 2008 financial crisis.And based on a proposition, I think made by Elizabeth Montgomery when she was in Bewitched, um, no, Elizabeth Warren, the other Elizabeth, when she was, uh, at Harvard.TK: Bail witch.Cameron Reilly: Regulates consumer financial products and they open an investigation into Oportun in March, 2021, focused on their collection practices over 2019 and 2021. In March of [00:40:00] 2023, though the CFPB notified Oportun that its enforcement staff had concluded they would not recommend any enforcement action. Now that doesn’t necessarily mean you’re innocent.It just, it could mean all sorts of things. Like, we don’t have any money to do this. We don’t have enough staff, we’re too busy. Um, you know, we’re just, for whatever reason, it’s not being cleared of wrongdoing. It’s just that we’re not enforcing this for whatever reason.TK: Elon saving money in.Cameron Reilly: I think DOGE was around in 2023, but yeah, could have been all sorts of reasons. Then in August of 2020, as I mentioned, ProPublica, uh, and the Texas Tribune and the Guardian, uh, published an investigation showing that Oportun had filed nearly 10,000 debt collection lawsuits year to date. Against lower income Texans and Latino concentrated geographies during the COVID-19 pandemic.[00:41:00] Uh, instead of going, Hey, listen, it’s, you know, this is a tough time for everybody. Yeah. Yeah. And whilst governments were handing out money hand over fist to businesses, I’m not exactly sure if Oportun got any government handouts. As part of that, I know a lot of American businesses did, and Australian businesses, many of whom did not pay it back when things recovered six months later.Uh, but within days of this article coming out, these articles coming out, Oportun suspended new collection lawsuits, pledged the 36% all in APR cap, filed an application for a national bank charter with the OCC, the Office of the Comptroller of the Currency. Which they ultimately withdrew in 2022, and then they were the subject of the CFPB investigation, which went nowhere.But, uh, the Center for Responsible [00:42:00] Lending, which is another US consumer advocacy nonprofit, published a follow up report of March, 2021, titled Suing to Intimidate That Explain their Practices. So. You know, reputational risk that these guys have. Also, the failed Digit acquisition that I mentioned before, they paid roughly $213 million, a mix of cash and stock for Digit.Supposed to get them into the neobank territory, couldn’t cross sell it. Integration was difficult. Uh, they took a large impairment charge on it, effectively wrote the whole thing off. And, you know, this was also when they were suing their customer base. It’s like, Hey, we’re suing you, but, uh, let us help you save money.So I mentioned earlier on too that the CEO from the last 14 years, Raul Vasquez had just got rolled. He’d been around since I think [00:43:00] 2012, something like that. It was kind of a big deal. He fought for his life for six months, um, uh, but didn’t survive, and he copped a lot of the blame for a lot of the mishaps that they’ve had over the last.Five or six years. He actually announced his departure on January 21st. Stepped down April 4th and the new CEO was named on April 16th, and he took over effective April 20th, literally today in the US. We’re recording this in April 20th American time. His name is Doug Bland. You know, if you have a flashy CEO you wanna get rid of, you know, you bring in Doug Bland.Doug Bland has 30 years in consumer finance, senior roles at PayPal. Speaking of Elon, Bank of America, Swift Financial, [00:44:00] they’ve also had three CFOs in five months,TK: Wow, that’s caught my attention.Cameron Reilly: Yeah, but this is when everyone’s being rolled and, uh, you know, largely the work of Fin Capital Management.TK: Mm-hmm.Cameron Reilly: them earlier on, but as I said, even the founder, James Gutierrez, or the co-founder weighed in against Vasquez in an open letter that he posted on LinkedIn saying, yeah, this guy needs to go.We need to get back to. Our core business anyway, so this guy, Brian Finn, runs Fin Capital Management. They’re an activist hedge fund, watched a podcast interview that he did with an Aussie, actually, uh, who runs an investing podcast. It was interesting, and, and he was pretty straight up saying, listen, this is a good business.It, it should be doing much better than it is. It’s a great market, great opportunity, great upside, but it’s being run very poorly. They’ve trashed shareholder value. [00:45:00] Um, management. He basically accused Vasquez of running it like an imperial court. Had a whole bunch of directors that have independent directors that have been there a long time, and, uh, so replaced a couple of those, replaced the CEO, CFO’s been replaced as well.So, uh, yeah, uh, that’s gone on. So basically you’re in a situation now with new management, activist investor. That could be a good thing, could be a bad thing, but, uh, you know, I guess we won’t know until the dust settles. But if you look at how the markets responded to the. News, its share price at the end of March was $4.37.It’s now $5.82. Share price’s gone up 70, 80% in the last, uh, [00:46:00] month, three weeks really as a result of these things going on, as far as I can tell. So the market has responded to it, uh, very positively. It was responding to the situation very positively anyway. I’m gonna quickly run through the numbers, Tony, and, um, couple of things I wanna highlight.First of all, QAV score is 1.09. One of the highest I’ve ever seen. The price to operating cash flow is 0.65,TK: Less than oneCameron Reilly: less than one. Six months payback onTK: Wow.Cameron Reilly: this. Yeah. So it’s pretty good. And the price to book is 0.67. So they’re the key numbers that you need to know. Now, interesting thing though, if you look at Stockopedia revenue, um, it,TK: Edia.Cameron Reilly: sorry, Stockopedia’s, uh, numbers, [00:47:00] the first thing I noticed is, um. The revenue 2020 335 million 2021, 530 2022.641. Then 2023 281, 2024, 295, 2025, 406. That was their most recent reporting season 2026. Estimate Stockopedia has as 944. I was like, oh my God, it’s gonna more than double what? How no. So it turns out that there’s a couple of different ways of reporting this with all the GAAP and all of this kind of business over there.So with, without getting into the weeds, um, Stockopedia is. Number for 2025. The 406 million is normalized revenue. It strips out non-cash fair value decrease on the loan book. [00:48:00] The 944 million for 2026 is the raw GAAP number, which Oportun use, which has all of this fair value, decrease, blah, blah, blah.Stuff factored in so. Yeah, I mean, both numbers are legitimate in their own way, but, and it makes little difference to us and price to operating cash flow and that kind of stuff. But just if you’re looking at those raw numbers and you go, what the hell’s going on? It’s not an apples to oranges. Uh, well it is an apples to oranges, uh, display glitch, not real growth.So, um, their revenue is. Actually probably gonna decrease a little bit next year based on reading through the financials and the, the. Um, analyst forecasts, but they have had a turnaround. This is real. They swung from a $78.7 million loss in 2024 to a 25.2 [00:49:00] million net income in 2025. Uh, so they were bleeding badly for, uh, a long time, but they’ve managed to turn around for the last five consecutive quarters.And this apparently is in connection with. Replacement of some of the directors on the board, new independent directors coming in. Bit of a change in their focus, writing off the bad FinTech purchase, et cetera, et cetera. The.TK: though. It could also be just better credit policies because if you are writing less loans and your revenue’s going down, but your profit’s going up, you, you might be just getting rid of bad business.Cameron Reilly: Could be. Could be, yeah. Um, I did see delinquencies ticking up though. Um, 4.9% on 30 plus days. They’re up, um, up 13 basis points. So they have tightened their opex costs. Opex is down 12%. Customer acquisition [00:50:00] costs fell from $125 to $117. Debt to equity ratio improved from 7.9 times to 7.2 times. So they’ve been tightening up different parts of the business.Delinquencies are going in the wrong way. Not necessarily completely alarming, but not a, not a good direction for it to head in. Um. But that’s basically it. That’s sort of my bottom line. It’s, uh, a business that’s generating good cash now. Big sort of a turnaround story, but, um, the future, who knows what holds.TK: A couple couple of things I’d like to highlight. So they did have a credit card business, which they sold recently, so that could also be helping their bottom line. Um, the repayment plan for this company is typically biweekly every two weeks rather than monthly, so that, that may be helping them. [00:51:00] I, when I went to the website for this company, it reminded me a heck of a lot of companies we have in Australia. If you look at the website, MoneyMe, Harmoney,Cameron Reilly: Mm-hmm.TK: um, yeah, basically, payday to payday lenders or unsecured lenders, that kind of thing. Credit Corp, I guess, falls into that category as well. And, and I had some slightly different numbers to you, but I compared those companies with, their delinquency rates compared to Oportun and it seemed like they were lower in Australia. So I dunno if we’re doing an apples to apples comparison or not. But, Harmoney, which is probably the best comparator is at 6.4%. And I know you mentioned. I think six at the moment. But when I asked Gemini, I was getting 11.9% for 2026 as the charge off rate. So I’m not sure what we’re comparing there, but I just wondered whether, um, there was the, [00:52:00] which number was right and whether they were, um, writing off more than what they do in Australia and what that meant.Cameron Reilly: Well, Australian banks are probably not loaning to, um, undocumented, illegal TK: workers. Cameron Reilly: Mexican immigrants.TK: Yeah. And again, not a big issue. As long as the pricing of the loans reflects the higher delinquency rate, that’s fine.Cameron Reilly: Yeah. Charge off rate 12.65% for Q1 2026. Hmm.TK: And, and again, going back to my experience with um, you know, I was partner with GE to issue the Shell MasterCard, for example. Um.Cameron Reilly: Hmm.TK: A long time ago, but you know, the sort of provisions were no more than 4% for unsecured credit at that stage in Australia. So it’s different and a different customer base, but that’s a big difference between 4% and 12%.Cameron Reilly: Yeah, but it’s their business model, right? So as long as they know how to make money with that business model, then [00:53:00] that’s on them.TK: Yeah.No, I, accept that. Cameron Reilly: I think the real. You know, the reason it scores so well for us is low price to operating cash flow, right? Low price to book, uh, as well, and just running through the scoring.Um. The price is higher than IV1, but lower than IV2. Lower than book value, lower than book value plus 30. PropCaf is lower than seven. Um, no yield, uh, yield. Uh, so we couldn’t score ’em for PE. Yes. And the yield greater than the benchmark rate. Don’t have positive book value growth. Don’t have a new three point upturn. Did score for Piotroski F-score.They get a five and we score for over four and a half. Couldn’t score them for quality rank, stock rank or growth over PE being greater than 1.5. But so they’re cheap,TK: You’re right.Cameron Reilly: basically.TK: Yeah. Yeah.Cameron Reilly: They’re cheap and they seem to be turning around TK: Yeah. Cameron Reilly: the, share price has nearly doubled, as I said in the last three or four weeks.[00:54:00]So the market’s responding well to the management changes, I assume. Um, and the fact that they’re turning around and making money after a period of not making money. So. I added them to the portfolio this week and we will, uh, see how they go. Tony, OPRT.TK: Yeah, no, very good. And these kind of companies often do come onto a value buy list. I mean, there’s four or five we’ve had on our list in Australia the years. Um, so can be seen. I think people get blinded by. The fact it’s subprime and, and don’t really pay attention to, if subprime is priced properly, you can make a lot of money. Um, so they can be good investments, these types of companies.Cameron Reilly: Well, time will tell.Alright, after hours. Tony, what you got?TK: Uh, a couple of things. So, uh, Jenny and I started watching a new, I think it’s a new, it’s actually season two, so it’s not new, um, a new season of, uh, Patience. [00:55:00] So we’re actually going back to the first season, which is on the iView platform. I think it’s actually dropping season two on the ABC on Sunday nights as well, which we’re enjoying.Another twist on the, um, the Sherlock Holmes theme. This time it’s a autistic lady from the, um, criminal records division of the York Police that keeps finding patterns in the data and helping the police solve crimes. And it’s kind of fun ’cause they, they’re basically ransacking all the Agatha Christie and Sherlock Holmes stories and dressing them up in modern guise and they’re dropping little, uh, you know, um, Easter eggs so you can work out what it is, uh, according to characters’ names or whatever, or, so the, the database that this lady works on is called the HOLMES Database, which is the name, the acronym for the criminal records database in the UK.So yeah, it’s fun, it’s pretty light, but we’re enjoying it.Cameron Reilly: Nice.TK: that was [00:56:00] good. Jenny was away for part of last week and I happened to rewatch the Entourage movie. I think it’s from 2015. Have you ever seen that? You probably have.Cameron Reilly: I did when it came out. I remember it not being great.TK: I, I, I did too. But the rewatch was fantastic. I really enjoyed it. ’cause it, um, it’s just wall to wall cameo basically.Cameron Reilly: Yeah.TK: um, which is probably my criticism at the time, but now it’s just fun,Cameron Reilly: Right.TK: you know, watching, watching Kelsey Grammer coming out of a family, uh, marriage counseling session as Ari’s going in and just ranting and raving.It’s, it’s kind of fun. Warren Buffett makes a cameo in it at one stage, um, which is good. And what I hadn’t noticed from last time, um, was, uh, the quote at the end of the movie when, uh, when Ari. I mean, spoiler alert Ari was a studio head. Ari Gold, who was the agent for Vincent Chase, became the studio head, um, left the studio head.It [00:57:00] looks like he resigned before he was fired and took his severance pay and put it into Vince’s movie that was running over budget, which got him fired in the first place. And then at the end, it, it turns out to be a fantastic hit and he makes lots of money out of the investment. And Ari Gold’s quote is, Warren Buffett’s going to be blowing us for investment advice in the future, which I thought was a great quote.Another title for the show.And lastly, after hours, um, I’m wearing my Harbour Town golf shirt ’cause the PGA Tour was in Hilton Head this weekend. And it brings back happy memories from me from three years ago when I was over there. As part of my 60th birthday travels, and one of my mates rung up and said, Hey, we were standing there three years ago on that day, and coincidentally the same person won the tournament.Um, that was one when we were there, so, uh, brought back some happy memories.Cameron Reilly: from last week’s show.TK: That [00:58:00] was Rory McIlroy. That was from the Masters. So Hilton Head follows a week after the Masters.Cameron Reilly: Uh,TK: It’s only about a three or four hour drive from Augusta down to Hilton Head, an Englishman called Matt Fitzpatrick,Cameron Reilly: Right?TK: which is kind of good because they’ve got this tradition, like in, in Augusta, they give you a green jacket.When you win Hilton Head give you a, what they call a plaid jacket. It’s a red tartan jacket. So looks better on Matt Fitzpatrick than it does on one of the US recipients. Normally it’s very loud and I, I couldn’t, I’m wearing my QAV hat today, but I actually have a, um, a, a cap from Hilton Head, which is in red plaid.I was trying to find it, but it’s in storage in Sydney.Cameron Reilly: Right. Very good. Well, I’ve watched a few good things. Uh, this week, the Gauntlet, 1977, Clint Eastwooddirected, uh, starring him and Sondra Locke,TK: His, his partner? Yeah.Cameron Reilly: his [00:59:00] partner, and I think they had been together on Outlaw Josey Wales before this. And then it looks like he directed this basically as a vehicle for her, I think.TK: Correct. Yeah.Cameron Reilly: And, um, I read up on the story of her and the two of them and all of that kind of stuff, which was interesting. But not a, not a terrific film, but the couple of, have you seen it recently?TK: No, I have seen him a couple of times, but not recently.Cameron Reilly: The couple of things that stood out for me, and number one is she’s great. Like, she, like for the people who haven’t seen it, he’s a, he’s a grizzled cop who gets sent by his new police commissioner to, he’s, he’s in Phoenix. He, he’s sent to Vegas to get this hooker and bring her back for some nothing trial.She’s a nothing witness of a nothing trial. His new uptight police captain or commissioner, whatever it says. Um, he goes to get her Sondra Locke in prison and she starts screaming that she’s gonna get killed. And if he takes her, they’re gonna [01:00:00] kill him too. He, he slaps her back into the corner of a thing.It’s the usual sort of mid seventies Clint, you know, sort of misogynistic violence against women thing. But as it plays out, he’s sort of a dumb cop who can’t see the plays and she’s the smart college educated. Hooker who sees all the angles and all the plays, and is telling him what’s gonna happen and who’s betraying him.And, so, and she does a great job. But, um, the other thing that jumps out is the, the shootouts are insane, 80,000 bullets firing into houses that then end up collapsing and buses. And it’s just like over the topTK: Yeah.Cameron Reilly: Rambo esque, like late eighties Rambo esque violence. Not First Blood Rambo, but like crazy Rambo. So he kind of went all [01:01:00] out with this level of Sam Peckinpah kind of shootout stuff that’s just insane. And they go on for like seven minutes, these shootouts. But as, um, somebody I read a review pointed out Clint, and this is after Dirty Harry and all of the, the spaghetti westerns. He only fires his gun twice and it’s never to shoot somebody.He shoots a lock off a door once and shoots something else like a petrol tank or something. But it’s, you know, he’s not the guy, he’s the guy getting fired. Shot at, not the guy shooting in this one. Anyway,TK: There supposed to be a moral dimension to it. Is thereCameron Reilly: I, I dunno about that, but I think it was, um, it was just, he sort of did a 180 on it. He’s not, he’s, he is sort of the hard, tough guy in the end, but, um, not really the typical Clint hero [01:02:00] in it. He’s, uh,TK: He’s the patsy, isn’t he? Yeah.Cameron Reilly: kind of, yeah, he’s the patsy who’s, uh, bosses, uh, betraying him. Which is obvious for the first time you see the boss, you go, oh yeah, he’s a bad guy. But she was great. I really, really thought she did a, a tremendous job. I also watched the Liam Neeson Naked Gun reboot.TK: terrible.Cameron Reilly: ThoroughlyTK: Oh.Cameron Reilly: it.TK: Oh, I hated it. I thought it was shocking.Cameron Reilly: not as good as Leslie Nielsen. No one can ever do LeslieTK: No,Cameron Reilly: level good. But I, I thought it was fantastic and ITK: reallyCameron Reilly: theTK: hated it.Cameron Reilly: Liam Neeson, with all of you know, the acting credits and the history he’s got, was prepared to do somethingthat absolutely ridiculous at his age as Leslie Nielsen, uh, didbefore him.No,TK: Play against type. Yeah. I thought it was awful.Cameron Reilly: Uh, we started watching Knight of the Seven Kingdoms after you recommended it, and, uh, we’re only three or four episodes into it. Just got the, I dunno, one of the early spoilers anyway, who the young kid is.We [01:03:00] saw that, that was the last episode we saw. was great. I’m enjoying that.Very different pacing to Game ofThrones, but I’m enjoying it. And I’m reading, um, Galileo, uh, I, uh, I downloaded like a collection of his writings and I’m reading his first one at the moment, the Sidereal Messenger where he’s writing to Cosimo de’ Medici about, oh yeah, I’m the first guy that’s ever seen the moon.I looked at the moon. How’d you do it? Oh, I built a telescope. You built a telescope? Yeah, yeah, yeah. Built a telescope. Spent aTK: Wow.Cameron Reilly: built myself a telescope I think it was 60 times magnification,TK: Wow.Cameron Reilly: uh, built his own thing, ground his own lenses, then, uh, the first human being to see the moon. He goes, you know what?It’s not smooth. Everyone apparently thought the moon was. Smo, they thought all of the spheres were[01:04:00] smooth like crystals. And he is like, nah, this thing has got mountains and craters and valleys. And I’veTK: Wow.Cameron Reilly: Imagine that.TK: Yeah.Cameron Reilly: I was particularly in light of the recent Artemis, uh, mission and theTK: JustCameron Reilly: that we got.TK: saw a great cartoon of the astronauts bearing the Epstein files in the dark of the moon.Cameron Reilly: Oh, did you see the video of Trump today? a presser and somebody started asking him about the Epstein files and he just started ranting and raving about we are building the greatest ships, the biggest ships, uh, the greatest ships the world has ever seen. And you know, the Democrats wanna distract you with the Epstein files.It’s a nothing story. The fact that you campaigned on it and said, and all of your people said that it was the most important thing that we all needed to find out about. Um, anyway. Yeah. [01:05:00] Galileo amazing. I mean, just being the first person to see the moon.TK: Wow.Cameron Reilly: Amazing stuff. Anyway. Enjoying it. Uh, well that’s it Tony.TK: All right.Cameron Reilly: Thanks Cam. Have a good week.TK: Have a good week. You too. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Apr 23, 2026

34m
40

Not Tom Selic (PAGS) – QAV America #48

On this episode we dig into Trump’s claim that America doesn’t need the Strait of Hormuz — and why it’s complete nonsense once you look at where US refineries actually get their oil. We also run through the QAV America portfolio, which is up 113% since inception and 30% year-to-date, before Cameron does a deep dive on PagSeguro Digital (PAGS) — a Brazilian FinTech that’s basically PayPal meets Square meets a full digital bank, navigating 14.75% interest rates and 34 million customers in the favelas of Brazil.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV America 48 Club [00:00:00] Cameron Reilly: Welcome to QAV America tk, episode 48, 14th of April, 2026. Close. [00:00:10] Open the damn straight. You crazy bastards. Why? So I can close the fucking strait. You crazy bastards. Um, Trump’s great strategy, [00:00:20] greatest strategy of all time. Uh, Tony, I’ve got some quotes. Um, we did sort of spoiled this on the last show, [00:00:30] but I’m gonna do it again. [00:00:32] Cameron Reilly: Um, some quotes about Donald. [00:00:34] Tony Kynaston: Do I have to give the same answers? [00:00:36] Cameron Reilly: No, no, but this is a different person. This is, [00:00:40] um, quotes about Donald Trump. You have to guess who said it. He is proud of being a serial philanderer. He describes his own battles with venereal diseases as his own [00:00:50] personal Vietnam. He’s a pathical liar, pathological liar, utterly immoral, a narcissist at a level. [00:00:56] Cameron Reilly: I don’t think this country’s ever [00:01:00] seen. [00:01:00] Tony Kynaston: Jeffrey Epstein. [00:01:03] Cameron Reilly: Whatever lie he’s telling at that minute, he believes it. The man is utterly immoral. [00:01:10] Morality does not exist for him. [00:01:12] Tony Kynaston: Maxwell [00:01:14] Cameron Reilly: Those were, um, Ted Cruz, uh, 2016. [00:01:20] Um, this one, uh. [00:01:25] Tony Kynaston: Oh dear. [00:01:26] Cameron Reilly: He should have Mo Trump [00:01:30] should have moral clarity and know the difference between right or wrong. He’s just toxic. Many of the same politicians who publicly embrace Trump privately dread [00:01:40] him. They know what a disaster he’s been and will continue to be. They’re just too afraid to say it out loud. I’m not afraid to say the hard truth out loud. [00:01:48] Cameron Reilly: I feel no [00:01:50] need to kiss the ring. [00:01:55] Cameron Reilly: That was, uh, Nikki Haley, former UN Ambassador, um, [00:02:00] has been sidelined by Trump, but that’s what she said in I think February, 2024. Um, yes. And of course the other ones that I read out on our last [00:02:10] show, uh, I go back and forth between thinking Trump is a cynical asshole like Nixon, who wouldn’t be that bad and might even prove useful, or that he’s America’s Hitler.[00:02:20] [00:02:20] Cameron Reilly: That was, um, JD Vance in 2016. Um, [00:02:25] Tony Kynaston: who know Trump in fairly intimately. They’ve worked with him [00:02:29] Cameron Reilly: yeah. [00:02:29] Tony Kynaston: [00:02:30] for a while. Yeah. [00:02:31] Cameron Reilly: Hmm. He’s a con artist. He runs on this idea. He is fighting for the little guy, but has spent his entire career sticking it to the little guy. It’s Marco Rubio, [00:02:40] currently Secretary of State, 2016. [00:02:43] Tony Kynaston: So what’s, what’s your point, Ken? There’s, there’s something going on that we can’t see every [00:02:50] day in the news. [00:02:51] Cameron Reilly: No, it’s just the hypocrisy I think is, uh, fascinating. So, um, I did, I was fascinat so obviously, [00:03:00] um, Vance went to have negotiations with the Iranians in Islamabad. Um, didn’t go well, no surprise to anybody. [00:03:10] And despite all of this rhetoric that Iran was desperate to make a deal turned out they weren’t that desperate really? [00:03:17] Cameron Reilly: And they’re like, nah, we don’t think so. We’re good. [00:03:20] Um, we can keep this up for a lot longer. And Trump has been claiming that he doesn’t need the straight America doesn’t need the straight, they don’t need the oil. The rest of the world [00:03:30] needs the oil. America doesn’t need the oil. So I drilled down into that a little bit because I also noticed that. [00:03:36] Cameron Reilly: Gas prices in the US have been shooting up. They’ve [00:03:40] doubled in the last six weeks. And so I was trying to connect the dots, and this is what I discovered. Uh, this may not be news to you, but it, it was, [00:03:50] uh, enlightening to me. The US was the world’s largest crude oil producer in 2025 at 13.58 million barrels per day ahead of Russia and [00:04:00] Saudi Arabia. [00:04:00] Cameron Reilly: Russia produced about nine and a half million barrels a day. Saudi Arabia at 9 million. Barrels a day. So the US is producing nearly 50% more [00:04:10] oil than both Russia and Saudi Arabia, which surprised me, [00:04:13] Tony Kynaston: Well, they drive pretty cars. There can. They drive trucks [00:04:17] Cameron Reilly: right? [00:04:18] Tony Kynaston: now. [00:04:19] Cameron Reilly: [00:04:20] But the US still physically imports about six and a half million barrels of crude per day a [00:04:28] Cameron Reilly: uh, which is [00:04:30] roughly, [00:04:30] Tony Kynaston: work then. [00:04:31] Cameron Reilly: roughly. [00:04:32] Tony Kynaston: isn’t cutting it [00:04:33] Cameron Reilly: Roughly 30 to 35% of their total oil consumption they have to import. [00:04:39] Tony Kynaston: from [00:04:40] Venezuela. [00:04:40] Cameron Reilly: No. Do you wanna guess where most of it comes from? [00:04:43] Tony Kynaston: Hum, [00:04:44] Cameron Reilly: No. [00:04:46] Tony Kynaston: Russia, [00:04:47] Cameron Reilly: No. [00:04:48] Tony Kynaston: uh, [00:04:50] Canada. [00:04:50] Cameron Reilly: Yes. 60% of it comes from Canada. Which makes the whole tariff war with Canada. [00:05:00] Interesting surprise. Mark Carney doesn’t, doesn’t just go, you know what? [00:05:03] Cameron Reilly: We’re not selling you any more oil. Go to hell. See what happens. Did he, [00:05:07] Tony Kynaston: Yeah. He, he struck deals with, [00:05:10] um, India and other places to sell oil to them instead. [00:05:13] Cameron Reilly: oh, interesting. [00:05:14] Tony Kynaston: Hmm. [00:05:15] Cameron Reilly: So the reason is structural. So the US [00:05:20] refineries were largely built to process heavy, sour crude, that kind that comes from Canada and Mexico and the Gulf, not the light sweet shale oil [00:05:30] that they pull outta the ground. Now in the us so the US exports, its light crude and imports heavy crude because to. [00:05:39] Cameron Reilly: [00:05:40] Re-engineer the refinery infrastructure would take years and years and cost billions and billions of dollars. But the [00:05:50] other interesting thing I learned was that even if the US was able to consume every barrel, IT producers, domestic gasoline prices would still be set [00:06:00] by global Brent Crude. Prices because it’s a global market and American oil producers are gonna try and get the [00:06:10] best price they can get. [00:06:11] Cameron Reilly: ’cause capitalism, [00:06:12] Tony Kynaston: Mm-hmm. [00:06:13] Cameron Reilly: and same reason Australians are paying through the nose for gas prices when we produce so much gas because they’re gonna [00:06:20] sell it. If they can get a better price offshore, they’re gonna sell it. They’re not gonna keep, unless you nationalize the oil industry or pass some legislation that forces ’em to sell it at cheaper [00:06:30] prices. [00:06:30] Tony Kynaston: Yeah. [00:06:30] Cameron Reilly: They’re just gonna sell it where they can get the best price. So this whole line that Trump is trying to spend that America doesn’t need the straight of Horus and is [00:06:40] disconnected from Global Oil prize, is just like everything else. He says, complete, utter nonsense. [00:06:45] Tony Kynaston: Well, they might, they, but they don’t need the straights if they’re getting the petrol from [00:06:50] Canada. [00:06:50] Cameron Reilly: Well they do ’cause they’re paying the global price for it. It doesn’t matter where they get it from. Gas prices are going up. They’ve doubled [00:06:59] Tony Kynaston: yep. [00:06:59] Cameron Reilly: average [00:07:00] across the US because the global price has gone up because. [00:07:04] Tony Kynaston: Mm-hmm. [00:07:05] Cameron Reilly: up and closed the strait of Hormuz. So yeah, this, [00:07:10] this whole idea that the US is somehow independent from global oil prices is complete nut nonsense. [00:07:18] Tony Kynaston: Yep. [00:07:20] True. [00:07:20] Cameron Reilly: And when he did have his little tariff tiff with Canada, apparently uh, he did a carve out. For Canadian [00:07:30] oil and energy exports, they got a 10% tariff, not the full 25% that he was, uh, applying to everything else. [00:07:40] And Canadian oil to the US increased in the last year despite the trade war. So there you go. [00:07:47] Tony Kynaston: Yeah. Right. [00:07:48] Cameron Reilly: Well, there you [00:07:50] go. I learned something there that, uh, not that Donald Trump just makes stuff up, but, uh. The fact that America is not independent [00:08:00] despite being the high, you know, the biggest oil producer in the world, they’re still very deeply impacted by global oil prices.[00:08:10] [00:08:12] Cameron Reilly: I’m just looking at our portfolio, the US dummy portfolio, Tony, um, inception date, uh, [00:08:20] September, 2023. Is currently up 113%. That’s a time weighted return, uh, versus the s and p [00:08:30] 500, up 55%. So we are doing double market over the last two and a half years roughly. [00:08:40] Year to date, uh, it is up 30% versus the s and p 500, up 0.6%. [00:08:49] Tony Kynaston: [00:08:50] that’s a big difference. 30 more than 30 times. [00:08:55] Cameron Reilly: And in the last 30 days, our portfolio is up [00:09:00] 16% versus the s and p 500, up 4%, a little bit less than 4%, really? So we’re doing four times in the last 30 days. But yeah, it’s going [00:09:10] gangbusters over there. The best performances. That portfolio as always, Willis Lease Finance Company, it’s currently up [00:09:20] 338% since we bought it in Nova. [00:09:21] Cameron Reilly: International is up 152. Euroes is up 148. Sarcos Energy Navigation, Greek Shipping Company up [00:09:30] 125 KO Latino is up 124. There’s a bunch of others doing well. Career Electric Power is the [00:09:40] only one that isn’t doing well. It’s down about 13%. Everything else is above water. Um, the QAV America Light [00:09:50] portfolio, which has an inception date of the 29th of December, 2025, uh, all time, [00:10:00] whatever that’s worth, last few months is up 5% versus the s and p 500 up 0.11%. [00:10:09] Cameron Reilly: So. [00:10:10] It’s doing pretty well, relatively as well. And, uh, you wanna take a guess what the number one performer on the light portfolio is? [00:10:18] Tony Kynaston: Do you have [00:10:20] Willis Lee’s finance in there? [00:10:21] Cameron Reilly: No, I don’t. No, it’s Kodak. [00:10:25] Tony Kynaston: Oh really? [00:10:27] Cameron Reilly: Kodak [00:10:29] Tony Kynaston: [00:10:30] Wow. [00:10:30] Cameron Reilly: we bought on the 23rd of March. So three weeks ago is up [00:10:40] 53%. [00:10:42] Tony Kynaston: Wow. [00:10:45] Cameron Reilly: I have no idea why. I haven’t bothered to check the news. I got no [00:10:50] idea. It’s just doing gangbusters [00:10:53] Tony Kynaston: Well, we’re coming into, well, I think it is now company reporting season in the us so perhaps there was an announcement about their results. [00:10:59] Cameron Reilly: [00:11:00] possibly. Cord energy that I bought at the end of January is up 41% S-S-P-E-W. Scripps Media Company [00:11:10] that we bought at the end of February is up 24% commercial CVGI that I [00:11:20] added a week ago. That was my pulled pork last week. It’s up 18% since last week, like just as nuts. [00:11:30] That’s, these aren’t even oil companies. [00:11:32] Cameron Reilly: Well caught. Energy is, [00:11:34] Tony Kynaston: Yeah. [00:11:34] Cameron Reilly: aren’t. Even oil companies. Eco petrol, which is an oil company, is up 15%. Geo parks up 14. Murphy [00:11:40] Oil is up 13. Just, uh, bonkers. Tony, absolutely bonkers the American market right now, and as we said on the [00:11:50] last show, [00:11:51] Cameron Reilly: for no good reason, like things are not going well. [00:11:55] Tony Kynaston: Uh, well, you look at inflation is up, uh, [00:12:00] unemployment’s steady at best. Um, I don’t think interest rates they have, they’re on hold at the us They’re rising in Australia and they’re rising in other countries [00:12:10] around the world, so could rise in the us but yeah, a lot of things a market would normally jump at and fright and, and there’d be a cell. [00:12:18] Tony Kynaston: None of that’s happening at the moment. Is [00:12:20] it? [00:12:20] Cameron Reilly: Either they know something we don’t know, or they’re just doing way too much Coke. I mean the Coke, I dunno what Coke prices are like. But uh, [00:12:30] maybe that’s why Kodak, maybe they thought it was just the code in Kodak was cocaine. I don’t know. So [00:12:40] anyway, that’s, uh, going on. I don’t have any other US market news this week. [00:12:44] Cameron Reilly: Just everything’s going bonkers over there. And again, as, [00:12:49] Tony Kynaston: like I said, it’s [00:12:50] reporting season, so we might see stock prices jump around and we’ll certainly get new numbers to run through the filters. [00:12:56] Cameron Reilly: yeah, well, like I did the buy list over the [00:13:00] weekend, as I always do, and, um, the. There was a lot of stocks on the buy list this week and you know, [00:13:10] in the Australian, uh, show I was talking about trying to buy stuff yesterday from our Australian buy list was hard because everything was having a down day.[00:13:20] [00:13:20] Cameron Reilly: But, um, when I went to buy something in the, for the American Buy list, I did not have that problem. Everything was looking great. And the buy list, the American buy list [00:13:30] this week, they’re, um, 71 stocks that got a pass on our buy list. I haven’t checked, uh, some of those are josephine’s, to be [00:13:40] fair. So, uh, if I take out the Josephines, uh, there’s still about 30. [00:13:48] Cameron Reilly: 30 stocks. [00:13:50] So it’s, uh, it’s quite healthy. There’s a lot of, lot of opportunity there. Um, and then if I look at, uh, the pulled [00:14:00] porks that I’ve done since we started doing this show on a regular basis, about a year ago. Like some crazy, crazy, [00:14:10] uh, stories on from this list Of the 46 companies that we’ve talked about, 34 are up, [00:14:20] 12 are down, so 74% win ratio, um, chemics or cex. [00:14:29] Cameron Reilly: The, [00:14:30] uh, concrete company, cement company that we talked about a year ago is up 110% Zep Health Corporation. The Chinese watch [00:14:40] manufacturer from uh, July last year is up 350%. Sasol. Dirty oil is up 160% since we talked about ’em in [00:14:50] July. Uh, methane X is up 50%. Top golfers up 32%. Veil is up 35. [00:14:58] Tony Kynaston: I nearly, he sent you a [00:15:00] screenshot on over the weekend. ’cause at the Masters, a couple of the players were sponsored by Top Golf. [00:15:04] Cameron Reilly: Yeah, they were [00:15:05] Tony Kynaston: Yeah. [00:15:06] Cameron Reilly: good stuff. Yeah, like a lot of winners and big, [00:15:10] big numbers for stocks that we’ve only held for a year. 50%, 60%, 110%, 94 Precision Drilling Corporation, up 95%. [00:15:20] And you know, as I, um, I talked about in my newsletter last week. You know, we, we don’t know a lot about these companies. Like we don’t have any [00:15:30] domain expertise in any of these sectors or industries. [00:15:34] Cameron Reilly: We’ve never heard of most of these companies. We’ve heard of Kodak, but had no idea that they didn’t make [00:15:40] cameras anymore. Honestly. [00:15:41] Tony Kynaston: And they license the brand. [00:15:43] Cameron Reilly: Yeah. But the system that you developed, uh, just identifies winners. And I see [00:15:50] people all the time in the value investing forum saying, oh, there’s nothing to buy. I can’t find anything. [00:15:54] Cameron Reilly: They’re always talking about the Mag seven. It’s the only thing anyone can talk about. Do you think Google’s undervalued [00:16:00] and we just find opportunity left, right, and center? It’s, it’s crazy to me. [00:16:06] Tony Kynaston: Yep. [00:16:07] Cameron Reilly: Yeah, in the newsletter last [00:16:10] week I was talking about this idea of value traps, and quite often when I post about one of our stocks on the value investing subreddit, people will [00:16:20] say it’s a value trap. [00:16:21] Cameron Reilly: It’s down. It’s cheap for a reason. [00:16:23] Tony Kynaston: Mm-hmm. [00:16:24] Cameron Reilly: Like, well, you might be right. I mean, I don’t, I don’t know enough to say whether you’re right or you’re wrong, but. [00:16:30] You know, 73% of the stocks that we’ve, uh, talked about, and that’s not even all of the ones on the buy list, but 73% of the ones that I’ve chosen to talk about are up, and I only [00:16:40] picked them because they look like an interesting story or is really no other reason. [00:16:43] Cameron Reilly: They’re just on our buy list. [00:16:45] Tony Kynaston: And I think also too, like it’s, it’s part of human psychology. A lot of people [00:16:50] are kind of binary when it comes to risk. It’s like, oh, I’m not touching that sector because of. Whatever risk interest rates are high. I’m not touching banks or whatever, [00:16:59] Cameron Reilly: [00:17:00] Yeah. [00:17:00] Tony Kynaston: but you know, when you get sort of a more granular assessment of the risk, it’s actually quite apparent that yes, there’s a risk, but being, you’re being insured against that risk by [00:17:10] buying the stock so cheaply. [00:17:11] Cameron Reilly: Yeah. And as I said in our article, if it goes the wrong way, we sell it. I mean, we, we assume that [00:17:20] 40% of them are gonna. Turned out to be duds. That’s sort of factored into the system, right? I think it was the great buffet himself who said that he [00:17:30] has about a 60% win rate and uh, your glasses look much like his. [00:17:35] Cameron Reilly: So we assume the same style of glasses should bring about the same sort of result. [00:17:40] Uh, so we, we assume, you know, we’ll have about a 60 40 win loss rate. And that’s okay. We have our cell triggers firmly in place. Something goes the wrong [00:17:50] way, we replace it with something else. And you know, we still get obviously double market, uh, on average over time. [00:17:57] Cameron Reilly: So risk [00:18:00] is, you know, that’s one of the things I’ve learned from doing the show with you over the years is that volatility is our friend. Risk is our friend. It’s not something to be [00:18:10] feared, it’s something to be. Um, assumed accommodated. You build systems around it and every time I jump in the car, there’s a risk. [00:18:19] Cameron Reilly: That’s why I wear a [00:18:20] seat belt, you know? [00:18:21] Tony Kynaston: Yeah, [00:18:22] Cameron Reilly: So we have our seat belts. [00:18:23] Tony Kynaston: Yeah. [00:18:24] Cameron Reilly: have call them the seat belts. Yeah. [00:18:26] Tony Kynaston: Yeah, [00:18:27] Cameron Reilly: Helmets. Helmets and seat belts. [00:18:29] Tony Kynaston: [00:18:30] there’s a different way of thinking about risk, I think when you’re an investor. For me, it’s how quick do I get my money back? [00:18:34] Cameron Reilly: Yeah. Right. [00:18:36] Tony Kynaston: I like what’s, what’s more risk, what’s more risky? And I use the coffee shop [00:18:40] analogy. I can buy a coffee shop, is in the side street. [00:18:43] Tony Kynaston: Not many customers are in there buying every day, but I can buy it so that it pays me back in a year. [00:18:50] do I go to a freeway off ramp where there’s a big McDonald’s or a chain. Style coffee shop, and it takes me 25 years to get my [00:19:00] money back. [00:19:00] Cameron Reilly: Yeah. Yeah. [00:19:00] Tony Kynaston: A lot of things can go wrong in 25 years, even though it’s in a good location with the trusted brand [00:19:05] Cameron Reilly: Yeah. [00:19:06] Tony Kynaston: to, uh, you know, buying, uh, buying something that pays it back [00:19:10] in a year. [00:19:10] Cameron Reilly: Yeah. [00:19:11] Tony Kynaston: goes broken in year two, I’m covered. [00:19:14] Cameron Reilly: Yeah, exactly. Alright, well without any further [00:19:20] ado, um, I’m gonna talk about my Paul Pork of the Week, pug ro, digital [00:19:30] Pug ro. Only because I like saying that name. [00:19:35] Tony Kynaston: where’d you get the pronunciation from? For P? It’s PAG, isn’t it? [00:19:39] Cameron Reilly: [00:19:40] It is PAG. It comes from the Brazilian Portuguese term PTO [00:19:46] Tony Kynaston: So it’s not Pag Sgu. [00:19:49] Cameron Reilly: [00:19:50] pug. That’s what I said. [00:19:51] Tony Kynaston: Oh, sorry. I’m hearing PUGP, isn’t it? PARG. [00:19:57] Cameron Reilly: P. What’s the difference? You sound like my [00:20:00] wife. I. [00:20:00] Tony Kynaston: Well, she looks a bit better than me, so that’s, I guess there’s a compliment there somewhere. [00:20:06] Cameron Reilly: Pao, as I said to you in the other show, because we [00:20:10] both dab dabble in Italian the same as P in Italian tope P, same Latin root. Anyway, the. Pug bank. [00:20:20] So this is a, uh, interesting story. It is Brazilian and the reporting figures are in the Brazilian real, so you have to convert those to the USD one. [00:20:30] BRL is about 20 cents. [00:20:33] Cameron Reilly: USD 0.1 9 9 7 3 0 6 0. When I did my numbers, let’s say 20 cents, [00:20:39] Tony Kynaston: [00:20:40] I [00:20:40] Cameron Reilly: uh. [00:20:40] Tony Kynaston: I should have brought some along. I’ve got some still from my trip to Rio a long [00:20:45] Cameron Reilly: Oh, from when you went to the, uh, the, [00:20:49] Tony Kynaston: The [00:20:50] soccer [00:20:50] Cameron Reilly: oh, oh, [00:20:51] Tony Kynaston: Yeah. [00:20:51] Cameron Reilly: I was gonna say it was the, what’s the big parade they have in Rio de Janeiro? The carnival. Yeah. [00:21:00] So this is not an a DR, uh, despite its, uh, foreign. We, I think we’ve talked about this in. Other shows, there’s sort of a Latin American thing where they’re able to directly list [00:21:10] common stock stuff. [00:21:11] Cameron Reilly: It’s is. [00:21:11] Tony Kynaston: I think if they’re incorporated in the Cayman Islands, which is company is, they can do it. [00:21:15] Cameron Reilly: Which they are exactly. So you don’t have to worry about 80 hours, but you [00:21:20] do need to worry about exchange rate issues and those sorts of things. So I’ll talk about that in the risks. But who are they? Well, Wikipedia says Pug. Seguro Digital [00:21:30] Limited is a disruptive provider of financial technology solutions focused primarily on consumers. [00:21:36] Cameron Reilly: Individual entrepreneurs, micro merchants, [00:21:40] small companies, and medium-sized companies in Brazil, it’s end-to-end. Digital ecosystem enables its merchants not only to accept payments, but also to grow and [00:21:50] manage their businesses. The company operates in a single segment that is financial service agents. It offers a two-sided ecosystem providing banking and [00:22:00] payments experience through a single interface with one app. [00:22:02] Cameron Reilly: One platform and one customer support. Its digital banking ecosystem features. Its free Pug [00:22:10] Bank digital account under the brand pug bank and offers approximately 40 payment methods and 13 cash out options. The [00:22:20] company offers a range of point of sale and mobile point of sale devices specifically designed to fit customers’ business needs, its end-to-end payment. [00:22:29] Cameron Reilly: Its [00:22:30] ecosystem enables its customers to accept a range of online and in-person payment methods. So it’s a FinTech, but it’s sort of a combination of [00:22:40] PayPal and Square and it’s turning into more of a bank that’s sort of part of its progression. Story been around about 20 [00:22:50] years, was formed in 2006 as a subsidiary of Universal Online, UOL. [00:22:58] Cameron Reilly: One of Brazil’s [00:23:00] largest internet service providers, and it was deliberately created to fill the gap in digital payments for Brazil’s growing e-commerce [00:23:10] sector. UOL itself has been around since 1996. Talking to my mother the other day, and, uh, it was, she was, she was talking about something in the cloud, how [00:23:20] things aren’t secure in the cloud. [00:23:21] Cameron Reilly: What if the cloud goes away? What if it turns off? Everything’s gone. And I was sort of explaining about. Data centers and redundancy and blah, blah, blah. And I was saying, look, I’ve been around this [00:23:30] game long enough. I can remember doing presentations in the late nineties, probably 96, 97, 98, when I [00:23:40] worked for Australia’s ISP, uh, Aussie male, drawing a cloud on the whiteboard with a marker pen, and having to [00:23:50] explain to people what the cloud. [00:23:53] Cameron Reilly: Was, and we call it the cloud. I don’t know who came up with the cloud. I, I probably did at one point, but everything goes [00:24:00] up to the cloud. What’s the cloud? Well, it’s just what, you know, all of the data centers and the servers and all this kinda stuff. We take it for granted now. [00:24:09] Tony Kynaston: [00:24:10] Having a conversation with the boss around the same time. When I was working at Shell, he said, where’s the internet based? I’m like, I wanna go and see him. Where’s the internet based? [00:24:18] Cameron Reilly: Yeah, [00:24:19] Tony Kynaston: it’s not [00:24:19] Cameron Reilly: [00:24:20] yeah. [00:24:20] Tony Kynaston: It’s distributed. What do you [00:24:21] Cameron Reilly: Mm. [00:24:22] Tony Kynaston: be based somewhere? [00:24:23] Tony Kynaston: Who looks [00:24:23] Cameron Reilly: Yeah, [00:24:24] Tony Kynaston: I’m [00:24:24] Cameron Reilly: yeah, [00:24:24] Tony Kynaston: a lot of people do. Yeah. [00:24:26] Cameron Reilly: yeah. So, [00:24:30] um, over time these guys have grafted on lending insurance, full banking services, investment [00:24:40] products, rebranded its consumer facing bankers Pug Bank listed on the New York Stock Exchange in January, 2018, raised about 2.3 billion. [00:24:50] At the time, it was the largest. IPO by a Brazilian company on the New York Stock Exchange. [00:24:56] Cameron Reilly: Since 2011, shares were priced at [00:25:00] $21 50 when it listed got up to $57 in 2021. Today they’re about $10 67, [00:25:10] so. It has been a bit of a choppy ride for them, um, and really no good reason why. Apart from [00:25:20] just Brazil, I think, um, Brazil’s had a bit of a rough trot economically, politically, bolsonaro, all [00:25:30] that kinda stuff going on. [00:25:31] Cameron Reilly: So yeah, it, it, it’s a tricky, um, market for. [00:25:40] I don’t think any business, but you know, particularly if you’re in payments and lending and that sort of stuff to navigate. So. [00:25:47] Tony Kynaston: if I can just jump in there. So, um, I [00:25:50] did a bit of digging around and they’ve did the strategy is to transit more towards the banking side of digital, um, business [00:26:00] now rather than the payment side, or they still do it and it’s the banking side I think, which is spooked the market because, um, did you, did your research. Come up with what [00:26:10] the, uh, interest rates were in [00:26:12] Cameron Reilly: The Slic, Tony, the The Slic? Yes. [00:26:18] Tony Kynaston: You [00:26:19] Cameron Reilly: Well, that’s what, [00:26:20] yeah, I am, and that’s what I was getting towards. Like it’s, it’s, it’s, it’s a difficult market. Like it’s, uh, you know, it’s been very choppy and very, you know, [00:26:30] right now interest rates are insane. So, yeah. I mean there’s, [00:26:35] Tony Kynaston: is [00:26:37] Cameron Reilly: yeah. [00:26:37] Tony Kynaston: the central bank row. [00:26:39] Cameron Reilly: [00:26:40] What is it in Australia at the moment? [00:26:41] Cameron Reilly: It’s about four point something. [00:26:43] Tony Kynaston: Yep. [00:26:45] Cameron Reilly: Yeah, so this is a TI mean, there’s good and bad I guess, in [00:26:50] that, um, depending on what side of the ledger you’re on, but yeah. [00:26:55] Tony Kynaston: good interest rates if you put your money in for a deposit. But um, yeah, if you are [00:27:00] trying to run a business and it’s, it’s 14% interest rates plus a margin, it’s [00:27:04] Cameron Reilly: Yeah, [00:27:05] Tony Kynaston: Mm-hmm. [00:27:05] Cameron Reilly: exactly. [00:27:06] Tony Kynaston: And so the market, I think is scared about default, uh, [00:27:10] for the bank side of, um, arg. And that’s one of the reasons why the share price is down. [00:27:15] Tony Kynaston: I think. [00:27:16] Cameron Reilly: Yes, exactly. So [00:27:20] let me just talk a little bit about their operations, their core business. So they’ve got. Two engines really. One is the toll booth side of it, payments and merchant services. So they’ve got pause [00:27:30] terminals, payment links, e-commerce processing card acquiring. Merchants pay a fee on every transaction. [00:27:37] Cameron Reilly: This is the legacy business. They sell [00:27:40] relatively cheap card readers to micro merchants who previously had no way to accept cards. So it’s like the square side of the [00:27:50] business. [00:27:50] Tony Kynaston: And I don’t think that can be underemphasized for us Westerners, because having been to Brazil, and I dunno if Rio is the. An example of the other cities in Brazil, but [00:28:00] there’s huge, huge areas called Vals, which are basically shanty towns. fully functioning, you know, a lot of business going on in them, [00:28:10] uh, no bank branches. [00:28:11] Tony Kynaston: So a large part of the population was under serviced by banks before mobile technology came along. [00:28:18] Cameron Reilly: And I [00:28:20] assume carrying less cash means less opportunity to get robbed. [00:28:24] Tony Kynaston: Yep. [00:28:25] Cameron Reilly: Um, harder to get robbed anyway, so, [00:28:30] uh, this is a, this is a good part of the business. Payment revenue grew 9% year on year in FY 2025. So I mean, that’s [00:28:40] not. Massive, but it’s not nothing either. It is decelerating. It’s a difficult market. [00:28:46] Cameron Reilly: Part of the reason is the interest rates, as you said, it’s a bit of a [00:28:50] maturing market, I think for this as well over there. Lot of competition. But it’s a tall booth, right? They’re still for that. They’ve got a pretty good install base. They’re not the biggest [00:29:00] player, but they’ve got a pretty good installed base and they clip the ticket the second side of their. [00:29:06] Cameron Reilly: Revenue Generation is the bank branch, pug [00:29:10] Bank, full digital bank that offers deposits, credit cards, personal loans, insurance investments, and an in-app marketplace called Shopping Pug Bank. [00:29:20] This is the growth engine. It grew 51% year on year and FY 2025, and in Q4 alone [00:29:30] banking gross profit grew 54% at a 72% margin. [00:29:36] Cameron Reilly: Again, they’re not the biggest player. There’s a, a lot of risks and issues with [00:29:40] that, but, uh, you know, it’s a, it’s a growing part of the business. I’ve got the CEO’s report, which I’ll get into in a second, but if you look at their, if you just look at the Wikipedia page, if you look at [00:29:50] their revenue over the last f. [00:29:52] Cameron Reilly: Five years, it’s pretty incredible. This is in Rial 2020. Total revenue 6.8 billion [00:30:00] 20 21, 10 and a half billion 20 22, 15 0.3 billion 2023, just south of 16 billion 20 24, [00:30:10] 18 0.8 billion, 20 25, 20 0.4 billion, 2026. Estimate is 21 and a half billion and 2027. Estimate is [00:30:20] 23. Billion. That’s a CAGR of 24.5% over that period. [00:30:26] Cameron Reilly: So they’re growing. [00:30:30] Massively operating profit has been growing similar levels, um, from 1.8 billion in 2020 to 8 billion in [00:30:40] 2025. Net profit, not as, that’s 34% cga, by the way. Net profit, not as impressive. It’s about 10% per annum over that period, 1.3 to [00:30:50] 2.1 over the five year period. Earnings per share from $3 92 [00:31:00] to $7 18. [00:31:04] Cameron Reilly: So, you know, not bad. 13% CAGR over five years. [00:31:10] Um, operating margin, roughly 32% on average, uh, over the period. So I look at, on paper, I look at it and I go. [00:31:20] Nice looking business. Cash has gone up and come back down again. Working capital’s gone from 7.6 billion in 2020 to roughly 17 billion. [00:31:30] Um, I’ve got the CEO’s, uh, some of his statements from their Q4 2025 earnings release, which came out on March 4th this year. [00:31:39] Cameron Reilly: [00:31:40] By the way, the CEO’s only been in the job since January. His name is Carlos Moad. And he holds a degree in mechatronics [00:31:50] engineering. You know what that is? [00:31:52] Tony Kynaston: No, never [00:31:54] Cameron Reilly: yeah. [00:31:54] Tony Kynaston: mechatronics. Is [00:31:55] Cameron Reilly: I know. But it sounds cool, right? [00:31:56] Tony Kynaston: is he a transformer? [00:31:58] Cameron Reilly: He builds transformers. [00:32:00] Yeah, that’s it. Maybe he is one himself. Uh, but it is what it sounds like it’s robotics, uh, robotics engineering and all that kinda stuff, which is interesting for the guy who [00:32:10] runs a, [00:32:10] Tony Kynaston: A bank. [00:32:11] Cameron Reilly: a digital bank. [00:32:14] Cameron Reilly: Uh, maybe it makes sense. Maybe, you know, digital banking and getting all these things to talk to [00:32:20] each other is somewhat similar to robots. I don’t know, maybe they’re gonna have robot bank tellers in their banks. Uh, I don’t know. Maybe, maybe you won’t carry [00:32:30] a square anymore. You’ll just have robots that will walk around. [00:32:33] Cameron Reilly: I saw. A video yesterday I saw a TikTok, um, by an artist who [00:32:40] I follow who does a lot of, um, weird, um. What do you call a sculpted Still life. Like a, [00:32:50] like a diorama. He does a lot of weird dioramas. He did one a few years ago, Mel Gibson getting pulled over by the cops in LA when he insulted the [00:33:00] cops and called one of them a lesbian and started reading about the Jews. [00:33:03] Tony Kynaston: Yeah. [00:33:03] Cameron Reilly: did a did diorama of that, which was great. A few years ago he did, he did a project where he took [00:33:10] a, took a. Credit card and dissolved it in acetate to get the chip out of it. [00:33:15] Tony Kynaston: Yep. [00:33:16] Cameron Reilly: then he put it into an eye, uh, like a [00:33:20] lens for a friend of his who doesn’t have any hands, so he could have it in his eye and he could pay [00:33:30] for drinks at the pub by putting his eye up to a card reader. [00:33:33] Cameron Reilly: So maybe that’s the future. Maybe mechatronics and, you know, robot card readers. I dunno. [00:33:40] Anyway, um, he said gross profit, uh, grew 5.9% year on year, totaling real, 2.1 billion. Uh, credit [00:33:50] portfolio grew 32.8%, year on year reaching 4.6 billion Real. [00:33:55] Tony Kynaston: How does a guy drink without any arms? [00:33:58] Cameron Reilly: With a straw. [00:33:58] Tony Kynaston: is paid for it. [00:33:59] Cameron Reilly: With [00:34:00] a straw. [00:34:00] Tony Kynaston: Yeah. Okay. I guess you could drink beer through a straw. All right. I’m just thinking of this guy. [00:34:10] He’s nice, cool glass of beer on the bar. He can’t, can’t get to it. He’s worked out how to pay for it. [00:34:17] Cameron Reilly: Uh,[00:34:20] [00:34:22] Cameron Reilly: it reminds me of a joke, which I’ll tell you off air, um, ’cause. I’ll probably forget to edit it out and then I’ll get us into all sorts of trouble. [00:34:30] Um, total clients reached 34 million at the end of the quarter, an increase of 2.3% year on year. Big country Brazil. [00:34:38] Tony Kynaston: Mm-hmm. [00:34:39] Cameron Reilly: [00:34:40] Total active clients was 17.3 million. Uh, an increase of 11 percentage points quarter over quarter and stable year over year.[00:34:50] [00:34:50] Cameron Reilly: I dunno if you’ve got 34 million clients and only 17.3 million active clients, what are the rest doing? Just signing up and they’re not using it? [00:34:57] Tony Kynaston: yeah, especially if you paid for the equipment [00:35:00] to be delivered to those people. Yeah. [00:35:02] Cameron Reilly: Well, maybe they’re clients that have, uh, you know, it’s like having a PayPal account. I’ve got a PayPal account, but I don’t, well, I do [00:35:10] use it ’cause people pay me with it. I don’t use to buy stuff, but I get paid into it, I guess. I don’t know. Anyway, um, I don’t know. I could run through all of their numbers, but basically [00:35:20] they’re, they’re doing well, although financial costs were up 39% year on year in Q4, driven by the seic rates. [00:35:29] Cameron Reilly: So [00:35:30] that gets us to selic. Not Tom Sellek. [00:35:33] Tony Kynaston: Mm-hmm. [00:35:34] Cameron Reilly: you know, I don’t think Tom Sellek has a rate. I think he just charges whatever he wants ’cause he’s Tom Sellek. [00:35:40] We were talking about Sam Elliot in the last show, you know, [00:35:43] Tony Kynaston: Hmm. [00:35:43] Cameron Reilly: the only other actor defined by a mustache in the last 40 years. Tom [00:35:50] Sellek. Sellek stands for. [00:35:58] Cameron Reilly: Brazil’s special [00:36:00] clearing and custody system. It’s the overnight interbank lending rate set by Brazil’s Central Bank Bank, Brazil. It’s basically Brazil’s equivalent to the US [00:36:10] Federal funds rate, or the RBA cash rate in Australia. As I said before, the Australian rate’s roughly about four, 4.1%. I think it was a bit higher. [00:36:19] Tony Kynaston: [00:36:20] Yeah. [00:36:20] Cameron Reilly: 4.35. [00:36:21] Tony Kynaston: Yeah. [00:36:21] Cameron Reilly: okay. It’s been, it’s been easing or did it, it just went up in the last round. Yeah, it was easing, then it went up. [00:36:28] Tony Kynaston: Yep. [00:36:29] Cameron Reilly: [00:36:30] Brazil celek is at 14.75%, so that’s what Brazilian banks earn lending to each other overnight, which means any [00:36:40] investment in Brazil needs to beat that to be worth the risk. It has been as high as 26.5%. [00:36:49] Cameron Reilly: [00:36:50] 2003 [00:36:50] Tony Kynaston: Oh [00:36:51] Cameron Reilly: down to 2% in 2021 during the COVID stimulus and then shot back up, [00:37:00] um, was about 13.75, seven 5% in 2223 briefly got to 15% and now has just been cut to [00:37:10] 14.75. [00:37:10] Tony Kynaston: You are right. Australia’s 4.1% at the moment. [00:37:13] Cameron Reilly: Right? So, um. That’s kind of crazy business [00:37:20] environment. It, you know, it, uh, it matters in a number of ways. I guess for pag bank funding costs, they have to borrow to fund their credit book, and the [00:37:30] cost of that funding is tied to the selic. So. Lending is expensive, borrowing is expensive. Um, and I imagine as a [00:37:40] bank you are offering rates on deposits, which are locked in for certain terms, and that can either make you [00:37:50] money or cost you money depending on where the interest rates are. [00:37:53] Cameron Reilly: And it’s a, it’s a balancing act. So very tricky for. Bank in [00:38:00] Brazil to work all that out, I guess. And Brazilian savers can earn 14.75% risk free in government bonds. Although I’m not sure I [00:38:10] I’d ever talk about the Brazilian government as being risk free. I think Lula is the, currently the president, uh, got outta jail, became president again.[00:38:20] [00:38:20] Cameron Reilly: Bolsonaro is in jail. Was he still, I think he’s still in jail. Um, yes. It’s, it’s, uh. A bit of a turbulent political system [00:38:28] Tony Kynaston: Hmm. [00:38:29] Cameron Reilly: there [00:38:30] as Latin American countries, uh, tend to be, uh, uh, only a matter of time before Trump takes it over and becomes president of Brazil as well, I’m sure. Or [00:38:40] tries to anyway. [00:38:41] Tony Kynaston: Did you see the the post he was gonna become president of Venezuela [00:38:45] Cameron Reilly: Hmm. [00:38:46] Tony Kynaston: end of his term in the US [00:38:47] Cameron Reilly: Oh, I thought he was gonna do them like [00:38:50] both. He’s, he’s running, uh, yeah. Board of Peace, us Venezuela. He is about to take over Cuba as well. He wants to take over Iran, be the [00:39:00] ayatollah of Iran. He’s got a, he’s got it all sorted out. Grand plan, uh, anyw who? [00:39:06] Tony Kynaston: the, the Post said something like, really good with [00:39:10] languages. I’ll, I’ll learn Spanish in a day when I take become president. [00:39:14] Cameron Reilly: Well, his Spanish can’t be any worse than his English. [00:39:20] Um, so that’s a risk, that’s an issue. I’m not gonna pretend that I understand all of this. [00:39:26] Tony Kynaston: the biggest issue, I think, ’cause banks will always get a spread [00:39:30] between their borrowing and lending costs or the, or their deposits and their lending costs, though it’s, it’s still gonna be strain on the business, but I think the biggest risk is just watch [00:39:40] defaults like. [00:39:40] Cameron Reilly: Yes. [00:39:41] Tony Kynaston: If [00:39:41] Cameron Reilly: Uh. [00:39:42] Tony Kynaston: business owner anywhere, trying to run a business and pay 15% interest or 17% interest or whatever is really, really [00:39:50] hard. [00:39:50] Cameron Reilly: They call it the NPL rate non-performing loan rate. And that is one of the worries, one of the risks that comes up with this. Um, there’s also the FX [00:40:00] exposure, the foreign exchange exposure, which is something you need to watch. And then they, as I said, they’re not the biggest, uh, they have competitors over there. [00:40:07] Cameron Reilly: New bank in you has 109 [00:40:10] million customers. Mecado, pago the payment market, I guess. Uh, 66 million. Park Bank, as we said before, about 33 30 [00:40:20] 4 million. So they’re number three in Brazil. So competitive pressures there. [00:40:26] Tony Kynaston: And also to, I mean, I can’t help thinking it’s of the [00:40:30] parallels between say, a OL trying to out and do different things. They were [00:40:34] Cameron Reilly: Yeah. [00:40:34] Tony Kynaston: provider and they, you know, got to a growth pla plateau there and try. To do [00:40:40] other things. That may be the case the, uh, what’d you call it? Uh, [00:40:45] Cameron Reilly: UOL. [00:40:46] Tony Kynaston: UOL. Thank you. [00:40:47] Tony Kynaston: I was trying to put a B in there somewhere for Brazil. UOL. [00:40:50] Yeah. Um, [00:40:51] Cameron Reilly: Hmm. [00:40:51] Tony Kynaston: in which case, you know, they’re always gonna be the number three player to the established banks who are doing it. [00:40:56] Cameron Reilly: Hmm. Yeah. Hmm. [00:40:59] Tony Kynaston: I [00:41:00] dunno enough about the market in Brazil, but the nu a number three player, is a follower usually in terms of interest rates and all the rest of it. [00:41:07] Cameron Reilly: Yeah. Which isn’t necessarily a [00:41:10] bad thing. Sometimes it means a merger, an acquisition, anything can happen. So, uh, in terms of, uh, PS itself, [00:41:20] uh, UOL group, which is actually called Foer, UOL. Sa, uh, controls about 38% of the stock in it. Couple [00:41:30] of big funds hold another chunk of it. There’s no founder equity in there because it was spun out of this publicly listed company already. [00:41:39] Cameron Reilly: Um, [00:41:40] interesting management structure though. So you’ve got Carlos Moad, who’s the CEO as of January 1st this year, as I said, he was previously the COO, but then you’ve got a guy [00:41:50] called Ricardo Ura, who’s the principal executive officer of P Digital, and he’s also the CEO of the UOL [00:42:00] group. So not sure that matters that much, but he’s kind of the big, big boss, um, [00:42:10] and is the face of the business to institutional investors. [00:42:12] Cameron Reilly: And then you got, I guess, Carlos, who’s the day-to-day, uh, running the things with his mechatronics [00:42:20] background. So, um, that’s basically the summary of the business. FinTech Brazil risks, making money, growing fast, [00:42:30] growing hard, seem to be doing an all right job. I’ll just drill down into the financials or the, the QAV scoring ’cause I gotta get to kung fu. [00:42:39] Cameron Reilly: Uh, when I was doing [00:42:40] the analysis, they were trading at $10 67, gives them a market cap of about 3.26, 1 billion. Proprietary QAV [00:42:50] score came in at 0.392. Our QAV quality score was about 85%, so it’s pretty good, [00:42:58] Tony Kynaston: Good. [00:42:58] Cameron Reilly: know, pretty good from [00:43:00] our numbers. [00:43:01] Tony Kynaston: well, yeah. [00:43:02] Cameron Reilly: Was, uh, share price was above our intrinsic value, number one, which was about $7 35, but below our intrinsic value [00:43:10] number two, which is about $17 87. [00:43:13] Cameron Reilly: The book value was 1.11, so, [00:43:20] um. We couldn’t score ’em for that, but we could score them for Book plus 30, which gives ’em a little bit more space, so that’s good. The price to [00:43:30] operating cash flow was 2.16. So really, really cheap. [00:43:35] Tony Kynaston: Yeah. [00:43:35] Cameron Reilly: Yeah, really cheap, really low from our perspective. Average daily trade [00:43:40] volume’s about 43 million. [00:43:41] Cameron Reilly: So big enough for even you, Tony. Um. The earnings per share is [00:43:50] about dollar 43. PE ratio is about 7.44. Analyst forecast project their EPS for the next fiscal year at a dollar 72, so [00:44:00] that’s pretty good growth. Stock Edia, stock rank of 99. Stock edia quality rank of 94, Petrovsky F score of [00:44:10] seven. So scores really high on Wikipedia’s metrics. [00:44:15] Cameron Reilly: Shareholders equity shows positive growth over the last few years [00:44:20] has got a relatively new three point upturn Dividend yield is low, it’s 1.44%, so we’re not scoring it on that, particularly with the bank rate at, what did [00:44:30] we say, 15% roughly? So, um, all up it did very well. Oh, one other thing, I looked at the share buybacks, [00:44:40] um, even though I still haven’t figured out how to score this in the us, but. [00:44:46] Cameron Reilly: Depending on how you, which numbers you look at. Wikipedia [00:44:50] says they’ve dropped from 320 million shares to 305.7 in the last year, which isn’t quite the 5% reduction we look for. [00:45:00] But Fin Viz has them dropping from three oh 4 million to 280 million, which is over 5%. So they are doing buybacks, um, and. [00:45:10] It’s kind of 5%, a little bit less, a little bit more depending on whose numbers you believe. [00:45:14] Cameron Reilly: So there you go. Uh, the auditor is PricewaterhouseCoopers, gave them a clean [00:45:20] audit. Um, couldn’t find any mention of board ownership, as I said before, except UOL. Um, the parent company owns a big chunk. [00:45:28] Tony Kynaston: I, I should just [00:45:30] also mention, I think they own preference shares as well, so they have, there’s two class of shares in this company. [00:45:34] Cameron Reilly: That’s right. They do. Yeah. So that’s basically it, Tony. Um, genuinely [00:45:40] profitable cash, generative business, um, Brazil country risk, high interest rates. Um, but you know, [00:45:50] on paper looked like a really nice little option to me and I added it to QAV lights, uh, [00:46:00] portfolio. Uh, yesterday. [00:46:02] Tony Kynaston: Excellent. Thank you. Interesting company. Isn’t it Interesting place too. Brazil. Fantastic [00:46:08] Cameron Reilly: I think we should, [00:46:10] uh, go there and do a QAV [00:46:12] Tony Kynaston: it? Yeah, [00:46:13] Cameron Reilly: tour. Rio Dig Janeiro? Yeah, just site visit. Yeah, check it out. Tax Dodge, I mean business trip. [00:46:19] Tony Kynaston: [00:46:20] yeah. Sounds [00:46:20] Cameron Reilly: Yeah. [00:46:21] Tony Kynaston: All. [00:46:23] Cameron Reilly: Alright. After hours. Tony, what do you got? Golf by The [00:46:27] Tony Kynaston: Yeah, love watching the Masters all [00:46:30] weekend. Um, came down to a close finish and Rory Mac Mackelroy won again, so he’s back one of the only four people in history who’ve won the Masters back to [00:46:40] back. So it was a lot of fun and good timing for us too. I’d get up in the mornings and it’d be the back nine. [00:46:45] Tony Kynaston: So you’d see a, a fair bit of golf and exciting stuff. [00:46:48] Cameron Reilly: Isn’t he happy? [00:46:50] Gilmore’s nemesis, Rory McElroy. [00:46:52] Tony Kynaston: Nah, that shoot a Gavin? [00:46:54] Cameron Reilly: That’s right. [00:46:56] Tony Kynaston: Yeah. [00:46:56] Cameron Reilly: Rory McElroy. Sounds like someone from a [00:47:00] Adam Sandler or a Ben Stiller comedy or something like that. [00:47:03] Tony Kynaston: Yeah. Northern Ireland. Northern Ireland player. One of the few. Mm-hmm. [00:47:08] Cameron Reilly: Hmm. [00:47:10] What else? What else have you been watching? Listening to reading? What’s been keeping [00:47:14] Tony Kynaston: Yeah, Jenny and I binged, uh, landman season two, [00:47:20] which was really good. Have you seen It is, yeah, [00:47:24] Cameron Reilly: No, [00:47:24] Tony Kynaston: season, [00:47:25] Cameron Reilly: of those. [00:47:25] Tony Kynaston: season two stars. Uh, well, Demi Moore’s been in season one, but she has a bigger heart to [00:47:30] play in season two. Uh, but Andy Garcia is in it, who’s great, and Sam Elliot’s in it, who’s great as well. So it was really good to see [00:47:40] good acting, good scripts. [00:47:41] Tony Kynaston: Um, Jenny loved it and it’s, it appeals to, I guess, males and females because you’ve got this sort of somber one problem [00:47:50] on top of another being solved by Billy Bob in the oil industry. And then you’ve got his wife, who’s this blonde tornado who goes out to old people’s homes to volunteer and gets them [00:48:00] old drunks and takes ’em to strip clubs and all this kind of stuff. [00:48:02] Tony Kynaston: So it’s, um, it’s, it’s got a light side to it too, which is good. [00:48:07] Cameron Reilly: Sam Elliot, I just looked him [00:48:10] up. He’s 81. When he played Virgil Urp in Tombstone in 1993. He was only 49. looked like he’s [00:48:20] 75, I reckon for the last 40 years. [00:48:22] Tony Kynaston: He has. Yeah. And he is got that deep, deep movie preview voice, hasn’t he? You know? [00:48:29] Cameron Reilly: he’s, [00:48:30] he got the greatest voice in the greatest mustache. [00:48:32] Tony Kynaston: Yeah. [00:48:32] Cameron Reilly: have actually seen a couple of his films from like the seventies before the mustache when he was sort of. [00:48:38] Tony Kynaston: Oh [00:48:39] Cameron Reilly: Like [00:48:40] a sex, sex symbol leading man kind of thing. And then at some point he just grew that mustache and that was it. He was just the cowboy. [00:48:47] Tony Kynaston: yeah. [00:48:48] Cameron Reilly: last remaining cowboy [00:48:50] in Hollywood beat a cowboy. You get Sam Elliot, uh, good stuff. Is this by the same guy who did Yellowstone and all those? [00:48:59] Tony Kynaston: It is. [00:49:00] It is. Yeah. [00:49:01] Cameron Reilly: He has a, he has a, like a, a template, doesn’t he? [00:49:05] Tony Kynaston: Ooh. [00:49:06] Cameron Reilly: these [00:49:06] Tony Kynaston: Hmm. I, I, I really [00:49:10] enjoyed early Taylor. Sheridan, so I think, um, he was hell or high water, the movie, which I think is fantastic. Really highly recommended if people haven’t seen it. Um, [00:49:20] and then I wasn’t a big Yellowstone fan or any of the other ones, but I do like Landman. It’s good. [00:49:25] Cameron Reilly: Hmm. I thought you were into the other ones. I thought you liked Yellowstone. [00:49:29] Tony Kynaston: No, [00:49:30] to me it was, it was Dallas [00:49:32] Cameron Reilly: Yeah. I. [00:49:33] Tony Kynaston: for, for this century. [00:49:34] Cameron Reilly: We watched the first episode of one of those. It, it might’ve been Yellowstone, I think. And [00:49:40] it was, yeah, it was just too networky formulaic [00:49:43] Tony Kynaston: Yeah. Yeah. So I found it too. Yep. [00:49:46] Cameron Reilly: Same, same with Sons of Anarchy, um, which I think he [00:49:50] acted in, but, uh, I [00:49:51] Tony Kynaston: Oh, really? [00:49:52] Cameron Reilly: that sadly. [00:49:52] Tony Kynaston: I never saw that. [00:49:54] Cameron Reilly: uh, it was by one of the guys who, um, Kurt Sutter created it. He was one of the [00:50:00] writers on the Shield, which we loved. [00:50:01] Tony Kynaston: Oh, right. [00:50:02] Cameron Reilly: in the shield. Anyway, well, uh, what have I got? Uh, the John Candy Doco. We started [00:50:10] watching [00:50:10] Tony Kynaston: Yeah, I’ve seen that. It’s good, isn’t it? Yeah. [00:50:12] Cameron Reilly: so great. [00:50:13] Tony Kynaston: Yep. [00:50:14] Cameron Reilly: I mean, everyone loves John Candy. [00:50:17] Cameron Reilly: How do you not love John Candy? [00:50:18] Tony Kynaston: Mm. [00:50:19] Cameron Reilly: [00:50:20] Um, what a sweetheart he was. Uh, I’ve been watching the later season or the final season of the boys, I think. ’cause my boys keep saying, have you watched the [00:50:30] boys yet? So [00:50:31] Tony Kynaston: You recommend it? [00:50:33] Cameron Reilly: Have you seen any of it? [00:50:35] Tony Kynaston: No. [00:50:36] Cameron Reilly: Oh yeah. Like it’s [00:50:40] super Seth Rogey, like, it’s [00:50:43] Tony Kynaston: Okay. [00:50:44] Cameron Reilly: sexually disgusting, uber violent, but sort of that, [00:50:50] you know, Tarantino comical levels of uber violence, [00:50:54] Tony Kynaston: Mm-hmm. [00:50:55] Cameron Reilly: lot of guts, a lot of super violence. [00:50:58] Cameron Reilly: But [00:51:00] you know, it depicts psychopathic superheroes and the psychopathic good guys that are trying to stop the psychopathic superheroes based on a really good comic by Garth [00:51:10] Enni from the nineties. But, um, as the show’s gone on, they’ve just lent more and more into Trump’s America. So [00:51:20] the superheroes are basically running a fascist state where, freedom is for the free. They have concentration camps called Freedom Camps that they put lefty [00:51:30] protestors in. And uh, yeah, they just, it’s like down to ride a season. They just take everything that Trump and his cabinet’s done in the last six months and they just [00:51:40] work it into storylines. But it’s fascists, superheroes are doing it instead of Trump and his, uh, um, [00:51:50] uh, the highest grossing Bollywood film of all time, which only came out last year. [00:51:59] Tony Kynaston: [00:52:00] I thought bride and prejudice was the highest grossing. [00:52:05] Cameron Reilly: I think it was every year, whatever film [00:52:07] Tony Kynaston: Yeah. Okay. [00:52:08] Cameron Reilly: grossing, they get bigger and bigger [00:52:10] every year. [00:52:10] Tony Kynaston: Yeah, it makes sense. Yep. [00:52:11] Cameron Reilly: is a full on action film on a true story of. [00:52:20] during the, the Pakistan India border wars terrorist attacks, they send a guy, the Indians send a [00:52:30] guy in undercover into to infiltrate the gangs in the terrorist networks and to bring him down from the inside. uh, [00:52:40] he looks like a, an Indian version of, uh, uh, Carl Drogo, whatever that actor’s name is, um, [00:52:47] Tony Kynaston: Oh [00:52:48] Cameron Reilly: of [00:52:48] Tony Kynaston: yeah. Okay. [00:52:49] Cameron Reilly: moa, [00:52:50] Jason Mao, [00:52:50] Tony Kynaston: Yeah, right. [00:52:51] Cameron Reilly: guy with big, long hair and like, not fit in. You know, you’re looking around the slums of Karachi and you see this guy and you’d [00:53:00] be like, really? [00:53:01] Tony Kynaston: Yeah. You eating two or three little guys a day. [00:53:04] Cameron Reilly: Yeah, wouldn’t be an undercover guy. Come down, take us down. Why do you look [00:53:10] like John Rambo? Uh. You are working in a, you know, a chai tea shop. Really? Ah, something doesn’t work with this [00:53:20] picture. Anyway. Very, very [00:53:21] Tony Kynaston: it’s like, like that movie. Do you ever see the Australian movie Stone from the seventies? [00:53:27] Cameron Reilly: Oh, no, I don’t think I’ve ever seen [00:53:29] Tony Kynaston: Yeah. It’s, [00:53:30] it’s not bad. It’s worth watching action movie from the seventies about motorcycle gangs. But the, [00:53:34] Cameron Reilly: Yeah. [00:53:34] Tony Kynaston: the cop sent an undercover copying to these bikes with long hair and denim jackets and [00:53:40] he’s got short backing sides and tucks his shirt in and [00:53:43] Cameron Reilly: Mustache. [00:53:45] Tony Kynaston: it’s like, but none of them say, oh, you must be a cop [00:53:49] Cameron Reilly: They [00:53:50] don’t pick it up. Uh, and apart from Asher Bley, I’ve been listening to Otis Redding. I [00:54:00] really, you know, I’ve only ever heard Otis Redding’s. hits sitting [00:54:04] Tony Kynaston: dock of the. [00:54:04] Cameron Reilly: the bay, that kinda stuff. I’ve been going deep dive into Otis Redding’s small [00:54:10] catalog. Oh my God. [00:54:11] Tony Kynaston: It’s good, isn’t it? [00:54:12] Cameron Reilly: oh, amazing. I’d forgotten that he wrote hard to handle, the song that the Black [00:54:20] Crows had a hit with in the nineties. [00:54:22] Cameron Reilly: Uh, did the original version of that, but just, and he wrote respect, [00:54:25] Tony Kynaston: Mm [00:54:26] Cameron Reilly: originally, but just like the brass section and [00:54:30] the whole thing. Oh man. So good. And do you know how he died? [00:54:34] Tony Kynaston: Oh, yeah. Um, didn’t they pull him out of the bay? His plane crashed into the bay or something. [00:54:39] Cameron Reilly: [00:54:40] Yeah. Plane [00:54:40] Tony Kynaston: Mm-hmm. [00:54:40] Cameron Reilly: three days after he recorded sitting on the dock of the Bay plane crashed, uh, a little light aircraft here and the Barques were in his band and they all [00:54:50] died except one, one guy survived. The rest of them died. Tragic. Um, [00:54:56] Tony Kynaston: Yeah. I once had a double album record of his [00:55:00] greatest hits, I guess, or his canon. It was really good. [00:55:03] Cameron Reilly: Oh, so good. I’m kicking myself that I’ve, you know, he is one of those guys, one of those r and b guys that, you [00:55:10] know, he turns up on playlists and you go, that’s great, but never taken the time to drill down. Really, really enjoying it. Well, that’s it for [00:55:20] me, [00:55:21] Cameron Reilly: Alright, well that’s it, Tony. How’s your back? I, I forgot to ask you this week. [00:55:24] Tony Kynaston: better. Um, I, I tried to do some exercise last week, which kind of triggered it again, so I’m just taking [00:55:30] it easy. see the physio tomorrow, try and work out a plan with her, but yeah, slowly, slowly, unfortunately. [00:55:38] Cameron Reilly: Mm. That’s rough. [00:55:39] Tony Kynaston: [00:55:40] Hmm, [00:55:40] Cameron Reilly: Um, did Alex tell you that she’s finished our painting that I commissioned [00:55:44] Tony Kynaston: no [00:55:45] Cameron Reilly: five years ago? Yeah. [00:55:47] Tony Kynaston: Oh, you’re a, you’re a privileged client. I’m [00:55:50] still waiting for mine. [00:55:52] Cameron Reilly: Yeah, so I’m looking forward to getting that. Yeah, it looks great too. She sent us a photo. Very happy. [00:55:58] Tony Kynaston: Well, [00:55:58] Cameron Reilly: an, [00:55:59] Tony Kynaston: I know [00:56:00] you’ll appreciate that, but it’ll take some stress off her. She really very anxious about having all these commissions outstanding and then trying to work full time and do them still. [00:56:09] Cameron Reilly: yeah. [00:56:10] Well, I’ve deliberately tried not to. [00:56:12] Tony Kynaston: thank you. [00:56:12] Cameron Reilly: Hassle or about it. Yeah. It’s alright. Yeah. But it’s nice. Yeah. Looking forward to getting that. [00:56:17] Tony Kynaston: Oh good. [00:56:18] Cameron Reilly: Alright, tk, you have a [00:56:20] good week. I’ll, uh, we’ll see what, uh, this week’s news brings. [00:56:24] Tony Kynaston: I can’t wait. [00:56:26] Cameron Reilly: Yeah, [00:56:26] Tony Kynaston: depictions of Jesus and attacks on the Pope [00:56:30] and attacks on Iran. [00:56:31] Cameron Reilly: yeah. Praise to Allah. I. [00:56:34] Tony Kynaston: Thanks Ken. I. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Apr 16, 2026

36m
39

Truck Sausage (CVGI) – QAV America #47

On the club episode we do a deep dive on Commercial Vehicle Group (CVGI) — a boring-as-batsh*t truck cab outfitter that somehow jumped 20% the day after Cameron added it to the QAV Light portfolio. We also run through some big portfolio wins (Kodak up 47%, Zep up 326%, CEMEX up 100%), and Tony shares his takes on horse racing, Jeff Beck, and Moby’s new ambient record.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV America 47 Club [00:00:00] Cameron Reilly: Welcome to QAV America, Tony, episode 47. It’s the 7th of April, 2026. Any [00:00:10] minute now, Donald Trump is going to wipe Iran off the map, blow them back into the stone ages. ’cause apparently there was more than one that he’s [00:00:20] aware of. [00:00:20] Cameron Reilly: But uh, yes, the market doesn’t know if it’s coming or going as usual. It’s up, it’s down, it’s sideways. [00:00:30] Every tweet is, drives the market, uh, movement. It would seem, or every suit truth, social post, whether he is [00:00:40] demanding Iran, open the fucking straight. Crazy bastards, Presby or not. I, I expected to see more media coverage [00:00:50] of a president, the sitting president, dropping the f-bomb in a, an official communication. [00:00:55] Cameron Reilly: I think that’s another first, another downgrading of [00:01:00] the, uh, professionalism of the, of the office. [00:01:04] Tony Kynaston: Well, it worked at the Australian market was up 2% this morning, so I think our Prime Minister should be using the [00:01:10] FBO a lot more to get us going upwards. [00:01:13] Cameron Reilly: You think that’s what it was? Just the The swearing dividend. [00:01:17] Tony Kynaston: Swear dividend. Yes. [00:01:20] Wager. [00:01:21] Cameron Reilly: Well, I’m, I’m, I am gonna do a deep dive, a very interesting deep dive today, Tony. Probably the most interesting deep [00:01:30] dive the world has ever seen. The greatest, greatest deep dive of all deep dives. But before I do that, let me just do a few updates of portfolios and [00:01:40] also some of the recent. Movements of pulled porks, et cetera. [00:01:44] Cameron Reilly: So we can see how the QAV system is doing in America. [00:01:50] Our, uh, main portfolio, the QAV portfolio that I started in September, 2023 is up 96%. [00:02:00] Time weighted return since then versus the s and p 500, up 48, 40 9% over the same period of time. [00:02:10] So that’s not quite double market actually. No, it’s exactly double market. [00:02:14] Cameron Reilly: Yeah, exactly. Double market. Uh, that’s despite, uh, [00:02:20] quite a bit of turbulence. We were up 110%, uh, back at the end of February, but there you go. So that’s doing okay. The QAV light portfolio that I started at [00:02:30] the end of December last year is currently up 4% time weighted return over that period of time [00:02:40] versus the s and p 500 down 4%. [00:02:43] Cameron Reilly: So I guess that’s double market as well, really. [00:02:46] Tony Kynaston: Kind of, yeah. [00:02:47] Cameron Reilly: Yeah, some of the big [00:02:50] winners in that portfolio, uh, cord energy that we talked about not that long ago. I seem to recall it’s up 48% Kodak, [00:03:00] that we talked about last week was, did we do Kodak last week? [00:03:04] Tony Kynaston: I think we did [00:03:05] Cameron Reilly: It’s up 47% since, yeah, [00:03:09] Tony Kynaston: [00:03:10] what? [00:03:10] Cameron Reilly: yeah, yeah. That’s the, [00:03:12] Tony Kynaston: that, [00:03:13] Cameron Reilly: well us talking about it on the show obviously. [00:03:15] Tony Kynaston: that? Yeah. [00:03:16] Cameron Reilly: Just that, um, eco Petrol’s up [00:03:20] 20%. Murphy oil’s up 20%, but here’s the, here’s the big one, the comp. [00:03:24] Tony Kynaston: leave, before we leave Kodak, I would just get in there before you thunder. You sent me a photograph of a [00:03:30] stand of a Kodak [00:03:31] Cameron Reilly: Yeah. [00:03:32] Tony Kynaston: display from local store in Australia. What, what was that about? [00:03:36] Cameron Reilly: Well, I went in, I had to, uh, replace [00:03:40] my, uh, wifi system. So I went into an electronics, uh, store here, and up at the counter it was JB Hi-Fi for Australian listeners. And up at the counter there was, there was, there was a stand, a [00:03:50] Kodak stand selling like retro Instamatic cameras. And I was talking to the shopkeeper and he saw me looking at him. [00:03:58] Cameron Reilly: He goes, yeah, they’re pretty cool. I [00:04:00] just bought one. I said, uh, you wanna know the bad news? Uh, Kodak don’t make cameras anymore. And he goes, oh, these are the last ones. And I go, [00:04:10] no, no, they didn’t. Kodak didn’t make these cameras. He goes, what? It says Kodak on? I go, yeah. They just, they just licensed the brand out to third party manufacturer. [00:04:19] Cameron Reilly: He [00:04:20] goes, oh, what? Oh, you just ruined my day. I was like, sorry man. I know too much. I know too much.[00:04:30] [00:04:30] Cameron Reilly: The company I’m gonna talk about today, Tony, that I added to the light portfolio yesterday [00:04:38] Tony Kynaston: Mm-hmm. [00:04:38] Cameron Reilly: when I did the, uh, [00:04:40] QAV America buy list is up 20% since I added it yesterday. [00:04:47] Tony Kynaston: Not quite a Kodak, [00:04:50] half a Kodak. [00:04:52] Cameron Reilly: It’s, yes, half a Kodak. Well give it a week, we’ll see where it is. Um. [00:05:00] Which is, uh, interesting and, and it’s very koki in its story too. It’s another classic Berkshire [00:05:10] kind of value investing stock that, you know, sort of, I, I think over the time we’ve been doing this American show, [00:05:20] the companies are either major disasters, burnt something to the ground, killed a bunch of people, and have been rebuilding or. [00:05:29] Cameron Reilly: [00:05:30] Businesses that have gone through the ringer for a variety of reasons and have slimmed right down, sold off a bunch of assets and are turning [00:05:40] themselves around this, this is kind of one of those, it’s not overly dramatic, it’s kind of boring in many ways, but we like [00:05:50] boring, right? We like boring, boring businesses that make money. [00:05:53] Cameron Reilly: Is a, is a classic QAV kind of stock. [00:05:55] Tony Kynaston: Correct. [00:05:56] Cameron Reilly: So anyway, this, uh, the ticket code for this company is [00:06:00] CVGI, uh, it’s Commercial Vehicle Group, Inc. Probably the most boring name of [00:06:10] any company we’ve ever done. I want you to, [00:06:14] Tony Kynaston: can’t they put AI in there somewhere? [00:06:16] Cameron Reilly: can you, yeah. The ticket should be CVG ai. They’d [00:06:20] be, they’d go up 200%. [00:06:21] Tony Kynaston: Hmm. [00:06:22] Cameron Reilly: Can you guess what commercial vehicle group might do, Tony? [00:06:27] Tony Kynaston: Well, it’s, I’m gonna, I could, but I [00:06:30] already know the answer. [00:06:30] Cameron Reilly: ‘ cause you looked it up. [00:06:32] Tony Kynaston: Yeah. Truck parts. [00:06:33] Cameron Reilly: No, not truck parts. Truck fitouts. Really. But yeah, I guess you could call that [00:06:40] truck parts listed on the nasdaq and they, um. Well, according to their website, they’re based in New Albany, Ohio. Not to [00:06:50] be confused with Old Albany, which is in New York State, uh, website says a leading supplier of a full range of cab related [00:07:00] products and systems for the global commercial vehicle market, including the medium and heavy duty truck market, the medium and heavy construction vehicle market. [00:07:08] Cameron Reilly: The military [00:07:10] bus, agriculture, specialty transportation, mining, industrial equipment, and off-road recreational markets. So basically they’re a [00:07:20] cab outfitter. You, you get something comes off the, comes off, the roller comes outta the factory. It’s, uh, bare [00:07:30] bones. These are the guys. [00:07:32] Tony Kynaston: right? [00:07:32] Cameron Reilly: Yeah. [00:07:33] Tony Kynaston: to be bare bones. [00:07:33] Cameron Reilly: Right. [00:07:34] Tony Kynaston: I tell you interesting story? So [00:07:35] Cameron Reilly: You can. [00:07:36] Tony Kynaston: in, uh, Georgia. [00:07:40] Three years ago, going to the masters this week, ’cause the masters starts on Thursday. Uh, we were in a bus going down the interstate I was [00:07:50] just blown away. Like we, so we were at the same eye line as the heavy vehicles, as the semi trailers. up and down the interstate I, you’d sort of look in, [00:08:00] you could see into their cabs, and they were, were more, were plusher than my lounge room. They were like these huge armchair the drivers were sitting in. I [00:08:10] remember in particular, one was being driven by a lady, like a mid, like a sort of 50, 60-year-old lady in this big armchair with her. Arm rest and her arm resting on it and [00:08:20] driving this truck and it was just, the fit out was amazing. It’s, it was far more advanced than I’d ever seen before. So maybe she was a beneficiary of this company? [00:08:29] Cameron Reilly: [00:08:30] Maybe, and it’s not the same here. I’ve seen a few truck interiors in Australia that they don’t seem to be that plush. [00:08:37] Tony Kynaston: this was lush. I. [00:08:38] Cameron Reilly: So I [00:08:40] wonder what’s going on, uh, with truck fit outs in America. Why, why do truck drivers in America need to have the, uh, plush lounge rooms? Is this a, is it a [00:08:50] union thing? [00:08:51] Tony Kynaston: I dunno. It’s [00:08:52] Cameron Reilly: Oh. [00:08:53] Tony Kynaston: know, they got the cash and they’re spending it on their themselves. They’re, they’re in the cab or however many hours a day it is, [00:08:59] Cameron Reilly: [00:09:00] Mm-hmm. [00:09:00] Tony Kynaston: whatever it is. Maybe [00:09:01] Cameron Reilly: Hmm, [00:09:01] Tony Kynaston: spending their money on themselves. [00:09:03] Cameron Reilly: hmm. [00:09:03] Tony Kynaston: can blame them? [00:09:04] Cameron Reilly: Fair enough. Well, this company, um, if you look at its [00:09:10] chart, it’s come off a long way from where it was in middle of 2023 when I was trading around 11 bucks. At the time, I did my analysis, it was trading at [00:09:20] $3 56. It’s now trading at $4 27, [00:09:30] but it had already gone up a hundred percent in the proceeding, sort of, uh, couple of weeks because they came out with a good [00:09:40] report, um, which we’ll talk about. [00:09:42] Cameron Reilly: But that’s basically, they’re a truck cab outfitter when a truck like a, a Kenworth rolls off the assembly line. These guys [00:09:50] supply, uh, all the stuff that goes inside of it, the seat, the wire harness, the dashboard trim. They’re basically a B2B manufacturer. [00:10:00] Most consumers wouldn’t know who they are, wouldn’t see them, dunno the brand, but anyone who’s driving a truck or [00:10:10] a construction vehicle or agricultural vehicle is using their stuff, whether they know it or not. [00:10:18] Cameron Reilly: Um, one of the [00:10:20] analogies that I came up with is that CVG is the sausage to the truck manufacturer’s bun. Yeah, the, that’s the [00:10:30] title of the episode. Truck Sausage. [00:10:35] Cameron Reilly: Oh, I love it. Truck sausage. Oh, [00:10:39] Tony Kynaston: [00:10:40] I hope that doesn’t have a double meaning in the us. [00:10:42] Cameron Reilly: I’m sure it does. If it doesn’t, it will by the time I’m finished with it. Um, this [00:10:50] company doesn’t have a flashy backstory like Kodak. We talked about last time, it’s basically a rollup, uh, a August, 2000. It was a [00:11:00] rollup of distressed and undervalued heavy truck cab component businesses during a cyclical trough. [00:11:06] Cameron Reilly: And that is something that this business goes through a lot and it’s [00:11:10] one of the reasons their share prices way off. It goes through cyclical troughs and some, so group of guys got together. Did a roll [00:11:20] up, classic sort of private equity playbook. 2000 mid two thousands, uh, sorry, mid year 2000, August, 2000, and [00:11:30] created the entity was bankrolled by Canadian private equity powerhouse called the Onyx Corporation, and then it went public on the NASDAQ in [00:11:40] 2004, under the ticker CVGI. [00:11:45] Cameron Reilly: So. Their core business has actually a couple of segments, [00:11:50] and some of them are boring and one of them’s kind of could be interesting. So the main one is global seating. They [00:12:00] design and manufacture vehicle seats for heavy duty trucks, medium duty trucks, last mile delivery vans and construction, agricultural [00:12:10] military vehicles. [00:12:11] Cameron Reilly: This is sort of the, the, the heritage business. They’ve got very sticky relationships with OEM customers, which [00:12:20] is good, but as I said, it’s a very cyclical business. Um, p truck trucks roll off the assembly line in [00:12:30] very choppy chunks. Apparently people, all of a sudden, everyone needs to get a new truck and then they don’t need a new truck for a few years, and so the [00:12:40] truck business goes quiet. [00:12:42] Cameron Reilly: So that’s the main part of the business, the main revenue generator. The second is called global electrical systems, cable and harness assemblies [00:12:50] for high and low voltage applications, control boxes and dashboard assemblies. This is sort of the potential [00:13:00] growth engine of the business, mostly because of the EV transition. [00:13:04] Cameron Reilly: That’s what they wanna be doing, is supplying all of this stuff for the EVs, both traditional [00:13:10] OEMs that are building EVs and also to new EV manufacturers, mostly in the United States. Don’t think they’re gonna get the China EV business, but mostly [00:13:20] in the US and they’ve got a good story here, which we’ll talk about in a minute. [00:13:26] Cameron Reilly: One of the reasons why their share price is up a hundred percent. The third [00:13:30] component of the business is trim systems and components, interior trim and cab components. It’s lower margin commoditized work, but they [00:13:40] do a lot of it. It’s very volume driven and very stable when trucks are selling. So that’s it. [00:13:46] Cameron Reilly: Kind of boring. They fit out unless you’re in the truck [00:13:50] game, which I’m not. So, I dunno a lot about trucks. Don’t even care much about my car. So fit out. So [00:13:58] Tony Kynaston: if [00:13:58] Cameron Reilly: I’m not the target [00:14:00] market. [00:14:00] Tony Kynaston: if you don’t know trucks, you can get trucked as the [00:14:03] Cameron Reilly: Yes, [00:14:04] Tony Kynaston: Yeah. [00:14:05] Cameron Reilly: go. Yeah, go get a truck sausage up here. Um. [00:14:10] So looking at their revenue numbers, FY 24 was brutal. It was down 27% [00:14:20] year over year from FY 23. This was part of the cyclical downturn, particularly in Class eight truck orders. [00:14:29] Tony Kynaston: Mm-hmm. [00:14:29] Cameron Reilly: [00:14:30] Now, you know your Class eight truck, Tony? Um, I know nobody knows their truck classes, uh, better than you, Tony. [00:14:38] Cameron Reilly: Uh, but the Class eight trucks are [00:14:40] the big ones, your 18 wheelers, which makes me think they should be class 18. But what do I know? Your 18 wheelers long haul rigs. [00:14:49] Tony Kynaston: They dropped the [00:14:50] one. [00:14:50] Cameron Reilly: Yeah, yeah, yeah. Two didn’t have time. Didn’t have time to include the one. Anything. Over 33,000 pounds gross vehicle weight. So [00:15:00] from what I understand, the cycle works like this. [00:15:02] Cameron Reilly: Trucking fleets buy in waves when freight demand is strong and their existing trucks are getting a little bit [00:15:10] creaky. They put in huge orders all at once. OEMs ramp up production. Suppliers like CVG run hot. Everyone’s hiring. Then the fleet [00:15:20] replacement cycle is done. Freight rates soften. Orders fall off a cliff, often 30 to 40% peak to trough, and [00:15:30] it’s not gradual. [00:15:31] Cameron Reilly: It’s like a full step function. One day you’re flat out. Next day everyone’s sitting around, twiddling their thumbs. Wonder [00:15:38] Tony Kynaston: That’s incredible, [00:15:38] Cameron Reilly: wondering what [00:15:40] happened. [00:15:40] Tony Kynaston: for a mature industry, you would’ve thought were manufacturing trucks and sales went down, you’d drop the price. And if the volume would go up and over time, that would even out the cycle. [00:15:50] So it’s uh, interesting. It hasn’t evolved that way. [00:15:52] Cameron Reilly: You would think somebody would work that out and, uh, make some changes to the industry. But hey, again, what do I [00:16:00] know? So if you look at their, uh, revenue in 2020 718 million twenty twenty one, nine hundred and seventy two, twenty [00:16:10] twenty two, nine hundred eighty two. 2020 3, 835 2020 four, seven hundred and twenty three, [00:16:20] twenty twenty five, six forty nine, [00:16:22] Tony Kynaston: Hmm. [00:16:22] Cameron Reilly: and the 2026 estimate is at 6 67, so went up by 20 [00:16:30] 30% and then came back by 30, 40% and apparently nothing to do with them really, it’s just that’s how the business works as [00:16:40] I understand it. [00:16:42] Cameron Reilly: So there was also, the whole COVID thing played into that too. The post COVID freight boom that we talked about [00:16:50] with wasn’t, uh, Kodak, it was, uh, PBI that we did last week. Pitney bows. [00:16:59] Tony Kynaston: I was gonna say it was [00:17:00] the company we talked about who did the mail. [00:17:02] Cameron Reilly: Yeah. [00:17:02] Tony Kynaston: Yeah. [00:17:03] Cameron Reilly: They tried to take advantage of the whole freight boom thing and came in guta. Well, apparently it did lead a Mabb [00:17:10] to a massive class eight ordering cycle in 2021 to 2023 fleets, overorder to replace some of the aging trucks, and they didn’t want [00:17:20] supply chain delays. So everyone’s getting in and then obviously everything got replaced and freight rates collapsed. [00:17:29] Cameron Reilly: Oh, [00:17:30] I hear a green smoothie being made in the other room. Ah, yeah. She must have heard you or heard me explaining why she wasn’t making me a green smoothie. [00:17:40] Can you hear that? [00:17:40] Tony Kynaston: off a bike. No. [00:17:41] Cameron Reilly: yeah, yeah, yeah. Not making me enough smoothies. So, um, here’s the thing though. Um, there’s a company called a CT [00:17:50] Research. [00:17:50] Cameron Reilly: There’s another one called FTR. They’re the two main industry forecasters. And they tracked year over year order declines of 20 to [00:18:00] 30% over the sort of 23, 24 period. But according to the latest report from CVG, they’re expecting the same research companies are [00:18:10] expecting. The next cycle will hit sort of 27, 28. [00:18:14] Cameron Reilly: So there’s got another cycle coming back. [00:18:16] Tony Kynaston: Yeah. Right. [00:18:17] Cameron Reilly: Um, but. [00:18:20] It hit CVG harder than it might have otherwise because they were going through a major restructuring at the time. They were selling off a whole different. [00:18:30] Uh, a bunch of different businesses, business units, they were stripping it back. They cut 1300 jobs, so their revenue decline was actually a [00:18:40] combination of a couple of different forces, organic revenue falling because fewer trucks were being ordered, and then also inorganic revenue disappearing because they were deliberately selling off [00:18:50] entire business lines to streamline the business. [00:18:54] Cameron Reilly: And the market got freaked out. The share price completely crashed. [00:19:00] But uh, before I get into the current figures, one of the things that I think you’ll find interesting is there’s a couple of really big investors in [00:19:10] this. There’s all the usual major institutionals, but there are two sort of major investors. [00:19:18] Cameron Reilly: A guy called Arnold, [00:19:20] er, S-I-E-M-E-R, holds about eight and a half to 9% of the stock. He founded a [00:19:30] company called the Desco Corporation, D-E-S-C-O in 1966. Not a fund, not a PE firm, just a privately held [00:19:40] operating company headquartered in New Albany, Ohio. A coincidence and over the last 60 years, he’s used Desco as a vehicle to [00:19:50] acquire more than 30 industrial and manufacturing companies, ranging from 5 million to a hundred million in size across the us, Canada, Europe, [00:20:00] and Asia. [00:20:01] Cameron Reilly: So he just goes around and injects capital into these businesses or buys shares or whatever and takes a stake in them. Long term [00:20:10] industrialists who buys and holds operating businesses, a bit like a Buffet, Munger, kind of, but privately owned, as far as I can tell. I’m not sure what the shareholding of Deco [00:20:20] Corporation is, but. [00:20:21] Cameron Reilly: So he joined the CVG board in November, 2011, I think, and he’s sort of a [00:20:30] bit of a player, but there’s also a guy called Ari Levy, who also ho holds 8.91%. [00:20:40] He’s the founder, president and CIO of Lakeview Investment Group, a Chicago based public markets investment manager. He [00:20:50] also has a board more recently, I think, took a board and it was like, um, by recently, I’m talking the last month or so and [00:21:00] came up with some sort of a deal with the company. [00:21:02] Cameron Reilly: I think it’s called like a support arrangement. Do you remember we did, um, one of these South American. [00:21:10] Mining companies a while ago, or energy companies, and they had this white knight come in and take a big stake in them, but he had a deal in place that he wouldn’t sell his shares [00:21:20] and he wouldn’t own more than this. [00:21:21] Cameron Reilly: And this guy has a similar sort of deal with, uh. CVG apparently. So I think he won’t go [00:21:30] over 15% for a period of time. Not exactly sure if he’s a white knight or what’s going on there, but you’ve got two [00:21:40] fairly large private investors that between them own, you know, 17, 18% of the company. [00:21:50] Which is kind of interesting. [00:21:52] Cameron Reilly: Then there’s a bunch of like executives that hold smaller percentages, two, three, 4% all up. I think insiders hold about [00:22:00] 25, 20 6% of the company, and I still haven’t built in a function to our checklist in the United States where we can give them a point for [00:22:10] that. But if we could, we would, because that’s, we like to see skin in the game from players like this, right? [00:22:17] Tony Kynaston: Yeah. Although I. [00:22:18] Cameron Reilly: not a, not a founder. [00:22:19] Tony Kynaston: [00:22:20] Yeah, I dunno about those companies you’re talking about. But I did read during my research for the show that some activist investors have gotten involved. So perhaps one or [00:22:30] both of those guys are activist investors. [00:22:32] Cameron Reilly: Both of them I think are, [00:22:34] Tony Kynaston: to shake things up. Okay. [00:22:35] Cameron Reilly: yeah. [00:22:35] Tony Kynaston: I. [00:22:36] Cameron Reilly: I think part of the stripping back of the assets is [00:22:40] partly the role of the sema Arnold Sema and, uh, the, the functioning of the new CEO. So they’ve got a relatively new CEO, [00:22:50] uh, appointed December 20th, 2023. James R. Ray Jr. Um, no relation to James Earl Ray, [00:23:00] who was convicted of the assassination of Martin Luther King. [00:23:03] Cameron Reilly: And then, I don’t know if you know this. But, uh, the King family believes he was innocent. He died, did [00:23:10] like 29 years in jail and died. But, um, king family always believed he was, uh, a patsy. And that there was another guy, uh, who was [00:23:20] part of a conspiracy to assassinate Martin Luther King and that Ray was the scapegoat. [00:23:25] Cameron Reilly: Anyway, enough about that. I could go on about that, but I will not [00:23:30] hear now. Uh, this guy, James Ray, was formerly the president of Global Engineered Fastening Business Unit of Stanley Black and [00:23:40] Decker. So he’s relatively fresh face into this company. Came in with a mandate to right size the business, [00:23:50] right size. [00:23:52] Tony Kynaston: Mm-hmm. [00:23:53] Cameron Reilly: I love that term. Right. Size what is right. Less. Less is, right? Yeah, that’s what’s right. [00:24:00] Who gets to decide what’s right? Well, [00:24:02] Tony Kynaston: live [00:24:03] Cameron Reilly: do. [00:24:03] Tony Kynaston: if you have less calories. Yeah, if you’re [00:24:05] Cameron Reilly: Yeah, there you go. Yeah. Yeah. So he’s been shedding non-core assets. [00:24:10] As I said, cut about 70% of the workforce, tried to stabilize the balance sheet, and I’ll get through, uh, what he’s done in a minute. [00:24:18] Cameron Reilly: But before I [00:24:20] do that, six days ago, the CFO resigned. [00:24:23] Tony Kynaston: Ooh. [00:24:24] Cameron Reilly: Andy Chung, uh, just after they came out with their financials at the [00:24:30] end of March, he resigned. I had a look at the announcement on the website. It said, uh, his resignation is effective April 15th to accept a position as chief financial [00:24:40] officer of a mid-cap publicly trade traded company. [00:24:42] Tony Kynaston: Okay. [00:24:43] Cameron Reilly: So that’s legit. For new listeners, we tend to. Look, uh, sc [00:24:50] at companies that have sudden sea, sea level resignations because it stuck my microphone on the ground, uh, [00:25:00] because it’s, uh, sometimes, uh, a red flag that there is something bad going on. But when it’s to take another job, [00:25:10] it’s usually seemed to be okay. [00:25:12] Cameron Reilly: Although usually you’d like to see a 90 day transition period. Uh, quick transition outta the [00:25:20] company’s not a good sign. [00:25:22] Tony Kynaston: No, we don’t know the circumstances though of the new role, but, um, I guess what gives me some comfort is he signed off on the latest results [00:25:30] and, and them before announcing his re resignation. The red flag would’ve been if he resigned before the results came [00:25:37] Cameron Reilly: Yeah, yeah. Good point. [00:25:38] Tony Kynaston: which normally means he [00:25:40] disagrees with the numbers that are being posted. [00:25:42] Cameron Reilly: Yeah, interestingly, they announced that, uh, Angie O’Leary, who is the corporate controller, [00:25:50] has been named the interim CFO, and then they also said, at this time, CVG does not intend to initiate a search process to identify a permanent [00:26:00] CFO replacement. So I’m assuming that Angie might be considered to be the long-term CFO. [00:26:07] Cameron Reilly: Is that how you would read that, right? [00:26:09] Tony Kynaston: You’d [00:26:10] think so. Well, they’ve [00:26:11] Cameron Reilly: Mm-hmm. [00:26:11] Tony Kynaston: in mind. [00:26:12] Cameron Reilly: Yeah. Well, mm-hmm. Anyway, so that’s happened, but I, I didn’t, uh, worry too much about that. [00:26:20] So, as I said, they’ve been doing a slash and sell over the last few years. They sold a bunch of non-core businesses, finish Tech, which was a [00:26:30] surface finishing business. Um, the production facility in Ohio, they sold off a cab structures business, whatever that is. [00:26:39] Cameron Reilly: They sold to [00:26:40] Volvo for 20 million, an industrial automation segment. They sold off some group called First Source Electronics. They sold off, and then just a week ago, [00:26:50] April 2nd, they announced that they, they’d completed a sale leaseback transaction for their manufacturing facility in Vno, Tennessee. [00:27:00] Which generated 16 million in proceeds. [00:27:03] Cameron Reilly: The company used the proceeds from the transaction to prepay a portion of its existing term loan facility, [00:27:10] so leased back. As I understand it, they’ve leased this property back for 20 years, so sold the property and then leased it back for 20 years, [00:27:20] which is gonna save them, uh, a lot of money. Well, it’s made them money. [00:27:24] Cameron Reilly: They could pay down debt. Apparently the rent is approximately 1.4 million for the first year. [00:27:30] Anyway, that seems sounds like a way of getting an asset off the books, getting some cash in and paying rent instead of owning it. [00:27:37] Tony Kynaston: Mm-hmm. [00:27:39] Cameron Reilly: [00:27:40] So all up, I think they’ve raised about 60 million from selling off all these bits and pieces, and these aren’t, oh, hello. [00:27:49] Cameron Reilly: Did you hear [00:27:50] Tony saying, where’s your green smoothie? No, no. Yeah, yeah. But I’m like, every time. Yeah, right. Yeah. Yeah. Thank you. Green smoothie girl. [00:27:59] Cameron Reilly: [00:28:00] Um, ooh. Hmm. It’s good. A lot of banana must have had bananas going rotten, so you need to make a banana smoothie. These weren’t fire [00:28:10] sales of crown jewels. They were deliberate [00:28:13] Tony Kynaston: Hmm. [00:28:13] Cameron Reilly: cuts of non-strategic low margin type businesses, and so they [00:28:20] can focus on. The core businesses seeding, electrical, and trim. Now the big news, so they, they did their last earnings call [00:28:30] on March 11th, 2026, their, uh, Q4 FY 2025 earnings call, and the stock went up 65% within [00:28:40] hours and. [00:28:42] Cameron Reilly: Some of it was good. Uh, they’re still losing money, but not as much as they lost last year. Um, [00:28:50] revenue fell a little bit, but beat analysts expectations. Adjusted EPS Beat Analyst, no missed analyst expectations. I think it was negative [00:29:00] 15 and they ended up getting negative 18, but. The numbers improved a little bit across the board. [00:29:07] Cameron Reilly: They also talked about north, uh, [00:29:10] soft North American demand, some gross margin improvement and some growth in the global electrical systems side of the business. It was up nearly [00:29:20] 13%. The class eight cycle outlook was the bit where this research group came in and said that. [00:29:30] There would be 4% growth in this year, 2026 for builds. [00:29:35] Cameron Reilly: Um, a small dip next year, [00:29:40] 2027, but then a 30% rebound in 2028 of, uh, class eight builds, big [00:29:50] truck builds. So, and apparently this is the way it goes. Like, you know, [00:29:55] Tony Kynaston: Mm-hmm. [00:29:55] Cameron Reilly: lean years and then boom years. But the big [00:30:00] news was the Zoox partnership. They announced a partnership with Zoox [00:30:05] Tony Kynaston: Is [00:30:05] Cameron Reilly: Gad Zoox. That’s how I’d pronounce it. [00:30:08] Tony Kynaston: Okay. [00:30:09] Cameron Reilly: of these guys [00:30:10] before? [00:30:10] Tony Kynaston: Uh, the, uh, self-driving cars. Yeah. Yeah. It used to be an Australian CEO who was um. Dyna minded [00:30:20] out, um, in a corporate play that he wasn’t very happy with a year or so ago? [00:30:25] Cameron Reilly: Really? Wasn’t that Zoom? Zoom, zoom. [00:30:27] Tony Kynaston: No, I think it, well see, I pronounce it Xox, but I [00:30:30] don’t, I’m [00:30:30] Cameron Reilly: Xox, ah, [00:30:31] Tony Kynaston: to [00:30:32] Cameron Reilly: Zoox as in God zoox. [00:30:34] Tony Kynaston: Okay. Um, yeah, pretty sure that was the company. [00:30:38] Cameron Reilly: Well, I’d [00:30:40] never heard of these guys. Amazon bought them, [00:30:42] Tony Kynaston: Hmm. [00:30:43] Cameron Reilly: a year or so ago for 1.2 billion or something. Yeah. So [00:30:50] their, uh, well, their website, the Zoox website says it’s not a car. It’s a robo taxii designed around you. Have you seen these [00:31:00] things? [00:31:00] Tony Kynaston: Uh, well, I’ve seen robo taxis. [00:31:04] Cameron Reilly: So your mo, your robo taxii, like your Waymo looks like a car, [00:31:08] Tony Kynaston: Yeah. [00:31:09] Cameron Reilly: It’s [00:31:10] got a, a steering wheel. [00:31:11] Tony Kynaston: Oh, it does. [00:31:12] Cameron Reilly: I think it’s got a steering wheel. Yeah. But no driver or you know, it just drives itself. These things don’t have a steering wheel. They don’t have front [00:31:20] seats. It’s just like a, like a, a pod. They call it a pod, but it’s like a minivan, [00:31:25] Tony Kynaston: Mm-hmm. [00:31:26] Cameron Reilly: seat. [00:31:27] Cameron Reilly: I think four people facing each other. [00:31:30] So yeah, that’s the thing. Just gets up, drives around, [00:31:34] Tony Kynaston: Did you see the, um, news last week where, uh, like, and I saw [00:31:40] video clips from China on the freeway of all of the Dr. Self driverless cars coming to a halt at once? [00:31:46] Cameron Reilly: really. No. [00:31:48] Tony Kynaston: Yeah. [00:31:48] Cameron Reilly: Wow. [00:31:49] Tony Kynaston: something broke. [00:31:50] all [00:31:50] Cameron Reilly: Oh, really? Oh, they just stopped. Oh, I thought you meant they were coming to a stop at a red light. No, they all just like broke down. [00:31:57] Tony Kynaston: they all just stopped on the [00:31:59] Cameron Reilly: Oh, [00:32:00] wow. Well, these things will happen. Um, yeah, this thing’s got no steering wheel, no driver’s seat passengers facing each other [00:32:10] like a train carriage. [00:32:11] Tony Kynaston: that. [00:32:11] Cameron Reilly: Right. [00:32:12] Cameron Reilly: Four zone climate control, 360 degrees. Sensing, designed from scratch, never to have a human driver. They’ve [00:32:20] partnered with Uber. They’ve launched free rides in Las Vegas in September, 2025. Then San Francisco in November, 2025. [00:32:30] I think they’re planning on doing paid trips. Uh, starting this year, they’re gonna be rolling out to Dallas, Denver, Detroit, Houston, [00:32:40] Orlando, San Antonio, San Diego, Washington, and Nashville. [00:32:44] Cameron Reilly: Anyway, the CVG announcement was that they have been selected to [00:32:50] design and supply custom low voltage wire harnesses for zoo’s, robo taxis. Zoox have built a [00:33:00] 220,000 square foot manufacturing facility in the Bay Area targeting 10,000 vehicles a year at full, full capacity. [00:33:10] So yeah, that’s sort of, I think, partly responsible for the CVG price bump over the last couple of weeks.[00:33:20] [00:33:20] Cameron Reilly: The impact of this particular deal for CBGs revenue isn’t huge though. Uh, it’s, you [00:33:30] know. It’s a kind of a blip. 10,000 units a year of wire harnesses for robo taxis isn’t really gonna have a big impact on their $700 [00:33:40] million a year revenue. But I think it’s, uh, proof that they are a potential player in the EV electric wire harness [00:33:50] fit out space. [00:33:52] Cameron Reilly: And uh, you know, I think the market kind of went. Wild because you know, they’re a relatively [00:34:00] small company. And to do a multi suppl, a multi-year supply agreement with an Amazon subsidiary is sort of a big deal. Big success for them. [00:34:09] Tony Kynaston: So [00:34:10] I guess I don’t understand that they’ve got multi-year deals with truck manufacturers, do one with Amazon for 10,000 vehicles and suddenly it’s like [00:34:20] gold. Yeah. Ah, let’s go and celebrate. [00:34:23] Cameron Reilly: Well, Amazon’s an AI company, Tony, so anyone who does a deal with an AI Kenworth aren’t making ai. You know, it’s, [00:34:30] there’s no AI dividend in there. [00:34:32] Tony Kynaston: And you can pronounce Kenworth. You can’t pronounce Zoox or Zox or whatever, [00:34:35] Cameron Reilly: Oh, I just went straight to zoo because I don’t know why it’s so hard. Like my mother, we, so [00:34:40] Christy and I were sitting around talking to my mum last night and my mum said, ignite of. I was like, what? What are you cove? I was like, I’m sorry, you, you gotta explain that to me. [00:34:50] Yeah. So yeah. Then we had this whole argument about whether it’s cognitive or cove. [00:34:56] Cameron Reilly: Anyway. [00:34:57] Tony Kynaston: And, and the correct [00:35:00] pronunciation [00:35:00] Cameron Reilly: Wow. Who gets to decide these things? Yeah, yeah, yeah, yeah. She said, is it Caribbean or Caribbean? And I said, well, [00:35:10] I’ve heard both. So both are acceptable. You are the first person in 55 years, I’ve heard say Cog Ignite of like, you’re not Donald Trump. You just don’t get to make up your own [00:35:20] pronunciations of things. [00:35:22] Cameron Reilly: Maybe you do. I don’t know. She’s about his age. She turns 79. So, [00:35:30] um, so look, yeah, whether or not this Amazon thing will go anywhere, I mean, Amazon’s bailed out of businesses before that, uh, [00:35:40] it was gonna take over the world with and then didn’t. So, and whether or not the, the US EV market is. Gonna go anywhere or they’re gonna all get swamped [00:35:50] by China. [00:35:50] Cameron Reilly: Although, as we know, China’s EV vehicles aren’t allowed to, allowed to be sold in the United States. [00:35:57] Tony Kynaston: Yep. [00:35:58] Cameron Reilly: I heard, I was listening to [00:36:00] somebody, uh, I think it was, um, Eric Schmidt, the former CEO of Google. I was listening to an interview with him on the way up here. Oh, that’s what I gotta tell you. I should have [00:36:10] told him about this. [00:36:10] Cameron Reilly: And after hours, I was listening to the, uh, audio version of Yes Minister, um, on the way up here. That was great. I just keep, I listen to that. I go, I just wish I [00:36:20] could remember all of Sir Humphrey’s lines and just have them on call. You know, just, uh. Have his lexicon of insults. [00:36:29] Tony Kynaston: that’s [00:36:30] Brave Minister. [00:36:32] Cameron Reilly: Uh, anyway, uh, yeah. And Eric Schmidt was talking about, he’d just got back from China and he was saying, he [00:36:40] was talking about the EV going through the touring, the EV factories and how many EV businesses there are there and how cutthroat they are. And he said, but no one in America knows that because they’re [00:36:50] not allowed to be sold here because Yeah, Elon’s got the market locked down. [00:36:55] Tony Kynaston: the day when I was working at Coles. My. [00:36:57] Cameron Reilly: Really? What was that like? [00:36:59] Tony Kynaston: [00:37:00] Good. Yeah. We, we talked a lot about a book. He was mentioned in, [00:37:03] Cameron Reilly: Oh, yeah. [00:37:04] Tony Kynaston: yeah, I think it was, the book was called Nudist on the Late Shift, sort of a, it wasn’t [00:37:10] Michael Lewis, but that kind of book about, uh, Silicon Valley. [00:37:13] Cameron Reilly: Right. Was he the nudist? [00:37:15] Tony Kynaston: No, [00:37:16] Cameron Reilly: Oh, okay. [00:37:16] Tony Kynaston: joked about it, [00:37:17] Cameron Reilly: Right, [00:37:18] Tony Kynaston: he was or not. [00:37:19] Cameron Reilly: [00:37:20] right. [00:37:20] Tony Kynaston: Yeah. [00:37:20] Cameron Reilly: So anyway, um, if you, you know, you take that in for what it’s worth. Everyone’s sort of excited about the [00:37:30] Amazon deal, but I guess I said it’s sort of, um, probably gonna have a minimal impact on their short term revenues. Probably the 30% bump [00:37:40] of the class eight trucks a couple of years from now is gonna be a much bigger deal for them. [00:37:45] Cameron Reilly: But for whatever reason, the market went nuts. [00:37:47] Tony Kynaston: of their workforce in [00:37:50] two [00:37:50] Cameron Reilly: You can always hire them back, hire ’em back when you need them. [00:37:54] Tony Kynaston: right size. [00:37:56] Cameron Reilly: That’s it. Right Size Tony. That’s right. [00:38:00] So, um, let me run through the QAV numbers. Um, as I said, the closing price at the time was $3 [00:38:10] 56. Now I haven’t rerun the numbers at the new price, so. Anyone who’s listening to this and thinking about investing in CVGI, you may wanna rer it [00:38:20] based on the new share price. [00:38:21] Cameron Reilly: It might change our scoring a little bit. Market cap, 130 million on Wikipedia. Their stock rank was 94, which is [00:38:30] very good. Quality rank was 70, which is very good. Uh, so we scored them for those. Their EPS is [00:38:40] negative, uh, both for this year and for the forecast EPS for next year. So they’re not gonna get any ratings on anything [00:38:50] that’s requiring, um, earnings ’cause they don’t have any earnings. [00:38:55] Tony Kynaston: Yeah, all [00:38:56] Cameron Reilly: But, but their price to operating cashflow is [00:39:00] 2.92, so very, very cheap from that metric. Their operating cashflow is about 44 40 5 million. [00:39:10] Operating cashflow per share, about a dollar 32. Price to book was 0.978 times. [00:39:20] And their book value CAGR over three years is 3.57%. So. You know, pretty cheap. [00:39:30] Um, by our metrics, both the price to operating cash flow and the book value. [00:39:34] Cameron Reilly: The Petrovsky F score is a five, kind of neutral, not, not great, not [00:39:40] terrible, no yield because they’re not making any money. Um, average daily volume is about 793,000 shares. [00:39:50] So big enough, uh, shares I have here. Yeah, shares. Um, that’s what it [00:40:00] says in my notes. Don’t, could be wrong. I don’t have my full sheet open in front of me, but that’s what it says in my notes. [00:40:08] Cameron Reilly: So, they’ve got a bit of debt, [00:40:10] but they’re paying down the debt. Um, they’ve got about, I think their net debt’s about $98 million. Net leverage is about 4.7 times. [00:40:20] Um, so market cap of 130 million versus net debt of about 98 million enterprise value is about, [00:40:30] uh, 228 million. Not dirt cheap, but, um, you know, pretty cheap. [00:40:37] Cameron Reilly: So, uh, what else can I tell you [00:40:40] about these guys? So that’s pretty much it. Um, auditors given them a clean bill of health. Um, I think they did have a [00:40:50] restatement back in 2020, but since then they’ve been okay. They did have, uh, some issues during the COVID period. [00:41:00] Um, that’s it. Sort of a bit of a cigar butt. [00:41:05] Cameron Reilly: They’ve been stripping back, uh, some of their core businesses, but I don’t [00:41:10] know how these sort of cycl, deeply cyclical businesses. Um, when you pick ’em up at the bottom of a cycle, uh, you might [00:41:20] have to wait a little bit time. It’s already being rerated by the market, obviously, whether it’s the numbers or the. [00:41:27] Cameron Reilly: Amazon stuff, but [00:41:30] there’s still a long way from where the share price was back in 22, 23, whenever it fell off a cliff. But, um, that’s the [00:41:40] story, just, uh, kind of boring with some cool stuff. [00:41:44] Tony Kynaston: Yeah, I mean, it is a deeply, deeply cyclical stock and it’s, it’s not making any money, but it’s throwing off lots of [00:41:50] cash. And when I sort of drilled into that, it looked like it was because it was such a low margin business that some of their products were like 2% margins, um, which is razor [00:42:00] thin. [00:42:00] Cameron Reilly: Yeah, the trim stuff in particular. [00:42:03] Tony Kynaston: yeah, so like if I’ve got a, know, there was a bit of a, um. There was a [00:42:10] bit of an article on the guy who took over in 2023 and how good he was logistically at improving costs. So I don’t know if he’s had much effect yet margin wise, but if he can even [00:42:20] just improve margins by one or 2%, that’s a, a, like a doubling of profit. Potentially. So, um, his work’s cut out for him uh, but [00:42:30] look, but they’ve been making inroads. [00:42:32] Tony Kynaston: They’ve been, as you say, selling off the non-core assets, doing sales and leasebacks, all that classic sort of turnaround play, especially for a [00:42:40] roll up where it’s a bit like. Buying a, increasingly buying a portfolio and then putting it in your bottom drawing. Then one day pulling it out and going, oh shit, we own this stinker. [00:42:49] Tony Kynaston: Let’s, let’s get [00:42:50] rid of it. It’s a similar sort of thing really. So they’re trimming the portfolio down. Um, and Lakeview Capital’s now on the board. So that’s their specialty is, is, um, [00:43:00] turnaround. So, you know, they’ve got all the pieces in place, I think. And, you know, the, the forecasters are saying 2027 is gonna be when the market picks up for heavy [00:43:10] vehicles. [00:43:10] Tony Kynaston: So it’s all aligning for this company, um, selling off non-core assets and reducing debt and having lots of cash to play with. Looks like they’ll get to 2027, which of [00:43:20] course is the. The key, the thing to focus on at the moment, even though they’re not profitable, they could be very profitable in a year or two’s time and, and, [00:43:30] um, just improving margins a little bit, just getting a bit of volume back into the business is kind of, um, flow straight through to the bottom line help to rerate the stock [00:43:40] even more, I would’ve thought. [00:43:41] Cameron Reilly: If you, you look at their 10 year chart too. It’s the. Air price is very cyclical. So if you go back to go [00:43:50] back 10 years to 2016, shares, were around $3 94 bucks, kind of where they are now. By [00:44:00] January, 2018, they’re up to $12 50. So, [00:44:03] Tony Kynaston: Yeah. [00:44:04] Cameron Reilly: 300% growth. Then by March, 2020, [00:44:10] the well COVID, but yeah, they were back down to a dollar 68, then May, 2021, back to 1230 by [00:44:20] October 22, back down to four bucks. [00:44:23] Cameron Reilly: July 23, up to $10, 60. And yeah, then they were back down to a [00:44:30] dollar 17 by March of 2025, and now they’re back up to $4 again. So, you know, I, I expect it will continue to [00:44:40] be cyclical unless something changes with the dynamics of the business that they’re in. But if we write ’em up and then our [00:44:50] cell triggers get us out on the way down, I dunno what the three point trend line will look like at that point in time. [00:44:56] Cameron Reilly: But yeah, buying something when it’s [00:45:00] particularly like it’s, it’s gone through this process in the last 10 years. It’s gone down to four bucks, back up to 12, back down to four, back up to 12. Back down to [00:45:10] four. It’s at four now. So. Chances are we’ll be able to ride it back up to 12 and then hopefully get out before it goes back down to four again. [00:45:19] Tony Kynaston: [00:45:20] Yeah, and you’d hope, and I mean this management’s been in place for a couple of years, but you’d hope they’d work out. Set your cost base at the low point of the [00:45:30] cycle and then a lot of cream when it’s at the high point of the cycle. So that, I [00:45:34] Cameron Reilly: Yeah. [00:45:35] Tony Kynaston: not smooth out the share price, but uh, ’cause it’s gonna mean they’re still getting peaks and troughs in [00:45:40] their profit. [00:45:40] Tony Kynaston: But hopefully it would smooth out the business anyway. [00:45:44] Cameron Reilly: I assume a lot of these business units they sold off were possibly bought at some stage [00:45:50] by management to try and smooth out their revenue streams that it, but it didn’t work out [00:45:54] Tony Kynaston: Yeah. Yeah. I, [00:45:56] Cameron Reilly: anyway. [00:45:57] Tony Kynaston: yeah. Last thing to, to think of, to, [00:46:00] to mention is that I keep thinking of CBGB, the old, uh, nightclub in New York, that Patty Smith and Talking Heads and all those bands had their starts at, whenever I [00:46:10] hear the name of this company, [00:46:11] Cameron Reilly: C, B, G. Yeah. Yeah, yeah. Wouldn’t it be great to have a time machine and to go back and see some of those gigs? Blondie, [00:46:20] Lou Reed. Bowie. Iggy. Yeah. One day, I don’t believe in time machines, but, uh, you know, who [00:46:30] knows? Well, Tony, if, uh, Donald Trump hasn’t started a nuclear war by this time next week [00:46:40] we’ll be back to. [00:46:44] Cameron Reilly: As we were saying on the last show, there’s this, uh, I think it was the last show, the, the Twitter account, the Iranian embassy [00:46:50] in Zimbabwe that I’ve been following every, they’re, they’re trolling, all giving troll responses to all of Trump’s tweets. When he said open the straight, they said, sorry, we can’t, we lost the keys.[00:47:00] [00:47:02] Cameron Reilly: And then he tweeted something, he, something was gonna happen by 8:00 PM and they said, uh, eight PM’s not good for us. Could we try maybe one to 2:00 PM or maybe [00:47:10] two to 3:00 AM would be better. Thank you for your attention to this matter. Easy for them. They’re in Zimbabwe. They’re not gonna be the ones that get, [00:47:20] uh, a nuclear missile dropped on them. [00:47:22] Cameron Reilly: Anyway. Um, the world is a crazy place, Tony. But, uh, [00:47:30] we have to trade through it regardless. [00:47:34] Tony Kynaston: keep doing what we’re doing. [00:47:35] Cameron Reilly: Yeah. And it’s working pretty well. So thank you to CVG for the 20% [00:47:40] week. Keep it up. Good job. Thank you to Kodak for their 20% two weeks. 40%. 20% a week. [00:47:47] Tony Kynaston: Yeah. [00:47:47] Cameron Reilly: There you go. Thank you. Kodak got [00:47:50] no idea what drove that, apart from the fact that we talked about it. [00:47:53] Cameron Reilly: I post about it on Reddit. Everyone told me to shut the hell up, but, uh, you know, there you go. [00:47:58] Tony Kynaston: Do you go back and [00:48:00] like say, Hey, look [00:48:01] Cameron Reilly: Yeah, [00:48:01] Tony Kynaston: graph guys, [00:48:02] Cameron Reilly: yeah. I do nothing. [00:48:06] Tony Kynaston: Do you ever sort of go and say, Hey, I’ve [00:48:10] got this great AI stock you should check out. [00:48:11] Cameron Reilly: Oh, they’d love that [00:48:13] Tony Kynaston: Kodak. [00:48:14] Cameron Reilly: oh, Koda. Yeah. You know, just. Some of the stocks that [00:48:20] we’ve talked about on the show, like, I didn’t go over the, the rest of them, but there’s some crazy, been crazy numbers, like just in the last year. So, uh, [00:48:30] Chemex, we talked about C-E-M-E-X. Uh, we talked about them March last year. [00:48:35] Cameron Reilly: They’re up a hundred percent since then. Um, Sasol [00:48:40] Dirty Oil is up 150% [00:48:43] Tony Kynaston: Hmm. [00:48:43] Cameron Reilly: Zep. Yeah, Zep, the, uh, Chinese mobile [00:48:50] device company is, it was up 700% at one stage. It’s now only up 326% since we talked about it in July last year. [00:49:00] Um, a lot of just terrific. Seneca Foods is up 52% since we talked about them in July. [00:49:07] Cameron Reilly: Yeah. They didn’t do well for a while. Yeah. [00:49:10] Um, Methanex is up 55%, uh, since we talked about them in September last year. [00:49:20] Court I’ve mentioned, uh, Murphy Oil, Kodak. [00:49:23] Tony Kynaston: Hmm. [00:49:23] Cameron Reilly: So, yeah, like Topgolf, you’ll be happy to know, which is no longer called Topgolf. Um, [00:49:30] well its ticker has changed to Cal Callaway, CALY. It’s up 34% since we talked about them in November, and there’s a lot more I could go through too, but a [00:49:40] couple haven’t worked out. [00:49:40] Cameron Reilly: American Airlines is down 21%, but a lot of winners and a lot like just huge numbers in the US stocks. [00:49:47] Tony Kynaston: if you thought about the companies we’re talking [00:49:50] about, you wouldn’t predict them going up so much. [00:49:52] Cameron Reilly: No. [00:49:52] Tony Kynaston: Yeah. [00:49:53] Cameron Reilly: But overall, we’ve um, done [00:50:00] 45 deep dives on this show in the last year and a bit, um, of those 31 have gone up and [00:50:10] 14 have gone down. So it’s about a 69% win-loss ratio. And the average profit, if I just bundle ’em all [00:50:20] up and don’t worry about timeframes or whatever, the average profit, um, of all of them combined, not just the winners, is 26%. [00:50:27] Tony Kynaston: Mm. [00:50:28] Cameron Reilly: [00:50:30] Yeah. [00:50:30] Tony Kynaston: So listeners to the [00:50:31] Cameron Reilly: In a. [00:50:31] Tony Kynaston: even have to subscribe. They can just buy the stock we talk about, you know, it’s a [00:50:39] Cameron Reilly: they [00:50:40] can, but if you’re a QAV Light subscriber, you would’ve got it yesterday and you would’ve, uh, a couple of days early. You’d be up 20% sooner. [00:50:47] Tony Kynaston: and the portfolio is doing better than just the, [00:50:50] the pulled porks have been done by us. Yeah. [00:50:54] Cameron Reilly: Well, well actually, yes. This, uh, only club members get these [00:51:00] episodes now, Tony, so, uh, yeah, yeah, yeah. So there you go. [00:51:05] Cameron Reilly: Um, after hours, Tony, you got a lot of [00:51:10] things, a lot of horses, some music. [00:51:12] Tony Kynaston: Yeah, so, uh, I guess I was busy. I was, maybe I’d just put more in here than I normally would, um, [00:51:20] because Jenny was away and I was spending more time on my own, had a look at a series called Hijack on Apple Streaming, which, um, I’m not gonna give a [00:51:30] strong recommendation to, but we’ve watched both series now and it’s pretty good. [00:51:33] Tony Kynaston: Strong B grade sort of stuff with Idris Elby. Yeah. [00:51:36] Cameron Reilly: Yeah. [00:51:36] Tony Kynaston: Um, but yeah, lots of it’s, it’s pretty [00:51:40] basic fair, but lots of twists and turns and surprises and cliffhanger. So I, I kind of enjoyed it at least enough to watch two series of. [00:51:48] Cameron Reilly: Right. [00:51:49] Tony Kynaston: Yeah. [00:51:50] So check it out if you can’t find much else to, to watch. [00:51:53] Cameron Reilly: Well, we just started watching Night of the Seven Kingdoms based on your [00:51:57] Tony Kynaston: Oh, [00:52:00] and [00:52:00] Cameron Reilly: Couple of episodes, maybe three episodes into it. Yeah. Enjoying it. [00:52:04] Tony Kynaston: yeah. [00:52:04] Cameron Reilly: It’s a slow start, kind of, but [00:52:06] Tony Kynaston: Mm-hmm. [00:52:07] Cameron Reilly: interesting to get back into the [00:52:10] Georgia r Martin Worlds and all of that kind. [00:52:13] Cameron Reilly: A lot of, you know, violence and [00:52:16] Tony Kynaston: Yeah. [00:52:17] Cameron Reilly: stuff and, you know, all that kind of graphic [00:52:20] stuff. Yeah. [00:52:21] Tony Kynaston: Yeah. [00:52:21] Cameron Reilly: Fun. [00:52:22] Tony Kynaston: It is fun. I, I, we enjoyed that. What else have I got? Yeah. I, I, um, being, [00:52:30] giving, uh, Janie Mitchell’s Blue a spin and Jeff Beck’s Truth a Spin. Um, I think I came across someone doing a cover of, uh, California [00:52:40] in my stream. So I went back and got Janie Mitchell out. It holds up. Its good album. [00:52:44] Cameron Reilly: Oh yeah. I love Blue [00:52:45] Tony Kynaston: Yeah. [00:52:46] Cameron Reilly: And I love Jeff Beck. I, truth not one of my [00:52:50] favorite albums, but, uh, wired, his sort of. [00:52:53] Tony Kynaston: Yep. [00:52:54] Cameron Reilly: Jazz forays [00:52:56] Tony Kynaston: Yep. [00:52:57] Cameron Reilly: late seventies, early eighties. I [00:53:00] always go back to, I know them. Like I know those albums for note, like kind of [00:53:05] Tony Kynaston: Oh, really? [00:53:06] Cameron Reilly: to them so many times. [00:53:08] Cameron Reilly: Yeah. I love his version [00:53:10] of pork pie hat [00:53:11] Tony Kynaston: Yep. [00:53:11] Cameron Reilly: sorts of things. [00:53:12] Tony Kynaston: Well, I hadn’t because, uh, he, I dunno, just I heard some of his stuff and, and, um, [00:53:20] come across him when he was playing with somebody else. But I found out truth, I think was the first time that Rod Stewart and, uh, who’s the guy from the Small faces and the Rolling [00:53:30] Stones, the guitarist, um, [00:53:31] Cameron Reilly: Wood, [00:53:32] Tony Kynaston: Ron Wood, Ronnie Wood played together with him. [00:53:34] Cameron Reilly: right? [00:53:35] Tony Kynaston: uh, that’s why I went back and had a listen to it and it’s, it’s patchy. It’s got some pretty [00:53:40] ordinary sort of stuff on it, but, um, there’s some really good stuff as well. [00:53:44] Cameron Reilly: Yeah. Jeff Beck was one of the greats. Man. Just what, like an incre, a crazy career [00:53:49] Tony Kynaston: [00:53:50] Yeah. [00:53:50] Cameron Reilly: So wide ranging and, uh, was such a, not only amazing guitarist, but also just did so many different styles of stuff [00:54:00] like the, the, the, the jazz fusion stuff that he did for a while there, which apparently he hated. He later in [00:54:05] Tony Kynaston: Really? [00:54:06] Cameron Reilly: doing that. [00:54:06] Tony Kynaston: Huh? [00:54:07] Cameron Reilly: He always used to talk shit about those albums. But I love them. I’ve [00:54:10] always loved them since I discovered them when I was in my late teens, early twenties. [00:54:14] Tony Kynaston: Yeah. Okay. I’ll check him out. I haven’t really checked it out. [00:54:17] Cameron Reilly: have you listened to [00:54:20] Rine yet? [00:54:20] Tony Kynaston: No. [00:54:21] Cameron Reilly: Yeah. These haven’t come across your feeds. They’re sort of the hottest meme trend band. [00:54:27] Cameron Reilly: They’re at a Quebec, [00:54:30] they two guys, they wear full costumes and masks, paper mache with big noses. They’re painted in [00:54:40] dots from head to toe and their music is crazy. It’s just a drummer and a guitarist. But the guitarist has got this instrument that’s. [00:54:50] guitar down the bottom and a normal guitar up the top. But it’s, uh, semitone fretted. So they’re playing a lot of [00:55:00] this semitone. And it reminds me, it’s like this weird avantgarde jazzy funk fusion kind of thing. And it reminds me for some reason [00:55:10] of zapper. just, know, kind of very, very weird and avant-garde, but funky at the same time. And when they do [00:55:20] interviews, they speak in a made up space language and their [00:55:30] manager translates for them into French, what they’re saying. [00:55:33] Tony Kynaston: So probably can’t speak French. [00:55:36] Cameron Reilly: No, I, no, I just think it’s like one of these art [00:55:40] concept. It’s [00:55:40] Tony Kynaston: Yeah, right. [00:55:41] Cameron Reilly: daft Punk or, um, [00:55:44] Tony Kynaston: Yeah, right. [00:55:46] Cameron Reilly: want their identities to be known for whatever reason, [00:55:50] and so they don’t even let their voices really be heard. But the music’s great. They’ve got two albums out, volume one and volume two. I just discovered ’em a few days ago. [00:55:57] Cameron Reilly: I’ve been listening to them a lot while I’ve been here doing chores around the [00:56:00] house, replacing fly screens and trimming hedges and chopping down banana flowers and stuff like that for my mum. [00:56:06] Tony Kynaston: Nice. [00:56:08] Cameron Reilly: it’s good stuff. It’s, it’s kind [00:56:10] of it instrumental. It’s all instrumental, but it’s funky, jazzy, avant-garde, crazy kinda stuff, which [00:56:16] Tony Kynaston: have to write down that name for me and send it through. ’cause I, my French [00:56:20] isn’t good enough to remember it. [00:56:21] Cameron Reilly: and, and the way that they say it is. Yeah, I will, I’ll send you a link [00:56:29] Tony Kynaston: All [00:56:30] right. Thank you. [00:56:30] Cameron Reilly: how the, how the horses going. Oh, how was your birthday by the way? [00:56:32] Tony Kynaston: Yeah, it was good. Good. Well, before we get onto that, I have one more record to talk about, um, Moby Future Quiet, [00:56:40] which, um, a. [00:56:42] Cameron Reilly: No, not really. You know, I’ve never really dug into Moby. I know like some of his hits from 20 years ago, but I’ve never [00:56:50] really, you know, listened to the catalog. [00:56:52] Tony Kynaston: I love, maybe I, yeah, and this is a, this is a bit different for him. It’s a much quieter, ambient sort of music, [00:57:00] uh, record. Um, but I’m just have a playing when I’m working. But yeah, it’s really good, really quiet. Just enough melody to be interesting. [00:57:08] Cameron Reilly: Yeah. [00:57:09] Tony Kynaston: [00:57:10] Yeah. [00:57:10] Cameron Reilly: I’ll check it out. [00:57:11] Tony Kynaston: Oh, I love Moby. Some of his, some of his albums, even when they didn’t have hits on them, were just fantastic. [00:57:16] Cameron Reilly: Yeah, there you go. [00:57:17] Tony Kynaston: Yeah. [00:57:18] Cameron Reilly: a DJ or is he actually [00:57:20] like Right. Instrumentally stuff. [00:57:22] Tony Kynaston: Um, I [00:57:23] Cameron Reilly: of him as just a dj. [00:57:24] Tony Kynaston: kind of, yeah, I, I, I mean, when I’ve seen him interview years ago, he said he would [00:57:30] put clips together. He would take a melody from like the 1920s and a singer from the 1930s, and then overlay them and try and combine them. So I don’t know if he’s still doing that or [00:57:40] whether he is actually writing stuff himself. [00:57:41] Tony Kynaston: These days, you can’t really tell from the old. [00:57:43] Cameron Reilly: Right. [00:57:45] Tony Kynaston: And I haven’t checked the line of notes to see if he’s credited on it, so I’m not sure. [00:57:48] Cameron Reilly: Hmm. Okay. [00:57:49] Tony Kynaston: [00:57:50] Yeah, so that’s good. Um, yeah, birthday was good. Had, uh, dinner with, uh, Alex and Sean and Jenny. They came down Friday night. It’s, it gets busy [00:58:00] down here at Easter time ’cause it’s holidays and, um, was hard to get a restaurant booking because it was good Friday. [00:58:06] Tony Kynaston: We got a restaurant booking and a nice restaurant. Had a lovely dinner, which was [00:58:10] lovely. And then it was pretty quiet after that. Um, Alex went back and, um, yeah, Jen was home from Japan. She’d been away for a couple [00:58:20] of weeks, so she told me all about that, which was interesting. They, they went fabric shopping a lot in Kyoto, um, which was good. [00:58:29] Cameron Reilly: Did she [00:58:30] bring you back a, uh, samurai sword or something? [00:58:33] Tony Kynaston: no, just a t-shirt, the, with the giant wave on it. Uh, classic Japanese [00:58:40] print. [00:58:40] Cameron Reilly: the [00:58:40] Tony Kynaston: Yeah. Yeah. And another shirt as well, which have got incredibly small neck holes for some reason. Like they’re the right, right sizes, but like I’ve [00:58:50] gotta [00:58:50] Cameron Reilly: incredibly big neck. Well, [00:58:51] Tony Kynaston: possibly, I’ve gotta pull it over my head really hard to put them on. [00:58:57] Tony Kynaston: It’s not a problem I usually have with choirs, but anyway. [00:58:59] Cameron Reilly: [00:59:00] right? [00:59:00] Tony Kynaston: Yeah. So yeah, it’s been good. But yeah, good horse racing over the weekend. Saturday was Dom cast today. I know you’re not interested, but, um, it was a [00:59:10] fabulous resolver champion Mabb called Cheese Alibi one, um, by a, along by a lot, which was nice. And there’s a few other good horses. [00:59:19] Tony Kynaston: Can’t [00:59:20] be only to tell you. And green spaces were dominant, um, on the day. And then Kaing Rising, ran in, in Hong Kong Sunday night, I think, or [00:59:30] Monday night. Won a again, dominant win, 19 in a row, won the Everest last year. So yeah, some, some champion race [00:59:40] horses to watch over the weekend, which I loved. [00:59:42] Cameron Reilly: Oh, good. [00:59:43] Tony Kynaston: Mm. [00:59:44] Cameron Reilly: You don’t own these ones though. [00:59:45] Tony Kynaston: Oh God, I wish I did. [00:59:46] Tony Kynaston: No. Prolo. Prolo. Doto. I’ve gotta share. And then she, he [00:59:50] ran for on Wednesday last week. [00:59:52] Cameron Reilly: Ah, [00:59:53] Tony Kynaston: Hmm. Yeah, that was good. [00:59:55] Cameron Reilly: good win? [00:59:56] Tony Kynaston: Good enough. Yeah. [00:59:57] Cameron Reilly: Good enough. [00:59:58] Tony Kynaston: Gets to go again. [01:00:00] Yeah. [01:00:01] Cameron Reilly: I’ve built a, I’ve built a, an ebook reader app that’s called lio. close to Qualo. Dorado built my [01:00:10] own ebook reader app, which has AI built into it. I’m sick of having to stuff out of an ebook reader and then go over to an AI app to talk about it, then go back to the book. So [01:00:20] I built my own ebook app for my iPad that’s got an AI reader in. So, yeah, [01:00:25] Tony Kynaston: what? Takes a feed from Amazon or somewhere? [01:00:30] Kindle. [01:00:30] Cameron Reilly: no, it’s just for, uh, EPUBs and PDFs [01:00:34] Tony Kynaston: Okay. [01:00:34] Cameron Reilly: got, got my own little library of books that I’ve downloaded over the years that are un [01:00:40] DMed. Don’t believe in DMing for books. I think that’s evil. So, uh, Uh, [01:00:49] Tony Kynaston: sorry. [01:00:50] Hang on. What does DRM mean? [01:00:51] Cameron Reilly: digital rights management, you get locked into platforms like [01:00:55] Tony Kynaston: Yeah, okay. [01:00:56] Cameron Reilly: and, you know, Apple’s thing and you can’t move your books [01:01:00] around from one reader to [01:01:01] Tony Kynaston: Yeah. Yep, [01:01:02] Cameron Reilly: nah, blah, blah, blah, blah. [01:01:03] Cameron Reilly: It’s just crock. [01:01:05] Tony Kynaston: Yep. [01:01:05] Cameron Reilly: crock. Uh uh, [01:01:10] uh, uh, well that’s it. Tk, let’s go talk about, uh, the American markets and I’ll tell you about commercial vehicle group. Uh, it’s a good story. I think [01:01:20] you’ll like this one. It’s a boring story, another boring story, [01:01:23] Tony Kynaston: Good, [01:01:24] Cameron Reilly: but, uh, good boring story in a way, of, [01:01:27] Tony Kynaston: good. Value stock thing. [01:01:29] Cameron Reilly: yes, it [01:01:30] is a classic, another classic value stock. [01:01:32] Cameron Reilly: Nobody died in the making of this stock for [01:01:35] Tony Kynaston: before you go, given as a a Trump deadline in about 12 [01:01:40] hours time, is he gonna Tucker or is it gonna go ahead? [01:01:42] Cameron Reilly: Well, did, did you, you’ve been following the, uh, Iran Iranian embassy in Zimbabwe’s Twitter [01:01:50] account. [01:01:50] Tony Kynaston: No. [01:01:51] Cameron Reilly: Oh, it’s gold. He said, uh, they, they’re just troll. They’re giving trolling answers back to him. said, uh, [01:02:00] reopen, you know, you open the fucking strai, you crazy bastards. And they said, they replied, sorry, we can’t, we’ve lost the keys. And he then he [01:02:10] posted, he tweeted something about Tuesday, 8:00 PM Eastern time, I think was a tip to his people about when to sell their all stocks or buy their all stocks or something. [01:02:20] the Iranian embassy tweeted back, sorry, eight PM’s not good for us. Would, uh, one to 2:00 PM uh, or one to 2:00 AM would suit us better. [01:02:29] Cameron Reilly: Thank you for [01:02:30] your attention to this matter. Iranian embassy, they’re just writing trolling responses to all of these things. Uh, [01:02:40] I dunno what timeline we’re in, but it’s a crazy timeline. [01:02:44] Tony Kynaston: it is, isn’t it? [01:02:45] Cameron Reilly: Oh, I’m reading a book, uh, by Adrian Tchaikovsky. [01:02:50] The, uh, science fiction writer you may or may not have heard of [01:02:53] Tony Kynaston: No. [01:02:53] Cameron Reilly: is a relatively recent book. [01:02:56] Cameron Reilly: I think it came out this year or late last year. It’s called Service Model. [01:03:00] It’s about, uh, ostensibly a robot who is a valet in a house full of robots for a master, and then [01:03:10] he has to leave the house. For reasons I won’t disclose. But then he discovers this world of just broken down robots everywhere. And it’s set [01:03:20] at some indeterminate time in the future where the world has been populated with robots. [01:03:24] Cameron Reilly: But then it looks like the humans have kind of disappeared for some reason we don’t know yet. And it’s just a [01:03:30] world of robots dunno what to do with themselves and they’re breaking down and no one’s fixing them, and the humans have disappeared. And [01:03:40] just this world of decomposing robots trying to figure out what to do because they’re all built with these rules, hard rules about they have tasks. [01:03:48] Cameron Reilly: Basically [01:03:49] Tony Kynaston: All. [01:03:49] Cameron Reilly: a robot [01:03:50] for everything and every robot has a predetermined list of tasks that it has to do. And, uh, the world’s breaking down so the [01:04:00] tasks can’t get done. And so undone tasks pile on top of more undone tasks and robots are waiting for other robots to do their tasks before they, and it’s just this [01:04:09] Tony Kynaston: Yeah. [01:04:10] Right. [01:04:10] Cameron Reilly: dystopian world of robots with nothing to do. [01:04:14] Cameron Reilly: It’s kind of, of interesting. Okay. Thank you tk. [01:04:19] Tony Kynaston: [01:04:20] Thank you for [01:04:20] Cameron Reilly: It’s all right. [01:04:21] Tony Kynaston: Yeah. [01:04:21] Cameron Reilly: CBGBs. Interesting story. And uh, talk to you next week. [01:04:26] Tony Kynaston: yeah, enjoy your holiday. [01:04:28] Cameron Reilly: Yeah. Good luck [01:04:30] with everything. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Apr 9, 2026

36m
38

Profiting from Chaos – QAV America 46

Episode 46 of QAV America opens on Tony Kynaston’s birthday — complete with a QAV cap gift — before Cameron and Tony dig into a week of market chaos, with their main US portfolio down 12% over 30 days but still up an extraordinary 83% since inception in September 2023 versus the S&P’s 42%. The guys tackle the big macro picture, riffing on a Fortune article declaring US government insolvency (liabilities nearly 8x assets), the mysterious $500 million oil futures trade placed 15 minutes before Trump’s Iran announcement, and the aluminum supply chain crisis triggered by Iranian strikes on Middle East smelters. The episode’s centrepiece is Cameron’s Pulled Pork deep dive on Pitney Bowes (PBI) — the century-old postage meter pioneer turned digital shipping play — covering its disastrous Global eCommerce venture, the activist takeover by deep value investor Kurt Wolf of Hestia Capital, and why the stock’s QAV score of 0.16 and solid cash generation make it a compelling cigar-butt turnaround play.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV AMERICAN 46 Club [00:00:00] [00:00:00] Cameron Reilly: Welcome back to QAV America, episode 46. Tony Eson. How are you? [00:00:08] TK: Very good. You wouldn’t know it’s QAV with my QAV shirt on and QAV cap on. [00:00:13] Cameron Reilly: For people that aren’t watching the video feed. Yeah, it’s Tony’s birthday, so I gave him a QAV cap ’cause I ran out of ideas and time. Uh, well, you know, it’s some, it’s something you should be proud of. Your contribution to the world of investing. You’re a given, not a taker. That’s what they said about you in prison anyway. [00:00:39] Cameron Reilly: Um, that’s what you had to establish yourself. Very early on in Bogger Road, very famous prison in Brisbane where my grandfather actually went and learned to play chess, which was a great thing. It’s become a family tradition now. [00:00:54] TK: chess or he was there and he learned how to play chess. [00:00:56] Cameron Reilly: I, that’s the way I sell it. Yeah. He, he thought, where’s the best place I can [00:01:00] learn chess for free? [00:01:00] Cameron Reilly: I’ll go do, go do two years in Bogger Road. [00:01:05] TK: Oh, okay. We’re [00:01:08] Cameron Reilly: Tony. [00:01:09] TK: before too. [00:01:09] Cameron Reilly: Yeah, yeah, yeah. I was gonna say it’s a great, and then he started a great family tradition. What gonna prison? No playing chess. Yeah. Well, so far, yeah. Yeah. Breaking and entering. [00:01:21] TK: Oh, was it? I was gonna say, was it annoying people [00:01:24] Cameron Reilly: Uh, [00:01:25] TK: the public? [00:01:26] Cameron Reilly: you can’t go to prison for that yet, Tony. Um. It’s been a crazy week on the, well, just in the world, um, in the, uh, stock market. Of course, it’s been a crazy week. I think as, uh, we’re recording this, which is the 31st of March, Australian time. The Dow Jones over the last week is down the s and p 500. Over the last week is very much down our portfolios in the us.[00:02:00] [00:02:00] Cameron Reilly: I can’t get this to gimme a week, but in the last month, our US main US portfolio, the one we’ve been running for a few years is down 12% in the last 30 days versus the s and p down 8%. But for all time, and this goes back to September, 2023, our portfolio is up 83% versus the s and p up 42%. So we’re basically doing double market over the whatever, two and a half years. [00:02:34] Cameron Reilly: Is that two and a half years? Seven, five, yes. Two and a half years. Which is not too shabby. Um, happy with that. The light portfolio that I’ve started late last year, 22nd and December for the last 30 days is actually up 4% in the last 30 days when everything else is crashing. Yeah. The s and p is down 8%. [00:02:58] Cameron Reilly: We’re up [00:03:00] 4%. [00:03:00] TK: Didn’t, uh, happen to trade some oil futures 15 minutes before a major announcement. Do it. [00:03:04] Cameron Reilly: No, that was not me. Uh, I did buy some oil stocks in this portfolio, though. Uh, so yeah, that’s probably had a lot to do with it all times since, uh, 22nd of December we’re only up 2% versus the s and p down 8%. So, uh, we’re still outperforming, um, some of the big wins. Remember last week we talked about Eastman Kodak. [00:03:26] TK: Yeah. [00:03:27] Cameron Reilly: when I checked it was up 21%. Since I added it the previous Monday, it’s come, it came back a bit last night. Now it’s up 12%. I dunno why Kodak dropped overnight, but um, some of the stocks are doing great. Cord energy is up 53% in the light portfolio. Eco petrol is up 21. Murphy Oil, we only talked about it, we added a few weeks ago, is up 21. [00:03:52] Cameron Reilly: Neighbor Industries. Neighbors Industries, NBR, the um. Uh, energy industry technology [00:04:00] provider firm is up 12%. Geo Park is up 11 SSPW Scripps, we talked about the television stations. Business is up 10%. Um, so yeah, all doing, uh, quite well despite a chaotic market. Um. [00:04:20] TK: And, and of course, you know, we, we were buying all. Companies before recent spike on the oil price, but it hasn’t, it certainly hasn’t hurt. Um, and these stocks could come back if there’s a breakout of peace and sanity in the, in the world, what, what’s the likelihood of that? [00:04:41] Cameron Reilly: Yeah, not much chance of that with the current administrations that we have around the world. I think Tony, um. [00:04:47] TK: I was gonna say is that we are ready for it. If they do come back, we’ve got our sell [00:04:51] Cameron Reilly: Yeah. [00:04:52] TK: and procedures, so yeah. [00:04:54] Cameron Reilly: Yeah. Things have been going, uh, very well despite the [00:05:00] chaos. Marker [00:05:01] Cameron Reilly: Trump wants another $200 billion to finish the war that he said was won a month ago. [00:05:07] TK: Well, all he has to do is, as we know, is to, is to get into the, your market 15 minutes before he posts on true social. And he’s got that, that inflow to do whatever he wants. Yeah. [00:05:17] Cameron Reilly: I am not sure he is gonna spend that profit on, uh, financing the war. Um. So, yeah, we, you mentioned this article, so I saw this in Fortune the other day, the, this is by Steve Hanky, who’s a professor of Applied Economics at the Johns Hopkins University, and a member of the board of Directors at the Federal Fiscal Sustainability Foundation. He says The treasury just declared the US insolvent. The media missed it. The US government is insolvent. That’s not hyperbole. It’s the conclusion drawn directly from the treasury department’s own consolidated financial statements for fiscal year 2025, released last week to near total media silence. The numbers 6.06 trillion in [00:06:00] total assets against 47.78 trillion in total liabilities as of September 30th, 2025. Importantly, the 47.78 trillion in reported liabilities does not include the unfunded obligations of social insurance programs like Social Security and Medicare. Those are the close separately in the off balance sheet. [00:06:23] Cameron Reilly: Statement of social infrastructure, consolidated balance sheet position, excluding the SOSI. Deteriorated nearly 2.07 trillion between FY 24 and FY 25, reaching a staggering negative 41.72 trillion. liabilities are now nearly eight times the value of reported assets. The largest drivers were a $2 trillion increase in federal debt and interest payable. [00:06:54] Cameron Reilly: Now 30.33 trillion and a 438.8 billion increase in federal [00:07:00] employee and veteran benefits payable. Now 15.47 trillion goes on and on and on. But, um, the, sort of the, they break it down into more relatable numbers later on. said most people cannot relate to trillion dollar figures on a government ledger. [00:07:17] Cameron Reilly: So consider this, this is their, uh, coffee shop analogy. Divide every number by a hundred million. Drop eight zeros in federal finances look like a household budget and free fall. That household earns $52,456 and spends 73,378 running a 20,932 annual deficit. total liabilities in unfunded promises amount to 1.361 million against just $60,554 in assets leaving at 1.3 million in the whole Uncle Sam by any accounting standard is insolvent. Congress has clearly lost control of the nation’s [00:08:00] finances. America is facing a fiscal catastrophe. The reckoning, long deferred is becoming impossible to ignore. [00:08:08] TK: The coffee shop analogy is the right one to use. Uh, except that misses one important factor, and that is that in the coffee shop that the US government runs, they have a magic printing press in the basement. And uh, they can keep. Funding their liabilities by either printing more money or issuing more debt. [00:08:28] TK: Um, I, I did a bit of research into this article ’cause it, it’s, it’s always bothered me. Um, and this isn’t the first year the US government’s been insolvent on any sort of balance sheet reckoning. It’s the 29th year that the, um, the, uh, what’s it called? The GOA, the government, whatever the government agency is, that signs off on these accounts has refused to sign off on the account. [00:08:53] Cameron Reilly: Government accounting office or [00:08:55] TK: Yeah, that’s it. GAO. So they haven’t signed off on the accounts for 29 years for [00:09:00] the reason that it’s technically insolvent. And again, it, it gets back to this. Cycle of lowering interest rates that, that governments could just keep issuing debt, which became cheaper and cheaper and kicked the can down the road for the day when debt starts to increase. [00:09:15] TK: And then they can’t service that debt. And so they have to print money, um, to, to help do that. So it’s, it’s not a good situation and it doesn’t mean it’s not gonna go on for another 29 years, but what’s gonna happen at some stages is either gonna be a reckoning, uh, you know, a serious recession or depression when inflation gets really high, when the US currency gets the value. [00:09:39] TK: Uh, ’cause you can’t keep. Printing money forever without the currency going down in value, or, which is probably the most likely option. There’s another default currency and a better government, um, issuing or a better government, uh, risk in terms of being able to issue bonds, which is probably gonna be China, I would’ve thought, um, down the track. [00:09:59] TK: And [00:10:00] then the US has some real trouble then because it’s traded on the fact that you can always issue bonds at a cheap or cheaper rate than anybody else, any other government, and its currency is the default world currency that helps prop up this house of cards. Um, and it may continue to for another 10, 29 years, but it, it won’t do it forever. [00:10:20] TK: Um, so. [00:10:20] Cameron Reilly: privilege as called it, I think it was the, uh, British Foreign Minister back in the fifties or something, the exorbitant privilege. [00:10:32] TK: Yeah, and I mean, you compare, I, I compared it to Australia just to see if we were on the same sort of, um, dimension as the US and we’re not. We we’re all along the way, but we’re not as bad. So, uh, in the Australian case, we have total assets of 9 25 0.8 billion total liabilities at approximately 1.570 billion. [00:10:59] TK: Um, so [00:11:00] negative 644 billion and net debt estimated to be about the same at 587 billion, which is still reasonably high. 20% of GDP. And we are running a deficit, but it’s, it’s the kind of deficit that the government can get back into surplus if it needs to. So it’s not a runaway deficit like the US is. And hence, Australia is one of a small number of countries. [00:11:22] TK: I think there’s 11 in the world, which still have AAA rating with all three agencies. Um. Around the world. So, you know, standard and pause, uh, Fitch and I’ve forgotten the third one. Uh, but, so that’s countries like Australia, Canada, Denmark, Germany, et cetera, et cetera, Singapore, Sweden. Um, so we’re kind of managing this much better than the US is, but we don’t have the, we don’t have the assets. [00:11:50] TK: The US has no one’s, you know, our government bonds are more expensive. In terms of what you need to pay as a yield to attract people. Our currency isn’t the reserve currency, so we’ve gotta be more [00:12:00] responsible. Um, when the US kind of starts to lose those privileges as it will one day, then they’re gonna have to be more responsible, but they’re further down the track, and it’s gonna be a real problem for whoever who inherits that. [00:12:11] TK: Uh, and I remember Warren Buffet going on about this for a long, long, long time, and he, he talked about, uh, the US maxing out its credit card back in the nineties and living beyond its mean. And he had a, he had a, what he called his five minute solution to the problem. He proposed that if the federal deficit exceeds 3% of GDP, all sitting of members of Congress should be ineligible for reelection, which is not a bad solution. [00:12:38] TK: Um, so yeah, so it’s not a, it’s not an immediate problem, but it’s not a great framework to go forward with. [00:12:44] Cameron Reilly: that’s like my lie detector for politicians that I’ve been pushing for 20 years. [00:12:50] TK: Lie detector test? [00:12:52] Cameron Reilly: You remember that one? [00:12:53] TK: No. What’s the question gonna be? [00:12:55] Cameron Reilly: No. It’s always, well, if, um, uh, well, I, I have. [00:13:00] Two, two tests. But one is if you make a campaign promise [00:13:04] TK: Mm-hmm. [00:13:04] Cameron Reilly: and then you get elected and you break that promise, you immediately get five years [00:13:09] TK: You don’t know you. You don’t remember why the politician’s strength is it’s word salad. Right? So you put them on, [00:13:18] Cameron Reilly: Doesn’t [00:13:18] TK: did you break this campaign promise? Well, the economy changed. The boils stopped. [00:13:23] Cameron Reilly: And there’s no excuses. That’s the thing. Did you promise something? Did you deliver on it? No. Five years hard time. [00:13:30] TK: So then you get election campaigns like we’ve had in the past where the opposition just says no, and that doesn’t develop any policies. A small target campaign. [00:13:38] Cameron Reilly: That’s okay. Just don’t promise stuff and don’t deliver it. That’s okay. I don’t mind if you don’t promise stuff. Just don’t promise stuff that you can’t deliver on. [00:13:45] TK: Yeah. Okay. That’s, that’s [00:13:48] Cameron Reilly: is [00:13:49] TK: of an issue. But, [00:13:50] Cameron Reilly: Politicians need to set a lie detector test, once a year they fail five years. [00:13:56] TK: but the fundamental problem with democracy is [00:14:00] that we, the people don’t set the agenda, right? We should, we should be a board which says, um, we’re gonna have an election. Everyone’s gonna vote. Who can best sort out these problems? And here is a list of the problems they have to sort out. We decided, so we have a referendum first, and we say, you know, there’s only, we are only allowed to vote on 10 issues, top 10 because, and you’ve got four years to fix them. [00:14:22] TK: And we all agree on the top 10. And then we say, okay, we’re gonna vote for A, B, and C to do that. And in four years time we’re gonna say, here’s a scoreboard, here’s a scorecard. You in all, you’re out. [00:14:32] Cameron Reilly: Love it. Love it. By the way, it was, uh, the guy who came up with exorbitant privilege wasn’t British, he was French. His, uh, name was, uh, re he was the French foreign Minister in 1965. He, uh, um. Oh, he’s the one who put the specific phrase into the public record. The intellectual architecture behind, behind the critique came from Mabb, [00:15:00] Jacque Ruth, a French economist, an influential advisor to Charles Dega, famously described the American situation as a deficit without tears that the US was the only nation that could run massive trade deficits and pay for them by simply printing its own currency, which other nations were then forced to hold as reserves. [00:15:19] Cameron Reilly: And that was in 1965. [00:15:21] TK: Wow. And of course, that’s the other reason why the gold price has been going up is because central banks are buying gold, knowing that at some stage the US is gonna have to print a lot of money to pay its debt or devalue its currency and they don’t want to be holding US dollars, uh, without a. Hedge when that happens. [00:15:39] Cameron Reilly: Well, and you know, uh, apart from the extra $200 billion that the Trump administration wants to finish the war, he’s already won with Iran. Is, uh, in add that’s in addition to a massive $1.5 trillion base [00:16:00] defense budget or war budget. Now that it’s the Department of War, I guess, for fiscal year 2027, which is a 66% increase over previous levels. [00:16:09] TK: Well, that was the other thing I noticed in that article when you sent it through about the US deficit, the GAO said the numbers they were using were approximate because they can’t get mon, they can’t get numbers out of them. Ministry of Defense or Ministry of War, whatever it’s called now. [00:16:23] Cameron Reilly: Yeah. [00:16:25] TK: So it’s probably a. [00:16:27] Cameron Reilly: Talking about US issues. Um, this isn’t in my notes, but I, ’cause I just saw it a little while ago. This is in Reuters today. Uh, Iran blows hole in US aluminum supply chain with smelter strikes, with attacks on the two biggest aluminum smelters in the Middle East. Over the weekend, Iran struck at major supplies to the United States of a strategic metal. [00:16:50] Cameron Reilly: The world’s biggest economy does not produce nearly enough of domestically. Analysts said the weekend disruption from the Iran War centered around the difficulty of [00:17:00] shipping aluminum and raw materials through the strait of mush, which has been effectively closed by Teran. But on Saturday, Emirates Global Aluminum said it’s roughly 1.5 million metric ton per year. Al we last site in Abu Dhabi had sustained significant damage from Iranian attacks. Aluminum. Bahrain said it’s 1.6 million ton per year plant was targeted on the same day. the US um, only produces about 40% of the, uh, aluminum that it needs every year. And aluminum prices lept 6% to $3,492 a ton, close to a four year high. So we may see, um, aluminum stocks back [00:17:47] TK: Yeah. [00:17:48] Cameron Reilly: buy list very soon. [00:17:50] TK: Capra comes to mind, [00:17:51] Cameron Reilly: Uh [00:17:53] TK: but um, like it’s again, just a, another one of these shortsighted issues and it’s Trump’s been, you know, [00:18:00] walking around like a rooster saying, well, we don’t need oil from the Middle East. Haha, you can fix it Europe, but it’s, but there, oil isn’t the only thing that comes outta the Middle East. [00:18:10] TK: And I remember going to Dubai for a, a holiday and seeing the huge aluminum smelter on the side of the coast there. Um, yeah, I can’t remember the exact details, but there was like a desal plant, which of course they need, and a huge elec electricity, uh, generator, um, which both an aluminum smelter and a desal plant knee. [00:18:33] TK: So they put them side by side and stuck a generator next to them. Um, and uh, yeah, it was big. Let me tell you, it was like a big refinery. [00:18:42] Cameron Reilly: I am, uh, aluminum’s already a buy on our buy list. So, yeah, I, I did see a couple of stories in the news this morning that Trump’s number one strategic objective in Iran now is to open the Strait of ous. So the thing that the war created is now the number one strategic objective of the [00:19:00] war. His war blocked it. Now he needs to open it. [00:19:05] TK: Well it’s, that was, I was gonna make that point, but when moved on, when you were reading the article out, it said, when Iran, since Iran closed the Straits F on war, I’m thinking they didn’t close it. It was the US and the Israel that closed it. [00:19:18] Cameron Reilly: Yeah. Oh dear me. [00:19:22] TK: There’s also been, there’s also a debate around CAA about whether Bo site was the relevant commodity or aluminum. [00:19:28] Cameron Reilly: Right [00:19:29] TK: ‘ cause aluminum itself isn’t really a commodity, it’s the output of refining bulk site. Yeah. [00:19:34] Cameron Reilly: Yeah. Right. August last year looks like it was the last time it was on our buy list. Well, fun and games. Uh, the other story, of course is uh, traders bet $500 million on oil price just before Trump’s post on delay to Iran attack traders bet heavily on crude 15 minutes before Trump announced delay to attack [00:20:00] oil prices plunged 15% after Trump’s post on Iran talks. Yes. I wonder who that could have been that had 15 minutes warning [00:20:14] TK: I wonder. But um, the interesting thing is it’s, that happened, it’s almost a week ago now. Not quite. Perhaps it was a week ago. I think it was this, this time last week we were talking about it. Um, and no one knows who benefited, like. [00:20:29] Cameron Reilly: Yeah. [00:20:29] TK: It’s on, it’s on a publicly traded platform, probably nymex, which is where the US WTI, um, works. [00:20:38] TK: West Texas. Intermediate oil gets traded. Uh, so open platform, it’s, it’s not like someone ducked into a alleyway and saw a guy in a fedora and sunglasses and the raincoat who said, you wanna buy some oil. It’s like, it’s on a public platform. Buyer and seller. Someone needs to know who’s on both sides of those trades. [00:20:59] TK: Now [00:21:00] there’s probably, there’s probably privacy issues. Like I get that, but ha has reporting sunk to such a low debt that no one can work out who actually benefited from that trade. [00:21:11] Cameron Reilly: Don’t worry Tony to Donald Trump has his best people looking into it right now. [00:21:16] TK: That’s why we don’t know after a week. [00:21:18] Cameron Reilly: It’s like trying to get information out of, uh, the Pentagon where all the money’s going. Don’t worry about it. We’ll get [00:21:25] TK: Yeah. [00:21:26] Cameron Reilly: that. Yeah, we’ve got our best people. Our best people are working on it. [00:21:29] TK: Hey, by the way, going back to those, um, US accounts, hasn’t Doge made a big difference to the cost base? [00:21:35] Cameron Reilly: Yeah. Fantastic. Doge. Such a win. [00:21:38] TK: Mm. Winning. [00:21:40] Cameron Reilly: the oil price, Dr. Was at $97. It dropped down to 88. It’s now $102 50. This is, uh, WTI. [00:21:49] TK: Yeah. Right. [00:21:50] Cameron Reilly: whoever shorted it got out pretty quickly because it didn’t stay down for very [00:21:55] TK: It didn’t, did it? No, that’s right. Well, I think they were selling, so [00:22:00] they didn’t, I don’t, I think the story is they sold their, their holdings of oil. So that’s the other thing too, like, again, it shouldn’t be too hard for someone to dig into the paperwork and find out who holds that much oil to sell. [00:22:13] TK: Narrow it down, dig around and find out who benefited, where’s, where’s wood and Bernstein these days. [00:22:19] Cameron Reilly: They sold futures. LSEG data shows that between 10 49 and 10 50 GMT traders placed bets on 5,100 lots of Brent and WTI crude futures worth well over 500 million based on a Reuters calculation. [00:22:35] TK: Okay, so maybe they didn’t have o Oftentimes a professional unit trading a commodity like that in the futures will have some kind of real asset backing in case it goes south. Um, but they can do it what’s called a naked trade and do the futures without that commodity backing. But either way, there’s a paper trail. [00:22:53] Cameron Reilly: yeah. [00:22:53] TK: How, how do you know you’re gonna get paid if you don’t know who the counterparty is [00:22:57] Cameron Reilly: Yeah. Yeah, yeah, [00:23:00] yeah, yeah, yeah, yeah, [00:23:01] TK: or somebody doesn’t know who the counterparty is? [00:23:03] Cameron Reilly: Well, the United States Securities and Exchange Commission when asked about this, declined to comment, and the Commodity Futures Trading Commission was not immediately available for comment. So it’s just No comment. Tony [00:23:19] TK: Everyone knows which side of the bread their butters on in the US, don’t they? [00:23:23] Cameron Reilly: No idea what’s going on. Uh, [00:23:26] TK: We’re looking into it so we can do it ourselves next time. So bugger off. [00:23:30] Cameron Reilly: We’re gonna have a, we’re gonna have a complete investigation [00:23:33] TK: Yeah, [00:23:34] Cameron Reilly: this. Uh, [00:23:36] TK: time. [00:23:37] Cameron Reilly: the, uh, chairman of the, uh, SEC is a chap by the name of Paul Atkins. Paul Atkins, uh, was appointed or nominated by President-Elect Trump December, 2024. And, uh, yeah, so, you know, I’m [00:24:00] sure he is. I’m sure he is doing a great job. Great job. [00:24:03] TK: Well, I’m sure he is too de, depending on your perspective. Profiting from chaos. That should be the title. [00:24:09] Cameron Reilly: Oh, that’s, well, yeah, that’s pretty good. So today, Tony, in my deep dive, my pulled pork, I’m talking about a company called Pitney Bows, which I feel like I’ve heard of. [00:24:24] TK: Yeah, we have, [00:24:25] Cameron Reilly: Have we? Oh, [00:24:26] TK: I have, oh yeah, it’s, [00:24:27] Cameron Reilly: okay. [00:24:28] TK: um, supplies and I think in the past paper, I’m, I’m gonna look it up, but I wouldn’t mind betting it was the basis for the office. The sitcom, [00:24:40] Cameron Reilly: The British show. [00:24:42] TK: well, originally British, but uh, now Amer the American version. I’m just gonna see what [00:24:48] Cameron Reilly: I think the British version was the inspiration for the American version. [00:24:52] TK: Yeah, it was, but I wouldn’t be [00:24:54] Cameron Reilly: I don’t think they were a paper supplier though. These guys, they’re, um. Mostly male sorting. [00:25:00] Anyway, if you’d asked me before I did this, what they, what Pitney bows did, I would’ve said toilet paper. So I would’ve been, uh, not in tissues. [00:25:08] Cameron Reilly: So I would’ve like Kleenex. I would’ve been completely wrong. Anyway, they’re listed on the New York Stock Exchange, uh, market cap of about $1.63 billion. Their website says Pitney Bows is a technology driven company that provides digital shipping solutions, mailing innovation, pre-sort mailing services with a nationwide. [00:25:30] Cameron Reilly: Footprint across the United States and financial services to clients around the world, including more than 90% of the Fortune 500 small businesses to large enterprises and government entities rely on Pitney bows to reduce the complexity, increase the security, and eliminate the potential for fraud in the sending of mail. [00:25:49] Cameron Reilly: And parcels wonder if they include electoral votes, postal votes. [00:25:56] TK: Dun, the Mifflin was. The name of the office in the us [00:26:00] so [00:26:00] Cameron Reilly: right. [00:26:00] TK: it is a paper company though, so it may not be based on the ChatGPT says that neither was based on a specific company. [00:26:07] Cameron Reilly: Right. So Pitney Bowes has been around since 1920, founded by Arthur Pitney, the inventor of the first commercially available postage meter. He merged forces with Walter Bows of the Universal Stamping Machine Company. Now, um, interesting backstory with these guys. Pitney had worked as a clerk in a wallpaper store where he identified a problem that was costing his firm time and money. [00:26:40] Cameron Reilly: Fixing postage stamps to hundreds of envelopes. And it also led to stamp theft apparently. So he was like, there’s gotta be a better way of putting stamps on envelopes. [00:26:52] TK: Well, I don’t know about you, but I’m old enough to remember the franking machines. Do you, you ever use one of those in an office? [00:26:58] Cameron Reilly: I did, and I’m glad you [00:27:00] mentioned that because do you know where the word franking machine comes from? Why it’s called a franking machine? [00:27:05] TK: It was what? Either Pitney or Mr. Pitney or Mr. Bows called Frank. [00:27:10] Cameron Reilly: If you, if you look it up in Wikipedia, as I did, it says there was a guy called Edward Franks, whose real name was Engel Franken mla, who was a Norwegian inventor who invented the franking machine and had the Franking Machine of America and blah, blah, blah, blah, blah. Then Gemini says, yeah, that’s a myth he never invented. [00:27:36] Cameron Reilly: There’s no, no evidence of a Franking Machine of America company ever existed. It’s a myth that has been around for a long time and it keeps popping, getting back into, keeps getting removed from Wikipedia, keeps getting put back in, keeps getting removed. It. [00:27:52] TK: So Wikipedia hallucinates as well, does it [00:27:55] Cameron Reilly: Well, the people who write things in Wikipedia, halluc, but it is in books, so [00:28:00] there, his name appears in books. Somebody reads a book, they go and add it to Wikipedia, but it’s according to Gemini anyway, and I checked it in a couple of places. Yeah, it’s not true. I checked it in, I did my Dave verification in Grok and um, and, uh, Claude and they both said this is, uh, true. [00:28:18] Cameron Reilly: So, uh, franking comes from the word Franks. Which means free in Latin, but it means free in Latin. As in, uh, do you mind if I speak frankly, Tony for a second? Means freely, right? Comes from the same route. [00:28:31] TK: Yeah. Right. [00:28:32] Cameron Reilly: It comes because the Franks, the Germanic people who conquered Gaul modern France in the fifth century, they were the ruling class and they were the only class that had full civic rights and were free from the obligations of the rest of the citizens, their Gallo, Roman population. [00:28:54] Cameron Reilly: And by the 12th century, the name of the tribe had become synonymous with the status of being a [00:29:00] free man. I’m a frank, so I’m free. So yeah, the, the word sort of evolved into Frank, meaning free, frankly, Frank King. Yeah. So in Old French, uh, Frank meant free So. Uh, in the 17th century, it began to get used, I think it was like 1660, the right of certain officials in England, members of Parliament to send mail for free. [00:29:31] Cameron Reilly: They would sign their name on the envelope to Frank. It. [00:29:34] TK: Ah, okay. [00:29:35] Cameron Reilly: Indicating that it was exempt from postage, and then it eventually shifted to the privilege of free mail and the physical act of marking or stamping any mail to show that postage had been paid. You had the franking machine in the context of the Australian tax system, which will mean nothing to American listeners, but for Australians. [00:29:57] Cameron Reilly: We know that we have franked credits, [00:30:00] franking credits, CEO of Frank Dividend, where a company’s already paid, uh, corporate tax on their profits so you don’t have to pay, uh, additional taxes on the profits. By the way, diesel, I did a deep dive on diesel and the history of diesel the other day and was surprised to learn that it was named after its inventor, Rudolph Diesel, and he’s not a meth. [00:30:24] Cameron Reilly: Apparently. Rudolph Diesel was not a myth. [00:30:27] TK: Not and, and not diesel, the guitar player. [00:30:30] Cameron Reilly: Johnny Diesel. Yeah, I thought that’s where I was gonna say, yeah. Johnny Diesel, Australian. Pop star from the eighties. Um, Walter Bowes, the second part of Pitney Bowes was an English born salesman. In 1908, he was selling check endorsing machines. A year later, he bought the Universal Stamping Machine Company, and within a few years had established relationships with the US Postal Service, providing stamp canceling machines to them on a rental basis. [00:30:58] Cameron Reilly: While he was [00:31:00] successful, he felt that postage stamps would soon become obsolete. And guitar bands were on their way out as a record producer Told the Beatles in 1963. He thought that we should be a more automated way to apply postage, and a postal office worker suggested he contact Arthur Pitney, who had been working on a device for nearly 20 years. [00:31:22] Cameron Reilly: They met in 1919. Pitney had already invested $90,000 in his business, but the patents were expiring, and his company, the American Postage Meter company, wasn’t doing very well, so they merged. The two companies together came up with the Pitney Bows postage meter company, built on the idea that businesses would pay to automate their mail. [00:31:46] TK: Well, it’s not a big stretch from going from a machine, which stamps a stamped to say it’s been used to which stamps a letter to say the postage has been paid. It’s sort of [00:31:58] Cameron Reilly: Yeah. [00:31:59] TK: really, isn’t it? [00:32:00] Yeah. [00:32:00] Cameron Reilly: Simple idea to solve what was a big problem. [00:32:02] TK: Yeah. [00:32:03] Cameron Reilly: Pitney was the inventor. Bows concentrated his activities lobbying in Washington for the passage of LE legislation that would open the door for the postage meter. In 1920. A year after they merged the United States Congress passed the enabling legislation and the first piece of metered mail, which was a letter from bows to his wife, was posted on December 10th, 1920. [00:32:30] TK: So all this talk of postage reminds me of the old Dave Letterman. Choke, which you can edit out if you need to, about, uh, about LA issuing a stamp to celebrate the, the hookers on the boulevards. And it’s a 25 cents stamp, but it’s a dollar 20 if you lick it. [00:32:47] Cameron Reilly: David Letterman said that. [00:32:50] TK: I [00:32:50] Cameron Reilly: Really? Wow. [00:32:52] TK: with someone like that. Yeah. [00:32:53] Cameron Reilly: Good joke. [00:32:54] Cameron Reilly: Oh, I’ve got so many, so many jokes I could move into now, but I shouldn’t. Tell you off [00:33:00] air by 19 22, 400 meters were in service accounting for more than 4 million in postage. They went public on the New York Stock Exchange in 1950, but sadly, the partnership didn’t work out very well. They, they hated each other, had a dispute in 1924, they’d only been together for five years. [00:33:20] Cameron Reilly: Pitney resigned. And said that the creation of the whole thing in his efforts brought him very little joy. Bows got no joy out of it either. Pitney suffered a stroke in 1927 and died in 1933. A 1939 article in time notes that Walter Bowser’s nervous, restless, he hates a desk in office hours, prefers to putter about his home. [00:33:45] Cameron Reilly: He ended up spending most of his time racing yachts and horses. So he is your kind of guy. In 1929, he sailed his six meter sima to an international yachting championship. So there you go. Didn’t wanna work for a living, would race horses [00:34:00] and sail yachts. He was a man of after your own heart. [00:34:03] TK: Yeah. Well, based on Frankie. [00:34:05] Cameron Reilly: Yeah. So the core business of Pitney Bowes today, um, basically they’re the unglamorous plumbing of American Business Mail. [00:34:14] Cameron Reilly: If FedEx is the company that delivers things to your door, these are the back office guys that sort it and meter it and route it. Uh, they tried to go into business against FedEx, didn’t work out too well. I’ll tell you that story in a minute. They make their money. Sorry. [00:34:30] TK: gonna say, just before you leave that topic, I mean, this is a bit like a broadcast TV station. It, it’s, it can’t be year on year. There’s gotta be less letters in circulation. I mean, [00:34:41] Cameron Reilly: There is. There are. [00:34:43] TK: Den Denmark or somewhere has stopped delivering letters. Doesn’t, [00:34:46] Cameron Reilly: Have they? [00:34:47] TK: post post delivery anymore. [00:34:48] TK: Yeah. [00:34:48] Cameron Reilly: Well, there was some talk of Australia Post doing that a couple of years ago too. It’s [00:34:52] TK: to every second day now, aren’t they? Mm-hmm. [00:34:55] Cameron Reilly: they’re bleeding money. [00:34:57] TK: Yeah. [00:34:58] Cameron Reilly: It’s probably ’cause the [00:35:00] CEO was. Buying gold watches for everybody or something. Can’t remember what that scandal was, but it was a scandal a year or so ago. [00:35:06] TK: The [00:35:07] Cameron Reilly: That was it. [00:35:08] TK: Yeah. Cartier watches. [00:35:09] Cameron Reilly: Gold watches [00:35:11] TK: Yeah. And do you have a good re [00:35:13] Cameron Reilly: you get a QAV hat, so come on. Like that’s your bonus for the year. You get a QAV hat. [00:35:21] TK: Yeah. Any company watching or listening to this podcast can send me their hat and I’ll wear it. [00:35:26] Cameron Reilly: Oh, okay. Yeah. Had a week. That’s good. [00:35:29] TK: included [00:35:30] Cameron Reilly: Yeah, so the, here’s the. Lemme take you through the key segments of Pitney Bows. So Send Tech is the main engine room of the business. Imagine you’ve got a mid-size business, like a law firm. Every day you’re mailing off invoices, legal notices, correspondence, instead of buying stamps at the post office, having somebody lick them. [00:35:56] Cameron Reilly: Stick ’em on. You have a Pitney bows machine sitting on a [00:36:00] desk. It weighs the envelope. They kind of, I saw, like, I’ve never seen one of these things in real life, but I saw a photo of one on Wikipedia. I think it looks like a fax machine or a photocopier. Weighs the envelope. Prints the exact postage. Like I haven’t worked in an office for 25 years. [00:36:15] Cameron Reilly: People cut me some slack when I last worked in an office. We had fax machines. No, I don’t know. I do remember the fact we’ve talked about this before. I remember when I worked at Citibank where your wife was working at the same time in the same office or the same building [00:36:30] TK: Wow. [00:36:31] Cameron Reilly: 20 years before we knew each other. [00:36:33] Cameron Reilly: Um, my floor, I think it was my floor, had a telex room enclosed in glass telex, operators in there with lab coats and white gloves. Um, you, you weren’t allowed to go into the room. You had to write your telex and put it in an in tray and they’d come and get it and they’d go in there and they’d type it in. [00:36:55] Cameron Reilly: And then I remember when we got our first fax machine and we were like, ho, ho [00:37:00] we, we have, we have the power. [00:37:03] TK: Can’t wait for somebody else to buy another one. [00:37:05] Cameron Reilly: Yeah, well there was someone in New York, in Citibank, in New York that had another one, so we were email, uh, faxing the people in New York. It was a big thing. You could send your own messages and they’d get it within a couple of minutes. [00:37:20] Cameron Reilly: In New York, it was crazy. Uh, anywho. So, uh, these things weigh the envelope, print the exact postage directly onto it, and then deduct that amount from a prepaid account. You don’t have to go to the post office. No overpaying a stamp, licked or not. They lease these machines and charge a monthly fee, plus a small margin on every dollar of postage that flows through the device. [00:37:47] Cameron Reilly: So literally punching the card every time it goes through. It’s the original, maybe punch the card business model. And they do this for over 90% of Fortune [00:38:00] 500 companies and hundreds of thousands of small to medium sized businesses. And it’s obviously [00:38:08] TK: though mails in decline, it’s still a very big business, isn’t it? [00:38:10] Cameron Reilly: huge and it’s not. Disappearing. I mean, it’s been declining for years, but it’s not disappearing overnight. And it’s a recurring revenue model. Basically a software as a service business from the 1950s. [00:38:24] TK: Well, the other thing too is like in Australia, we do a lot more digitally than, uh, compared to when I was living in Canada six or seven years ago, [00:38:32] Cameron Reilly: Hmm. [00:38:32] TK: may have changed, but like, um, there was no, uh, account to account. Payment available in Canadian banking. So like if you wanted to pay your rent, you wrote a check to the landlord and posted [00:38:44] Cameron Reilly: my God. [00:38:45] TK: yeah. So like mail was still a big thing or [00:38:49] Cameron Reilly: Yeah. [00:38:49] TK: there? Yeah. [00:38:50] Cameron Reilly: Hmm. I remember when, um, you know, Chrissy and I would go visit her mother. Um. Before she had Alzheimer’s, um, 10 years ago, [00:39:00] uh, in Utah, and she was still writing checks for everything and sending ’em off to pay bills coming from Australia. That was like, what, [00:39:07] TK: haven’t, I [00:39:08] Cameron Reilly: nine? [00:39:09] TK: in I don’t know how many [00:39:10] Cameron Reilly: Yeah. 1985. Called Wants your checks back. [00:39:16] Cameron Reilly: Um, so revenue’s obviously been declining as physical mail volumes fall, but the cash conversion is really, really solid. They also hold the PB Bank, which manages $575 million in client deposits. The. So clients park money in the deposit account, in the postage account, and they earn float interest on that, uh, while they’re waiting for people to spend it on stamps. [00:39:42] Cameron Reilly: So I’m surprised BRK hasn’t bought this in the past and, uh, added it to the Geico float business. You know, [00:39:52] TK: Yeah. [00:39:53] Cameron Reilly: maybe 575 million’s, not big enough for Warren to be interested in. The other sort of the [00:40:00] business is what’s called pre-sort, which is like pre-crime In minority report, they can tell you before you even. [00:40:12] Cameron Reilly: Put something in an envelope, what you’re gonna be putting in it. No, pre-sort is, uh, pretty clever. Uh, so the US Postal Service apparently offers huge discounts to mailers who pre-sort their mail by zip code before handing it over. ’cause it saves the USPS labor costs. [00:40:31] TK: Mm-hmm. [00:40:32] Cameron Reilly: The more mail you pre-sort, the bigger the discount. [00:40:36] Cameron Reilly: But the discount tiers require huge volumes that most individual businesses can’t get to by themselves. So Pitney Bows acts as an aggregator. They pre-sort the mail, they get the discount, they pass some of that onto the businesses. And you know, it’s a great business, right? They can do it in volume. Yeah. [00:40:58] Cameron Reilly: Really clever. It [00:41:00] is like an arbitra, a log logistics arbitrage play. Um, that [00:41:05] TK: when I, when I ran a company called My Direct, we had a pre-sort, um, system. It’s like a whole series of conveyor belts and gates that open and close to [00:41:15] Cameron Reilly: Wow, [00:41:15] TK: into [00:41:16] Cameron Reilly: that was 30 years ago. [00:41:18] TK: Yeah. [00:41:18] Cameron Reilly: years ago. Yeah. [00:41:20] TK: Australia Post trucks, depending on where they were going. And then we [00:41:22] Cameron Reilly: Wow. [00:41:23] TK: a the rate for doing that. [00:41:25] TK: Yeah. [00:41:26] Cameron Reilly: Look at you. You know, all of this stuff. You’ve been around. Oh, hold on. Here’s my, uh, green smoothie delivery service. Thank you, ma’am. It’s not very green. We still had a spinach. Yeah. Mm. Don’t mind me. Well, I get my protein shake. So that’s a bit of a moat. I think this pre-sort thing. Um, again, it’s gonna be declining, but it’s a great, great little business. [00:41:52] Cameron Reilly: They did have a business division called Global e-Commerce, GEC, which is dead. And this was [00:42:00] their attempt to compete with UPS and FedEx in the last mile delivery. Um, Claude called it one of the more, more spectacular corporate misadventures of the last decade. [00:42:13] TK: And given our history of Pulled Porks, it’s, it’s [00:42:15] Cameron Reilly: Oh, that’s saying something. Yeah. Hey, nobody died in the making of this episode, so that’s, that’s something they’ve got going for them. Hmm. Whew. Okay. No one has died in the last a hundred years. Yeah. Um, so around 10 years ago, they were watching e-commerce, exploding, Amazon deliveries, all that kind of stuff. [00:42:38] Cameron Reilly: And they were like, you know what? We already moved mail. We’ve already got this massive logistics operation. We’ve got relationships, we’ve got a national footprint. Why not expand into parcel delivery? Easy money. Easy money. So they basically pitched themselves to Wall Street as the affordable alternative to UPS and FedEx for [00:43:00] small to midsize online retailers who were getting crushed by shipping costs. [00:43:06] Cameron Reilly: And they spent a fortune building it out. They acquired a firm called Newgistics. One of the Barry and Stan’s, uh, less successful branding, uh, operations Logistics. It was a returns logistics company. Bought it for $475 million in 2017. Spent years trying to integrate the technology, build delivery networks, win retail clients, and then COVID hit, um, and. [00:43:39] Cameron Reilly: That was good for a bit, but this was a, this is like a huge, you know, logistics build out exercise, which we know ’cause we’ve seen this. Over and over and over again. It’s not easy to build these things out. Like building these things out takes decades of [00:44:00] experience and refinement and capital investment, et cetera, et cetera. [00:44:03] TK: Yep. [00:44:04] Cameron Reilly: And of course your entrenched competition are gonna do everything they can to squeeze your margins and run you outta business and you know, do whatever they do to can do to keep clients. They’re gonna try and. Screw you 20 ways from Sunday when there’s competition. If there’s one thing capitalism hates it’s competition and innovation. [00:44:25] Cameron Reilly: So, uh, UPS and FedEx. Hmm. [00:44:28] TK: and I. [00:44:30] Cameron Reilly: Well, it’s not a ran that they hate, it’s that they don’t own and control Iran’s oil. If we control the oil, we’re more than happy. [00:44:38] TK: Mm-hmm. [00:44:39] Cameron Reilly: than happy when they controlled Iran’s oil before Mossek had to get involved. And then. The ayatollah had to get rid of the shark. So anyway, UPS and FedEx has spent decades and tens of billions of dollars building out their infrastructure. [00:44:53] Cameron Reilly: And it’s, it, it’s like Scali laws that, that apply to this, right? The more packages you [00:45:00] deliver, the cheaper it is per package and. The whole integration thing with Newgistics was messy. Retailers needed reliability. A missed delivery or a damage return can cost them a customer. They weren’t really sure about this new operation, and GEC developed a reputation for inconsistency, which made it harder for them to win and retain bigger accounts. [00:45:25] Cameron Reilly: Then when COVID hit e-commerce, volumes spiked massively. Which temporarily masked how bad their unit economics were. Plus all of a sudden, I’m sure their volume doubled or tripled very, very quickly. You know, you, that’s a tough business. It sounds good as a business if you’re gonna, if your volume’s gonna double, but when you forecast. [00:45:51] Cameron Reilly: 5% annual growth and all of a sudden you get 200% annual growth, not good, uh, particularly when no one can work and [00:46:00] supply chains erect and all that kinda stuff. Anyway, they, they got through that period, but when volumes normalized in 20 22, 20 23, the losses became impossible to ignore. They were burning through $136 million a year by 2023 with no credible path to pro profitability and. [00:46:19] Cameron Reilly: By mid 2024, the board had had enough. There was no clean sale option. No buyer wanted it at any meaningful price. They sold an 81% controlling interest to Hilco Global, which is a firm that specializes in liquidating distressed businesses. They sold it for essentially nothing. Hil CO’s job was to wind it down under a Chapter 11 bankruptcy, which concluded early in 2025. [00:46:48] Cameron Reilly: There was a one time cash cost to PBI for the exit of about 150 million on top of years of operating losses. The total damage over the life of the venture was [00:47:00] in the hundreds of millions of dollars. But the bit you are gonna like about this is the, um, role of the activist investors that came in that, that, that forced this transition. [00:47:16] TK: Mm-hmm. [00:47:17] Cameron Reilly: So this is an interesting sort of situation, this company where like a lot of these businesses we’ve talked about recently, um, I’m scrolling down my notes. Institutional ownership is huge. 74% of outstanding shares are controlled by institutional investors. Vanguard, BlackRock are [00:47:36] TK: Mm-hmm. [00:47:37] Cameron Reilly: Um, and you know, it it, as we’ve talked about when we’ve talked about ETFs and things like that over the years. [00:47:45] Cameron Reilly: When, when you have these massive institutional investors that have a lot of sway over how these companies are run and they own 75% of every business, uh, businesses have [00:48:00] limited say in how they run their own businesses, the executives. It’s, it’s an interesting conundrum. But anyway, there was a company called Hestia that took a stake, Hestia capital and ended up basically. [00:48:15] Cameron Reilly: Outing the ousting, the board. So the current CEO is a guy called Kurt Wolf, AKA, Mr. Wolf gentlemen. I talk very fast and I act very fast if I am abrupt. Gentlemen. Yeah, I apologize. Um, he joined the board. He was so, he was one of the founders of Hestia Capital. Joined the board a few years ago and became the chair of the Value Enhancement Committee. [00:48:49] Cameron Reilly: Um, sounds like a title Elon Musk would’ve had. And, uh. Then basically started to get rid of the rest of [00:49:00] the board. Now, I, I went to Hestia Capital Partners’ website. They call themselves a deep value focused long short fund, which seeks to maximize long-term risk adjusted absolute returns where risk is defined as the probability and magnitude of long-term loss of capital, not monthly variability. [00:49:22] Cameron Reilly: The core long only deep value portfolio is augmented by a long short extension portfolio, which generally consists of investment ideas, which originated from deep value research. So in December, 2022, they took a big stake in PBI and basically said that Pitney Bowser destroyed 80% of shareholder value over the prior eight years. [00:49:50] Cameron Reilly: Under the chair, Michael Roth and CEO Mark Laton, Bach. Stock had created the balance sheet, was [00:50:00] drowning in debt. The GEC segment was hemorrhaging. Cash management had no credible plan to fix any of it. Hesia held about 7% of the outstanding shares at that point. Enough to be taken seriously. He was able to basically take over the board and have himself appointed CEO. [00:50:16] Cameron Reilly: And he’s kind of driven the turnaround as I understand it. Um, so. We talk about activist investors a lot, but you don’t often see them end up as the CEO of the company. [00:50:28] TK: That’s interesting. You mentioned before that, uh, when you were doing your research that Louden back came up as the CEO It did when I did my research as well, and my note was this company needs a turnaround specialist, so it sounds like. Hesty, you got caught in front of that. And it’s happening because it’s, it’s, out for it, isn’t it? [00:50:48] TK: It’s a, it’s a old economy company with strong cash flows, but every time they try and move to the new economy, they slub their toe. So [00:50:57] Cameron Reilly: Yeah. [00:50:57] TK: yeah. [00:50:59] Cameron Reilly: [00:51:00] Yeah. So, um, this Kurt Wolf, I mean, great name for a, you know. Investor takeover. Gordon Gecko. You got Gordon Gecko and Kurt Wolf, I mean together. Wow. Powerful. [00:51:14] TK: wolf than wouldn’t you? [00:51:15] Cameron Reilly: Yeah. Um, Lautenbach was, uh, formerly with IBM funnily enough, and, uh, he’d been there at 27 years. They appointed him CEO in 2012. And then he, uh, very successfully, which he learned from IBM run the company into the ground. [00:51:36] Cameron Reilly: And, um, so good job. Well and bark. So, um, that’s the Kurt Wolf story. He formally served on the board of GameStop, uh, where he was a member of the strategic Planning and Capital Allocation Committee. So, uh, I, I, I dunno the backstory behind that. I didn’t have time to look [00:52:00] into that, but, uh, GameStop obviously been part of that whole, uh, crazy, uh, meme wars thing over the last few years. [00:52:10] Cameron Reilly: So, uh, the, the whole GEC debacle is the big sort of reputational drag I think. I think so you’ve got a couple of things. Reason why this is, looks like it’s undervalued is obviously male. Is like televisions, as you said before, everyone knows there’s a, there’s a hard stop on that as a business model. They tried to transition to something, they failed. [00:52:34] Cameron Reilly: Um, really, I don’t know that there’s any sort of, uh, future narrative. They haven’t done any big acquisitions or anything since that, for obvious reasons. They’re carrying a ton of debt. Um, so, but they, they’re generating good cash. So, um, it’s in an interesting position. It’s a classic sort of a cigar butt where they dominated a space for decades and decades and decades that [00:53:00] that business is going away. [00:53:01] Cameron Reilly: But it’s not going away overnight, but it is going away relatively quickly. They tried to. Plug in a new business. They failed. They burnt through a lot of money in doing that. New guys come in, he’s cutting out, cutting, cutting out all the deadwood. It’s a bit like we talked about Kodak last week. Uh, very, very similar. [00:53:19] TK: what I was thinking of. And they had a [00:53:21] Cameron Reilly: Very similar, [00:53:21] TK: involved. Yeah. [00:53:22] Cameron Reilly: yeah. Very similar to the Kodak thing, right? [00:53:26] TK: Yep. [00:53:27] Cameron Reilly: so yeah, look, that’s the story. Um, sort of a bit of a stu play the financials. Price is about $10 87 Market cap. As I said, it’s about 1.6 billion. The um. Quality rank is 83 out of a hundred. The stock rank is 93 out of a hundred. The Petrovsky F score is seven out of nine. [00:53:50] Cameron Reilly: So the current shape of the business looks really good in terms of its, uh, financials. Like it’s very, very. [00:54:00] Solid, despite the fact that they’re carrying a ton of debt, uh, it, it still stacks up pretty well. The price to operating cash flow, at the time I did my analysis was 4.25, so not, I think Kodak last week was like 1.6 or 1.8 or something. [00:54:17] Cameron Reilly: It’s not that good, but still quite a good deal. So four year, 4.25 year payback on your investment today. Pretty good for a business like this with this great thing about this is like, um, we’ve talked about these sorts of businesses in the past. When you have that sustainable revenue, they have these contracts locked in for these machines. [00:54:41] Cameron Reilly: They’re not going away. They’re not disappearing. It’s not, you know, there’s no real competition to buying franking machines. They have 90% of the Fortune 500 and hundreds of thousands of SMBs as clients. You know, no, no one’s out there going, you know what I’m gonna do? I’m gonna invent [00:55:00] a better franking machine, a better, a better, uh, stamp application machine than Pitney bows. [00:55:06] TK: stander. I, I did, I must admit, I did wonder about whether AI would disintermediate it, because what you are describing is almost like a software of a software as a service company. you are renting a machine. It, it does a little bit of ip. For you. Um, and you pay a little bit for it. So whether someone can come up with a better app that can, you know, um, work out how to pre-sort or work out how to, charge your mail account or do a better deal for you or whatever. Um, or not, I mean, that’s probably the risk I think doesn’t, [00:55:41] Cameron Reilly: You still need a, [00:55:42] TK: will go away because they, you still need the mechanical side of things, but [00:55:45] Cameron Reilly: yeah, [00:55:46] TK: they may well get a margin compression from AI competition. [00:55:50] Cameron Reilly: well, you still need a machine. To stamp the stamp on the envelope and they’ve got the mail sorting side of things, which I imagine is a huge [00:56:00] piece of capital infrastructure that you would have to replicate if you’re gonna take that side of the business. Yeah, I don’t know that the software part of Mabb weighing an envelope and calculating the postage is a big deal. [00:56:11] Cameron Reilly: I think that’s like, you could probably run that on, uh, a pocket calculator. The amount of intelligence you need to do that. [00:56:18] TK: Hmm. [00:56:19] Cameron Reilly: Anyway, um, that’s basically it. The yield’s about 3%, so it’s okay, but not great. PE is actually not too bad. Um, PE is, uh, 8.6. Um, EPS is $1 26. Forecast. EPS for one year is a dollar 46, so it’s got a positive on that. [00:56:43] Cameron Reilly: So we scored ’em, uh, for, we gave them, gave them a score for quality rank. We gave them a score for stock rank, got a score for F score. They’re, uh, IV number one in our system is $6 46, so they’re trading quite a bit above that at $10, whatever it is, 80. But the IV number two [00:57:00] is $15 18, so they’re below our IV number two, which is good. [00:57:04] Cameron Reilly: So they get a score for that. Um, didn’t score for price less than book, but, uh, or price less than book plus 30 even don’t have a new three point uptrend. They’ve been in an uptrend for a while. One of the very few stocks, in fact, one of the reasons I’m doing this is it was very hard to find a stock that, uh, wasn’t a Josephine, where the price wasn’t going backwards in the us [00:57:31] TK: Yeah. [00:57:31] Cameron Reilly: Had to go. [00:57:33] Cameron Reilly: Well, even the oil companies were going backwards. The ones that I looked at. Yeah, the ones that we hadn’t already bought. We’ve already bought one. I had to go way down the list to find a stock that actually, uh, had a share price that was going in the right direction. [00:57:46] TK: Hmm. [00:57:47] Cameron Reilly: Um, growth over PE is not greater than 1.5. [00:57:51] Cameron Reilly: Book value growth is not positive. Yield is not greater than the bank debt rate. Um, forecast over year is not greater than. Twice the, uh, share price. [00:58:00] So at the end of the day, um, scored on a bunch of things. The, the quality score was eight outta 12, and the QAV score was 0.16, but they’re carrying a couple billion dollars of debt. [00:58:16] Cameron Reilly: As I said, I think their long-term debt’s about $2 billion, uh, sitting on about $300 million worth of cash. Total assets, 3.3 billion. Total liabilities is 3.9 billion. So shareholder equity is deeply negative, but, um, you know, it’s a, it’s a story. It’s a, it’s come through a really tough period. It, but this Kurt Wolf guy. [00:58:47] Cameron Reilly: I, I like the sound of deep value Investor has come in it. It reminds me of Warren buying Berkshire, you know, [00:58:54] TK: Right. [00:58:55] Cameron Reilly: in 1955 or whatever it was. [00:58:58] TK: Yeah. If I [00:59:00] can use the money with a better rate of return, then. Milling cotton, then we’re gonna use it for something different. [00:59:06] Cameron Reilly: They’ve got the float from the bank. Like that’s a, that’s a straight up, [00:59:10] TK: Yep. [00:59:11] Cameron Reilly: straight up buffet Munger play. Right? You generally, you’ve got all this cash sitting here. Oh, okay. I can do something with that. I don’t know what his plans are for it. I didn’t go into that level of detail, but he sounds like a guy who knows what he’s doing. [00:59:23] TK: yeah. And I think the play, he’ll know the playbook, which is if it doesn’t make money, get rid of it. Try and get some money for it. Focus on the cash generation and then think about how to put that cash to work. [00:59:34] Cameron Reilly: Mm-hmm. [00:59:34] TK: And, um, don’t, don’t go big. Just, just try and, you know, find something which is pretty solid and with that. Um, the interesting thing, I think about what you’ve said is the high institutional ownership, because they would see a company like this, particularly in this kind of market as a safe haven. It’s a solid cash generator. It’s an infrastructure type business. It’s been around for a long time. We can trust it. [01:00:00] But your price isn’t really gonna affect, you know, the, the mail that goes through too much. There might might mean a increase in the price of stamps if US Post has to recover its fuel costs. But, uh, it’s, people are still gonna need to mail checks or whatever. Um, or invoices. So yeah, it’s a, it’s a solid infrastructure, cash generating type business. [01:00:23] TK: Um, probably unloved, um, probably a turnaround play, probably at one of its worst points in its history. but looks like it’s set up to, to increase. [01:00:35] Cameron Reilly: I’m just gonna finish with, um, letter to the shareholders that Kurt Wolf wrote, um, eight months ago. Just the end part of it. He goes through all of their numbers, the second quarter, numbers, et cetera, et cetera, that we’ve sort of talked about. Talks about the appointment of, uh, new CFO, um, that he brought over from GameStop. [01:00:57] Cameron Reilly: He was on the board of directors at GameStop. [01:01:00] Um, but at at the end, he says, update on ongoing strategic review. I’ve spent the first 70 days of my tenure year conducting an initial assessment of the organization’s challenges, opportunities, and priorities. The work has already paved the way to accelerate prior leadership successes and better focus the team on the most important value enhancing priorities. [01:01:21] Cameron Reilly: In addition, this intense internal diagnostic has helped uncover significant tactical operational op opportunities for increasing shareholder value, even as we continue to evaluate the company’s best strategic options and path forward. As one example, we are acting on identified but paused, high return, low risk investments in pre-sort. [01:01:42] Cameron Reilly: While each of these opportunities may have only a small impact on EBIT in the aggregate, they add up to a significant number. It’s also important to note that we are well positioned to further explore ways to leverage our global financial services business, which houses the Pitney Bowes Bank. Finally, after the internal portion of the reviewers done [01:02:00] and targeted improvements of solidified, we plan to begin working with independent legal and financial advisors to evaluate a broad spectrum of additional value creation opportunities. [01:02:12] Cameron Reilly: He goes on with an updated 2025 guidance but finishes by saying, I’m pleased to end this letter by stating with confidence that Pitney bows is at its strongest point in years after making significant progress to restructure the organization and realize efficiencies. We’re beginning the work of continuous improvement across our highly profitable cash generating businesses. [01:02:34] Cameron Reilly: We’re also pursuing additional goals that including returning more cash to shareholders, eliminating higher cost debt, and expanding the coverage we receive from research analysts. As we do this, new management will pursue any and all avenues to maximize value. You now, normally I take such statements from CEOs with a grain of salt, as you say, that’s their job is to make big statements [01:03:00] to market the business, right? [01:03:03] Cameron Reilly: Yeah. [01:03:03] TK: Hmm. [01:03:03] Cameron Reilly: But this is a guy who’s a, a value investor, runs a capital investment fund, um, and. Seems to know what he’s talking about. So I, I put a little bit more stock in this. Not to say that he probably doesn’t have very big challenges, uh, ahead of him to manage the turnaround, but, um, he’s been a, he’s a value investor who’s taken over a business that generates cash, so, yeah, we’ll see. [01:03:30] Cameron Reilly: So anyway, [01:03:30] TK: noises and it’s got a bank, he’s gonna love that. He’s gonna have fun with the bank, I would’ve thought. [01:03:35] Cameron Reilly: yeah. [01:03:36] TK: yeah. [01:03:36] Cameron Reilly: Yeah. [01:03:37] TK: and by Lucky’s approach, it’s like we’re gonna make, we’re gonna do the one percenters in male thought we’re gonna do the one percenters in overseas, and they’ll add up to a meaningful change, [01:03:46] Cameron Reilly: Yeah. [01:03:46] TK: what you want to hear. [01:03:47] Cameron Reilly: Yeah. So that Tony is Pitney bows. PBI do your own research, everybody, but I added it to our light portfolio this [01:04:00] week. [01:04:00] TK: And just for context, I mean I’m looking at the graph for pit bows and it’s going up at the moment, at least on a five year monthly basis. How many stocks on the buy list were there this week that were, um, had positive sentiment? [01:04:14] Cameron Reilly: Uh, well, positive sentiment are you including, you know, second byline, latest byline. [01:04:24] TK: Yeah, yeah, yeah. So in Australia there’s like half a dozen, and most of those were all companies. [01:04:29] Cameron Reilly: Yeah, I look, there was a lot of companies to be honest, but, um, when I was checking their, um, Josephine status, they were all down a bit like, just for this week. But if I, I, I, I’ve just brought the buy list up. So there were 46 companies. [01:04:56] TK: many. Wow. [01:04:57] Cameron Reilly: Yeah. They were on the buy list. [01:04:59] TK: [01:05:00] now I’m kind of surprised given the experience in Australia. [01:05:03] Cameron Reilly: Yeah, sorry. So yeah. But as I say, a lot of them I couldn’t, I couldn’t talk about, I couldn’t buy because their share price was down over the last couple of days. They were still a buy technically on a three point trend line basis, but their share price was retreating just because of the, you know, volatility and the craziness. [01:05:22] TK: they were up at a daily basis. They were down short term. [01:05:25] Cameron Reilly: Yeah, [01:05:26] TK: Yep. [01:05:26] Cameron Reilly: the number one stock in the buy list was career and electric power, which is actually down, you know, we’ve have that in our portfolio. We’ve talked about it before. It’s, um, the one big loser in our actual main portfolio. It’s down 18%. Since, um, I added it not that long ago. Let’s see, I added it in, uh, November 24th of November. [01:05:50] Cameron Reilly: It’s down 18% since then, but the buy list had it as number one. So it’s, uh, our buy list is still saying there’s [01:06:00] a lot of value in that. Um, it’s 20% cheaper than it was when we bought it, so that’s why. [01:06:05] TK: We don’t have new numbers. Yeah, no, that makes sense. But I guess my point was, if a company like this, which is, you know, pretty basic cash generation, been around for a hundred years or more type company is going up in this market, it’s [01:06:20] Cameron Reilly: Right. [01:06:21] TK: probably underlying the sentiment behind this. [01:06:23] TK: This turnaround. [01:06:24] Cameron Reilly: Yeah. Yeah, that’s a lot of people obviously think there’s something good going on there. It’s not just us. [01:06:32] TK: Yeah. [01:06:33] Cameron Reilly: By the way, the other stocks on the bio on the top of the buy list, so it was KEP, ZFA was number two Z XL xpl, LR infrastructure that we talked about. Eastman Kodak was number three. Uh, eco Petrol was number seven. [01:06:49] Cameron Reilly: Dan aos was number eight. IHS Shinhan Financial Company. You know, a lot of the same companies gas that we have in our buy list or have talked [01:07:00] about IVR. Yeah. A MX. Oh no, that’s different. That’s American mobile cord in the top 20. Hmm. [01:07:09] TK: like in Australia that happens to, we go because we’re, you know, driven by new numbers. If you’re in between reporting periods and there’s not much happening on the share price, the bias isn’t gonna change that much. [01:07:20] Cameron Reilly: Yeah. [01:07:21] TK: Yeah, which is a good, both good and bad. The good thing is you got plenty of time to buy stocks if you wanna take your time or the situation isn’t right for you [01:07:29] Cameron Reilly: Yeah. [01:07:30] TK: revisit stocks. [01:07:31] TK: Yeah. [01:07:32] Cameron Reilly: But if I just look down the top 20, apart from Eco Petrol, none of them are, uh, oil companies. There’s a gas company in there, stealth gas. Um, yeah. So, uh, [01:07:48] TK: their share prices have jumped too much. [01:07:50] Cameron Reilly: could be, yeah, could be. [01:07:54] Cameron Reilly: Well, that brings us into after hours. Tk. It looks like you’ve got some fun things in after hours for this [01:08:00] week. [01:08:00] TK: Yeah. So, uh, have, have you seen your friends and neighbors? I think it’s on Apple. [01:08:07] Cameron Reilly: watched it yet. It’s the John Ham [01:08:09] TK: It is. [01:08:10] Cameron Reilly: on Apple. Hmm. [01:08:11] TK: Yeah. So, uh, Jenny’s away this week in Japan having a holiday with her sister. And, um, I’ve been trying to find something to watch and hooked onto this and have just. I think it’s terrific. Just loved it. I actually, I, I think from memory, I actually watched like half of the first episode when it came out. [01:08:27] TK: It’s been out for a while now. The second series is about to drop, um, on Friday, so I’m looking forward to that. But I kind of watched the first half of the first episode and went, uh, okay. Because there are so many US series now, which I call it the Breaking Bad Syndrome. It’s like the first episode is guy’s comfy in his world, he’s successful or he is doing okay, and then something hits him out of orbit and he turns like he, he’s. [01:08:54] TK: Left the fend for himself and he turns to the dark side and the life of crime. And that was the breaking bad episode. [01:09:00] It’s, it’s this one. John Ham loses his job and you know, he’s in a, up to his neck in debt and he’s a stockbroker and or a fund trader or something in the US fund manager. Um, and his life spirals and eventually he turns to a life of crime. [01:09:13] TK: When you get to that life of crime, geez, it’s good. It’s a really great [01:09:17] Cameron Reilly: Oh [01:09:18] TK: series. Like every episode’s a cliffhanger. Um, he’s just out there and doesn’t know what to do and he is being beaten up and he’s a suspect in a murder case, and he’s trying to juggle three or four things at the same time while still being, you know, the father to his kids and all that kind of stuff. [01:09:33] TK: So it’s a lot of fun. I really enjoyed it. [01:09:36] Cameron Reilly: It goes back, did you ever watch Weeds [01:09:39] TK: Oh, yeah, [01:09:41] Cameron Reilly: that came out three years before breaking Bad? Same premise. Her [01:09:45] TK: yeah, right. [01:09:46] Cameron Reilly: drops dead of a heart attack and she has to become a weed dealer. Right. So [01:09:49] TK: Well, it’s the, it’s the hero’s journey. It’s Star Wars, right. [01:09:52] Cameron Reilly: yeah, except the hero’s journey is, I think usually the person [01:10:00] isn’t like hugely successful before they go on that thing. Right? They’re [01:10:04] TK: but they’re still in a stable sort of environment where they’re, they get knocked out of orbit, so to speak. And Wizard of Oz is the classic example. Dorothy gets sucked up in a hurricane. Yeah, [01:10:13] Cameron Reilly: Yeah. Uh, [01:10:17] TK: yeah. [01:10:17] Cameron Reilly: think breaking bad is like the opposite of the hero’s journey though. ’cause you’re not becoming a hero. You’re not having to find your purpose and become a great, you know, believe in yourself and go on this journey. [01:10:27] Cameron Reilly: You are actually becoming a [01:10:29] TK: Well, he does, he does though. He does believe in himself. Yeah. Well that’s, that’s Walter White when he becomes, goes from, you know what, whatever he was called to Yeah, [01:10:39] Cameron Reilly: Well, [01:10:39] TK: when he puts, when he puts the hat on with the Gotti. Yeah, he’s, that’s [01:10:43] Cameron Reilly: yeah. Becomes a Heisenberg. [01:10:46] TK: Heisenberg. That’s a, that’s what I was looking for. [01:10:47] Cameron Reilly: one who [01:10:48] TK: Yes. Yeah. And John Ham’s like that. There’s a, like, he, he does a voiceover at the end of each episode, and one of them, I’m gonna paraphrase here. He says, you [01:11:00] know what this life is, it’s a difference between working to earn a living and working to live. [01:11:06] TK: And the motivation is a lot different. [01:11:08] Cameron Reilly: Yeah. Yeah. Good. I’m sort of, you know. There’s just so many Apple TV shows. Every celebrity of every note has their own TV show. Now on Apple. It’s crazy. And I’m kind of, I don’t know, uh, holding off. I’m not sure what are the good ones and what are the good [01:11:27] TK: Yeah. [01:11:27] Cameron Reilly: good. [01:11:28] TK: It’s hard, isn’t it? [01:11:29] Cameron Reilly: Game of Thrones again ’cause Taylor just finished it and I’ve been telling him all along, like, yeah, the last episode sucks. [01:11:35] Cameron Reilly: He goes, I dunno what you’re talking about. Last episode was exactly what you would expect. [01:11:40] TK: Oh, okay. [01:11:41] Cameron Reilly: He said, yeah. I said, what about Ari? She turns crazy. He goes, that’s the point. She was a Arian. They’re all crazy. She was, you know, [01:11:50] TK: Yep. [01:11:51] Cameron Reilly: warning you that the whole, every, as soon as he hooks up with her. He’s telling everyone. I don’t know, man. She’s a Arian, so [01:12:00] I, I’m trying to tease the good out of her, but I don’t know, man. She’s the descendant of the Mad King, and she goes mad, right? He goes, that’s the [01:12:09] TK: Yeah, [01:12:09] Cameron Reilly: Like she could, her genetics took over and she ended up crazy and destroying everything. I was like, eh, okay. [01:12:17] TK: makes sense. [01:12:18] Cameron Reilly: Maybe you [01:12:18] TK: Because, ’cause the, not, not John Sto, but his brother, the, the deaf, dumb and blind kid who becomes the king at the end. [01:12:27] Cameron Reilly: dumb and blind is [01:12:28] TK: Oh, whatever he is. He’s blind, isn’t he? Brand? Thank you. [01:12:30] Cameron Reilly: He, [01:12:31] TK: he is, he’s the reverse. The, [01:12:33] Cameron Reilly: Cripple. Mm [01:12:35] TK: cripple, but he’s the good guy to tagan. Denise, the nearest targets Bad person. [01:12:42] TK: Yeah. [01:12:43] Cameron Reilly: John [01:12:43] TK: and yang. No, Noran. [01:12:46] Cameron Reilly: Iran. John Snow was as well because he was only half [01:12:49] TK: He was, [01:12:50] Cameron Reilly: Well, I guess everyone’s half taggar, but he had some good DNA anyway, so Chrisy and I were like, ah, maybe we’ll give it another go and watch it again, [01:12:59] TK: well go and watch [01:13:00] the seven, seven, what’s it called? The night of the seven kingdoms. [01:13:03] Cameron Reilly: Yeah. Okay. Yeah, that’s [01:13:06] TK: That’s, that’s really good. [01:13:08] Cameron Reilly: I thought you said it wasn’t good. You said you [01:13:09] TK: No, I’d say that was fantastic. [01:13:11] Cameron Reilly: Oh, [01:13:12] TK: there’s, you are thinking of the, the two prequels that Matt Smith was in. House of Dragons, I think it’s called. [01:13:19] Cameron Reilly: right, [01:13:19] TK: Yeah. The first season of that I really liked. Second season I thought was pretty ordinary, but this is a new season, which is a prequel 200 years before Game of Thrones. [01:13:28] Cameron Reilly: prequel. To the prequel. [01:13:29] TK: Yeah, it’s like, and or, you know, or, um, yeah, [01:13:33] Cameron Reilly: Okay. [01:13:35] Cameron Reilly: All right. story, whatever it’s called, you know, or Mandalorian. Um, but yeah, it’s good. [01:13:40] Cameron Reilly: All right. And tell me about your punting downloads. [01:13:45] TK: Uh, so one of the, if there’s an upside, one of the benefits of having a bad back recently is I got plenty of spare time. I’m not playing golf or it going to the gym. Um, and I’ve persisted and persisted and persisted to try and get chat GPT to help me [01:14:00] code. [01:14:00] Cameron Reilly: Get [01:14:00] TK: it worked. It worked. [01:14:03] Cameron Reilly: Yeah. [01:14:03] TK: And I did, I downloaded the court, it’s still sitting on my [01:14:07] Cameron Reilly: Uh, [01:14:08] TK: desktop and I’m like, no, just, I’ll get chat GPT to work. [01:14:12] TK: I don’t need Claude. And it worked. But you know what? The secret was just a firm hand. Like I, [01:14:20] Cameron Reilly: just like a [01:14:21] TK: it was, I think I spent about eight hours last Friday, and after about six, I’m like, can you please stop? Pumping my tires up and telling me that we’ll find a solution and everything’s going well. It’s not [01:14:34] Cameron Reilly: Yep. [01:14:35] TK: you just tell me the next step in the process and I’ll send you a screenshot of the output. [01:14:40] TK: And like, it just flipped on a dime and just started saying, try this. And I try it, send it to the output. Here we go. Okay, try this. And that’s all we did for a couple of hours. Like must have been rated 20 or 30 times and it worked and it was, so it, I would, [01:14:55] Cameron Reilly: do? [01:14:56] TK: oh, so it goes to, uh, a website that has data for the [01:15:00] racers on the weekend, um, which I’ve used for years to, as you would, um, guess populate a spreadsheet, which works out what to bet on and how much to place on the bet. [01:15:11] TK: Um, but it was, it generally would take me an hour to two hours to run it through manually. [01:15:17] Cameron Reilly: Mm-hmm. [01:15:17] TK: And now it’s happening very quickly. It’s just great. [01:15:20] Cameron Reilly: It’s a great [01:15:21] TK: Which, [01:15:21] Cameron Reilly: it? [01:15:22] TK: Well, and it means I can industrialize the process too and you know, [01:15:25] Cameron Reilly: Right? I. [01:15:26] TK: not just bet on the main venues on Saturday. If I can make it work in other places, I’ve got the ability now to do it quickly, which is good. [01:15:33] Cameron Reilly: and Taylor and I were having a conversation, I was also having a conversation with Fox at the moment. ’cause Fox is coding on scratch. Do you know the Scratch platform? It’s been around forever. [01:15:45] TK: is this the gaming platform? [01:15:47] Cameron Reilly: Yeah, you [01:15:48] TK: Yeah. Okay. [01:15:48] Cameron Reilly: a coding thing. It’s like a jigsaw puzzles. You drag and drop modules into a [01:15:52] TK: Oh, okay. [01:15:53] Cameron Reilly: games and he can code other stuff as well. [01:15:56] Cameron Reilly: But it’s mostly very, very sort of simplistic games. [01:16:00] But [01:16:00] TK: Mm-hmm. [01:16:00] Cameron Reilly: were, at least Taylor was into it when he was young. And Fox has been into it for a few years and he’s getting a real kick out of, at the moment, out of building games that his friends then at school play. [01:16:12] TK: Yeah. Right. [01:16:13] Cameron Reilly: And he’s getting that sort of endorphin rush of, I build something and then my friends play it and they love it and they, they give me suggestions for new features and then I go and I build that and I, you know, and I was [01:16:26] TK: Okay. Talk to me about the pricing model. [01:16:28] Cameron Reilly: Yeah. Yeah. He’s starting to, you know, figure out that you can get endorphins, not from just playing games, but from building things that [01:16:39] TK: Oh, nice. [01:16:40] Cameron Reilly: appreciate. And I was talking to Taylor about this and how, for us at the moment, coding is the new gaming. Like it’s ’cause it’s, hits all the same sort of things. [01:16:49] Cameron Reilly: You have a problem [01:16:50] TK: Mm [01:16:51] Cameron Reilly: to figure out how to solve [01:16:52] TK: mm [01:16:52] Cameron Reilly: And you come at it 20 different ways. You finally get it, you, and you’re so close all the time [01:16:57] TK: mm [01:16:57] Cameron Reilly: if I could just get this bit to work or that bit [01:17:00] to work, and then you get through that and it works and you’re like, the feeling of euphoria is fantastic, you know? [01:17:06] TK: It was, yeah. And um. It, it hit home to me what you’ve been saying. I mean, I, I, I could never have worked out the coding that was required and all the JavaScripts and stuff. ’cause it, it, it looked like, and I could be wrong, it looked like the website I go to goes to great lengths to try and protect itself from being scraped [01:17:24] Cameron Reilly: Mm-hmm. [01:17:25] TK: to, to download. [01:17:26] TK: So, you know, I could never have worked out how to do it. Um, so yeah, GPT is a level up in terms of what I could do. It’s, it’s pretty powerful. [01:17:37] Cameron Reilly: And the thing that, um, from Anthropics been talking about, I may have mentioned this already, but he’s been talking about it for the last couple of months, is their focus for the last couple of years has been to build out the coding side of Claude. [01:17:55] TK: Mm-hmm. [01:17:55] Cameron Reilly: Because once you have an AI that can [01:18:00] code, can start to code itself. [01:18:03] TK: Yeah. Right. [01:18:04] Cameron Reilly: that’s where the giant leaps start to happen when it’s coding the next iteration. And then that iteration is coding the next iteration. And, you know, so all of the other problems and issues I think that ais have at the moment are taking a backseat while they get it to code really, really well. Figuring [01:18:24] TK: also too, like it’s from, from all the false starts we had and iterations we had coding’s actually a good thing for ai. ’cause it, it can’t hallucinate if it hallucinates, it doesn’t get the output it needs. So it can fix its own hallucination straight away. Yeah, [01:18:37] Cameron Reilly: Speaking of which, I had an incredible experience with Claude. A couple of days ago was researching, um, century French politics, uh, 14th century French politics for um, [01:18:50] TK: because, because 15th is no good. [01:18:54] Cameron Reilly: No, because of the leper scare of 1321, Tony, the, [01:19:00] the original, the OG conspiracy theory was, um, when the French decided the lepers were poisoning the wells, were gonna poison the wells to kill them all and take over. And so they burnt all of the lepers at the stake [01:19:12] TK: Wow. [01:19:14] Cameron Reilly: and then they decided that the lepers were conspiring with the Jews. [01:19:17] Cameron Reilly: So they burnt the Jews as well. Then they decided the Jews were conspiring with the Muslims, couldn’t get to the Muslims. But you know, that was part of the justification for it. Anyway, I asked [01:19:27] TK: We’ve really evolved, haven’t we? [01:19:28] Cameron Reilly: Yeah. So, so much. Um. I asked Claude a question about, uh, one of the, the French Kings at the time, um, and his attempts to centralize the economy of France to gimme some, because it was a line in a book I was reading. [01:19:47] Cameron Reilly: It said he, he was well due to his attempts to centralize the economy. And I said, gimme some context on that. And Claude said, I’m not really sure I can do a good job of that. Honestly, I, I’ll probably get confused between the various kings. It’s [01:20:00] something that I don’t feel confident at giving you a good answer on, and I don’t wanna, I don’t wanna lead you in the wrong direction, so I’d rather not, um, what I can do is suggest some reference materials that you might want to go read. And I was like, that’s the first time in three and a half [01:20:15] TK: Yeah. [01:20:16] Cameron Reilly: had an AI go, you know what? I’m not sure about that. And I jumped into the Claude Subreddit and I said, this just happened. Is this a common thing? ’cause I’ve only been using Claude. for a month, and every, everyone said, yeah, yeah. [01:20:29] Cameron Reilly: That’s how it’s engineered now. It has two systems, one’s checking, the other one’s work. So, [01:20:36] TK: wow. [01:20:36] Cameron Reilly: you know, they’re, they’re, they’ve [01:20:37] TK: Mm-hmm. [01:20:38] Cameron Reilly: already started to build in that fact checker. And I was like, oh, that’s, that’s huge. That’s [01:20:44] TK: Yeah. So I can’t bluff anymore. [01:20:47] Cameron Reilly: Well, I can, it still gets things wrong. Um, when I was doing my prep for the American show today on Pitney bows, it gave me a, the current CEO and then I [01:21:00] was reading the website and I thought, that’s not the current CEO. [01:21:02] Cameron Reilly: And I said, Hey, it got the former CEO and the current CEO [01:21:05] TK: Yeah, right. Okay. [01:21:07] Cameron Reilly: still can make mistakes, but it, you know, lucky [01:21:10] TK: other thing I. [01:21:10] Cameron Reilly: check everything [01:21:11] TK: The other thing I noticed about it, the using AI using chat PT anyway, was that it, it has changed, I think recently to get you to take out a subscription, which I did, took out the lowest level subscription on Friday so I could keep going. ’cause like you ask, you can ask a certain number of questions with the free one, and it says you can come back in three hours before you can ask your next question now. [01:21:36] TK: Whereas before it would downgrade you to a, an older model. [01:21:39] Cameron Reilly: right, [01:21:40] TK: Now it just stops you. [01:21:41] Cameron Reilly: right. [01:21:42] TK: so, and, and I don’t know if this is for another reason, but it struck me as that every time I even now ask ChatGPT a question, like on, you know, Brookside energy or Pitney bows or whatever, it gives me the answer and then it gives me a prompt to ask another question. [01:21:58] TK: It’s almost trying to get me to run the [01:22:00] meter up to get to a higher level of subscription. So they, they’re becoming a bit more commercial. [01:22:05] Cameron Reilly: I think [01:22:06] TK: I know that, [01:22:07] Cameron Reilly: you? [01:22:07] TK: but it’s. [01:22:07] Cameron Reilly: Yeah. [01:22:08] TK: It struck me as, yeah, [01:22:10] Cameron Reilly: yeah, yeah. Would [01:22:11] TK: it struck me as the real reason behind it. Yeah, exactly. [01:22:15] Cameron Reilly: Um, was a. Yeah, there’s a, there was a line I read in a Reddit post a couple of weeks ago, which was the, the mindset shift that people are going through now is thinking of Claude, in this case as infrastructure, [01:22:31] TK: Yeah. [01:22:32] Cameron Reilly: something you chat with, but as infrastructure. [01:22:34] Cameron Reilly: And so I, I’ve spent the last couple of weeks thinking about where do I spend a lot of my time now? And one of the areas is publishing podcasts. [01:22:41] TK: Mm-hmm. [01:22:41] Cameron Reilly: I have to publish, you know, four or five podcasts a week. And the process to publish a podcast is, you know, it’s not overly onerous, but it takes me probably an hour to 90 minutes to publish a podcast. [01:22:56] Cameron Reilly: All the different, I have to, that’s not even the ones I edit, but [01:23:00] then I have to export all these different, like there’s video versions and a couple of [01:23:03] TK: Mm-hmm. [01:23:03] Cameron Reilly: and a transcript, and then I need to turn it into show notes and I need to get album art and then I need to upload them all and I need to enter all of the things in. [01:23:11] Cameron Reilly: Then I need a blog post and it has to [01:23:12] TK: You. [01:23:13] Cameron Reilly: in that, [01:23:13] TK: You don’t need to do all that. It’s a bit OCD. No, you just put out the podcast, put out the audio. [01:23:20] Cameron Reilly: You’ve, you’ve, you’ve never published a podcast and had people going, Hey, where’s this? Where’s that? Where’s this bit? Gimme show notes, time coded. I wanna know Time codes. I wanna know. Yeah, please. Geez. Anyway, I coded the whole thing, so now it’s basically one click button and it does everything. I [01:23:40] TK: Wow. Yeah. [01:23:42] Cameron Reilly: click a button and it just publishes all the podcasts. [01:23:44] Cameron Reilly: And now I’m getting it to do the tiktoks well, where it’s gonna take an hour long video, look at the transcript, pick out all the best bits, give me a script of how that would look. I can then edit and go, no, [01:24:00] add this bit, delete that [01:24:01] TK: Yeah. [01:24:01] Cameron Reilly: Then it will build them, splice them all together and build them and do the captions. [01:24:06] Cameron Reilly: And so all I [01:24:07] TK: Wow. [01:24:08] Cameron Reilly: drop the upload in. So just this idea of, okay, what takes a lot of time and effort and mental energy that I can just it and so it becomes a one click thing rather than an hour of my brain energy. And then I can put my brain energy into other time, other things, hopefully more productive. [01:24:24] Cameron Reilly: But we’ll see. [01:24:25] TK: Well, I hope that’s the future of ai. I mean, um, certainly has been for me. When the internet first came along and I started to use that, I was reminded of a story from I think the forties or fifties, I can’t remember who wrote it, Arthur C or Henan, one of the greats, I think it was called Waldo, but, or the, it was about Waldo. [01:24:45] TK: So the SF author coined the phrase, which, um, was about somebody, I think they were in a. Rocket ship around the earth or something, but they didn’t have much strength in their arm. So they would plug into [01:25:00] these two handles, which would then have these big extensions to their arms and allow them to lift heavy things and manipulate things. [01:25:06] TK: Kind of like you’ve seen in movies where someone puts their hands and, and then an arm goes and picks up the radioactive isotope and Yeah, manipulates it or whatever. But it was a, it was a, like a muscle multiplier, [01:25:18] Cameron Reilly: Mm-hmm. [01:25:18] TK: and that was back in the forties and fifties where, you know, that was the germane thing. [01:25:22] TK: And I of, I often thought the internet was like that for my brain. Like it gave me the ability to know and learn much quicker and, [01:25:29] Cameron Reilly: Mm [01:25:30] TK: and more thoroughly than what I had in the past by just, you know, having to go to a library or encyclopedia. And now I’m kind of hoping AI is another leg up in terms of that waldo effect on the brain. [01:25:40] TK: It’s like, as you say, we can hand over the menial tasks and think about the big. Pass more and then uses AI to help us with those issues rather than the mundane ones of putting out podcasts or whatever. [01:25:54] Cameron Reilly: Yeah. Well, uh, lemme give you a [01:26:00] quick, uh, couple of my, my after hours tips for the week. I discovered a band, another, I think from the eighties, uh, the wipers ever come across them. [01:26:10] TK: And I haven’t, no. [01:26:12] Cameron Reilly: Um, American punk rock band from late seventies, early eighties, um, discovered ’em through a sort of backwards, process of somebody who had rerecorded one of their songs, but really digging it, really digging their, uh, sound. Um, uh, flea has a new album. Uh, his solo jazz albums just come out. Do you know Flea The [01:26:41] TK: Yeah, I’ve been listening to it. [01:26:42] Cameron Reilly: Oh, you’ve been listening to the album. [01:26:44] TK: Yeah, it’s great. [01:26:46] Cameron Reilly: Isn’t it Great? His [01:26:47] TK: Yeah. [01:26:48] Cameron Reilly: the cover of Witch Linesman. [01:26:50] TK: Which is one of my favorite recordings anyway. Not, not necessarily their cover, but I love Wichita Linesman, [01:26:56] Cameron Reilly: Great [01:26:57] TK: Webb. [01:26:57] Cameron Reilly: that deep, that that sort of [01:27:00] riff that he [01:27:00] TK: Yeah, yeah, [01:27:01] Cameron Reilly: hypnotic. It’s [01:27:02] TK: yeah. [01:27:03] Cameron Reilly: I just loved, I’ve been listening to a lot of Nick Caval week and then that came out and I was like, uh, holy shit. And Nick’s voice on that track. Like he, I was saying to Chrissy, like, as he’s gotten older, he is just got this real warmth and, and, uh, gravitas in [01:27:22] TK: Mm [01:27:22] Cameron Reilly: A bit like Leonard Cohen or Johnny Cash [01:27:25] TK: mm [01:27:25] Cameron Reilly: older. Know it’s amazing. [01:27:27] TK: Yep. [01:27:28] Cameron Reilly: But I gotta tell you the story. So I was having breakfast with Hunter on the weekend, uh, on Sunday at a cafe, and we were talking about creative, um, blocks. And I was saying, well, you know, uh, Nick Cave says he gets up at every morning, puts on a suit, goes to his office, sits in front of the piano, stays there until o’clock, and then goes home, treats it as the office, you know, there’s no excuses. And he goes, who? I said, Nick Cave. He goes, never heard of him. [01:27:54] TK: You are kidding, [01:27:55] Cameron Reilly: Cage. [01:27:56] TK: huh? [01:27:57] Cameron Reilly: Cave. He’s like, one of Australia’s greatest [01:28:00] rock exports. He goes, no, never heard of him. And he looks at up, he goes, he’s got like 4 million followers. He’s nobody. And I [01:28:05] TK: Oh. [01:28:05] Cameron Reilly: on. I started turning to people in the cafe and I was like, excuse me sir, excuse me. You ever heard of Nick Cave? He goes, yeah, of course. Excuse me, madam. You ever heard of Nick Cave? I did that for like 60 seconds just asking everybody, young, old, you ever heard of Nick Cave? And they’re like, of course Hunter was pissed. He’s like, yes. Fuck, you’re so embarrassing. You’re such an idiot. Actually, he said, I can’t believe anyone’s ever been married to you. You’re the most annoying human being on the planet. Like Yep, [01:28:33] TK: Uh, yep. And did you say genetics are a bitch? [01:28:38] Cameron Reilly: Yeah, yeah. No, I didn’t. [01:28:41] TK: Uh, [01:28:41] Cameron Reilly: TV show, I started [01:28:43] TK: sorry, can I interrupt there? Talking about Nick ca, have you seen that Matt Smith series that Nick Cave wrote? It’s a based on Nick Cave book. Came out last year. Yes. Funny. Mabb Monroe. [01:28:57] Cameron Reilly: but I haven’t seen the series anywhere. [01:29:00] I knew that they were doing it, but uh, I love the book. [01:29:02] TK: Yeah. It’s not bad. It’s worth checking out anyway. Yeah, [01:29:06] Cameron Reilly: I’ll try and find it. I haven’t seen his second documentary either. I saw the first one, the 40,000 hours or whatever, but I haven’t seen the second one. [01:29:14] TK: yeah. What’s the second one? It’s good too. [01:29:17] Cameron Reilly: I, I’ve been listening to his catalog all week just on repeat, uh, you know, just mix and just. I mean, just constantly astounded by the quality of his song catalog and how, how he’s morphed over the years and just incredible, [01:29:37] TK: yeah. We used to go and see the, the birthday party, [01:29:41] Cameron Reilly: Yeah. [01:29:41] TK: which was just out there. [01:29:44] Cameron Reilly: And you [01:29:45] TK: Gothic, [01:29:45] Cameron Reilly: that [01:29:46] TK: gothic art. Yeah. [01:29:48] Cameron Reilly: he’d be wearing a suit [01:29:49] TK: Correct. Yeah. [01:29:51] Cameron Reilly: singing songs of love and loss and [01:29:53] TK: Yeah. I remember it was, I think it was Royal who used to say every day he got up and, um, [01:30:00] walked into his, uh, shed [01:30:02] Cameron Reilly: his cottage at the back. [01:30:04] TK: act out in the back and wrote for eight hours and then got up and came inside. [01:30:07] TK: Yeah. Whether it was cold or raining. Yeah. Yeah, [01:30:09] Cameron Reilly: with him with that. He had his writing desk. He [01:30:11] TK: yeah. Mm. [01:30:12] Cameron Reilly: and sit and write. Have you seen, um, Ray finds. As rolled Dahl. I think it’s Rae [01:30:19] TK: No. [01:30:20] Cameron Reilly: There was a series of shorts that, wheres Anderson Made for [01:30:23] TK: Oh, yes, I have seen that one. Yeah. [01:30:25] Cameron Reilly: it’s Ray Fines, who does the rolled Dahl in the cottage with the writing desk and [01:30:31] TK: yeah. That’s probably where I’m, that’s probably what I’m thinking of. Yeah. Oh, speaking of writers from that era, I saw a, um, a post recently about Ian Fleming, who, neighbor, he was annoyed with his neighbor for using an architect who’d, who’d built this kind of brutalist structure that he didn’t like. [01:30:54] TK: So he decided to make one of the villains the name of the architect, and he [01:30:58] Cameron Reilly: sorry, [01:30:59] TK: was [01:31:00] sued, uh, and I think the guy I lost, but I’m not sure, but can you guess what the name of the architect was? [01:31:06] Cameron Reilly: Blofeld. [01:31:07] TK: Gold Finger. [01:31:10] Cameron Reilly: That was the actual name of the architect. [01:31:12] TK: Yeah. Yeah. Well, if the post was right, [01:31:16] Cameron Reilly: finger. [01:31:17] TK: it? Yeah, no, Blofeld was actually based on somebody as well. [01:31:22] TK: ’cause um, there’s a famous cricket writer for the, um, for somewhere in Britain who used to come out to Australia. And I saw an interview with him when I was a kid, and he said, um, and his name was Blofeld. And the, the interviewer said, uh, you know, any relation to the James Bond character. He said, well, funny story. [01:31:40] TK: Ian Fleming didn’t get on with my dad. So he named the character Blofeld. [01:31:44] Cameron Reilly: That’s gold. [01:31:46] TK: Yeah. [01:31:46] Cameron Reilly: One of the great, great reasons to be a writer. Im immortalize Your Enemies. Um, last thing is a TV show. Uh, Seth Rogan directed 2017 ran for a few seasons on Netflix [01:32:00] called Future Man. [01:32:01] TK: All right. [01:32:02] Cameron Reilly: it’s pretty silly. It’s a comedy basically about a gamer who beats this first person shooter game and the characters from the game suddenly appear in his bedroom and they’ve come back from the future. He needs to, the, the game was a recruitment device that [01:32:19] TK: All right. Yep. [01:32:20] Cameron Reilly: a time to find [01:32:21] TK: Mm-hmm. [01:32:21] Cameron Reilly: and he needs to go and save the future, save the, save the human race, blah, blah, blah. But he immediately says, hold on. This is the plot to the last Star fighter. You’re just ripping off the [01:32:32] TK: Yeah, [01:32:33] Cameron Reilly: Star [01:32:33] TK: I was just thinking that. Yeah. [01:32:34] Cameron Reilly: And that’s, the whole show is basically riffs on time, travel, movies, and sci-fi. know, it’s just, they’re just, it’s like in jokes, making fun of travel and sci-fi tropes. [01:32:51] TK: Yep. [01:32:52] Cameron Reilly: It’s pretty violent and pretty funny and um, yeah, it’s a bit like the boys, but less [01:33:00] violent, but in the same sort of genre. Have you seen the boys? [01:33:02] TK: I haven’t, [01:33:03] Cameron Reilly: Oh, it’s, it’s good but [01:33:05] TK: is it okay? I’ll watch it. [01:33:07] Cameron Reilly: extremely gory, like that? Um, not as much, but yeah. Kind of, kind of funny, good cast. But I, I, I discovered it ’cause I told you last week about the David Lynch [01:33:17] TK: Mm-hmm. [01:33:18] Cameron Reilly: hotel room thing. Glenn Heley is in the [01:33:20] TK: Mm-hmm. [01:33:20] Cameron Reilly: of that I found out that she dropped dead while making this Seth [01:33:25] TK: Oh, wow. Okay. [01:33:27] Cameron Reilly: was like five, she plays his mom. She was like five episodes into it, had a pulmonary embolism, age 62, drop down, dead. And um, and I heard, and I thought, oh, I’d never heard of this show before. So I went and checked it out. That’s pretty good. Not great but good. I mean, it’s good, it’s entertaining. Silly, funny, you know, a lot of gags in it. [01:33:47] Cameron Reilly: It’s pretty good. got Keith, David in it. Do you know Keith? David? [01:33:51] TK: No, [01:33:52] Cameron Reilly: black actor, American actor. He is in kind of everything. Um, you wanna, you want a cool black dude? Middle aged with a deep [01:34:00] voice who’s very smooth. You get Keith? David anyway? [01:34:04] TK: that was like, Alex and I caught up on the weekend and we were talking about the new dinosaur series, [01:34:10] Cameron Reilly: Oh [01:34:10] TK: and I’m like, and I’m, she’s going, oh, it’s good. And I’m going, is it David Attenborough or Morgan Freeman? It’s Morgan Freeman now. [01:34:18] Cameron Reilly: Or Kenneth? Kenneth Brenner. [01:34:19] TK: What can Brownie? Yeah. [01:34:20] Cameron Reilly: of those. Yeah. I, I started listening to the Anthony Hopkins autobiography on, um. [01:34:25] TK: how was it? [01:34:27] Cameron Reilly: Okay. But it’s Kenneth Brenner doing the narration. [01:34:32] TK: right. [01:34:32] Cameron Reilly: I think he might be Welsh too, but he, it sounds in moments like he’s doing an Anthony Hopkins impersonation, [01:34:40] TK: All. [01:34:40] Cameron Reilly: which is kind of weird. I’m not that far into it. He’s still in his childhood and talking about how much he hated his parents mostly. But um, yeah, just weird. Kenneth Braner is now the voiceover guy. [01:34:55] Cameron Reilly: So anyway, that is, uh, QAV America for this [01:35:00] week, Tony, [01:35:00] TK: Thank you. I loved it. Like a, talking about a company that we know of, um, and a process that we’ve used. Um, and it’s not an overseas. Nothing wrong with an overseas company, but it’s listed locally on the, uh, New York Stock Exchange. And yeah, people will have experienced it. That’s, um, added thrill. It’s good. [01:35:20] Cameron Reilly: and a deep value investor to be involved. Thought you’d like that bit. [01:35:24] TK: Yeah, I [01:35:26] Cameron Reilly: Thanks, dk. Have a good week. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Apr 1, 2026

34m
37

We Press the Button on KODK – QAV America #45

In Episode 45 of QAV America, recorded on March 24, 2026, Cameron Reilly and Tony Kynaston open with a geopolitical check-in on the ongoing US-Iran conflict and its impact on oil prices and market volatility, before diving into portfolio performance updates showing the QAV dummy portfolio up 92% all-time versus the S&P 500’s 48% since September 2023. The star segment is Cameron’s deep-dive “Pulled Pork” on Eastman Kodak (KODK) — a fascinating turnaround story covering the company’s reinvention from film giant to chemical manufacturer, pharmaceutical ingredient producer, and unlikely streetwear licensor in South Korea, complete with a Trump-era insider trading scandal and a billion-dollar pension reversion windfall. The guys also briefly flag Geo Park (GPRK) as up 9% since last week’s deep dive, and discuss how oil stocks like Cord Energy, Eco Petrol, and Murphy Oil have been propping up the Light Portfolio during the market downturn.   This week’s full episode is for QAV Club members only. The free episode is available below. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. Free Podcast Archives Transcription QAV AMERICA 45 Club Cameron Reilly: [00:00:00] Welcome to QAV America, Tony, episode 45, recording this on the 24th of March, 2026. The Run, not a War, is in its fourth week. Tony Kynaston: Mm-hmm. Cameron Reilly: My, my Iranian friend from Kung fu, uh, before this all started, we knew it was coming. I said, what, how long do you think it will hap it’ll take when, when it starts. He goes two days. Be over in two days. Regime will collapse. IRGC will collapse. Like two days. Yeah, two days. And we got to about day three, I said, how he goes, two weeks, it’ll be over in two weeks. By the end of the two weeks. I said, how long? He goes, four weeks. Four weeks. It’ll all be, it’ll all be done. So I said to him the other day, if we get into week five, you owe me a thousand bucks. He goes, yeah, yeah. Four weeks. It’ll all be done. It’ll all be over. I said, I don’t know, man. I don’t know. Tony Kynaston: we’ve just passed the 48 hour deadline before the, uh, Cameron Reilly: Yeah, yeah. Tony Kynaston: be eliminated from Iran, [00:01:00] and Cameron Reilly: Mm Tony Kynaston: KO event, hasn’t it? Cameron Reilly: mm Well, as I said to you in the last show, I think he’s just buying time to get troops in position so they can land on island, do whatever else they’re gonna do. At the same time, probably massive parallel. Bombing campaign of the mainland while they try and get troops on Har Island, but, um, or wipe out Har Island. I don’t know what his idea is. Who knows? Tony Kynaston: Yeah. I am not sure if Har Islands a destination. It could be, but it’s, it’s also possible they’re gonna go after the drone, the drone sites or drone manufacturers with boots on the ground. So who knows? And look, you know, it’s, um. A lot of people are suffering through this, so Cameron Reilly: Hmm. Tony Kynaston: gotta shout out to anybody out there who is where, um, I’m thinking of you anyway, hopefully you get Cameron Reilly: Well my Iranian friends are all for it. You know, they, they think it’s the, it’s fantastic what’s going on. ’cause they wanted to see the end of the [00:02:00] regime and they figured this is the only way it would happen is through some sort of foreign intervention. But I’m always like, y you know, it’s never worked. Foreign re regime change never works out well. And if. It was gonna work out well. You don’t want Netanyahu and Trump being the guys that are orchestrating, it’s like the worst possible scenario, uh, these two clowns, uh, trying to run it. But anyway, here’s what it is. Tony Kynaston: Yeah. Well, and, and also too, the Wall Street Journal was reporting today that uh, a lot of the dissidents who’d been rounded up and put in prison who would lead regime change were almost bombed, um, recently. So that’s not a good way to get regime change. It’s to bomb all the people who were in mon bla who could do it. Cameron Reilly: Yeah, and guys like the, uh, the foreign minister Lani, um, who was, they thought was [00:03:00] gonna be the reasonable, moderate, you know, relatively moderate guy. They killed him. So that’s not gonna happen. Anyway, back to investing. So it’s obviously been another turbulent week in the markets. The oil price has gone through the roof, came back a little bit yesterday. Where? Or last night? Our time when Trump said that he’d decided the 48 hour timeline. Wasn’t that Mabb hard of a timeline after all, but then when I checked the price an hour or so ago, it, Tony Kynaston: negotiations and the Iranian said what? Cameron Reilly: yeah. Yeah. Well there are different stories coming out of Iran today. Some say there’s no discussions, some say there are discussions sort of happening, three or four steps removed. I think the US is talking to Turkey, turkey’s, talking to Iran, something like that. It’s uh, impossible to know what the truth is. [00:04:00] There’s lies and propaganda. Well, no one really knows. Um, what’s happening to the Ayatollah Kama Khomeini? Uh, I’ve heard that he’s in a coma. I’ve heard that he’s injured, but it’s not threat life threatening that he’s conscious. He’s just in a bunker. I’ve, there’s all sorts of different stories coming out of Iran. No one really knows again. Tony Kynaston: Fog of war. Cameron Reilly: Yeah, Tony Kynaston: Mm. Cameron Reilly: again, what we do know is that, uh, over the course of the last week, the s and p is down. All the indexes are down. Uh, recovered a little bit in the last 24 hours, but we’re not back to where we were a week ago. And our portfolio, um, our American portfolios, surprisingly not doing too badly actually. Uh, all things considered our US dummy portfolio, the one that’s been running for a couple of years is down about eight. Percent over the last 30 days [00:05:00] versus the s and p 500, which is down about 5%. But if I take the last, uh, year to date, we’re actually still up 17% versus the s and p down 4%. So, you know, relatively speaking, we’re doing all right. If I take all time, we’re up 92% versus the s and p up 48%. That’s going back to September 23. So doing all right, the light portfolio, which I only started the American Light portfolio, I started just before Christmas, a week before Christmas, all time. Well, since then, it’s down 0.25% versus the s and p down 4.3%. So. It’s not, it’s not doing great, but it’s not doing as bad as the index at this stage. And surprisingly, in the last 30 days, the light portfolio is actually up 2.3% versus the s and p [00:06:00] down 4% because we’ve added a number of oil stocks to it in the last month, like Cord Energy, eco Petrol, and Murphy Oil, which are all doing quite well. Uh Tony Kynaston: I guess two comments on that, Kim, if I can. But in, um, the, the first thing is oil could turn around again tomorrow, so those oil Cameron Reilly: Turned down, Tony Kynaston: turn down again. Sorry, those oil stocks might be sales, you know. the other point I wanted to make, and probably the more important one is we don’t know what’s happening with the oil price. We’re not to favor one sector over another. It just happens. We look back in a couple of months or we look back now after a month and say, Hey, we have a lot of all stocks, and weren’t we lucky? Cameron Reilly: hmm. Tony Kynaston: like that, that’s happened to me all the time. E Cameron Reilly: Mm Tony Kynaston: since I’ve been an investor. Last year it was gold stocks. Cameron Reilly: mm Tony Kynaston: we, we don’t know in advance which sector’s gonna be favored. It’s just that we find things to buy in a particular sector [00:07:00] and then we turn around and say, Hey, weren’t we lucky to have those stocks in the portfolio? Cameron Reilly: mm Well, you know, if we look back over the last couple of years I’ve been running the US portfolio, we know we had a lot of shipping companies and financial services companies that we were adding for a while there who have all done very, very well, even though some of them have come back a lot in the last, uh, couple of months, still have had tremendous performance in over international ENVA, which is an online financial services company, is up 130% since we added it. Euro CSEA is up 136%. They’re in the shipping business, obviously with a name like that. Uh, Willis Lee’s Finance Company, uh, not surprisingly, is a finance company. Commercial aircraft and aircraft engines is what they’re mainly involved in. Financing. They’re up still 270% even though they’ve come [00:08:00] back a long way in the last uh, month, they’re still up nearly 300%. So yeah, these were different sectors that our system put us into when these stocks were under value, and we were talking about this on the Australian show, um, when markets are volatile like this, relatively new investors might think the sky is falling and they become chicken little and they panic. But I’ve been doing this show with you now for six or seven years, and I think this is the fourth crisis I’ve seen. In that period of time, you’ve been investing for 35 years and you’ve seen what you say every couple of years, every two years there’s one, right? Yeah. Tony Kynaston: So they’re not, so each crisis is unique in its own way, but then, but the crisis is not unique. Cameron Reilly: Yes. Tony Kynaston: Hmm. Cameron Reilly: And as I’ve learned by doing this over the last seven years, what a crisis means is [00:09:00] stocks good companies, companies that generally perform well, even though they might stumble during a financial crisis for one reason or another, end up cheap. And then they turn up on our buy list and we buy them because we buy when our system tells us to buy, regardless of what’s happening in the market or where, how, what the general level of panic is or is not. And we tend to then buy things when they’re cheap. And then when the market relaxes, its sphincter and uh, starts. Going through, uh, greed, a greed phase, everything goes up and we ride that up and, uh, we, we end up outperforming the market again. And then, you know, we’ve got buffer that we ride down a little bit when the market crashes and then you rinse and repeat, right? Tony Kynaston: Yep. Cameron Reilly: It’s fairly simple, but it’s only, I think after you’ve survived a couple of these that you go, oh, okay, [00:10:00] this is normal. Crisis is normal. Tony Kynaston: I can step back and look at this at the sort of slightly higher level. Yeah. Cameron Reilly: Yeah, Tony Kynaston: Mm-hmm. Cameron Reilly: yeah. This is, this is like I’ve talked about on shows before. This is like, winter follows summer, you know, winter doesn’t come and you don’t panic and go, that’s it. We’re gonna be dark and cold forever. You go, okay, this will last for a few months and then we’ll be back to spring and summer again and they’ll be buying opportunities at the end of winter. So just, uh, put your, put your jumper on. Light a fire, get your pipe out some port and ride it out. Right. Just wait, be patient. Yeah, it does, doesn’t it? And here I am sitting in Brisbane where it’s autumn, where at the end of the first month of autumn, and it’s still insanely hot and humid here and rainy and crazy. Tony Kynaston: Brisbane’s like, uh, Brisbane’s, like Florida for our US listeners Cameron Reilly: Yes. Without all the crazy, Tony Kynaston: [00:11:00] Well, there’s plenty of crazy people in Queensland, but Cameron Reilly: yeah. Yeah. I was thinking about, uh, Pauline Hanson. Yeah. Yeah. Well, Tony. Let’s jump into my deep dive for the week. Uh, for people that are new listeners, what we do on this show each week is I look at our buy list for the week and I pick a stock that’s up near the top of our buy list, something that we haven’t seen before or haven’t talked about before. And I do a bit of a drill down into it, a deep dive of what we call a pulled pork for reasons that are beyond me. It’s an historical thing that we came up with years ago. I can’t remember what it was. Tony Kynaston: As a pull apart. Cameron Reilly: A pull apart. That’s right. It was a pull apart. Became a pulled pork. This week, Tony, for my pulled pork, I am doing Eastman Kodak, a very old, very famous brand that today has very little to do with what people think it does, Tony Kynaston: Hmm. Cameron Reilly: [00:12:00] that’s what makes it interesting. Um. Un unfortunately, or fortunately, it’s not one of those stocks that I’m used to doing where there’s like lots of deaths on their doorstep. I don’t know, it’s, it, there’s not a lot of, uh, manslaughter charges or there is a little bit of environmental damage that they’re responsible for, but Tony Kynaston: the death of an industry. Cameron Reilly: the death of an industry. Yes. Yeah. Tony Kynaston: Eastman through tragic Cameron Reilly: here’s a question for you. What is the relationship between Linda Eastman slash McCartney and Eastman Kodak? Tony Kynaston: Wasn’t she the, or? She’s the daughter of one of the Eastmans. Um, not sure if it was the Eastman that founded it, or the great grandfather was the founder, but yeah, that’s the li lineage. Cameron Reilly: In fact, none of that is true. You fail, uh, you go to the bottom of the class, [00:13:00] her father. Tony Kynaston: I can heckle from the bottom of the class. Great. Cameron Reilly: Her father, a prominent entertainment lawyer named Lee Eastman was actually born Leopold Vale, Epstein, and changed the family name to Eastman before Linda was born. Tony Kynaston: Oh, that’s a rumor, isn’t it? I always thought it was true. Cameron Reilly: It is a rumor that she occasionally encouraged early in her career as a photographer. Tony Kynaston: gonna say, she carried a camera around, didn’t she? Yeah. Cameron Reilly: Well, she was a photographer and she was like, yeah, yeah, Eastman. Yeah. Yeah, Kodak. Sure. Uh, later on in life, she admitted that she had no relation whatsoever because that I thought that was true and I looked it up and Yeah. Not true. Tony Kynaston: So I should change my family name to Van Gogh. So Alex gets a leg up in the, in the Cameron Reilly: No Buffet. Change it to Buffet. Yeah. Yeah. Buffet. Yeah. Me and Warren. Sure, sure. So the company. That invented digital [00:14:00] photography but didn’t know what to do with it. And I had to say like on the surface of it, when I first came across this in our buy list, and it was at the top of our buy list, our American buy list this week, I should say, it looks like a classic value stock to me. You know, company that used to be riding high had to reinvent itself, Tony Kynaston: It’s Cameron Reilly: still making money, but uh, doesn’t have the brand that it once had, but it, so it’s not sexy at all. It’s best days along gone, but it still makes money and it’s doing some interesting things. So obviously those of us of a certain age, you think Kodak, you think little yellow boxes, envelopes that took a week to be ready and then you’d find out that most of them were blurry or you’d cut the head off and all of that kinda stuff. Tony Kynaston: to pay for them. Yep. Cameron Reilly: Yeah. I dunno if the kids of today have any sort of [00:15:00] connection with the Kodak brand whatsoever. Um, anyone under the age of 40, I don’t know. But Tony Kynaston: Well, Cameron Reilly: for us it was a big deal Tony Kynaston: yeah. And Jenny’s first job out of university was working at Kodak in Coberg in Melbourne. Cameron Reilly: really in like Tony Kynaston: A factory. Yeah. Cameron Reilly: in the finance department. Was she like, Tony Kynaston: in fact. Cameron Reilly: right. Tony Kynaston: Hmm. Cameron Reilly: There you go. Well, these days they’re basically a chemical company, commercial print tech, and somewhat controversially pharmaceutical ingredients, which we’ll get into. Tony Kynaston: involved in print, in photographs. Cameron Reilly: Hmm. And it was a Donald Trump idea that they get into pharmaceuticals Tony Kynaston: Good. That’s great. Cameron Reilly: and a little bit of insider trading involved in the process. That’s the only real scandal we’ve got here. Tony Kynaston: that goes with, that goes with the turf, doesn’t it really? Cameron Reilly: It does, doesn’t it? With the grifter in chief. It’s been a bit of a difficult transition for them along the way. They went bankrupt in [00:16:00] 2012, wiped out their legacy shareholders, a lot of downsizing Today. They’re led by CEO James Conza. Not to be confused with George Costanza and all my notes, I kept just writing Costanza Can’t stand you. Uh, he’s a restructuring, restructuring specialist who actually had joined the board before they went bankrupt Tony Kynaston: Right. Cameron Reilly: and, uh, helped them navigate that period and then ended up as the CEO. And he’s spent the last five years turning them around. He is implementing what he calls the one Kodak strategy, which is basically eliminating corporate silos of which you could well imagine with 140 odd year old company they had. Quite a few. He’s been paying down debt, monetizing their huge patent portfolio Tony Kynaston: mm. Cameron Reilly: their real estate holdings. So [00:17:00] he’s been stripping it down and figuring out what assets they have that can actually be made a little bit more profit. He’s doing a good and g go really? He’s like stripping it back and, um, figuring out what are its undervalued assets, you know? Tony Kynaston: you read about the pension fund as part of that Cameron Reilly: I did, it’s the last part of this story. Yeah. Tony Kynaston: it then. Cameron Reilly: Yeah. Which is a brilliant story. It’s, yeah, it sounds really impressive. Anyway, let’s do the origin, uh, ’cause this is the fun bit, really. So founded in 1880 by George Eastman. No relation to Linda McCartney Tony Kynaston: All the Epstein’s. Cameron Reilly: as a partnership between George Eastman and Henry. A strong Eastman was, uh. A camera buff cameras were around before Kodak, but he, he was interested in it. They started making plates, but ended up making [00:18:00] invented film, uh, cameras. And then they became, obviously one of the world’s largest film and camera manufacturers, and also developed a model of welfare capitalism built around the city of Rochester, New York, which I nearly moved to in 1998 when I was part of Microsoft. I got a job offer Tony Kynaston: Hmm. Cameron Reilly: to be part of the Microsoft office in Rochester. Um, didn’t end up taking it, but, uh, yeah, I, I’ve always wondered what my life would’ve been like if I’d Tony Kynaston: Yeah, Cameron Reilly: to Rochester, New York. They, the company was so influential that the Kodak moment tagline ended up in the dictionary. For kids of a certain age that, dunno what that means. Sort of a moment to be recorded for posterity. Everyone, you’d go, oh, that’s a Kodak moment. You know? Tony Kynaston: Oh, okay. I thought you were looking at what the dictionary was. Cameron Reilly: Yes. If you dunno what a dictionary is, we have bigger problems. [00:19:00] Um, they began to struggle financially in the late 1990s as a result, initially of just increasing competition, mostly from Fuji film. They really, they dominated the film space for a long, long time. And then they started to get some competitors, but then they developed the first self-contained digital camera prototype in the mid 1970s. Tony Kynaston: Wow. Cameron Reilly: was a guy who, a guy, one of one of their research guys there, who was convinced that digital photography was gonna be the future. They did a lot of work in that area, but then didn’t. Didn’t run with it soon enough. They did run with it eventually, but uh, weren’t able to execute on it and it was just too hard to lock it down. Uh, there was too much competition. They continued to provide commercial, digital printing, uh, products and services, motion, picture, film, and even still film, [00:20:00] which still exists today, somewhat surprisingly. There is still, they spun it off a, a few years ago to a company called Kodak Alaris, which I think is owned by a private equity firm now it’s based outta the uk, but they still make Kodak film. You can still buy Kodak film, put it in your retro Kodak film camera and, and get it, uh, developed. There are still people that are into that kind of thing. Actually, that reminds me of that film I told you about a few weeks ago. The, um. Japanese film. There’s a Vim Vens film, but in Japan, Tony Kynaston: The Cameron Reilly: main, Tony Kynaston: toilet cleaner. Cameron Reilly: yeah, the toilet cleaner. I can’t remember what the name of the film is now, but that character, uh, that’s what he does. One, one, uh, each week he has a roll of film and he’s got an old time camera Instamatic or something, and he just sits and he takes photos mostly of trees, takes photos of trees or of people, and then [00:21:00] he goes in and he gets it developed, and he waits a week. It’s part of the whole slow living thing that he does. He reads one book a week. He, he uses one roll of film a week. His, his life is built around simplicity. Yeah. Yeah. But it’s kind of enticing, I’m not gonna lie. Like this whole idea of just limit yourself to, huh. Tony Kynaston: would be, you’d be bored. Cameron Reilly: I know you’re like, I’m reading 20 books at one time. You know, I’m like, I read five books at night. I don’t know if you’re like that, but I’ll lie in bed at night and I’ll read, you know, um, Frederick Forsyth for half an hour, and then I’ll go, okay, I, I need something else now. So then I’ll open up a history book or a science book, or I have to flip between. Yeah. Tony Kynaston: Yeah. I think we’ve been conditioned by social media because I’m, I’m the same. I like, I’ve got about, I don’t know, uh, 10 books sitting beside my armchair, Cameron Reilly: Mm-hmm. Tony Kynaston: I’ll go, okay. I’ll start to read this one. And if I doesn’t [00:22:00] take after a, you know, a couple of pages, I’ll put it down and try the next one. And eventually one will take, and I’ll read a chapter or two, and then I’ll get bored with that. Cameron Reilly: Yeah. Well, I’m reading them concurrently because my brain needs bit of this stimulation, bit of that stimulation, bit of this I need to need, I need, I need all of the, all of the slots filled before I feel good at night. Tony Kynaston: should, we should write an app to like, do that for books, TikTok for books, Cameron Reilly: Just like give you a page and then you flip to another page and you flip to another page. Yeah. Tony Kynaston: on your reading habits, Cameron Reilly: Uhhuh. Tony Kynaston: we think you’ll need this Cameron Reilly: Yeah. Here’s what you, Tony Kynaston: Yeah. Cameron Reilly: here’s what you need to feel okay about yourself, because I’m like, I’m enjoying the Dessa file, but then part of my brain is going, okay, you’re learning a little bit about concentration camps and rat lines, but you already know that ’cause you’ve covered it in your history podcasts. You haven’t read any science today. What are you doing? Well, you’re wasting your life. You need to, you need to read a little bit about [00:23:00] quantum, quantum mechanics. Just stop doing. Tony Kynaston: for? It’s a great app. TikTok for TikTok for books. Cameron Reilly: Yeah. You know how many of us read books? Tony Kynaston: your Cameron Reilly: It’s like you, Tony Kynaston: like, Cameron Reilly: you and me are the only people that read books anymore. Tony and the entire planet. Tony Kynaston: true. Cameron Reilly: Tamino was telling me the other day that he’s writing another book, and I go, why? No one reads apart from us? He reads and he said, yeah, you don’t get it. It’s not about people reading it. The writing of the book forces me to think about things. I, yeah, it was like when we did the psychopath epidemic, Tony Kynaston: Mm-hmm. Cameron Reilly: you know, it, it was the writing of it. That was the interesting bit. Um, you know, I had to think through the model to write it. Um, the fact that no one read. It’s disappointing, but that’s, Tony Kynaston: Yeah. But it’s like it, Cameron Reilly: no one reads, Tony Kynaston: with me. I think it was in a, in med school that I had a girlfriend who was in med school. Cameron Reilly: I thought you were gonna say you did med schoolers. I go, what? Tony Kynaston: I used to go up to anatomy classes. But, [00:24:00] um, they had a, a philosophy, I think it was something like, learn one, teach one, do one. Cameron Reilly: Right. Tony Kynaston: So you’d, you know, you’d learn about a disease, you treat, teach about the disease, and then you’d have to go and Cameron Reilly: Then you go catch the disease and, and see what it was like Tony Kynaston: But it’s like, that’s the epitome of learning, isn’t it, of education. Cameron Reilly: you just turned up to anatomy classes. Uh, I bet you did. Yeah. Female anatomy just did, they were the classes, Tony Kynaston: on the slab. Cameron Reilly: right. Female cadaver. Tony Kynaston: There was, it was a mixture. Cameron Reilly: Sure. Tony Kynaston: There were, Cameron Reilly: Anyway, back to Kodak. Stop distracting me. Tony Kynaston: it’s formaldehyde, Cameron Reilly: Oh, yeah. Tony Kynaston: bodies. Yeah. It’s like, um, you know how if you put chicken in the fridge after you’ve, um, cooked it Cameron Reilly: Mm-hmm. Tony Kynaston: day, it’s got Cameron Reilly: Mm-hmm. Tony Kynaston: to it. Cameron Reilly: Hmm. Tony Kynaston: hungry, but that’s, that’s what it reminded me of, sort of brown crinkly skin and, uh, yeah. [00:25:00] Old flesh. Cameron Reilly: Wow. You’re creeping me out now. So. Kodak Alaris. Then, as I said, they started producing pharmaceuticals during COVID, but we’ll get into that. The name Kodak. Tony, you wanna take a guess at what it means, Tony Kynaston: don’t Cameron Reilly: it comes from? Tony Kynaston: is, were they like really big Kelly surveillance fans? Cameron Reilly: Hey, we’ll just take Kojack and we’ll just change your letter. Tony Kynaston: Yeah. Cameron Reilly: Well, the other way around. Tony Kynaston: They tried to call it Kojak, but they got copyrighted. Cameron Reilly: Yeah. In 1880. Yeah. Um, Kodak Elli Vals came back from the future and threatened them with a lawsuit. Tony Kynaston: Rockwell. Cameron Reilly: Yeah. Tony Kynaston: Yeah. Cameron Reilly: The name means absolutely nothing. It was invented by George Eastman using an anagram set, like a Scrabble set. Tony Kynaston: like Linda Eastman. Cameron Reilly: Like Linda Eastman invented her relationship. Yeah, apparently he liked the letter K. He thought there was [00:26:00] something about the letter. He thought there was something about the letter K that was distinctive. It cut through, it was sharp, and so he was mucking around with the Scrabble board letters and he came up with Kodak. The company was actually originally called the Eastman Dry Plate Company, was founded on January 1st, 1881 with Strong as President and Eastman as treasurer Strong. Henry Strong. His partner was previously running his family’s buggy whip manufacturing company Tony Kynaston: Warren Buffet always warns about buying buggy whip companies, Cameron Reilly: because no one has a buggy anymore. Tony Kynaston: Yeah. Cameron Reilly: Yeah, Tony Kynaston: he, when he talks about value investing, don’t get caught with the buggy whip company, Cameron Reilly: right. Tony Kynaston: which Cameron Reilly: Well, I think. Tony Kynaston: He, Kodak was what he was talking about. Cameron Reilly: Right. Well, I think Strong was smart enough to realize, you know, buggy whips are on their way out. This, this camera thing might be the future. [00:27:00] It was like the high tech startup of 1880. So the company initially sold dry plates for those old timey cameras. But then Eastman started thinking about replacing the plates with a new roll film process. In 1885, he patented the first practical film roll holder with a guy called William Walker, which would allow dry plate cameras to store multiple exposures in a camera. Simultaneously that same year he, Peyton did a form of paper film. He called American Film. Then he hired a chemist, Henry Ricken bark to improve the film. He went on to invent Paul McCartney’s bass guitar just to. Close the loop on the McCartneys. Tony Kynaston: they named the falls after him in, uh, in, uh, Holmes. The Uck Falls Cameron Reilly: Oh, I don’t remember that one. Tony Kynaston: [00:28:00] Holmes goes over to Uck. Falls with Moriarty. Mm-hmm. Cameron Reilly: Oh, okay. Right. It’s like in the TV series when they went over the building, went off the rooftop. Yeah. Right. Um, and then Tony Kynaston: that was Cameron Reilly: that Tony Kynaston: not the TV show. It was in the book. You have to Cameron Reilly: In the book. Yeah. Yeah, yeah, Tony Kynaston: Yeah. Cameron Reilly: yeah. Then that culminated in the 1889 patent for Nitrocellulose film. Then in 1888, the Kodak camera was patented by Eastman. It was a box camera with a fixed focused lens on the front and no, no viewfinder. It had two V-shaped silhouettes at the top that aided in aiming in the direction of the subject. It had a rotating key to advance the film, a pull string to set the shutter and a button on the side to release it, which exposed the celluloid film. Inside. It had a rotating bar to operate the shutter. When the user [00:29:00] pressed the button to take a photograph and in a rope was tightened, and the exposure began. Once the photograph had been taken, the user had to rotate the upper key to change the selected frame within the celluloid tape. Tony Kynaston: That really is high tech for the. Isn’t it? It’s Cameron Reilly: It’s incredible. Like the amount of thinking that had to go into that to figure it out sort of reminds me a little bit of the printing press when I, I did a whole series on Gutenberg coming up with the printing press and like you, I was talking to Chrissy about this this morning. Like you just think about the impact that film cameras had or cameras had on Tony Kynaston: Yeah. Cameron Reilly: civilization and history and you know, whatever over the last hundred years. Like it’s a non-trivial, bloody invention and, and component of society. Tony Kynaston: Yeah. So before the film camera, you wanted to, to capture a scene, you [00:30:00] hired a painter and they spent a day sketching and, and taking, you know, uh, drafts of it and then going away for a month and coming back with your landscape or your portrait or whatever. Yeah. Cameron Reilly: And if you hired Leonardo da Vinci, good chance he wouldn’t finish it. Tony Kynaston: right. Cameron Reilly: I won’t mention anything about my commission for Alex. She, she’s the Da Vinci, you kindest and Da Vinci. Tony Kynaston: to then. Cameron Reilly: Da Vinci. Yeah. So then they sold a $25 camera, which came preloaded. You’ll love. This came preloaded with a film roll of a hundred exposures. When you finished that, you sent the entire camera Tony Kynaston: Mm-hmm. Cameron Reilly: to Eastman headquarters in Rochester with a $10 fee for processing. They would then process it for you, ’cause people didn’t have dark rooms and whatever to process their [00:31:00] own stuff. They would return the camera with the prints, the negatives, and a new roll of film. You could also. Uh, get a $2 roll of film. If you’re a prote professional photographer who could develop your own, you can buy ’em for two bucks, Tony Kynaston: Right. Cameron Reilly: like pretty amazing full service business model. I dunno how much it would’ve cost you to ship a huge bloody box camera with the film in it to Rochester and get it sent back to you. Can’t have been easy or trivial, but it was an immediate success and launched a fad of amateur photography. Their advertising slogan, Barry and Stan came up with this. You press the button, we do the rest. Tony Kynaston: Good. Cameron Reilly: Fantastic. Like, absolutely killer advertising, killer business model. One stop. We do it all like really, really impressive stuff. Wanna take a guess at [00:32:00] what year the Brownie camera was marketed to children for the first time? Tony Kynaston: Ooh. I’m gonna say it’d be like in the 1910s that decade, then 1915 maybe. Cameron Reilly: I would’ve guessed the 1950s. It was 1900. Tony Kynaston: Wow. Cameron Reilly: released a camera for kids. Tony Kynaston: Wow. Cameron Reilly: Boggles my mind. So then they basically cornered the market when Thomas Edison and other film producers formed the Motion Picture Peyton’s Company in 1908. Uh, Eastman negotiated for Kodak to be the sole supplier of film to the industry. So they locked all of that down Tony Kynaston: It’s a good Cameron Reilly: and Tony Kynaston: he? Cameron Reilly: yeah, really, really impressive, impressive guy. Tony Kynaston: Hmm. Cameron Reilly: Um. I mentioned before, they developed this version of welfare capitalism in Rochester. So they built a basically a, a a a village in Rochester. All of the employees lived there. [00:33:00] And during the 1910s and 1920s, it was sort of the vanguard of welfare capitalism. There was a number of those experiments I’ve read about. Really? Ford was one I didn’t know about that Tony Kynaston: He, I, I’m thinking Cameron Reilly: thought he was a Tony Kynaston: rubber plants in South America. He built a village and provided for the Cameron Reilly: right, Tony Kynaston: Yeah. Cameron Reilly: right. Well this is in America. There was a number of these sort of, I can’t remember the other one. There was, um, like water, not Waterford, crystal, um, who does the China, uh, the, it’s not Waterford. Wedgewood. I think Wedgewood was one of these guys. So, no, he was British, wasn’t he? Tony Kynaston: Yeah. Cameron Reilly: there was another company in the US that had one of these sort of welfare capitalism cities where they looked after their employees. But of course, you know, if you know anything about. Early American capitalism. Employees were treated like animals. It was, you know, basically wage slavery at its worst. Workers had no rights. They were working long hours for [00:34:00] little pay. If they tried to go, there weren’t any unions if they tried to go on strike. They would call in, um, troops to beat them and shoot them and whatever. They would terrorize them to get back to work. And there was really no laws to stop them from doing that. Most of the businessmen bribed their local senators and congressmen anyway, and it was, it was a very, very brutal time for employees in the early 20th century, which is one of the reasons why socialism was so popular around the world, even in the West in that period because workers were mistreated and they were fighting for, for more rights. And that was apparently Eastman’s rationale here. He thought, well, he was terrified of labor unions and believed that the way to prevent his workers from unionizing was to look after them. Like, wow, what a concept. Um. So [00:35:00] he offered life insurance, disability benefits, retirement annuity plans for employees, um, profit sharing program for all employees. In 1912. In 1919, he sold a large portion of his stock in the company to company employees below market value. He was just, uh, way ahead of his time. I mean, really believed that looking after his employees served, the best interest of the company wasn’t doing it. I think because he, maybe he did care about his employees, but he also cared about the success of the business and thought if you pay people well and look after them, they’ll be loyal and they’ll do the right thing. Right? They’ll work hard. Tony Kynaston: attract better talent too. Cameron Reilly: True. So, uh, he also thought that selling stock to employees would make it more appealing to investors because a lot of investors were, uh, wary [00:36:00] about the amount of stock that he controlled. So he was diluting his control over the business and it also lowered the price of the stock, and it would keep antitrust lawyers from investigating the company or that kind of stuff. Unfortunately, it’s not all good. Um, he refused to hire Catholics, African Americans, and Jews, but like Henry Ford. Um, and, but approximately one third of his employees were women. So a little bit progressive, not, not totally progressive in his thinking at the time, but you know, no one’s perfect. Tony Kynaston: Unless you’re a black Catholic, then you Buckley. Cameron Reilly: A black Catholic Jew. Yeah. Then you’re in trouble. 1972. Dr. Roger Van Heen. Which sounds like a name that, uh, Chevy Chase would come up with in a Fletch movie, except that would be Roger Van Heiden. J [00:37:00] Jensen can, he was the director of the physics division in Kodak Research Labs, KRL. He was the guy that was convinced that digital imaging would someday replace photographic film, and he established a small lab where they began investigating the basic processes of metal oxide, semiconductor technology to manufacture charge coupled device image sensors, CCDs, which every iPhone Android phone today has a highly advanced CCD in it for taking photos. Larry Madison, another employee, wrote a report in 1979 predicting a complete shift to digital photography would occur by 2010. So. Tony Kynaston: Very Cameron Reilly: They had guys that could see this coming, but it’s uh, what was Clayton Christensen’s book? The, [00:38:00] um, Tony Kynaston: is that the, uh, entrepreneur’s dilemma? Cameron Reilly: the Innovators, innovators Dilemma, Tony Kynaston: Yeah. Cameron Reilly: I think, yeah. When you, when you basically have a company that makes its money from one paradigm, uh, the replacement paradigm is gonna cannibalize that business and corporate culture makes it very difficult to make that transition. And they were also very skeptical the company executives about making the leap because it would require heavy investment for what was at the time, a very limited market Tony Kynaston: Yep. Cameron Reilly: and would put the company into direct competition with established firms in the computer hardware industry that they thought could probably build these CCDs Tony Kynaston: Right. Cameron Reilly: more economically. As it turns out, they were right, but, uh, what do you do? Do you just not do it and let the computer industry come and crush you anyway, Tony Kynaston: Yeah. Cameron Reilly: is what happened. But that said, [00:39:00] by 2005, Kodak were number one in the US in digital camera sales, which were running about $5.7 billion a year. At the time. It was a huge space. So 2005, they were, Tony Kynaston: I don’t remember Kodak digital cameras being that big Cameron Reilly: yeah, I do. I remember. I remember surprisingly, they pivoted very early on and just seemed like they had navigated the space very well. Can’t remember what it the camera was called, but it was like. Easy snap or easy pixel or something like that. I think I had one. They were shitty. I mean, I have photos still. ’cause you know, my, my kids were five, um, about the same age as Alex. We had like one of those, I’ve got photos from ’em, they’re like three 50 by three. Like the, Tony Kynaston: Yeah. Cameron Reilly: resolution on them is really small and terrible, but [00:40:00] at the time it was, uh, amazing. Um, but the problem was they had very low profit margins on these things because they had a lot of competition. In the film business, they had very high profit margins, but it was declining. So they had declining main business, doing very well in another business, but they couldn’t keep their margins. By 2007, they’d fallen from number one to number four in digital camera sales with a 9.6% share. By 2010, they dropped down to a 7% share and were in seventh place behind Cannon, Sony, Nickon, and others. Tony Kynaston: They’re the ones I re, I remember, so perhaps I was a bit late to wearing digital cameras, but I remember having a Panasonic and a, a Nick on, I think over the years. Cameron Reilly: Hmm. So all of those Asian companies came out and just, uh, them, so they went bankrupt [00:41:00] and had to reinvent themselves in 2012. But then. On July 28th, 2020, the Trump administration announced that it planned to give Kodak a $765 million loan from the DFC, the Development Finance Corporation part of, uh, a Washington thing for manufacturing ingredients used in pharmaceuticals to rebuild the National stockpile depleted by the COVID pandemic and to reduce dependency on foreign factories. Tony Kynaston: Why was Kodak involved in that? Cameron Reilly: Well, he did a deal because they obviously had expertise in chemicals, so it was like, Hey, you guys dunno what to do with yourselves. You got experts in particularly light sensitive chemicals. We need, we need, uh, somebody to build pharmaceutical precursors. Uh, if we give you a 600 and a $765 million loan, can you, you know, [00:42:00] build up a division of the Yeah, sure. Tony Kynaston: Yeah. Cameron Reilly: The story’s even better. So within two days of this announcement, the stock price had gone up by 2189%. Tony Kynaston: and who owned the stock? Pre and post. Cameron Reilly: It went from $2 15 to $60 in two days. Uh, the New York Times reported that one day before the White House announced the loan, Kodak, CEO, Jim Conza was given 1.75 million stock options, Tony Kynaston: So Cameron Reilly: of Tony Kynaston: 60 bucks. Cameron Reilly: no at $2 15 Tony Kynaston: Right. But yeah. Okay. Cameron Reilly: strike price. Tony Kynaston: Yeah. Cameron Reilly: That was two days before, no one day before the announcement. He was given 1.75 million stock options, Tony Kynaston: Lucky him. Lucky Mr. [00:43:00] Costanza. Cameron Reilly: some of which he was able to execute immediately. There was a, like a vesting period. Tony Kynaston: Hmm. Cameron Reilly: Couldn’t execute all of them, but he could execute some of them. Uh, this news blew up. Elizabeth Warren and people like that discovered this and went nuts over it. The funding was put on hold by the Securities and Exchange Commission. There was, uh, uh, allegations of insider trading by Kodak executives. Big investigation happened. Conza and other executives had to testify in June of 2021. As part of SEC investigations. There was a class action lawsuit from Kodak. Investors Tony Kynaston: Why? Why? Because they share price has gone from two bucks, 50 to 60 bucks. Cameron Reilly: Didn’t stay at 60 bucks, Tony, it fell. Tony Kynaston: Uh, Cameron Reilly: Down to $7 where it’s more or less stayed, but still from $2 to $7. Not bad. It’s about $7 [00:44:00] 83 at the moment. Uh, well it was when I did my analysis, but, uh, all of the executives got off scot-free. Tony, uh, class action was dismissed. Um, uh, all the executives walked away from it unscathed, but two guys did not. A guy called Andrew Stiles and his cousin both pled guilty to insider trading, but neither of them worked for Kodak. Andrew Stiles was the vice president at Flower, P-H-L-O-W, a Richmond, Virginia based medicine supply chain company that was working with Kodak, where he allegedly learned about the loan and tipped off his cousin. An indictment included coded text messages between them, including where Gray Styles referred to the loan as the film we sent off a few weeks ago to get developed. Tony Kynaston: The Chinese watch, Cameron Reilly: Chinese watch [00:45:00] that, uh, brilliant attempt at, uh, coded text messages did not get past the SEC investigators apparently. Tony Kynaston: You don’t put things in text if you like. These are amateurs. You go and play golf on the golf course. You happen to come across somebody else, you know Cameron Reilly: Yeah. Tony Kynaston: front, and you talk about it at the ninth. Green, Cameron Reilly: Mm-hmm. Tony Kynaston: from the clubhouse. Cameron Reilly: This is how you do it. This is how you got rich Tony Kynaston: No, is Cameron Reilly: saying. Tony Kynaston: how, Cameron Reilly: No. Tony Kynaston: I just know how it’s done Cameron Reilly: So anyway, uh, the, all the company executives, uh, were found to be, uh, uh, innocent of insider trading. Tony Kynaston: except for flow. Cameron Reilly: Except the guy at Flow and his cousin. Uh, but the reputational damage was pretty bad. Cast appall over the company’s pharmaceutical ambitions. They didn’t get the loan, but they went and did it anyway, Tony Kynaston: Yeah. Cameron Reilly: they have a pharmaceutical division [00:46:00] today. So the physical heart of the company remains at Eastman Business Park in Rochester. They have 1200 acres and over a hundred buildings. It’s a small city in its own right. Has its own dedicated power plant, wastewater treatment system, 30 miles of private railroad tracks. But Kodak doesn’t operate all of the facilities there. Now, they sold that off too, to a company called Red Rochester. That that’s all it does is it just runs Eastman Business Park. That’s its business. Tony Kynaston: George Costanza can’t ride the railroads around the private railway Cameron Reilly: Sure. He probably can. I’m sure he is. He’s, he’s got like a little gold pass, a Willy Wonka golden ticket. Tony Kynaston: I’m riding the train. Gary. Cameron Reilly: The company though, still owns the land and the laboratory space. It leases out the land to dozens of external tenants. Uh, so it’s basically an industrial landlord, but has its [00:47:00] own core manufacturing operations there. I read an interesting interview with Costanza, George Costanza. He, he says, um. The rough outline of how he got Kodak on the right path is relatively simple. When you are losing money, stop spending so much. If consumers don’t want your products, figure out what they do want and make sure your internal operations are actually running smoothly. Of course, there’s more nuance than that, but the major issue is clear to Conza. On his first day on the job, he spoke to more than a thousand Kodak employees in the company’s theater and asked them to tell him what Kodak did. Nobody could answer. And as Za dove deeper into the company, he discovered something that Kodak was good at doing, making products nobody wanted. Um, it reminds me of two things when I ran my marketing consulting business, and I’d run workshops for people when I was gonna write a strategy, I’d call a, like a one day workshop. I’d get all of their team in and the first question [00:48:00] I would always ask them is, tell me what your business does. Tony Kynaston: Right. Cameron Reilly: And. No, I’d say, tell me what problem your business solves. The reason every business exists is to solve a problem. Tell me what problem your business solves. And they’d always say, well, we make this widget. And I go, no, you’re telling me what you make. Tell me what problem you solve. Better than anyone else, faster than anyone else, cheaper than anyone else. What is it you do that has unique value proposition? Well, you know, we are, you know, no, they could never do it. Never. No. Even the CEO, the founder of the company, they could never explain Tony Kynaston: Mm-hmm. Cameron Reilly: in terms of solving problems. ’cause it’s not how they thought about, usually it was founded by a guy who was a salesman for a company and he had some clients that he’d go and go, well, I can do it. You know, and they’d go into competition, maybe cheaper, maybe whatever. I have the relationships and blah, blah, blah, blah, blah. [00:49:00] But the other thing it reminds me of is Tony Kynaston: benefits. Cameron Reilly: when. Steve Jobs took over Apple again after Scully left, and Steve took it over in 1997, I think it was, and he just looked at all the products that they were making, which nobody wanted. He just like, they were doing printers and Tony Kynaston: Right. Cameron Reilly: the, the, actually the first tablet, whatever it was called, the, um, Newton. Yeah. Which was great. I thought the Newton was amazing, but no, it, it didn’t have any sales and he scrapped like 90% of their products day one. Okay, we’re getting rid of all of this. Gone. We’re gonna figure out what people want and we’re gonna make it and we’re gonna sell it to them. Which was the iMac, I think was the first thing he came out with. Right? Tony Kynaston: we’re gonna figure it out before they need it. Cameron Reilly: Yeah. Yeah. We tell them what they want. Yeah. Um, anyway, finishing this, he says, you have two choices You can turn around and try to survive for 12 years until you run out of money, [00:50:00] because you’re afraid if you spend money, you’ll die sooner, or you invest that money, you may die sooner, but you know the outcome. At least you have a fighting chance of surviving. I always take the latter. So I like that. I thought Tony Kynaston: yeah. Cameron Reilly: guy makes sense. Yeah. Yeah. So that’s what he’s been doing. So their operations today is split into three reportable segments. The print segment is the number one revenue driver contributes about 67% of the top line did in 2025. This is the classic razor and blade model. They manufacture and sell highly complex digital offset plate systems and high speed inkjet presses. The Prosper brand, so this is for commercial printers. I don’t understand much about it, but the razor is apparently the machine and the blades are the recurring sales of aluminum printing plates. These CTP plates compute a plate, I think CT P stands for. Tony Kynaston: Mm-hmm. Cameron Reilly: They’ve got their own technology [00:51:00] plus dig, Tony Kynaston: Right. Cameron Reilly: special digital links and maintenance services. So 20 FY 2025, they did about $715 million of revenue in. That side of the business. Commercial print. They also have the advanced materials and chemicals, which I’ll get to in a second. But the, the smallest part of the business is brand. They license the brand. This blew my mind. A major driver is Kodak Apparel. It’s a street wear brand licensed to a South Korean company where they sell like retro Kodak clothing. It’s got the old Kodak thing, and that’s a thing, right? You see people wearing like retro added ass or whatever. Tony Kynaston: Yeah. Cameron Reilly: But, well, I mean, added ass and Coca-Cola are still things really, Kodak’s not really a thing in the way that it used to be a thing, but it’s a thing. They, [00:52:00] they make money out of selling. The brand and it has retro value as of 2025. There are 123 physical Kodak branded retail stores in South Korea selling vintage style clothing bags and accessories. They’ve expanded into Hong Kong, Taiwan, and Japan with Kodak branding on it. Tony Kynaston: Wow. So it’ll eventually it’ll come to us too and to the Cameron Reilly: It probably already has, Tony Kynaston: Yeah, Cameron Reilly: mind boggling to me. Tony Kynaston: Can you, while we’re talking about that, did you come across in your research why they used red and yellow as their color scheme delivery? Cameron Reilly: no, I didn’t, didn’t get into that. Tony Kynaston: I’m always interested in that because it struck me when I was working at Shell, which is red and yellow. There are so many big, successful worldwide companies, which are red and yellow. There’s McDonald’s, there’s Kodak, there’s Shell, and I could never Cameron Reilly: I. Tony Kynaston: it out. [00:53:00] I, I know red and yellow are. Very obvious in terms of their, know, like, it’s like yellow and black is this, this colors of hazard. ’cause they’re easiest to see. yeah, I was always wondered why red and yellow works so well. Cameron Reilly: Well, I read a lot when I was running the marketing business. I read a lot on color theory Tony Kynaston: Mm-hmm. Cameron Reilly: you know, I can’t remember what red and yellow are, but I think they’re like, um, energetic, vibrant, exciting, those sorts of things. You know, your bank logos are usually a royal blue because it means conservative and, you know, steady. Yeah. So I, I assume it probably has something to do with that, but I dunno if Eastman knew, knew that when he came up with Kodak, Tony Kynaston: maybe Cameron Reilly: the 1880s, Tony Kynaston: like a red outline around the Cameron Reilly: right. The QAV logo. Yeah. That might be the thing we’re missing. Tony Kynaston: Mm-hmm. Cameron Reilly: Um, back to branding, they have. Long term and even perpetual license agreements with a whole bunch of consumer products categories, [00:54:00] eyewear, a perpetual worldwide license with Ellisor Luxottica to use the Kodak brand for its full range of product categories. Tony Kynaston: Wow. Cameron Reilly: So Kodak sunglasses, I guess. Um, they have even licensed the name for digital cameras, digital photo frames, portable projectors and speakers. So you’re buying a Kodak digital camera, not made by Kodak, just as the Kodak name on it. It’s like a Trump hotel, right? Um, they even have, Tony Kynaston: any hotel. I mean, most of them are Cameron Reilly: yeah, just licensing. Yeah. The logo appears on flashlights, batteries, solar panels, power generators, and even wall paint. Tony Kynaston: Wow. Cameron Reilly: It has, Tony Kynaston: very clever, isn’t it, Cameron Reilly: it is. Tony Kynaston: that, that part of the business. Yeah. Cameron Reilly: It has legacy brand recognition value. Oh, it’s Kodak. It must be good. Tony Kynaston: mm Cameron Reilly: [00:55:00] Crazy. But they only make 23 million, like outta their billion dollars in revenue. $23 million came from brand licensing. So it’s not big. But you know, I’d take it, maybe that’s what we should license the QAV logo for sunglasses. I think that’s, that’s the next thing we’ll go into. Tony Kynaston: a great idea. Cameron Reilly: Yeah. Or kung fu equipment. Uh, I wear this ’cause I go straight from here to Kung fu, so I wear this to my Kung fu class every week. Maybe I should just start. Tony Kynaston: anyone ever ask you what it stands for? Cameron Reilly: Never. No one has ever asked me what it stands for. I keep waiting Tony Kynaston: Like, Cameron Reilly: five years. Tony Kynaston: and I’m thinking, oh, Cameron Reilly: Yeah, yeah, Tony Kynaston: yeah, Cameron Reilly: yeah. No, no one ever asks. Yeah. Should have a little thing on the bus. Says ask me like, like Amway or, uh, you know, some social, yeah, you, um. Okay, so the advanced materials and chemicals segment is the other one. That’s the profitability and the growth narrative. So they, they do have deep [00:56:00] legacy knowledge of material sites, specifically light sensitive chemicals and high precision coating processes. The a m and C segment has four distinct lines of business, industrial film, and chemicals, and that’s high-end materials for industrial imaging motion picture. There’s a surprising resurgence thanks to guys like Tarantino and Scorsese who are pushing for film. So, and Oppenheimer, uh, Christopher Nolan, you mentioned earlier, uh, this show or the last show, Tony Kynaston: The last show, I think. Cameron Reilly: they want 70 mil. They wanna shoot everything on 70 mil. Kodak are one of the big providers of that advanced materials and functional printing. Uh, that’s, uh, electrically conductive inks and sensors for the electronics industry. Tony Kynaston: Yep. Cameron Reilly: And IP licensing and analytical services. They have a huge library of chemical and manufacturing patents. They’ve amassed over 140 years, so they’re [00:57:00] making the most outta that. Um, 2025 A and C saw a 17% revenue increase and accounted for the vast majority of the company’s operational profit. So, uh, yeah, I think if you look at it, um, yeah, about 39 million, uh, of their profit out of 62 came from a m and C last year. Tony Kynaston: Like, it’s an interesting situation, isn’t it? On one hand I’m surprised Kodak is still going, but on the other hand it’s, it’s gone from being this worldwide conglomerate to a company that’s making 60 million a year, which is good, don’t get me wrong, but it’d be a shadow of what it was making 50 years Cameron Reilly: Oh yeah. Tony Kynaston: Mm. Cameron Reilly: Yeah. So the pharmaceutical pivot that I mentioned. So they’ve begun producing regulated class one laboratory reagents, including phosphate, buffered saline, PBS, and water for injection. WFI. So [00:58:00] rationale, as I said earlier, is the US’ dangerously reliant on foreign nations, specifically China and India, for a lot of these key, um, underlying materials. Kodak already possesses the chemical reactors and the high quality water systems to manufacture this stuff. So they’re seen as a by American. Um, option. They need to ramp up. They are ramping up, and this could be a big business for them moving forwards. It’s sort of a startup, but not really. I mean, it’s relying on something that they’re already very good at. It’s just an area they haven’t been very active in previously. It’s a small fraction of their revenue at the moment, but it could be a big thing for them in the future. Uh, they have a bit of a dirty environmental legacy. They’re legally and financially responsible for over a century of industrial pollution in the Rochester area. As part of their bankruptcy [00:59:00] exit in 2012, they committed to funding an environmental trust for the cleanup of Eastman Business Park and the Genesee River. There’s some dirt around that. They’ve committed to $45 million to a trust, which is supposed to be cleaning this up. That’s run by the New York State Department of Environmental Conservation. Expenses could get higher than that, could be as high as a hundred million. They’re also liable for 50% of any costs exceeding a hundred million legacy claims. But the company says, you know, it’s all manageable. It’s not a big deal. They think it’s fine. The physical infrastructure of Kodak Park is also heavily contaminated with asbestos. There are a lot of lawsuits involved in people getting cancer due to exposure at Kodak facilities, but most of those claims are directed at the original manufacturers of the asbestos products, not Kodak itself, but they do have significant reserves set aside for legacy workers’ [01:00:00] compensation claims. Then there’s the billion dollar pension reversion, the Crip, which uh, is fascinating. We hinted at earlier, so late last year, 2025, they had this idea. They had this. Kodak Retirement income plan, the KRIP, it was a defined benefit pension plan that somehow was significantly overfunded relative to its obligations. So they basically terminated the plan, settled all of the obligations to participants through the purchase of annuities in most cases, and then had $1.023 billion left over Tony Kynaston: Wow. It’s not that, it’s not that unusual. So, Cameron Reilly: really. Tony Kynaston: yeah, I think Shell did something similar. When I was [01:01:00] working there in the eighties, I, I dunno what the numbers were and what the profit was, but it went from being a defined benefits plan to a, um, what we call a superannuation fund now. So a market based scheme. And, uh, we all got paid out a certain amount depending on how long we’d been there for, which was the profit in the fund. So I got a little, I got a couple of grand because I hadn’t been there long and then Cameron Reilly: Right, Tony Kynaston: new system. So, Cameron Reilly: right. Tony Kynaston: and if you think about it, if you are a, if you are a fund, if you were a defined benefit fund manager for a long enough period you’ve done okay, um, you’re paying out people usually an annuity based on their. Last salary or their last, know, average of the last three years or something like that. So you’ve got a defined benefit to fund, but if you’re doing better than that, you’ve creating a profit, a surplus in the fund. Cameron Reilly: I’m just surprised that any fund manager is able to do well. Most of them would’ve lost most of it. Tony Kynaston: Yeah, true. But Cameron Reilly: By investing [01:02:00] in Ponzi schemes? Tony Kynaston: It does Cameron Reilly: the, Tony Kynaston: yeah, no, it’s a great, great outcome though. Cameron Reilly: so they paid a federal excise tax of 50% of surplus before credits, which was 153 million. They ended up with $870 million net benefit, combination of cash and investment assets. Immediately deployed it to deleverage the company. Um, use 312 million to pay its term loans, prepay its term loans, reducing the principle balance for 512 million to just 200 million, use 256 million to fully fund a new, more sustainable Kodak cash balance plan for current employees. And yeah, so they’ve, they ended up with a lot less debt that they got rid of with this cash. It was, uh, pretty smart. They’ve also been selling off. Hmm. Tony Kynaston: sorry, just a question. Did anyone in the fund make the argument or matter legal case to say that they should have a share of the surplus? Cameron Reilly: [01:03:00] I dunno, I didn’t get into that, but that’s interesting. Yeah, Tony Kynaston: is. Yeah. I Cameron Reilly: yeah, yeah. No, Tony Kynaston: codex fulfilled its requirements to provide an annuity for someone based on their, you know, salary. so they Cameron Reilly: this being the United States, Tony, I’m sure somebody had an ambulance chaser, Tony Kynaston: possibly. Cameron Reilly: Saul Goodman lawyer who would’ve gone in for something like that. Just to wrap it up, ’cause I gotta go to kung fu. They’ve also been selling off real estate assets as part of their slimming down. Um, and for the first time since they came outta bankruptcy in 2012, they actually are in a situation with significant liquidity as of the end of 2025. The company’s unrestricted cash balance stood at 337 million, up from 201 million a year earlier, but it’s still really, really cheap. Um, now. In FY 2025, they reported a gap net loss of 128 million, which obviously doesn’t look good, but [01:04:00] when you break it down, that was driven by $153 million excise tax on the pension reversion, and a $7 million loss on the early extinguishment of debt, Tony Kynaston: Mm-hmm. Cameron Reilly: both of which are, uh, very good ways to, to have a net loss. Good reasons to have a net loss. Tony Kynaston: So what does it say though about what’s the underlying profit without that pension payout? Cameron Reilly: Well, Tony Kynaston: have that Cameron Reilly: I dunno, but if you, if you reverse the one time non-operational items from their gap reporting, Tony Kynaston: Mm-hmm. Cameron Reilly: their operational EBITDA is $62 million positive, Tony Kynaston: Alright. Cameron Reilly: 138% increase over the $26 million generated the year before. Tony Kynaston: Good. Cameron Reilly: That was driven by better pricing in the print segment, higher volumes in a m and c and the reduction of $40 million in annual interest because of the debt pay down. [01:05:00] So I like it. I like it. It’s, um, tremendous story, both in terms of its history and its failures, and this turnaround thing that George Costanza’s doing, um, is impressive. Tony Kynaston: Yeah, it is. I agree. Cameron Reilly: Let me just get into the scoring and the numbers. Um, so its price is not less than our IV number one. Um, our IV number one is EPS divided by our hurdle rate of 19.5% since it has negative EPS. Uh, our IV one is uh, zero, so its price is not less than that. It has no forecast EPS, so we can’t do an IV. Number two, our IV number two is a forecast EPS divided by a 9.64 market hurdle. Um, so we can’t score it for that. It’s price is not less than the book value. The book value per share is $7 31. The price was $7 83 when I did it. It’s gone up a little bit since then, [01:06:00] but either way, it failed that. But the price is less than book plus 30. We add a 30% premium to the book to allow for the fact that quality businesses sometimes trade modestly above their net assets. So book plus 30 is $9 51. Share price is less than that, so it’s scored for that. The price to operate in cashflow, we want it to be less than seven. Theirs is 1.59. It would take approximately 1.6 years of current cash generation to cover their share price at this rate. So that’s nice. Tony Kynaston: It’s very good, isn’t it? Good Cameron Reilly: PE is not less than the yield because they have neither a PE nor a yield. Uh, the yield is not greater than the benchmark rate. Again, because they have no yield, they do not have positive book value growth. They have a three year CAGR of negative 12%. They don’t have a new three point upturn. Um, it’s been a positive upturn for quite a while, but we did score [01:07:00] them for the Petrosky PETROSKY F score. Petrosky PETROSKY F score. It’s a seven INOP pedia. We’ll score it over a 4.5. That means that their financial strength is pretty good, did score them for a quality rank. The Wikipedia quality rank is 66 above our threshold of 60, and the Wikipedia stock rank is 75, which is below our threshold of 90. So I couldn’t score them for that. Growth over PE is not greater than 1.5 again because they don’t have a pe. Um, overall our QAV quality score is 77.78% above our. Sort of cut. We don’t have a cutoff, but we like to see ’em over 75, so it’s over that. And a QAV score of 0.49, Tony Kynaston: No. Cameron Reilly: which is pretty, pretty good. Don’t see them up that high very [01:08:00] often. So what do you think, Tony? Tony Kynaston: I love it. It’s a very interesting story and a great turnaround story. Um, I think very, very well run. So Cameron Reilly: Yeah. Tony Kynaston: and I like Cameron Reilly: Um Tony Kynaston: that smart, they paid down their debt from the pension fund changes. Um, and as you said, that’s you, I think you said it saves 40 million in payments a year for interest, Cameron Reilly: hmm Tony Kynaston: um, which is probably the most of the difference between what they’re making prior to that and what they’re making now. So it’s Cameron Reilly: hmm. Tony Kynaston: put them on a really solid footing. Cameron Reilly: Yeah, it’s really smart. Um, and absolutely no inside of trading whatsoever. Tony, I just can’t be clear on. Enough, no insider trading whatsoever. I added them to the light portfolio. Tony Kynaston: Correct. Cameron Reilly: Yeah, I added ’em to the portfolio yesterday. They’re up 5% overnight, so, Tony Kynaston: wow. Cameron Reilly: and I haven’t even done a Reddit [01:09:00] post about ’em yet, but yeah, it’s a Tony Kynaston: there, oh, I wonder if there’s a, um, are there chemicals business relied on the oil price? Is Cameron Reilly: dunno. Tony Kynaston: somehow? Yeah. Into the chem. Cameron Reilly: Could be. Dunno. Tony Kynaston: Yeah. Cameron Reilly: Uh, by the way, geo Park, uh, I think we did Geo Park last week. Tony Kynaston: Yes. Cameron Reilly: up 9% since we did them last week, so That’s good. Tony Kynaston: that’s good. Yeah. Cameron Reilly: Yeah. Uh, so anyway, that is my pulled pork for this week. Kodak, Eastman Kodak, um, not an oil company, not a shipping company, not a financial services company. Haven’t killed anyone. Well, maybe some people died from asbestos and pollution, but they, apart from that, uh, killed a few shareholders along the way when they went bankrupt and they kind of said, what did you say? They, they killed an industry. Tony Kynaston: Yeah, they killed an industry, film Cameron Reilly: Uh, yeah. But, um, so my takeaway is cla, classic value investment [01:10:00] Buffet. Berkshire Hathaway Tony Kynaston: Turnaround work out. Cameron Reilly: Yeah. Good. Management seem to know what they’re doing. A lot of upside. Um, but even just as it is, it’s a cheap business that’s generating cash that even if it doesn’t grow, it’s just chugging along. So, Tony Kynaston: And a very small part of it sort of is what we would think of when we think of Eastman Kodak. Cameron Reilly: yeah. Tony Kynaston: stuff that we wouldn’t think of Cameron Reilly: Yeah, Tony Kynaston: uh, chemicals. What’d you say? It was water, injectable chemicals or something. It’s, yeah. Cameron Reilly: yeah. Tony Kynaston: Yeah. Cameron Reilly: like that. Tony Kynaston: Mm. Cameron Reilly: After hours. Tony, Tony Kynaston: Yeah. So a few things. Um, have you heard of Michael Rainer otherwise called the Broken Juggler? Cameron Reilly: I have not. Tony Kynaston: He’s, he’s, I started following him on my, um, on my reels and it’s quite, it’s quite surreal and quite fun to watch his clips. But I thought I’d mentioned it to you because, um. He, he’s been going for a long time and, and if you go to his website, you can see he’s been a, [01:11:00] an actor who’s always played the dork, often in commercials, um, as well as a juggler, but it’s, he’s more recent stuff, which I love. So he is like this middle aged little guy who now posts almost every day, a clip of him juggling in his backyard. But the first thing he often does, he’s, he’s got a pillow with a picture of Nicholas Cage on it with a big grid. And he, he always starts off with something like, first I must throw Nicholas cage into the basket, and he tosses the pillow over his shoulder into a basketball hoop in his backyard. And then he, then he’ll say, now I must juggle a chainsaw and a tomahawk and a balling ball. Or, or I, he’s, he’s sort of known for having a parasol that he spins and he balances a, um, a burger on it, which un wraps as it goes. So things like that, it’s very, Cameron Reilly: Wow. Tony Kynaston: good fun to watch. Cameron Reilly: Yeah, I’m just looking. I’ve got one of his YouTube videos going on in the background here with the Tony Kynaston: the more recent ones. Yeah, yeah. [01:12:00] Anyway, is is worth looking up? Um, I’m reading a book called All Ords Fair, which is fairly old. It goes back to sort of post Clinton Times. It’s, it was ghost written, but it’s basically dual interviews with Mary Madeleine and James Carville who were, uh, if you’re a political junkie, like I’m a little bit, uh, used to run the campaigns for George Bush and Bill Clinton presidential campaigns and then got together and got married. So, well actually they were together while they were running campaigns. So very interesting story how one was supporting the Republicans, one was supporting the Democrats, um, and I hadn’t read it. And uh, yeah, it’s good. Really interesting to get behind the scenes looks at that, those two campaigns. Cameron Reilly: How did they make it work? Any like two opposite sides of the divide. Tony Kynaston: Yeah, it’s interesting. I mean, I think they just really liked each other, but, and I think also too, you know, the, they were very, very busy and probably didn’t see a whole heap of each other, but Yeah. [01:13:00] Um, Mary Mattman talks about the RNC would get really upset when Carville would turn up to take her out and out. The Democrats would when she turned up to, to go on a day. Cameron Reilly: And that was in those days, Tony Kynaston: yeah. Cameron Reilly: it was far less vehement than it Tony Kynaston: Correct. Yeah. Yeah. But very interesting. Um. So that’s that. And I, I saw a trailer for the new Martin McDonough film, WildHorse Nine, Cameron Reilly: Yeah, I’ve Tony Kynaston: isn’t, isn’t coming out for, um, a few, not until end of the year, I don’t think. But, um, I didn’t realize what his filmography was. I knew he’d made, um, three billboards outside of Ebbing, Missouri, but I didn’t realize he’d, he’d started off with in Bridges and had done seven soccer, soccer paths. Cameron Reilly: Seven Psychopaths and then the Banshees of Insurance. Tony Kynaston: Yeah, Cameron Reilly: he’s a playwright Tony Kynaston: yeah. Cameron Reilly: originally, I think. Isn’t he an Tony Kynaston: Irish playwright. Yeah, Cameron Reilly: And he’s in a, he’s married to, in a relationship with, [01:14:00] um, Fleabag, Tony Kynaston: correct. Cameron Reilly: her name is. Phoebe Tony Kynaston: Waller Bridge is, yeah. Phoebe Wooler, three bridges. Yeah. So, um, very interesting. I hadn’t really put all those things together until I saw the trailer and then looked into him. Cameron Reilly: Well, he’s one of my favorite. Writer of directors, Tony Kynaston: Yeah. Cameron Reilly: is all of those films are just magnificent. Tony Kynaston: I agree. And I, I thought that before I knew it was the same person who’d done them all, but that was, um, yeah, just joined the dots when I saw the new trailer. Cameron Reilly: and, Tony Kynaston: Mm, Cameron Reilly: what’s his face? Malkovich. I think Tony Kynaston: yep. Cameron Reilly: of looks like him, like a sequel to him. Bruge like two hip men together and one’s gotta kill the other one. But I think, Tony Kynaston: Right. Yeah. Cameron Reilly: doesn’t he get a, he gets a phone call from, who’s the mob boss in this one? It’s, oh. Um, Bamy, I think. Who says he has to kill John Malkovich? Sam Rockwell has to kill Sam. Yeah. Malkovich while they’re away or something. Tony Kynaston: [01:15:00] Oh, it’s, it’s always, you know, even if you just follow the actors who get involved in these productions, it’s, he’s obviously attracting a really quality cast all the time too, which is great. Yeah. Cameron Reilly: I, I’ll watch Sam Rockwell read the phone book. I’ve always loved Sam Rockwell for, dunno what the first thing was I saw him in. But he’s always, he’s one of these guys that’s just endlessly entertaining every role that he does. Tony Kynaston: Yeah, although I didn’t, I, I watched the most recent movie of his, which was good, but not great. I wouldn’t necessarily recommend it, which is kind of apropros to what we talked about last week. What’s it called? It’s called Have Fun, stay Safe, don’t Die, something like that. Cameron Reilly: Okay. I Tony Kynaston: It’s, Cameron Reilly: one. Tony Kynaston: oh, it’s worth watching, but it’s, it’s, it’s not great. It’s, um, Sam Rockwell comes back from the future and he goes into a diner and like, it’s really, he’s, it’s great acting. ’cause he goes into diner and says, right, I’ve been here 300 times before, you are gonna die. You are gonna die. Put your hand up if you wanna come with me and save the world. [01:16:00] And like everyone’s going, who the fuck is this? And then someone calls the cops and he’s like, ah, don’t call the cops. You do that every time. But it goes on from there. And, and like it gets, it’s a, it’s a pretty farfetched, he’s, it’s trying to stop an AI from being built. Um, yeah. So it’s kind of interesting from that perspective, but it’s, uh, it’s, it’s okay. It’s not great, but he’s great. Cameron Reilly: Well, I got a bunch of good things for you this week. Um, have you ever heard of David Lynch’s hotel room? Tony Kynaston: No. Cameron Reilly: Me either, until yesterday. Read about it on the Lynch subreddit and I was like, what? In 1993, I think he made a three episode miniseries for HBO called Room. Tony Kynaston: Oh Cameron Reilly: bit like Tarantino’s four rooms. Tony Kynaston: Right. Cameron Reilly: And I dunno about the connection between ’em, but takes place in a hotel room, three stories, three different casts. I think the only thing in common is [01:17:00] the, uh, the wait, the, the, not the whiter, the, the Bull Boy bellboy. A bit like four rooms. Tony Kynaston: Yeah. Cameron Reilly: the first episode stars, Harry Dean Stanton, uh, Freddie Jones, who was the Elephant Man’s original Tony Kynaston: yeah, yeah, yeah, yeah, yeah, Cameron Reilly: Man, Tony Kynaston: yeah, yeah. Right? Cameron Reilly: Heley. Tony Kynaston: Mm-hmm. Cameron Reilly: And, uh, yeah, I think they’re the three cast. Uh, fantastic. Really, really lynching Tony Kynaston: Yeah. Right. Cameron Reilly: Angelo Battle, Menti doing the, the sound, et cetera, et cetera. So it’s on, it’s on YouTube. Tony Kynaston: Okay. Cameron Reilly: dug it up out of no one, no one’s seen it for decades. Somebody dug it up and put it on YouTube, but it’s, I’ve only seen the first and half of the second episode. But really enjoying that, Tony Kynaston: Great. Cameron Reilly: crazy that I’d never even heard of this Uh, Chrissy and I watched Gaslight, the 1944 version of [01:18:00] Gaslight with a George Ko film with Ingrid Bergman. um, Joseph Cotton and Charles Boyer as the husband. You ever seen that? Tony Kynaston: I haven’t, Cameron Reilly: Fantastic. Tony Kynaston: is it. Cameron Reilly: really good. Yeah. Apparently it’s not the original. So the, the whole Gaslight thing was based on a, play, a London play was made into a British film in 1940. was 44. It was like a remake, but said in London Charles Boyer’s French and Ingrid Bergman was Swedish and Cotton I guess was American, but really good and, and uh, really like, quite scary. Um, but, uh, Ingrid Bergman’s performance, I don’t think I, you know, I was trying to think if I seen her in anything outside of Casablanca. Tony Kynaston: Yeah, right. Yeah. Cameron Reilly: I don’t, I don’t know that I’ve seen many of her films, but it’s very lynching actually. This, this [01:19:00] whole film. Which is funny when you realize that left her husband and ran off with Roberto Rossini and then they had Isabella Rossini and then David Lynch cast Tony Kynaston: Yeah. Right. Cameron Reilly: and Blue Velvet, and then they Tony Kynaston: Yep. Cameron Reilly: relationship Tony Kynaston: Mm. Cameron Reilly: I don’t know, five years or something. So there’s a sort of a Tony Kynaston: Six degrees. Cameron Reilly: connection there to Tony Kynaston: Yeah. Cameron Reilly: thing. yeah, can highly recommend that it’s on HBO. Um, I watched Jackie Chan’s police story. Uh, you ever seen that? Tony Kynaston: I don’t think I have. No, but I looked it up when you, um, told me you’re gonna talk about it, which looks great. Cameron Reilly: I had never seen it. Uh, it’s sort of one of his most famous Tony Kynaston: Mm-hmm. Cameron Reilly: a, the story behind it I read is that he’d gone to Hollywood to do a Hollywood film, the Protector or something, which was a huge flop. And he went back to Hong Kong with his tail between his legs and just decided that’s it. I’m just gonna make the craziest action. [01:20:00] I’m gonna show Hollywood how to make an action film. he put together his stunt crew and they made this thing. The stunts in it are absolutely batch it crazy. Particularly, it was made in like 1985, I think. Obviously no ropes, no wires, no safety gear. He, I think it was in this one, he fractured his pelvis, two of his vertebrae. got second degree burns on his hands when he slides down a metal pole in a shopping center and just took all the skin off his hands. the, the crew apparently called it Glass Story, not, you got something Tony Kynaston: thought there was, I thought there was a delivery arriving, but it’s not. I just heard a noise and saw a truck. Cameron Reilly: the cast called it Glass Story because of how much glass they break in it. It’s just like the stunts are crazy. There’s one scene in the beginning when he is chasing down or they, [01:21:00] they, they, they starts with him and his crew of cops taken down some gang and there’s like this, um, slum village built on the side of a cliff. And they’re getting cars and they drive cars, the crims, to try and get away through buildings on the side of a cliff, and the cops are chasing him. And you see people jumping out of doorways and out Tony Kynaston: No, I. Cameron Reilly: out of walls as they’re smashing and things are blowing up. They built this village and then trashed it, driving cars at full speed through it. And Gemini was saying, yeah, the stunt guys in the buildings couldn’t see what was happening. They just had to. didn’t know where the cars were coming from. They had a basic idea, but once a car hits a building, you dunno where it’s gonna Tony Kynaston: Right. Cameron Reilly: to. Tony Kynaston: Yep. Cameron Reilly: they just had to wait. And if a car came through a wall, you had to exit and jump out a window. And then of course, in like in Jackie’s films from that point onwards in the credit sequence, they show the outtakes [01:22:00] and you see cars flipping and exploding and them dragging guys out. And there’s a, this scene after that where one of the bad guys is escaping on a double decker bus and Jackie runs down the street, steals an umbrella off a lady, and then jumps up and hooks Tony Kynaston: Mm-hmm. Cameron Reilly: of the umbrella through a window, and then is being pulled along through the air on this bus swinging, holding onto this speeding bus an umbrella. It’s, and then he has to climb into the thing. It’s just insane. The guy, like the fact that he is still alive is Tony Kynaston: Yeah. Cameron Reilly: amazing. Like completely mad. He is with a watch. Tony Kynaston: Him and Tom Cruise, Cameron Reilly: a punk band, uh, British punk band from the seventies. Dunno if you’ve ever heard of them. The Soft Boys post-punk. Really? Not punk, post-punk. I like it. It’s kind of late seventies, early eighties. They went into the nineties and they broke up and then I think they did [01:23:00] a reunion album in the early two thousands. But kind of, uh, actually reminded me a lot of Robert Forster Tony Kynaston: Oh, okay. Cameron Reilly: stuff in, in a way. Tony Kynaston: Mm-hmm. Cameron Reilly: I dunno, a little bit, sort of Nick Cavey in Elements a little bit. Uh, you know, Robert Forster Never heard of them before, but, um, stumbled on them in Spotify. The Soft Boys Tony Kynaston: are they from? Cameron Reilly: to it all day. You say, Hmm. Tony Kynaston: Where are they from? Cameron Reilly: I think they were, um, Irish or Tony Kynaston: Ah, okay. Cameron Reilly: something like that. Yeah. From the uk. Anyway, somewhere Tony Kynaston: Mm. Cameron Reilly: I. Tony Kynaston: back to stunts, have you seen It’s a Mad, mad, mad World, the old movie. Cameron Reilly: was a kid. Yeah. Tony Kynaston: Check out some of the clips, which I’ve been watching Yeah. On YouTube because, um, Cameron Reilly: Really? Tony Kynaston: like as a kid, I, I saw it then too, and it was just, yeah, okay. It’s a bit of fun and there’s a few comedians in it, but it’s actually a movie that was written and made by the stuntmen. And when you actually, when you [01:24:00] actually see the clips now, you go, oh my God, how did they do like that is, you know, people on big fire engine ladders being swayed from side to side, cars, crashing into buildings, planes doing incredible stunts. Cameron Reilly: You’re talking about the 63 film, Tony Kynaston: Yeah. With like, Cameron Reilly: Kong Tony Kynaston: no, no, no. The American one. Yeah. Cameron Reilly: Right. Tracy, Milton Burr. Sid Caesar. Tony Kynaston: Mm-hmm. Cameron Reilly: Mel Brooks, buddy Tony Kynaston: Yeah. Cameron Reilly: Ethel Merman. Mickey Rooney, Phil Silvers, Jonathan Winters Tony Kynaston: Mm-hmm. Cameron Reilly: Jimmy Durante. What a cast, Tony Kynaston: Yeah. But it’s basically just one stunt after another, the whole way through. Cameron Reilly: right? Tony Kynaston: When you watch it from that perspective as an adult, you can sort of, and with a bit of hindsight, you can see, my God, that was, there’s no CGI. There’s no safety net. That’s incredible. Cameron Reilly: Yeah. But it’s like Smoking in the Bandit, right? That Tony Kynaston: Yeah. Cameron Reilly: directed Tony Kynaston: stunt man. Yeah, Cameron Reilly: his stunt car, [01:25:00] uh, driver or stunt man. Tony Kynaston: yeah, yeah. Same thing. Cameron Reilly: Chrissy and I have been talking about this both in terms of police story and um. Gaslight, like just watching old films that were made pre CGI pre all of, you know, Tony Kynaston: Mm-hmm. Cameron Reilly: real people doing real stuff with. I don’t know, there’s something about it. It’s, it’s uh, there’s that slash real humans trying to do something element that, uh, has some sort of to it, at least to us anyway. I dunno if Fox’s generation will care, but we certainly enjoy watching old Tony Kynaston: Yeah, no, I agree. Alex is gonna go and see Hail Mary tonight, which I, I’ll eventually get around to seeing it. And I love the book. I think I talked about the book on the show a couple of years ago. Yeah. Fantastic book. Well, [01:26:00] Andy Weir, like he wrote The Martian and he wrote Hail Mary. He wrote another one called Artemis, which was, wasn’t very good. But Mary again is just like end-to-end physics. It’s just fantastic. Um, so the hard science and his books are great. Um, but the reason for bringing it up is, I’m interested to see what Alex thinks of it because it’s, um, the, the people who made it deliberately did it with all real effects, a bit like, um, uh, the guy who made 10 and, uh, Christopher Nolan, does he, they try not, or they don’t use CGI. It’s all physical effects. Yeah. So same with Hail Mary. Cameron Reilly: 19 14, 19 15. Tony Kynaston: Yes. Cameron Reilly: one he did the World War I thing? Tony Kynaston: Yeah, Cameron Reilly: Yeah. No, my, both my boys have seen Hal Barry and they raved about it. I’ve got other friends that have seen everyone I know who’s seen it says it’s really great. Tony Kynaston: no, good. I look forward to seeing it because the book was fantastic. Cameron Reilly: All right. Thank you. Tony Kynaston: Thank you. Cameron Reilly: everyone. Tony Kynaston: See ya. Don’t forget. [01:27:00] Have fun. Cameron Reilly: Oh, that too. Tony Kynaston: Have fun. Stay safe. Don’t die. Or Sam Rockwell will come back from the future. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain [01:28:00] financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary [01:29:00] Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Mar 25, 2026

28m
36

The Crude and the Ruthless (GPRK) – QAV AMERICA 44

In Episode 44 of QAV America, Cameron and Tony open with a geopolitical tour of the Strait of Hormuz crisis — still very much closed — unpacking what a prolonged shutdown could mean for global oil supply, economies, and living standards, including Australia's precarious one-month oil reserve. From there, Cameron pivots to his deep dive on Geo Park Limited (GPRK), a Latin American oil and gas explorer and producer with operations in Colombia, Argentina, and Brazil — and one of the most fascinating boardroom sagas in recent oil-patch history. Cameron walks through the company's founding by two American oil veterans, James Park and Gerald O'Shaughnessy (who turns out to be a cousin of value investing legend James O'Shaughnessy of What Works on Wall Street), their bitter governance war in 2021, the failed Parex Resources takeover bid, and the dramatic "white knight" entry of Colombian billionaire Jaime Gilinski, who injected $107 million for a 20% stake just days before the episode. Tony and Cameron then analyse the QAV checklist numbers, discuss why the light portfolio is outperforming the S&P even in a down market, and review the current US portfolio performance. After hours covers Nassim Taleb's book The Bed of Procrustes, Mel Brooks' documentary The 99-Year-Old Man (featuring David Lynch's last filmed interview), and Cameron's soggy-but-memorable school camping trip with his son Fox. This week's full episode is for QAV Club members only. The free episode is available above. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. In Episode 44 of QAV America, Cameron and Tony open with a geopolitical tour of the Strait of Hormuz crisis — still very much closed — unpacking what a prolonged shutdown could mean for global oil supply, economies, and living standards, including Australia’s precarious one-month oil reserve. From there, Cameron pivots to his deep dive on Geo Park Limited (GPRK), a Latin American oil and gas explorer and producer with operations in Colombia, Argentina, and Brazil — and one of the most fascinating boardroom sagas in recent oil-patch history. Cameron walks through the company’s founding by two American oil veterans, James Park and Gerald O’Shaughnessy (who turns out to be a cousin of value investing legend James O’Shaughnessy of What Works on Wall Street), their bitter governance war in 2021, the failed Parex Resources takeover bid, and the dramatic “white knight” entry of Colombian billionaire Jaime Gilinski, who injected $107 million for a 20% stake just days before the episode. Tony and Cameron then analyse the QAV checklist numbers, discuss why the light portfolio is outperforming the S&P even in a down market, and review the current US portfolio performance. After hours covers Nassim Taleb’s book The Bed of Procrustes, Mel Brooks’ documentary The 99-Year-Old Man (featuring David Lynch’s last filmed interview), and Cameron’s soggy-but-memorable school camping trip with his son Fox. Episode Timestamps 00:00 — Welcome & Strait of Hormuz update: global oil supply, Iran, and geopolitical risk 05:00 — Market volatility is our friend; Cameron sells TUSK from the US portfolio 06:30 — Deep Dive: GPRK (Geo Park Limited) — Latin American oil explorer & producer; company overview 42:00 — After Hours Transcription QAV AMERICA 44 Cameron Reilly: [00:00:00] Welcome back to QAV America, Tony, episode 44. The Strait of Hormuz is still closed. Tony, any day now it’s gonna all come good. TK: What do you think is gonna happen? It’ll come good. Cameron Reilly: Well, we were talking about this on the last show, so you know, I’m reading lots of different analysis. No one really knows, obviously what’s gonna happen here. There are theories that, um, it could be shut down for a long time. There are theories that Trump and Israel are gonna bomb Iran into oblivion, and the regime will give in or collapse. The regime seems to think it’s not gonna do that. I read a report that said they can produce 10,000 drones a month in Iran, but that obviously depends on if there’s anything left of Iran for them to produce drones in. But, uh, we did also talk about the impact to the world of not having oil. Australia’s got maybe a month of oil supply [00:01:00] and the impact on global fertilizer trade, about 30% of which also goes through the Strait of Commerce. What that’s gonna mean for. Just economies worldwide standard of living worldwide. It really does seem that Donald Trump and Benjamin Netanyahu jumped into this thinking it was gonna be, uh, uh, less of a global catastrophe than it could possibly be. Uh, we’ll see how it plays out, but it’s not looking good right now. TK: No, I mean our minds always jump to the worst case scenario. All gets turned off and we can’t get it refined or whatever. And it’s gonna be different in the US And this is a US audience, so it’s, it’s, we’re talking in from an Australian point of view, the type of crew that needs to be refined in Asia is risk and Asia might stop exporting it even if they get some to refine. ’cause they’ll leave it for themselves. So that’s gonna play out. Um, it’ll have some impact on the us. Uh. ’cause it’s gonna [00:02:00] depress the economy. Um, but yeah, I would’ve, I would’ve thought somehow the straits of them wasn’t gonna be opened up. I don’t know how that will happen, whether it’s obliteration for Iran, whether it’s US Navy ships escorting tankers through, um, or some combination of all of the above, or whether it’s a tucko trade and, uh, the, there’s a deal done. Who, who knows? I suspect the tucko. Oh, I mean, yeah. I shouldn’t say, I was gonna say it’s probably the likely option, but then on hi, history would say it’s not. But I think the, the risk is if you don’t resolve this to open up the straits of whos without risk in the future, Iran can always use it again. Which should, which will be an issue. Cameron Reilly: Well, they’ve. Had the ability to use it and have to varying degrees for many, many years. But, uh, you know, we’ve never seen it shut down to this degree for this long before. But it’s an extreme [00:03:00] situation. I mean, the way that I’m reading it is the. Regime. The IRGC see this as an existential threat, very much like I believe Vladimir Putin and the Russian oligarchs saw the Ukraine situation as an existential threat. Um, and they refused to give in to the US pushing Ukraine into NATO and putting NATO bases on the Russian border. And Iran is refusing to give in to. The US and Israel trying to threaten them with regime change, existential threats. People tend to dig their heels in and are prepared to go to the mattresses, TK: Yeah, you’re giving them another option. That’s, I think what’s happening. it’s gotta either be withdrawal or annihilation, I think. Cameron Reilly: and annihilation is gonna require boots on the ground, which I don’t think is, uh. It’s gonna be a quick solution and at some point [00:04:00] China and Russia are gonna play a bigger role in it. De just depending on where they feel their interests lie and at what, at what point they need to get more engaged. And North Korea possibly. TK: Yeah, and I think, I think oil’s gonna play a very big part in all this, and I think the pressure’s already mounting on the US government to sort something out. I’ve written the Wall, wall Street Journal overnight before oil majors sent their CEOs into the White House for for meeting. So Cameron Reilly: So what do you think the content of that discussion was? TK: sorry. Cameron Reilly: What do you think the content of that discussion was? TK: Um, you are, you are stepping in our turf and clean cleaners mess up, I think would’ve been the or position. they’re making, making money now ’cause the margin’s up. But if it, if it does disrupt supply chain and they can’t sell, sell product, they’ll be, um, very upset. Cameron Reilly: Well, the market has obviously [00:05:00] been very volatile, but as I said in my newsletter last week. Volatility is our friend. That’s one thing I’ve learned from you over the years is that we don’t fear volatility. It creates opportunities for us. TK: We need volatility. Cameron Reilly: Yes. Um, it’s can be scary when you’re going through it, but when the market retreats and prices retreat, that creates opportunities for us to buy good quality businesses at bargain basement prices, we. TK: Correct. Cameron Reilly: We benefit from that in the long term, but our portfolios tend to go down TK: Mm-hmm. Cameron Reilly: uh, my portfolio has gone down in the last couple of weeks. Yeah, my mistake, uh, I did have to sell Tusk from our US portfolio this week. Uh, I think Tusk. We did a deep dive on it. Uh, [00:06:00] it was a bit of a cigar butt option. It became a three point trend line sell. I think I lost 12% on that trade and I added GPRK, which is the company I’m going to do a deep dive on today. Tony Geo Park limited, a very interesting story. Uh, a lot of founder drama in recent years. Which has led to the company basically being in play. But I’ll go back and I’ll, I’ll do a bit of a background on it before we get into that. So this is a Latin American oil and gas Explorer operator and consolidator. This is according to their website with assets and growth platforms in Columbia, Argentina, and Brazil. We are a leading independent ENP company that’s. Exploring, uh, exploration and production positioned across Latin America, one of the world’s richest and most under explored hydrocarbon regions.[00:07:00] A clear set of priorities and key values have driven our ground floor startup through a two decade track record of consistent growth, superior ESG performance and strong value delivery now under the history section of their website. It says two decades, building the best company with the best culture. No mention of the fact that the two co-founders went to war with each other about five years ago, and both have since left the building. TK: out of the process though, culture’s improved. Cameron Reilly: Maybe that’s it. We had to get rid of those guys. Once we got rid of them, the culture improved. And as I said, the company seems to be at play at the moment. A couple of entities, uh, involved in taking big stakes and trying to take it over, which is fascinating. It’s like something out of succession or, um, I don’t know. [00:08:00] Yeah. Wall Street, something like that. So, uh, as I said, they’re based out of Columbia, like eco petrol that we talked about in episode 38. Ec, uh, and like eco petrol, these guys are not an A DR, so I checked that first off. TK: Right? Cameron Reilly: is, there is some system where Latin American companies can list directly on the New York Stock Exchange. Uh, so these guys are in that boat. Now remember with Columbia, they have the appropriately named President Gustavo Petro, who is the 35th president of Columbia since 2022. He is the first left wing president in the recent history of Columbia, and he campaigned on a pledge to halt all new oil and gas exploration. Contracts. [00:09:00] So he’s allowing existing contracts to continue, but pipeline for new reserves is legally choked off. So that plays a role with companies. Like this. And one of, as we’ll see, one of the reasons they’ve recently acquired some assets in Argentina is because their ability to grow new projects in Columbia has been choked off by the existing administration. But as I recall from the eco petrol episode, Columbia relies on oil revenues to a large extent, but they’re trying to transition away from it. But the founding of this company, uh, not as old. Like we’ve talked about a lot of oil companies in the last couple of months, and a lot of them go back a hundred years. These guys go back 23, 24 years. Founded in 2002 by James Park and Gerald O’Shaughnessy, TK: Oh. Cameron Reilly: two [00:10:00] seasoned oil and gas professionals who wanted to build a independent energy company in Latin America. The founders, uh, brought a couple of different backgrounds. Jim Park was a geophysicist by training, had over 50 years of industry experience, had previously pioneered commercial production in Central America with basic resources. Gerald o Shaughnessy was a lawyer, came from a family oil company called Lario Oil and Gas. Where he, um, had been like a legal counsel there. Then he became an entrepreneur, was the first Western partner for Luke Oil in Russia during the 1990s. He goes back, his career in the fossil fuel industry goes back to 1976, general counsel at Lario Oil and Gas and Senior Vice President. That company was started by his grandfather, Ignatius IC [00:11:00] O’Shaughnessy. Founded in 1927. Gerald O’Shaughnessy is a cousin of James O’Shaughnessy TK: way. Really? Cameron Reilly: What Works on Wall Street. Yeah. ’cause the first place my head went to both grandsons of Ignatius Aus O’Shaughnessy. James also worked for the family owned venture capital firm early in his career and apparently in interviews. He said that his interest in the stock market was sparked by family debates. Regarding how his grandfather’s fortune should be invested, and that’s what led him into Wall Street. And for people who haven’t read it, his book, what Works On Wall Street, is a very, very good book for value investors to read. It reflects a great deal of, um, QAV philosophy and um, approach to value investing. So there’s a connection there. [00:12:00] So, uh, as I said, they got started in 2002. They established their first operation in Argentina’s, Patagonia region First oil production in the Del Mosquito field. And then they continued to grow the business. But then after 20 years, the founders went to war with each other. In 2021 over a governance dispute, O’Shaughnessy claimed that Jim Park operated as an Imperial CEO exerting near total control over pliable board of directors that acted as a rubber stamp for his plans. He claimed park consistently resisted independent valuations of company assets and blocked potential value maximizing transactions. Because he insisted on leading any resulting combined entity. There was also a lot of [00:13:00] allegations that, uh, executive compensation was being withheld from independent directors and, and or critical information around executive compensation was being withheld from independent directors and the board. When O’Shaughnessy challenged Park, the board allegedly forced him out. As chairman, rather than addressing his concerns, the dispute reached a breaking point on June 4th, 2021 when the board issued O’Shaughnessy and Ultimatum resign as chairman within 24 hours or be removed. Following his removal, the company claimed his exit was related to a lack of transparency regarding his pledged shares, asserting he was in breach of board policy. O Shaughnessy dismissed this as revisionist history. Noting that his share pledges were a matter of public record and were never raised as an issue until the leadership conflict intensified. He launched a formal campaign ahead of the 2021 annual general meeting, urging shareholders to vote against [00:14:00] Jim Park and three other incumbent directors. He proposed a slate of three new independent nominees. However, the leading proxy advisory firm ISS recommended that shareholders vote for the company’s nominees stating that O’Shaughnessy had not made a compelling case for change, and that the board had already begun making good faith efforts to refresh its composition. Ultimately, shareholders reelected all Geo Park nominees with at least 70% of the votes. Just reminded me, I, I recently re-watched the first season of succession when, uh. The son, whatever his name is, tries to roll the dad and they have the board meeting and the son’s stuck in traffic and he is on the phone and his dad just brow beats them all into getting his own way. So yeah, it was a big deal. Um, so then he left O’Shaughnessy and then Jim Park retired as CEO in 2022. Although he remains the [00:15:00] principal shareholder and serves as vice chairman of the board, he holds about 16% of the stock. From what I can tell, O’Shaughnessy is down to about 6% of the stock, but between the two of them, they still hold quite a big chunk of the stock, even though Shaughnessy isn’t really involved in the business anymore. Um. Parks departure of CEO. The following year is described on the website as a successful leadership transition. Barry and Stan came up with that one for them. He was replaced as CEO by Andre, uh, Andre Ocampo, who was in turn replaced in 2024 by Philippe Beon, who had run eco petrol for many, many years before that. They have like a kind of a joint venture with eco petrol. So anyway, these guys are going through a transition period. Um, obviously the oil price has been depressed for quite a while up until [00:16:00] Donald Trump’s adventures in Venezuela and Iran. Um, and so this company’s sort of been. Reinventing itself for the last couple of years to try and figure out how it was gonna survive in an era of low oil prices. Plus what’s going on with the election of Gustav Petro in the last three or four years in Columbia. They’ve had to rejig, things had to pivot as the, uh, succession boys would say, we’ve gotta pivot. They did manage to deliver production above the upper end of the guidance range last year, which was impressive considering they were under pricing pressure. But at the end of last year, they also closed acquisition of some property near Patagonia and Argentina, a place called Vata. Do you wanna guess what? Means in Spanish. Tony? TK: Would be dead death, wouldn’t it? So I don’t know. [00:17:00] No, Cameron Reilly: Va. Va. TK: uh, va Cameron Reilly: Mm. TK: go go, go with death. I don’t know. Death track. Death track. Cameron Reilly: Dead cow. TK: Dead cow. Okay, VACCA. I, Cameron Reilly: Mm. TK: from that. Cameron Reilly: Vata, um, largest oil discovery, I think in this area, discovered in 2010. So they’re moving from, um, traditional easy oil, which is what they’ve done previously into more difficult, complex shale, which is what this thing is in Argentina, pivoting away from Colombian oil to Argentinian shale. Um, so that’s part of the pivot. They’ve also been cutting costs, um, and also trying to figure out how they can continue to produce more oil from [00:18:00] the current blocks that they have in Columbia. Uh. And they’ve come up with something they call their North Star targets. They’ve done what they call a strategic reset of the cost platform cutting costs, and they’ve got some pretty hairy goals for how much they’re gonna be able to, uh, how low they’re gonna be able to drive their costs down. The structural changes they’ve made in the last couple of years are expected to generate approximately $45 million in annualized savings moving into 2026. But the business is still primarily based around its mature assets in the Laos 34 and CPO five blocks in Columbia, you got the C3 PO blocks and, and then the CPO five blocks, the most significant. Um. Part of their new interest in Vata is a hundred percent working interest in the [00:19:00] block, and a 95% interest in the West or silver Oeste block totaling over 12,300 gross acres in the highly productive black oil window of the Nehuen Basin. But. A lot of protesting in Patagonia, Patagonian do not like oil companies setting up shop in their area. So there’s an e es, despite the fact that they, uh, um, lauding their ESG track record. On their website. There’s a lot of issues in Argentina, a lot of protests. A lot of lawsuits going on around trying to stop fracking and oil mining in Argentina, so that could be an issue for them. Getting out of Columbia may not rescue them. TK: Hmm. Cameron Reilly: But up until recently, and this is where the story gets even more interesting. Up until recently, they [00:20:00] looked like they were about to acquire, uh, another Colombian asset, Fronterra Energies, upstream assets in Columbia. They’d agreed to acquire them for $375 million in cash. It was going to double. The company’s reserve base added approximately 40,000 barrels of oil per day of production, and it was going to, it was a big deal. Deal was pretty much done until at the last minute, and I’m talking a week and a half ago, a company called Parex Resources, a Canadian oil company. Who also owns 9% of Geo Park, put in a competitive bid for Frontera Energy. Uh, ran about $500 million plus [00:21:00] the assumption of debt. So the Geo Park Board of Directors made the decision not to try and compete with Parex. It was obviously, I mean, that’s a, that’s a big premium, right? They bumped it up by $125 million. Again, it’s like succession, a succession deal. Just, yeah, just throw so much money at it that no one can compete. So they decided they weren’t gonna try and compete either because they knew that this was a game that they weren’t gonna win, or because they just didn’t wanna overpay for the resources either way. But then. Within days of that happening 10 days ago, March 6th, 2026, they announced that a Colombian billionaire called Jamie Galinsky had just become a cornerstone investor in Geo Park, sort of a White Knight deal. TK: All. Cameron Reilly: He’s a Panama based Colombian banker, investor, and real estate developer. According to Forbes, he’s the second richest person in [00:22:00] Columbia with a net worth of 15.1 US billion dollars. His company, Calden Investments, acquired 12,876,053 newly issued common shares. At a price of $8 31 per share, representing a $107 million investment, which gets him about 20.2% of Geo Park’s new outstanding shares. However, he paid $8 31 a share. Geo par, sorry, Parex. Had put in an offer for the entire company about six months ago at $9 a share. The board rejected their offer saying that it was undervalued, and then sold 20% of the company for $8 [00:23:00] 31 a share TK: Mm-hmm. Cameron Reilly: Now, at the time, Parex offered $9 a share. The share price was about six. Bucks, $6 30 or something. So it was a pretty big premium to the share price at the time. Sounded like a good deal. If I owned it at $6 and they were offering to take me out at $9, TK: Mm-hmm. Cameron Reilly: I would’ve been like, thank you very much. Do the deal. They turned them down and said that it wasn’t attributing enough value to the Argentinian acquisition, which was in the process of just happening then. But then when Parex did an aggressive takeover, um, offer and then that failed, then Parex is trying to get a bunch of directors appointed to the board. And so the Galinsky deal is fascinating. So he not only [00:24:00] gets 20% of the shares, he gets board nomination rights, approval rights over certain major corporate actions. And has agreed to vote with the existing board for all, all of these things moving forwards. And he’s locked in for 18 months. He can’t sell his shares for 18 months, TK: Yep. Cameron Reilly: so it’s not a poison pill, I dunno what you call that, but it’s, it’s basically a white knight. He’s come in, he’s given them a ton of cash. And Parrack are basically stymied. They can’t get independent direct or their own directors nominated onto the board. They, and so, yeah, I don’t know what they do with their 9.4% state, but so this, this whole thing has been in play recently. Um, but it seems to me that both Parex and Galinsky see this company as offering value TK: Yeah. Cameron Reilly: and um, they’re both trying to get [00:25:00] control of it. Which is good for us, I would think. TK: definitely. Um, and makes sense. If Columbia isn’t allowing you, uh, reserves to be explored, then you’ve gotta buy an existing company if you want access to that market. And if one’s also then getting into Argentina, um, it’s, there’s gotta be upside. Cameron Reilly: Yeah. Um, the whole Frontera thing that they tried to buy and Paris came in and paid a premium for it. I don’t know how that plays into any of this, um, how that plays out. But anyway. TK: yeah, it’s, I, I would imagine Parex have said, we can’t buy you or buy your competitor. And they probably had insight. I don’t, I shouldn’t say that. They had 9% of the, of the company that was looking to bid, so they may have known a little bit about, about what was going on and what the. The target was worth and the synergies and all that kind of thing. So, um, they decided if we couldn’t [00:26:00] get Geo Park, we’ll get the other one. Cameron Reilly: Yeah, so that’s some of the background, what’s going on. It’s kind of interesting. Um. Things are happening behind the scenes. Their annual report is due out on April 2nd. So the numbers that we’ve got, uh, you know, last quarter, uh, so we’ve got three quarters of numbers, TK: Hmm. Cameron Reilly: but it’d be interesting to see how the annual report plays out. Um, that’s the 2025 annual report, so it’s not gonna take into account all of the recent goings on in the oil sector, obviously. Market cap is roughly 454 million. They carry about 553 million in debt, which is a lot when your market cap’s 454 million, but they’ve got that 107 million cash injection from Galinsky, which is giving them a bit of a buffer. Total revenue for the [00:27:00] year reached 492.5 million. Their adjusted EBIT was 277 million, down from 417 million in 2024, but the analysis that I read said this is almost entirely price driven because their. Uh, production averaged about 58.1 million barrels in 2025 versus 65.6 in the prior year. So production dropped a little bit, but the oil price dropped a lot. Cash went down from 277 million at the end of 2024 to a hundred million at the end of 2025, but they. Paid off 512.6 million in debt, and then 115.5 million for the acquisition of the Vata assets. [00:28:00] So paying off debt, buying some Argentinian assets, probably a good way to spend their money. Um, they also paid 24.2 million in dividends and 41 and a half million dollars in interest. So that explains some of the cash delta. Um, what else have I got? Uh. TK: Well, a couple of things I noticed when I was about the company. Uh. You referenced this before about their cost cutting, uh, program, but, uh, they seem to have a history of, of being a very low cost producer. So one of the benefits of whether it’s because of the Colombian government’s, uh, rules and regulations or because of the company’s policies, is that been developing the, the same sort of area for a long time now. So. The benefits of that are that you, once you build the infrastructure for the first wells, [00:29:00] um, terminals and rail lines and pipelines and things, that’s it. You don’t have to build it again if you find another strike in the area. So they’ve been very good at being able to maximize that initial investment in their Colombian fields and they. Proposal is to do the same thing in Argentina. So build some infrastructure, stay within the current permits, um, or the area, and try and maximize the output from that without incurring more costs. And the analysis I saw said that they were profitable at sort of sub $50 a barrel. So sort of 45 to $50 a barrel. They’d still be which the oil price hasn’t gotten down to. Um, so they are a low cost producer. People can’t stay profitable at that low, uh, oil price. which is a, I think, which, which is probably one of the reasons that’s they’re becoming attractive and on the radar of other companies who are looking to expand into the area. There’re a low cost producer with [00:30:00] reserves, um, in Columbia. They’re reserves that can’t be repeated at least unless there’s a change in government or government policy. Um, so yeah, they’re there. As we often see with QAV, we like them. They’re attractive, and they’re also attractive to players in the industry who try, who are trying to take them over. Cameron Reilly: Yeah, so running through the scoring for these guys. Um. They had a QAV score of 0.19. They weren’t at the top of my list, but they were up there when I ran it this week. By the way, um, our Australian listeners know when I ran our Australian buy list this week, there was four stocks, actually three stocks on it that I could buy all, all companies, the us, um. Portfolio had a lot more stocks. Obviously it’s a lot bigger market, but there was a lot of things to buy over there. Um, not being as impacted by downturns as much as our market was. Um, [00:31:00] price to operating cash flow 2.81. Which was, um, which is very attractive from our perspective TK: Mm-hmm. Cameron Reilly: from a, from a Wikipedia perspective. They’ve got a quality rank of 78, which we gave them a score for. Their stock rank is, uh, actual stock rate 95. So we scored ’em for that. TK: Hmm. Cameron Reilly: Their F score is a five, which is pretty healthy, so we score ’em for that. Their price is above both of our IVs, so I, uh, couldn’t score them for that. Our iv, uh, one is $5 32 and Sarah’s our IV two. Um, that’s interesting. I wonder why that is. Uh, the price is around $8 70. I didn’t look into why the [00:32:00] IV two is the same as the IV one. That’s weird. Um, what else have I got here? Price is, uh, not less than book. What’s their book? Price? Uh, EPS. Um, equity per share, $4, so yeah. They’re a lot higher than their book. The book, they’re higher than their book plus 30. So EPS growth is, um, negative. Um. So couldn’t score them for any of those things. So really, um, uh, growth, um, over PE is not greater than 1.5 Book value growth is not positive. PE is not less than yield. Yield is not greater than bank debt. Couldn’t score them for many of those things. At the end of the day, really it comes down to some of those Wikipedia scores, which are quite strong and positive. [00:33:00] And, uh, the Pr/OpCaf, I think is what it all comes down to. At the end of the day, they got seven out of 13 on the checklist, so quality score of only 54%. For us, it’s not great, but cheap, um, on a Pr/OpCaf perspective. TK: And we haven’t seen the impact on their business from the surge in the oil price yet too. Cameron Reilly: Which may be nothing like that, may be very shortlived depending on what happens. Um, and even, you know, if the oil price goes up but the global economies collapse, it may not necessarily be a good thing. I dunno how it’s gonna impact, uh. Latin America’s economies and, uh, the, the fortunes of Colombian oil production companies. But, um, the fact that there’s this bidding war for ’em between Parex and Galinsky, I think is evidence, as you said, that we’re not the only people that see there’s some latent [00:34:00] value in this. So anyway, that’s all I’ve got on GPRK. Um, which isn’t the Republic of North Korea. Just wanna point that out. And, um, I added them to the light portfolio this week, so we will see how they go. The QAV light portfolio. Before we go, I should do a quick portfolio update on our US portfolio. So the US dummy portfolio, the main one I’ve been running since. September, 2023 has dropped a lot in the last couple of weeks. It’s now up 85.6%. Versus the s and p up 50.75% over the same period of time. So it’s still an okay relative, but it was up over a hundred percent a couple of weeks ago. So the whole, uh, straight of Uz Iran thing has had a toll on this. And, uh, [00:35:00] the light portfolio that’s only been running for, uh, since we’re in December, I think. I started in December. It is currently down 1.95% versus the s and p down 2.6% over the same period of time. So it’s beating the s and p, but only because it’s lost less money. Uh, some of the stocks that added have done quite well. Cord energy is up 32%. Eco petrol is up 15%. Scripps is up 12 SSP and GPRK is up 4.3% since I added it yesterday. Oil Murphy oil’s up 3.7% since we added it. I think it was last week or the week before maybe. Nabs industry is down a couple of points. Dans is down six and Shinhan financial company is down 13. So, [00:36:00] uh, so much for the Korean, uh, banking sector. Dunno what’s going on over there. And that’s an A DR too. So we’ve probably got a DR impacts on that one as well. Anyway, all in all, it’s still finding its feet, but some good performance from some of those stocks. Like court energy in particular. TK: Yeah. All companies at the moment, at least in Australia, are doing very well in terms of their share price. Cameron Reilly: Yeah, but like as usual, like. The companies that we’re seeing in the us, the companies that we’re seeing in Australia are all sector driven. You know, the, the checklist is driving us into certain sectors TK: Mm-hmm. Cameron Reilly: some people may be worried about over concentration, lack of diversification, but we just go where the checklist tells us there’s value to be had. Right. TK: Yeah. Fish with a Fish are. Cameron Reilly: But it’s interesting because you would think in one way that with oil [00:37:00] prices spiking and all of the global turmoil that’s going on, everyone would be jumping on oil companies right now. But yet they’re still turning up on our buy list as where the most value is right now. TK: Yeah, true. Um, I think, I think people are having, just like we are a hard time at predicting what’s gonna happen. the oil price staying at a hundred dollars a barrel? Is it dropping back? How, how long is this gonna last? are the Cameron Reilly: And, TK: in terms of interest rates rising or, um, supply chain disruptions or impact of the, your price into food? All sorts of things are being crunched and modeled and gained at the moment. Cameron Reilly: and of course we look at none of that. Not really tangentially. We do like the commodity charts we look at. We won’t buy anything if the commodity’s falling and oil’s going up. TK: Mm-hmm. Cameron Reilly: for these individual stocks will look at their sentiment charts and if they’re [00:38:00] going the wrong way, we won’t buy them. TK: Mm-hmm. Cameron Reilly: there’s a little bit of interest around them that, but we don’t. We don’t really care where the oil price is. We don’t care where interest rates are. We don’t, we’re all looking at historical numbers, not trying to predict future numbers. So it’s all based on last year’s financials, not predictions of this year’s financials. So, well, maybe a little bit we have the EPS forecasts, you know, sorts of things. Yeah. And some of the financial metrics from um, stock edia and that kind of thing. TK: Mm-hmm. Cameron Reilly: Alright, well that’s all I’ve got, Tony. TK: interesting. And the Shaughnessy reference, I didn’t expect that. That’s great. Cameron Reilly: Yeah, I thought when I, his name came up, I thought, oh, he can’t be related. That would be, but yeah, no, he is, um, yeah, no, I thought the succession level, um, founder dramas and boardroom dramas and acquisitions and takeovers and all that kinda stuff was the most interesting [00:39:00] part of that story. TK: that’s, you know, that’s, I wouldn’t, shouldn’t say it’s often the case, it’s sometimes the case with owner founders. Like, know, when I was reading about this company, the analysis I was reading kept emphasizing it was a low cost producer. They kept a tightly long cost, clearly that was at, you know, at the behest of the. Probably came up through the, through that kind of, um, you know, background of I’m small, I’m scrappy, I’m gonna keep a lid on cost, I’m not gonna spend money when I don’t need to. All that kind of stuff. And then, you know, exerted influence on the board who were there to. Basically do his bidding. Um, or didn’t provide much resistance, but is that a bad thing? Because his bidding was still keeping a little on costs and a good strategy about let’s just explore the areas that we own and not try and waste money on duplicating infrastructure. Let’s use the stuff we’ve got and maximize that. So it was all good sound strategy. always this [00:40:00] debate around governance when it comes to owner. Founders is, are you better off having good governance? Better off having someone who knows the industry inside and out who’s lived and breathed it. And uh, and yes, they’re forceful and they’re domineering ’cause they’ve had to be, to keep costs down and to keep the company focused on what, on their vision and that kind of thing. it’s an interesting dilemma, I think when you look at a lot of owner, founder businesses. Cameron Reilly: And I looked up the O’Shaughnessy family oil business, Lario, they’re still around as far as I can tell, still run by the O’Shaughnessy. I think, uh, you know, there’s been successes, succession plans from the grandfather all the way through the family. They still run it. Um. So that’s interesting. So Shaughnessy’s obviously come outta this, you know, 120 year old family run oil business. Also, the other interesting thing about this company is it’s a Colombian oil company founded by two Americans, not [00:41:00] Colombians. Uh. TK: And they, and they have changed CEO and the, from the names you’ve mentioned, I’m, I’m wondering whether there was some kind of pressure or, even just a, a, you know, tip of the hat towards the Colombian government to say, Hey, we’re on board and we’re willing to play ball or to, to use local staff or whatever. I don’t, I don’t know, but it’s interesting timing. Cameron Reilly: And as I said, the current guy was the CEO of Eco Petrol for I think, well many, many years. So, and I think the Vata thing that they had. Bought, they sort of share that land with eco petrol. It’s some sort of a TK: Yeah. Cameron Reilly: joint venture or some sort of a collaborative operation they’ve got going there. So yeah, there’s a lot of interplay with eco petrol and the Colombians and the government and all that kinda stuff. So anyway, beyond my pay grade, that’s Geo Park. We’ll see how it does. Alright, well. TK: [00:42:00] Thank you. We can come back next week and talk about the straits of her was again. Cameron Reilly: There’ll be another royal company on the buy list probably next week the way things are going. Yeah. TK: Yeah. Cameron Reilly: Alright. And or, or a company that makes tomahawk missiles or, um, anti drone defense systems maybe. TK: the ones that are going up in Australia as well. They’re just not value stocks. Cameron Reilly: Yeah. TK: make little, little money usually. And now, now their share prices are rising dramatically. Cameron Reilly: Well that brings us to after hours. What have you got for me this week, Tony? TK: Uh, yeah. So a book called The Bed of Pro Crusties by Nasem Nicholas Talib. Um, do you know the story of the bed of Ty’s camp? Cameron Reilly: I got your notes TK: Ah, okay. Yeah, so Ty’s, it’s a great story, probably a myth, but he owned an inn that would, um, take in travelers and then he’d, uh, give them a bed for the night. But he would make the traveler fit the bed. So if the, if the traveler was shorter than the bed, he would stretch [00:43:00] them. And if the traveler was too long for the bed, he would lock their legs off or their feet off. So, um, another, another very nice person, and eventually he was slayed by thesis, who slayed the mour, and he turned the bed on Crusties and, uh, put him in the bed and then chopped off his head for, for being too long. Um, so the book is a whole series of aphorisms, um, kind of stories around this. This is an example. And, uh, that was pretty good. It’s pretty good. So it’s a bit like that book you. Referred to me ages ago, uh, from the guy who wrote homosapiens, where it’s a list, a compendium of sort of two or three lined aphorisms. Um, I’ve got some examples here. I’ll just read out a couple. Uh, and this is how, how the book is, it’s just laid out, you know, sort of four or five to a page, page after page. But it, here’s some examples. In science, you need to [00:44:00] understand the world in business. You need others to misunderstand it, using as an excuse. Others failure of common sense is itself a failure of common sense. And the last one, I’ll, I’ll read out, France took Algeria hoping for countries for a country to encapsulate. And instead France is eating ous. Yes. They’re all, all quite quirky and good. Oh, okay. Cameron Reilly: Yeah. TK: Yeah. Cameron Reilly: crack in it when I finished the Odessa file. Maybe. TK: Mm. I like tale as well. I, there’s a sort of cadre of authors who I just automatically buy the next book that they put out and he’s one of those. Cameron Reilly: But this is an old one, right? 2010. I think this came out. TK: Oh, okay. I must have just come across it recently, I think. ’cause yeah, I’ve just bought it. Cameron Reilly: What else? Anything TK: No, that’s it. I’ve, like I said, I’ve, I’ve watched some movies [00:45:00] like Minority Report, um, nothing really worth reporting. A lot of big grade stuff this week, which has been fun, but hardly worth recommending. Cameron Reilly: Mm, well, um, have you seen the Mel Brooks Doco? TK: No, Cameron Reilly: I think it’s on maybe Um, it’s called The 99-year-old Man. TK: no. Right. Cameron Reilly: uh, directed by Judd Apatow, TK: Okay. Cameron Reilly: and it’s just interviews with Mel today, telling his story and a whole bunch of people, fans like comedians, Dave Chappelle Seinfeld, Sarah Silverman, people like that, but also lots of archival interviews of him from over the decades, plus Carl Reiner and people like that. TK: Mm-hmm. Cameron Reilly: It has David Lynch’s last filmed interview in TK: Oh, wow. Cameron Reilly: talking about Elephant Man and lots of interviews with Rob Reer in it too, which I assume are[00:46:00] TK: Mm Cameron Reilly: some of his last interviews. TK: mm Cameron Reilly: Um, but it’s great. Like I assume you’re a Mel Brooks fan. I mean, TK: mm-hmm. Cameron Reilly: you’re a Python fan. I don’t know if we’ve talked about Mel Brooks much, but you, like me must have grown up watching Mel Brooks films TK: Young F Frankenstein, blazing Saddles. Yeah. Cameron Reilly: get smart TK: Oh yeah. Get smart. Yeah. Yeah. Cameron Reilly: what I didn’t realize until I watched this is that he, his career was in the toilet before Get Smart. I thought was like successful when he did get smart with Buck Henry. But the story is that he was working on the Sid Caesar show for quite a few years Kind of, he either quit or got fired from that because he wanted to make movies. And he, uh, I think, Sid signed up for another series and Mel didn’t wanna do more TV and whatever reason he left then was broke, couldn’t get, you [00:47:00] know, arrested in Hollywood and career was going nowhere. And then somebody approached him, I think a producer approached him with the idea of doing this TV show to make fun of James Bonde type stuff. And he TK: Yeah. Right? Cameron Reilly: and that launched him. So then he made the producers TK: Mm-hmm. Cameron Reilly: was a flop. Then he made the 12, made the 12 chairs. It was a flop. TK: I haven’t seen that one, Cameron Reilly: Oh, great film based on TK: is it? Cameron Reilly: novel. Um. Yeah, again, he was a complete failure by the early seventies. And then a producers approached him and said, I’ve got a, some, a young screenwriter’s given me a screenplay called Black Bart, and I want you to direct it. Mel says, only direct my own work things. I write myself, the guy says, I can pay you, when do we start? And that was Blazing Saddles. And he brought TK: Yeah. Cameron Reilly: Richard Pryor and then the whole story TK: Gene Wilder.[00:48:00] Cameron Reilly: and, and TK: Mm, Cameron Reilly: no one is ever gonna see it ’cause it’s a Western. No one’s ever gonna watch a Western. No one made a Western for 35 years. No one’s gonna watch this. So he, they just, was getting paid. He didn’t care. He didn’t have a percentage in it, so he just went balls to the wall. He said, somebody told him, if you’re going to, if you’re gonna approach the bell ring it. TK: yeah. Right. Cameron Reilly: They just went, TK: Good saying. Cameron Reilly: joke they could think of, they just put it in there and, uh, of course, yeah, it was hugely successful. Um, yeah. And then, and then he is had other flops, but I didn’t realize, apart from Elephant Man, like when he started Brooks Films, ’cause TK: Mm-hmm. Cameron Reilly: to make serious films, but he knew, he says, you know, if I directed Elephant Man, people expect it to be a comedy musical. TK: Yeah. Cameron Reilly: Um, he also did the Fly. I didn’t realize that TK: I didn’t know that. Cameron Reilly: the Jeff Goldblum version of the Fly, which is one of my favorite films. I just re-watched that in the last year. Loved it. Um, so yeah, what a, [00:49:00] what a life, what a, what a career and TK: Mm. Cameron Reilly: and, TK: But married to Anne Bancroft too, which is always found surprising. I, Cameron Reilly: You, you weren’t the only one. Everyone, TK: yeah. Cameron Reilly: with people going, everyone at the time was like, he said there was, uh, they’d only been together for a short while and there were some, they were at some event and there was some famous guy, I can’t remember who it was, big Hollywood dude who looked at her, looked at him, looked at her, looked at him and said, I don’t get it. But the story between them getting together is fascinating too. She was on, she was in a play, like she won an Academy Award in like 62 and then she was in the graduate and was on, she was a big Broadway star. Some friend of his dragged him along to see this thing. She performed a number on stage. She finished, he stood up apparently in the audience and yelled out. And Bancroft, my name is Mel Brooks. I. TK: He rang the bell. Cameron Reilly: Yeah, and then he [00:50:00] stalked her for the next five days. She says everywhere she went, he was there and he was like, we meet again. This is kismet. It’s meant to be. She also says that the first time she saw him, she knew she was gonna marry him TK: Oh Cameron Reilly: And then they were together for you, dunno, 45 years or something like that. she dies and then he ends up going to Carl Reiner’s house every night for dinner. You ever seen that? Comedians in TK: yeah. Cameron Reilly: episode? TK: Yep. I love it. Cameron Reilly: so Jerry is in this thing talking about that, and he is great. He says, yeah, look, it was probably pretty intrusive, but he said, now America gets to see when you’ve achieved everything there is to achieve. do you finish your life? TK: Mm. Cameron Reilly: in front of Wheel of Jeopardy, TK: With a T TV dinner. Yeah. Cameron Reilly: with a tv, dinner, eating deli sandwiches. Like TK: Yeah, yeah. [00:51:00] Which I thought was fantastic. That was a great, great setting for them. Very realistic. Cameron Reilly: so Rob Reiner then says, when Carl died, Mel was there. Carl went to the bathroom and collapsed. Mel called the, you know the, whatever you call it, the, TK: One. One. Cameron Reilly: yeah, I think it was like a retirement village TK: Oh, okay. Yep. Cameron Reilly: he called medical support, kept begging them to keep the machine on him, hoping they could bring him back around, didn’t said Then Mel turned up at the house every night for months. To continual continue the ritual of eating. He wasn’t prepared to let his friend go TK: Wow. Cameron Reilly: And he said to them, look, I know you’re gonna have to sell the place eventually. Just tell me when I can’t come anymore. And Rob Reer says, he said, uh, well, maybe we’ll sell it with you in it, you know, buy the house, get Mel Brooks for free. [00:52:00] But yeah, like he’s, and then, you know, Carl’s dead, Rob’s dead. Um, gene Wilder’s dead. He’s outlived everyone. But, um, yeah, it’s, it’s really, uh, you know, and it talks about, then he goes and does the producers on Broadway, reinvents Broadway, Nathan, uh, not TK: Right, Cameron Reilly: um, yeah, well, Nathan Lane’s in it too, but, um. Josh Gad is in it ’cause he’s producing Space Balls two, which they’re making at the moment. But he says that, uh, like the Book of Mormon wouldn’t exist without the producers on Broadway because the producers on Broadway reinvented Broadway. All of a sudden you could do stupid slapstick comedy on Broadway, which opened the door for movies being remade into musicals, TK: right. Cameron Reilly: but also, which it hadn’t been done before, or hadn’t been done for a long time anyway, since maybe the sixties. Um, and also [00:53:00] zany really zany stuff and, you know, brought a whole new generation of people back to musical theater and Broadway. Um, so anyway, and it’s still, I think the TK: Remember? Cameron Reilly: in this, it still has more Awards than any other production, including Hamilton. It got 11 Tony Awards or something. So, yeah. TK: I remember going, I remember going to see it when it was revived in Australia with Burt Newton playing the Nathan Lane part. Cameron Reilly: Was he good? TK: It’s great. Really good. Cameron Reilly: I saw him do, maybe I saw that too. I just remember him doing springtime for Hitler. TK: Yeah. That’s it. Cameron Reilly: but that’s not TK: no, it must have been the Nathan Lane part. No, he was the, uh um, no, you’re right. He was the German. Yeah. Cameron Reilly: guy doing Hitler. TK: Yeah. Yeah. Cameron Reilly: Shut up. Apatow asks him when they made the film in 60 70, he goes, anyone else making jokes about Hitler? And he TK: Yeah. Cameron Reilly: no, no one, TK: Mm. Cameron Reilly: It was, he said, Dave Chappelle talking about Blazing Saddles is like, people [00:54:00] say you couldn’t make that movie today. You couldn’t make it back then either. TK: Yeah. Cameron Reilly: was never a time when you could make fun of racism TK: yeah. Cameron Reilly: did in TK: Would’ve been worse back then, I think. Cameron Reilly: and Mel Brooks is the only reason he could get away with it is ’cause Richard Pryor was his writer and was supposed to play the role. TK: Mm. Cameron Reilly: so anyway. Yeah, really, really, if you like Mel Brooks, really, I loved, I loved this TK: I’ll have a look. Cameron Reilly: My musical, uh, suggestion for this week is Lamber Hendricks and Ross. TK: Okay. Cameron Reilly: Do you, do you know what Vocalese is? TK: No. Cameron Reilly: You probably do, but, uh, like me, you probably dunno by that name. So, you know what scat is? TK: Yeah. Cameron Reilly: Scat is when they put English lyrics over the jazz part. Yeah. So they take a jazz standard, but TK: Mm-hmm. Cameron Reilly: the trumpet line, they put words over the trumpet line, [00:55:00] da, d da d, d, So anyway, um. Lambert Hendrix and Ross were the, uh, pinnacle Vocalese trio in the sixties. TK: Right. Cameron Reilly: listening to them. They, they put like, they did like four or five albums, but listening to that while I work over the last couple of days, it’s really, if you know, it’s a really cool sort of TK: Okay, Cameron Reilly: jazz background vibe. Um, this vocal trio singing over the top of jazz standards. Yeah, that’s, that’s been a lot of fun. Uh, that’s it. That’s what I got. TK: good. No, it’s been fun, Cameron Reilly: got washed out. You heard my camping story. We got washed out, came TK: but. Cameron Reilly: drive through a bloody dirt track through the forest, uh, which was hairy. No reception, no sat nav. The guy that came in the morning that we left, I took photos. He had, he had, um, a map on his phone still. I was TK: Yep. Cameron Reilly: photos of his map to [00:56:00] guide myself through these forest tracks. Thought if we break down or, you know, hit TK: Mm-hmm. Cameron Reilly: and do an axle or something, 10 o’clock at night, no mobile phone reception, it’s TK: So what, so what happened? You, you, you lasted a night, did you? Cameron Reilly: So we got there on Friday afternoon, it was raining. We set up TK: Right? Cameron Reilly: rain. We’d TK: Hmm. Cameron Reilly: tent the day before, didn’t know how to put it up. Spent 90 minutes trying to get this tent up in the rain. Uh, it poured rain all night. We found out the next morning all the roads in were flooded the dam had released a whole bunch of water. So, like in TK: Uh, yep. Cameron Reilly: which was flooded last week, the roads were flooded. Um, the only way in or out was a dirt. Road through the forest, which was hairy. And then the forecast was, it was gonna rain all night on Saturday night, but it had been sunny all day and it was dry. So about six o’clock Chrisy and I made the call, let’s just get outta here. I don’t, and it was [00:57:00] gonna be raining the next day. We didn’t want to have to pack up in the rain. And it was, TK: Yeah. Cameron Reilly: so we packed up, left about eight, tried the main road out. Yeah, it was flooded. Chrissy walked out into the bridge over the river and it went up to her knees and uh, she didn’t even TK: Mm. Cameron Reilly: to the road section. It was up to her knees and we’re like, yeah, this is bad. So we turned around and hit the dirt track and just sort of, it was only about half an hour through the forest road and got out and got home by 10 30. It was fine. Turns out it didn’t rain and everyone the next day just left on the main road. But you know. We, uh, we made a call, TK: Yeah. Cameron Reilly: our sanity. Um, I thought I’m, if it rains, I’m just gonna be lying here, worried all night about, oh shit, TK: Mm. Cameron Reilly: this thing up and pay us. But Fox, because we turn up in the rain the Friday afternoon, one of Fox’s friends, ’cause it was a school thing. One of his TK: Oh, okay. Cameron Reilly: comes running up to the car in the rain Fox just jumps out, takes off in the rain. We don’t see him for the next couple of hours. [00:58:00] He say he’d pop up to the tent every now and again and go dinner ready? No. All right. He’d be off again. You know, we were talking about this so beautiful camping ground. Only families from his school there. They’d sort of book the thing out. There was like 30 families or whatever. So the kids, we didn’t see the kids for the whole day. Friday night and Saturday. It was like living in the seventies. The kids are just TK: Mm. Cameron Reilly: on TK: Right? Cameron Reilly: skateboards, bikes, going to creeks in the bush, just. It was like growing up that we did. Right. You just don’t TK: Yeah. Cameron Reilly: the day, you know, the kid’s just off playing with his friends. It was, it was great. You know, it was something he TK: That’s fantastic. Yeah. Cameron Reilly: Brisbane, you TK: You should be able to, Cameron Reilly: Yeah. If, yeah, if he doesn’t even have any friends that live within, you TK: Hmm Cameron Reilly: 20 minute walk from here. But, um, it was, you know, yeah. Just, I dunno, [00:59:00] I wish it was like, it was in many ways, you know, whole thing. ’cause you know what, it was like we’d, I’d disappear TK: hmm. Cameron Reilly: seven o’clock Saturday morning, I’d be on my bike and I wouldn’t come home until dark. My parents had no idea where I was. We, we TK: Yep. Cameron Reilly: were the same growing up. Right? TK: Yeah, absolutely. School holidays was like that. Um, Cameron Reilly: Yeah. TK: every afternoon was like that. Cameron Reilly: Yeah. TK: Go out. Go out until the street lights came on, ride your bike, go down and play football on the footy oval. Yep. Cameron Reilly: Yeah. Go, you know, TK: Skateboards. Oh. Cameron Reilly: exploring TK: Oh. Cameron Reilly: and going TK: Number of times I’d get Cameron Reilly: parks and TK: hauled, like dad get home, and then the neighbor come over and say, the kids have done this. And like dad would go, what have you done? Oh, nothing. Cameron Reilly: Yeah. TK: me. He did it. Yeah. Cameron Reilly: And that whole thing of, you know, there was, there was a hill, uh, this place, a road, main road leading up to a dam. Fox and his friend were on [01:00:00] scooters, no helmets, no shoes up to the top of this hill and then it down this TK: Yeah. Cameron Reilly: fast as they possibly TK: Just like the seventies. We never had any helmets or shoes either. Cameron Reilly: Exactly. And I was talking to Chrissy about, you know, that ability to evaluate personal risk. In a physical sense only comes from trial and error. Right? You, you have to fall down and hurt yourself a bunch of times to get a sense for, okay, maybe that was pushing it too far. Maybe I should think about TK: Yeah. But also watching your dumb mate do it first and go, well, if they can do it, I can do it. Ah, Cameron Reilly: Yeah, TK: yeah. And like, ’cause they’re, they’re like three years older than you and they can do it and you can’t, but you’re not gonna give up. Cameron Reilly: yeah. TK: Yeah. Cameron Reilly: school is based on this principle too. The kids need to take a lot of risks because TK: Hmm. Cameron Reilly: learn to, um, evaluate risks. But [01:01:00] then kids get hurt. of arms get broken and concussions happen, and parents get upset. Why, and I’m like, that’s kind of what you signed up for when you send ‘ em to TK: Yeah. Cameron Reilly: It’s part of the philosophy of the school is they let kids use knives and power tools and you know, blast objects and heavy objects and build forts up trees. That’s kind of the point, right, is like of the flies in a somewhat loosely managed environment. But anyway. Yeah. All right. Have a good week, tk. Thank you. TK: Cam. Bye. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Mar 19, 2026

30m
35

Viagra for Value Investors (MUR) – QAV AMERICA 43

In this episode of QAV America, recorded on March 12, 2026, Cameron and Tony navigate a market defined by "Trump Chaos," exploring how a rules-based system provides a psychological anchor during periods of high volatility. The duo discusses the fallout from trade tensions with Spain and the impact of attacks on Qatari LNG infrastructure on global energy prices. The "Pulled Pork" deep dive features **Murphy Oil (MUR)**, a 120-year-old company undergoing a radical transformation from a sprawling integrated petroleum giant into a streamlined, high-margin exploration and production play. Despite a "complexity discount" from the market, the hosts analyze Murphy’s aggressive shareholder return policy—dubbed "Viagra for Value Investors"—and its pivot toward deep-water assets in the "Gulf of Trump" and Vietnam. This week's full episode is for QAV Club members only. The free episode is available above. Also check out our podcast archives link and our pages on Apple Podcasts or Spotify or watch clips on TikTok. Or visit our homepage to learn more about QAV and how it works as a value investing system that you can learn and apply to beat the market. In this episode of QAV America, recorded on March 12, 2026, Cameron and Tony navigate a market defined by “Trump Chaos,” exploring how a rules-based system provides a psychological anchor during periods of high volatility. The duo discusses the fallout from trade tensions with Spain and the impact of attacks on Qatari LNG infrastructure on global energy prices. The “Pulled Pork” deep dive features Murphy Oil (MUR), a 120-year-old company undergoing a radical transformation from a sprawling integrated petroleum giant into a streamlined, high-margin exploration and production play. Despite a “complexity discount” from the market, the hosts analyze Murphy’s aggressive shareholder return policy—dubbed “Viagra for Value Investors”—and its pivot toward deep-water assets in the “Gulf of Trump” and Vietnam. Episode Timestamps [00:00:00] – Welcome to Episode 43: Market chaos and the Epstein files. [00:01:03] – Portfolio Performance: QAV US up 94% since Sept 2023; tracking Willis Lease Finance (WLFC) and E W Scripps (SSP). [00:03:51] – Chord Energy (CHRD) and the surge in natural gas. [00:04:33] – The “ADR Risk”: Trump’s trade war with Spain and the impact on Spanish stocks. [00:05:41] – Geopolitical Noise: Trump, the Australian Prime Minister, and Iranian soccer. [00:06:23] – Energy Crisis: Attack on Qatar Energy LNG units and the Strait of Hormuz closure. [00:08:50] – The QAV Framework: Why a statistical system beats “predicting” the Middle East. [00:15:10] – Deep Dive (Pulled Pork): Murphy Oil (MUR) – From timber and farming to pure-play E&P. [00:44:45] – After Hours: Murphy’s Law origins, Michael Caine’s Deadly Game, and Scorsese’s Mean Streets. [00:53:45] – The Tupac Documentary: Civil rights, the Black Panthers, and Afeni Shakur. [00:57:45] – Fitness Update: Gemini declares Cameron an “Elite Athlete”. Transcription Cameron: [00:00:00] Welcome to QAV America, Tony, episode 43, timestamp. Tuesday, 10th of March, 2026, Trump has tar again. Tony. It looks, has Tony: he? Cameron: Well, today maybe. Tony: I thought it was mission accomplished. Cameron: Wow. Tony: No one’s looking at the Epstein files. Mission Cameron: accomplished. What was the, what was the mission again? Tony: Distraction. Cameron: Distraction. Yeah. Tony: Not distraction. Distraction Cameron: or arbitrage. Uh, oil price goes up. Oil price comes back down. Somebody’s making money in there somewhere. Mm-hmm. It’s crazy time in the markets, but, uh, as we always say, doesn’t really, well, I mean, it matters, but, uh, from a QAV, from an investing perspective, the system just keeps on chugging along. Mm-hmm. We’re able to ignore the noise, ignore the [00:01:00] volatility, ignore the chaos. We just keep doing what we’re doing and we, if the market’s up, we stick to the system, the market’s down, we stick to the system. It works pretty, pretty well. I’m just looking at our portfolios. The QAV US portfolio that’s been running since September, 2023 is up 94% in that period of time versus the s and p 500, up 53%, but we’ve come down quite a bit in the last. Month. I think for the last 30 days, we’re down four and a half percent versus the s and p down 2.4. Last 12 months we’re up 12 point a half versus the s and p up. 17 point a half, 17.8. But, um, you know, it’s, we were, last six months, we’ve had a lot of growth. We’re up [00:02:00] 13% versus the s and p up four, but it’s, it’s sort of been a little bit chaotic. In the last, mm-hmm. Week or so, um, some of our stocks in the portfolio are doing very well, though Willis Lease Finance is up 276%. Is up 134% and Nova is up 132%. Sarcos Energy navigation is up 111%. Stealth gas is up 95 BLX. The Foreign Trade Bank of Latin America, blade X is up 94. KT is up 44. It’s Korean telecom. Uh, with the light portfolio that I started not that long ago, started it in, uh, the December 20, 25, the 22nd of December, it’s still down one and a half percent versus the s and p down 1.2%. So just neck and neck with that. But some of the stocks are doing quite well. Uh, scripts that I added a couple of weeks [00:03:00] ago, I told you ’cause the stock I was gonna buy became a Josephine, so I added scripts. Uh, it’s up 32% since I bought it two weeks ago. Tony: What do they Cameron: do? Uh, they’re like a publishing company, diverse media enterprise that serves audiences and businesses through a portfolio of more than 60 local television stations. Um, not publishing tv. They also have, Tony: well, media’s dead TVs. Dead network. Television’s dead. Cameron: Yeah. Yeah. Court tv. That must be what it is. Tony: Yeah. Cameron: Uh, uh, they’re, they’re following the Epstein files. I don’t know, cord energy that I added, uh, just recently too is up, uh, 29%. Tony: Hmm. Cameron: These guys are an independent, uh, ex oil exploration company. No. Natural gas, not oil, natural gas. Oh, [00:04:00] crude oil and natural gas. These guys, and we’re gonna talk about another oil company today. Tony: Do you have any Spanish ADRs and that list? Cameron: Ha, we don’t, but we do need to talk about that. So over the last couple of episodes, we’ve been talking about ADRs and the A DR risk. And we had a really good example of how it can play out this week. Uh, Trump announced that he was gonna cut trade with Spain due to Spain’s refusal to let us aircraft stage unilateral strikes on Iran. From military bases within Spanish territory. And, uh, Trump just decided, well, that’s it. We’re gonna crash the Spanish economy for saying no to something that I want. And Spanish stocks got hammered. But, uh, you know, the whole impact of that, if you were investing in Spanish ADR would be pretty dramatic. And, and I, you know, we’ve talked about [00:05:00] this recently too, the whole, um. Attempts in Europe with the WEO to build a credit card system. Yep. Gets ’em off a Visa or MasterCard. Uh, the, the, the ability to decouple from mm-hmm. The US economy for the EU is a big deal right now for exactly this reason. Like Trump is such a. Hothead that uh, he can just crash economies, global economies, European economies, any economy he wants, just with a couple of 3:00 AM truth social posts, because we’re saying on the Australian show last night at about 1:00 AM Australian time, he started badmouthing the Australian Prime Minister for sending the Iranian women’s soccer team back to Iran, which our prime minister wasn’t doing. But Trump had heard that he was started badmouthing him, forcing our prime minister to [00:06:00] get on the phone to Trump at like 2:00 AM our time to assure him that he wasn’t doing that. And in fact, they’d been working on asylum for some of the girls for 48 hours. And the deal had pretty much been done anyway. It’s uh. Another good reason why you suggested last week, we should, uh, avoid buying a DR stocks if possible on the buy list. Yeah. Prioritize the non Tony: ADRs. Yeah. Yeah. Cameron: Um, well, on other news, before I get into my Paul pork this week, Tony, um, we talked about LNG Europe’s natural gas prices jumped about 30% over the last couple of days. In the wake of an attack on Qatar Energy, LNG processing units, um, Qatar supply about 20% of the world’s LNG. A lot of it goes to Asia as well as Europe. And they, uh. A have been attacked, and B, they can’t ship anything [00:07:00] through the straits of mush at the moment because the strait is effectively shut down. And they’ve, uh, they, they’ve got storage issues. You know, they’re not built to store stuff for long term. They’re supposed to be stored, put on a ship and shipped out. They can’t do that. So they’ve, they’re starting to shut down their operations that’s causing, uh. Problems for LNG markets around the world might be good for some of the, uh, LNG providers. Like, I don’t know, cord energy, which is, as I said, up 30% how long that will last though remains to be seen. So, uh, chaos in the markets, Tony, that’s basically it. That’s all I’ve got in terms of. Um, unrelated news is just, it’s just chaos. Tony: Mm. Chaos in the market. Chaos in the Middle East, chaos in oil prices, gas prices. Cameron: Say what you want about Trump, but he [00:08:00] brings the chaos. Tony: Yep. Just like star it in. Get smart. Cameron: Yeah. Um, I, but I, you know, I said this before, I said this in our last show. As an investor, having a system to follow during turbulent times, during times of volatility, a system that tells me what to do so I don’t have to mm-hmm. Get lost in the noise is a great thing. Uh, I don’t have to, you know, yesterday I had to sell a bunch of stocks from, uh, one of our Australian portfolios because the market crashed here after oil prices rocketed. Uh. I didn’t blink, didn’t question it, just sold what it told me to sell. Bought what it told me to buy. And then today the market’s completely turned around here yet again. ’cause oil prices are backed down, but it doesn’t matter whether it’s up, whether it’s down. [00:09:00] I just do what the system tells me to do and ’cause I know it works and I don’t have to, I don’t have to worry about it. Tony: And we, yes, and we also know that there’s always gonna be turmoil. As we were saying on the Australian show, it’s like a boxing match, right? You, you’re not just in here for the three or four rounds where you might not get a punch landed on you, and then when someone’s in the face, you go home and you get out. You’ve gotta have a system to take into account, you know, you’re hit in the face. It’s a roper though. You’ve gotta absorb punches and still be standing after 15 rounds. That’s, that’s what you need to do as an investor. Cameron: Yeah. Yeah, exactly. And, uh, you, you just. Get used to the fact that things go up and things go down and you don’t have to panic when things go up or things go down, you just do what you Tony: Yeah. And, and I think I like, as, as I get older, it’s not panic. It’s like I don’t have to try and work out for myself what’s gonna happen. Cameron: [00:10:00] Yeah. I Tony: don’t have to be an authority on Middle Eastern bunkers and LNG in the straits of, and, you know, a Asian refineries and all that stuff. I just, you know, have a system which allows me to trade through it Cameron: and explain for maybe new listeners how the system does that. How does the system know what we should be doing? Tony: Well, it’s a framework, right? So the whole thing’s been built on every time I got punched in the face, let’s try and find a way of avoiding that next time. So it’s, it’s statistical in nature. It doesn’t mean that everything the system spits out is gonna be the right answer, but it’s gonna spit out more right answers than the wrong answers. Um, and it’s based on what’s happened before. Because as you, as you said, the markets have been in turmoil since the markets have opened. There’s always something. Going on. And there’s always something major about once every two years going on. Probably the last one was the Ukraine War announced the Middle East War, and before that it was [00:11:00] COVID and et cetera, et cetera. It just goes back through time. So yeah, we, we know we’ve gotta have a framework in place to allow us to, to cope with that. So a lot of people who teach investing will have what stocks to buy or when to buy or how much to buy, but they won’t have when to sell. And I think that’s really important. So. You know, our framework has some rules around, um, selling based on momentum and selling, based on trying to preserve capital. And, uh, and, you know, you just gotta apply them and not think about it. Um, you know, we set up alerts with those prices. We, I update them every month and to reflect and, you know, what the new numbers are. And then when I get the alert, I sell. Because there’s always, ’cause again, it’s statistical. We’re selling something which is probably going down. There’s a couple of other red flag rules we have about CFOs resigning or independent directors resigning without reasons, that kind of thing. Or audit. That’s. Um, raising red flags. Uh, but mostly [00:12:00] it’s around the companies in a downturn. And so we have, you know, do we ride it out? Wait for the good times, or you know, do we buy more or do we sell? So, you know, you’ve gotta answer that question. So you set up rules in the framework to answer that question, but it’s statistical. Um. The stock may recover, it probably will recover over time, but you’re better off being in a stock that has got a better chance over that period of doing well, um, rather than waiting for one to bottom out and turn around. So it’s, that’s, that’s basically the, um, strategy that I’ve used over the years. You’re better off being in a position which is going up and has a better chance of continuing to go up than in holding one, which is going down and waiting for it to turn around. Cameron: And in terms of the buying side of it. We kind of are looking at mostly historical numbers. Yeah. Uh, we, we have a little bit of forecasted, uh, scoring in there, but mostly it’s looking at historical numbers and we’re looking at, is this business generating cash? [00:13:00] Is the business growing? The size of their equity is the, you know, we’re looking at a combination of quality metrics. How’s the business doing as a business? Is it. Run well by the current management. Mm-hmm. Does it seem to be generating cash? And we, and then we add value metrics to it. Can we buy it at a, at a discount to what we think a fair valuation is? And we look at a range of metrics to determine what that fair valuation is. It’s not all an intrinsic value. We look at a range of different things, what you call a heat map. Mm. So whatever’s happening in today’s news is. To a large degree, irrelevant to what we are looking at when we’re buying a stock. We’re looking on its last financial report, which can be weeks old or months old. And assuming if the business has been well run up until this point, the management’s probably gonna do a good job continuing to make smart decisions [00:14:00] regardless of what’s happening in the market. That’s their problem. That’s what we’re paying them for, is to run their business. Yeah. To they understand. Their market. They understand their sector. They understand the ins and outs of their business. If they’re making money and have been making money through ups and downs over the last five years, then they probably will continue to figure out how to do that. They’re smarter than we are when it comes to running their business. Tony: And they’re in incredibly incentivized to do well too. Um, Cameron: yeah. Tony: And the best, the best type of incentive that I like is, uh, is ownership. So Cameron: yeah, Tony: if, uh, you’ve got someone who’s has a big stake in the company or, and has been around for a long time, so they know the industry, that’s probably the best management to have their incentives align with ours. Cameron: So speaking of, uh, companies. I’m gonna do a deep dive, but I was, I did prep over the weekend to do a deep dive on UVE Universal Insurance Holdings, which I thought sounded like a front for James Bond and the Caribbean. Uh, [00:15:00] really doesn’t it? Universal? It does, yeah. Tony: Universal exports. Yep. Cameron: Universal, yeah. Imports, exports. Either that or something George Costanza would run, but then yesterday they had turned down, like everything else, they were a Josephine and so I didn’t wanna buy them, so I. I turned to, I kept going down the list trying to find something that wasn’t a sell. Tony: Lemme guess. An oil company. Cameron: It was an oil company. And of course it’s down today. So, uh, but I’m gonna do it anyway because that’s what I prepped for. So this is a company called Murphy Oil, which again sounds like kind of a fake name. Tony: Well, that’s right, that’s straightaway thought of Tom Murphy, the the Cameron: investor, Tony: um, investor that Buffet was a fan of. Cameron: Yeah. What did he, was he TV stations? Tony: Murphy EB? He was A B, C. Yeah. Cameron: I think our, um, Pr/OpCaf under Seven comes from Murphy. Tony: I think it does. [00:16:00] You’re right. Yeah. Yeah. Cameron: What was the book? Tony: Good memory. Outliers. Cameron: Outliers. That’s right. Um, no, not that guy. Different Murphy. Um, this company has been around about 120 years. Tony traditionally was an integrated petroleum company with a bunch of different interests. Timber farming, refining retail, little bit like Veeva Energy that you just did a deep dive on on our Australian show. Without the timber and the farming, but over the last 10 years or so, Tony: they did actually own timber. Cameron: Oh, did they? Tony: Timber right. In the past. Yeah. And mines and all sorts of things. Yeah. Cameron: Well, that’s where this company came from. He owned timber and then they. Sort of discovered oil on the land, I think, and transitioned into an oil company. Tony: I listened to a story about a man named Jan, Cameron: that’s exactly Tony: it, that year, but he kept his family fed. Cameron: But over the last 10 [00:17:00] years, they’ve been selling off all of the, uh, non oil related businesses. Well, in fact, all of the non exploration and production side of the businesses, and basically been streamlining the operation. And they’re currently trading at a significant discount to their intrinsic value price to book all those sorts of things. So it’s top 10 in our buy list. Oh, okay. Um, you know, it, it, it’s looking good, but obviously whenever I see a stock that, uh, is being discounted by the marketplace, we wanna ask why is it being discounted? So we’ll dig into that. There’s some good reasons why the market might be skeptical about its prospects moving forwards. But a little bit of the history, it was founded in El Dorado, Arkansas by Charles H. Murphy Senior, and as I said, it was basically he had all these Timberland holdings on the Arkansas, Louisiana border, [00:18:00] El Dorado, Arkansas, by the way, named after. El Dorado, the mythical city of gold, located supposedly somewhere in South America. Tony: Mm-hmm. Cameron: The, it was actually the name of the king of the city was name. His name was El Dorado. Then the city in mythology came to be called El Dorado as well. Said to be so rich. This is what the conquistadors heard, that he could cover himself from head to foot in gold dust, either daily or on certain ceremonial occasions before diving into a sacred lake to wash it off. And I thought, that’s pretty much what you do every day. I think really, it’s just, that’s what I heard. Cover yourself with gold dust, then go for a swim. And then go play golf. Do you play golf covered in gold? Dust? Tony: No. Covered? I’m Cameron: covered Tony: in dust. Yes. Not gold dust. Cameron: Probably not. Good for you being covered in gold Dust every day. Every day you’re breathing it in. You’re getting gold particles in your lungs. [00:19:00] Not exactly health and safety. Like the first Tony: Gogo dancer at the start of Goldfinger. Cameron: Yes. Or covered Tony: in gold paint. Cameron: The woman who played the witch in the Wizard of Oz. Tony: Oh yeah. Okay. Cameron: She was covered in green paint and I think she had lead in it, and I think she died of, she was melting. She melted. She did melted from the inside. Uh, so anyway, this, uh, El Dorado based company first established itself with oil production in 1907, but the oil side of the business was only a small part of the business for the next 30 years. It was still mostly timber and banking interests. Then it started to change sort of middle of the 20th century formal incorporation as the Murphy Corporation in 1950, and then it was listed publicly in 1956, and by that [00:20:00] stage was mostly an energy based company. Tony: Mm-hmm. Cameron: Under the leadership at that stage of Charles H. Murphy Jr. Son of the founder. Yeah, they expanded into refining retail marketing, uh, marketing and offshore drilling. They actually helped to found ecco, the Ocean Drilling and Exploration Company, not to be confused with Odessa. Tony: Mm-hmm. Cameron: The organization of former Nazis hiding out in Egypt. Subject of the Odessa file by Frederick Forsyth that I’m reading at the moment, loosely based on some fact or faction as a, he used to write, he apparently combination of fiction and fact faction. Uh, and they built this sort of global footprint from the North Sea to Iran and Venezuela. Two companies that are now run by Donald Trump, he’s going for the. Hat trick [00:21:00] out in cbi said he, he said today that he wants to take over C. It can either be a friendly takeover or an unfriendly takeover. Tony: Right? Cameron: I’m not sure. Is that before, Tony: after Greenland and Canada? Cameron: Yeah. Well, I’m not sure it’s, the order is up to negotiation. I’m not sure. When you deliberately crush a country’s economy and put all of its people into starvation by blocking oil imports into the country, that it’s a friendly takeover. I’m not sure that that is in any way, shape or form classified as friendly, but hey, who? Who am I? What do I know? Okay, so for the last decade, they’ve been stripping the company down Gordon Gecko style, selling off all of the bits of it that, um. Excellent. Really, they don’t wanna be involved in, they’re focusing on high margin, upstream production. They sold off their refining segment in 2011, then spun off their retail arm in 2013. [00:22:00] They, they sort of, uh, sold it off to shareholders, spun it off into a separate, spun it off. Yeah. Hmm. In 2016, they sold off their interest in Sink Crude Canada, one of the world’s largest producers of synthetic crude oil. Then in 2020, they closed their legacy headquarters in El Dorado, Arkansas and moved their global operations to Houston in Texas, uh, in 2019. The year before that, they sold off their Malaysian portfolio for a little over $2 billion At. Something to do with the increasing geopolitical complexities of operating in the South China Sea, although they still have an interest in an operation in Vietnam. But then they took that money from the Malaysian portfolio and pretty much immediately redeployed it into the Gulf of formally known as Mexico, um, Tony: Gulf of America. Cameron: Yeah. And they bought a bunch of deep [00:23:00] water assets. Tony: Mm-hmm. Cameron: So their current portfolio is a mix of. Shale, uh, rapid response short cycle shale fracking as we’ve talked about. On many, many an episode now on the show, mostly in South Texas and Western Canada, and then high margin, long-term deep water offshore assets. In the fourth quarter of 2025, the onshore segment produced approximately 109,000 barrels of oil equivalent per day. B-O-E-P-D with liquid. Weight of 31%. And like other shale players, they’re working hard on extending their lateral lengths. Tony: Isn’t that when you sit at the gym and then you pull the bar down? [00:24:00] Cameron: Or it’s Tony: inte lengths. Cameron: It’s the, it’s the shale Viagra play is what it’s, oh, trying to go harder for longer, yeah. Tony: Mm-hmm. Cameron: Viagra for Viagra, for shale. Uh, so that, I mean, that, that, as we know, um, helps generate free cash flow in a lower price environment. If you can, uh, keep mining for longer in the shale business. We’ve, we’ve talked about that on a number of episodes now. That’s the mm-hmm. That’s the trendy thing in shale. Shale, Viagra. The offshore production is the main high margin side of the business, and, but it’s very heavy on CapEx the. Doing a lot of exploration, a lot of digging. Some of it’s working out, some of it’s not. The offshore business produced 72,000 B-O-E-P-D in late 2025, of which 88% was liquid, mostly in the Gulf of whatever, [00:25:00] and they have a big project, the Gulf of Trump, let’s just call it that. Then let’s just call it the Gulf of Trump, Tony: USA. Cameron: I’m waiting for him to announce he’s changing the name of Venezuela to Trump, AAIA. Cuba will be Trump, uba, um, Iran, Trump, Trump, Istan. Um, just gotta put a Trump on everything. Fox, you know, they’re talking about building a Trump hotel in the Gold Coast. Yeah. On the Gold Tony: Coast. Yeah. Cameron: Uh, down the road from where I live for Americans. And my son Fox, who’s 11, was asking me the other day, why, why, why does Trump have his name on everything? And I was like, well. It’s called Narcissism Son. And uh, next he’ll be tell him about all the medals. Oh, Tony: it’s Cameron: that he got, it’s Tony: called 7%, isn’t it? Doesn’t he, doesn’t he get paid a royalty for putting his name on all the hotels? Cameron: Yes, he does. Yes, but he was putting his name on the hotels before that, before he had to get outta the [00:26:00] business himself and just franchise it. Um, so they’ve got this big track in Vietnam and it’s on track to deliver first oil in the fourth quarter of 2026. For the f for the full year of 2025. Murphy Oil generated 2.69 billion in total revenue from production down from 3.03 billion in 2024. Largely driven by lower oil and gas prices because total production actually increased the, over the course of that year. They had a really good day yesterday. Uh, Tony, uh, not so good today, Tony: days, a long time in the market. Ken? Cameron: Yes. All prices were up 30% yesterday. Crash back today in 2025. Net income attributable to Murphy was only a hundred and. For, hold on. Um, sorry. Go back a step def the, they generated 1.25 [00:27:00] billion in net cash, uh, last year, but net income of only 104.2 million. Tony: So lots of CapEx, probably lots of drilling going on. Cameron: Yeah, well actually yes, but also lots of non-cash charges. 115 million in asset impairments. And $737 million in depreciation, depletion and amortization. Tony: Mm-hmm. Yeah. Which is old CapEx coming back. Cameron: Yeah. Right. But this is why we look at Pr/OpCaf price to operating cash flow. Tony: Yeah. Mm-hmm. Cameron: Um, as the most important metric when we’re assessing a company, are they generating cash? And how well are they generating cash? A couple of things you’re gonna like about this, apart from their low priced operating cash flow ratio, is they have stated a target of returning at least [00:28:00] 50% of adjusted free cash flow to shareholders. Tony: Mm. I do like that. Cameron: 2025, they return. Tell Tony: me, tell me more. Cameron: In 22. You don’t need Viagra. All you need is you’re, you’re talking Yeah. This is Viagra for value investors dividends. Uh, or, or buybacks. Or buybacks, yeah. I just gotta make a note. Uh, episode title Viagra for Value Investors. There you go. Uh, in 2025, the company returned $286 million to shareholders through a combination of dividends, 186 million and share repurchases a hundred million. Okay. Dividend policy is pretty aggressive. Quarterly payout increased by 70% since the outgoing CEOA few years ago [00:29:00] introduced a thing called Murphy 3.0 as a new sort of financial framework, which is sell off everything and return money to shareholders. And Tony: he is a Murphy still, that one of the questions I had for you, Cameron: um, not sure about him, but there are some Murphy’s on the board. The current CEO iss, a guy called Eric Ley. He’s a veteran of the org. The previous CEO was Roger Jenkins, but the chairman is CLA Ping Clare. Ping. Uh. A former CEO, but also a descendant of Tony: Ah, okay. Cameron: Chuck Murphy Senior. So, yeah. Mm-hmm. They’ve got a, they’ve got a, they’ve got family still on the board, and I did initially see a statement that the family owned 12.8% of the stock. Right. But then I also read that institutions own 91% of the stock. Ah, okay. And so I was trying to do [00:30:00] that math and then it turns out that maybe some of the 12.8% is owned by institutions or managed through institutions. Mm-hmm. But also the 12.8%, I couldn’t really verify that in stock Edia, they had a couple, they had, like, Deming owns a couple of percent. Another guy, uh, on the board owns a couple of percent. I couldn’t really ascertain whether or not. They are, the, the directors own more than 10%, Tony: right? Cameron: Bit murky, uh, but they’re paying. But the fact that they’re paying a lot of cash back to shareholders does tend to suggest that somebody, somebody in management owns a lot of stock. Um, and in 2020, early 2026, the board further increased the dividend of 35 cents per share, representing an annualized payout of a dollar 40. It’s about a 4% yield. So not too bad. The company’s also focused on the reduction of long-term debt. This is part of the Murphy 3.0 framework mm-hmm. That, uh, [00:31:00] Roger Jenkins put into place. The management has set a long-term goal of reaching a $1 billion debt level, which is actually my personal goal as well. Um, I’m trying to build up. Billion dollars starting, starting Tony: from a lower number. Yeah, Cameron: yeah, yeah. I have zero debt. I want to have a billion dollars in debt. Uh, ’cause then I could have that invested in my portfolio returning 20% on average a year. And it’d be good. Couple hundred million a year to splash around. Um, they’re currently around 1.4 billion in debt. So they have sold, they have reduced their debt quite a lot. In recent years. So why is it cheap, Tony? Well, the market I think is skeptical about the level of capital intensity, uh, required. Yeah, Tony: right? Yep.   This section is for QAV Club Members only. Register for your 14-day free QAV Club trial here. If you're already a QAV Club member and seeing this message, please login via the top menu. If you're a QAV Light member who wants to upgrade to QAV Club, go to your Account page (see Footer) and upgrade from there. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared [01:02:00] without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to [01:03:00] buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Mar 12, 2026

30m
34

Drilling for Value (NBR) – QAV AMERICA 42

In this episode, recorded on March 3, 2026, Cameron and Tony navigate a “punch-drunk” week for the markets following the escalation of war in the Middle East. They discuss how the QAV system provides a stress-free mechanical roadmap—buy, sell, or hold—regardless of geopolitical chaos. The duo reviews the US portfolio’s impressive 106% gain since late 2023 and examines why shipping stocks like Euroseas (ESEA) and Danaos (DAC) are surprisingly resilient despite maritime blockades. The centerpiece is a “Pulled Pork” deep dive into Nabors Industries (NBR), tracing its lineage from the legendary Guggenheim family’s Chilean nitrate empire to its modern status as a debt-laden, asset-rich “zombie” drilling for the Saudis. Finally, they touch on the “MagaMyMan” PolyMarket scandal and the importance of letting a value portfolio “churn” through its duds to find the long-term winners. Episode Timestamps [00:00] Introduction: Recording on March 3, 2026; the reality of being a “novice” after six years. [00:50] The QAV System in Wartime: How rules-based investing reduces stress during the Middle East conflict. [02:45] The Black Belt Mentality: Using Kung Fu as a benchmark for investing mastery. [05:20] Portfolio Performance Update: US Portfolio up 106% vs S&P 500 up 55%. [06:15] Shipping Sector Resilience: Why Euroseas (ESEA) and StealthGas (GASS) are climbing despite the crisis. [08:00] Korean ADR Slump: Recent dips in Korea Electric Power (KEP) and Korea Telecom (KT). [08:45] The QAV Light Winners: Success with E.W. Scripps (SSP). [09:45] Exit: Volaris (VLRS): Selling the Mexican budget airline due to cartel violence and earnings misses. [12:40] New Addition: Danaos (DAC): Adding the Greek container ship giant to the Light Portfolio. [14:40] Deep Dive: Nabors Industries (NBR): The history of the 74-year-old drilling giant. [43:00] PolyMarket & “Maga My Man”: Discussing the prediction market scandal and insider trading rumors. [46:00] Closing Thoughts: Why value portfolios take time to “ramp up” and find their 15-20 winners. Transcription   Cameron: [00:00:00] Welcome back to QAV America. This is episode 42. We’re recording this on the 3rd of March. Australian time, 2026. If you are brand new, welcome. We are two Australians talking about value investing. Tony’s been a value investor for 30 odd years. We’ve been doing a show about value investing in Australia for six or seven years, and now we do one on the American market as well, which we’ve been doing for a bit over a year. How are you today, tk? Tony: Good punch drunk from all the movements in the markets over the weekend? Well, since the weekend. Cameron: Yeah. Well, obviously. Crazy week, uh, middle East War is full on now and it’s. It’s got impacts as of course, for, for investors, but for people that are new to QAV, what you should know is that we have a system, the QAV system that Tony’s developed [00:01:00] over his lifetime of investing that has a bunch of rules that tell us what to do, when to buy, what to buy, what to sell, when to sell. And it’s at times like these that, uh, I think it, it, having a system really makes it, um. Not, I would, I wouldn’t say easy, but less stressful. Uh, because I don’t have to try and predict where the market’s going or what the market’s doing, I don’t have to think very hard at all really about it. As we’ve said, through all of the cycles, we were just saying on the Australian show, since we’ve been doing the show, we had COVID, we had the boom that came. After COVID, we’ve had another crash that happened when interest rates started to go up all over the place and the Ukraine invasion happened in 2022. Then we’ve had another boom period coming out of that in the last eight, nine months, and through all of [00:02:00] those cycles, the up and down cycles, the QAV system just. It tells us what to do, buy, sell, hold, and that’s it. We don’t have to, we don’t have to worry about it. It just, uh, takes us through a step-by-step process of what to do, whether the market’s going up or the market’s going down, or the market’s going sideways. Uh, me as a relatively novice investor don’t need to worry about it. I just need to do what the rules tell me to do, which is a great relief. Tony: When do you stop being a novice investor? ’cause you’ve been doing this for six years now. Cameron: Well, I catch up to you. Tony: Is there a, is there like a bachelor degree and a master’s degree and then a PhD? You right? I Cameron: think so. I think 10. After 10 years I’ll 10 years Tony: a Cameron: novice. Yeah. Yeah. Tony: Because as say you’ve been through plenty of cycles, that’s usually the way that you test someone’s, um, experience in markets. Cameron: Well, I’ve been doing kung fu for nearly five years. I don’t have my black belt at Kung fu yet, so I think Tony: Right. [00:03:00] Cameron: You know, I’m using that as my benchmark. When I get my black belt at kung fu I’ll be able to say, okay, well that took me X number of years, and then I’ll have the equivalent for a QAV black belt. I can be a black belt. Tony: Okay. Cameron: In QAV, but as, as I’ve told you before, at our kung fu school, when you get a black belt, it’s just, you’ve passed basic training. You know, that’s when Tony: Oh, right. Cameron: That’s when the real training starts. So that’s when you can, it’s a bit like Scientology. You’re like, okay, well now you can go to the next level of, uh, QAV. You’ll be able to tell me the secrets, the true secrets of, Tony: uh, and as your, what is your water bottle? Does it stay in your water bottle at Kung? Cameron: Hold on while I overthink this. Yeah, yeah. Tony: Uh, which is the of qd, I think too. Don’t overthink things. Cameron: Yeah. I also have a sticker on my Kungfu water bottle that says a black belt is a white belt who never quit. And I think it’s the same as true of investing. We were just talking about that. We’ve had members of our Australian, [00:04:00] uh, QAV club that have been with us for five years and they’ve been through a few cycles as well. And they know that if they’ve just don’t quit, the market turns around and, and things look great. Tony: Mm-hmm. Cameron: Uh, so obviously let’s get back to the war. So from an investing perspective. Uh, I’m trying to pay attention to what is this gonna mean for things like oil and gas and gold? Because we have investments in companies. We don’t invest in resources directly with Q QAV, but we invest in a lot of companies that are involved in oil and gas and gold among other resources. Also, in our US portfolio, we have a lot of companies that are. Transport of oil related shipping companies, et cetera. So I was really interested, uh, to see what was gonna happen with those stocks, uh, this week. [00:05:00] And of course the oil price is going up. Gas is going up a little bit, but oil is going up a lot. But if I look at the shipping stocks that we’ve got. Uh, in the US portfolio, by the way, the US portfolio, I’ve been running now since, I think it was late 2023. September, 2023. It’s currently up 106%. In that period versus the s and p 500, up 55%, slightly less than 55%. So we’re doing almost double markets, uh, over that period of time, which is two and two and a half years roughly. If I look at the last, um. 30 days, our portfolio is up about 4% versus the s and p 500, which is down 1.3%. But we’ve got, [00:06:00] uh, uh, quite a few finance and shipping companies in the portfolio. Um, ESEA, Euro Cs, which is, uh, doing okay. I’m trying to just bring up its, uh, poor network connection. You still there? Tony: Yeah. Cameron: Okay. Tony: It’s good down here. Cameron: Yeah. Um, Euroes has, uh, gone up since the, uh, weekend it’s gone. It was trading at $61 as of, uh, the 23rd of February. It’s now up at $70. So it’s had a good week. Um. What else have I got here? Sarcos Energy Navigation. Oh my God. It was trading at $30 on the 23rd of February. It’s now at [00:07:00] $37. Uh, stealth gas. Was trading at uh, $8. It’s now trading at $8 68. Gone up a bit. So the shipping companies have done relatively well. Surprisingly, uh, with all of this, I would’ve thought with the straits of ho Moose being shut down, we may have seen shipping companies getting battered, but. For whatever reason, which I don’t claim to understand, that hasn’t kicked in yet. They’re doing okay. Tony: Yeah, I think, I think the conventional reason, I don’t know if it’s the case now, um, is that, uh, if there’s a blockage in anywhere in the world of shipping and mean ships have to travel longer, they basically charge more. Um Cameron: Oh, okay. Tony: Right. They’re in like a revenue. Per mile type, [00:08:00] um, cost structure or um, fee structure. So that’s one of the reasons I think, Cameron: well, I’ll tell you what hasn’t done well in the last week, uh, is some of our Korean stocks career, electric power. You know, we talked a lot about ADR and the implications. Mm-hmm. Complications of ADRs last week, crew electric powers dropped from $22 down to 1966 in the last week. Uh, kt, which is Korea Telecom, has also well slid a little bit from $24 50 down to 2350. Uh, not sure what’s going on with them and in our QAV lip portfolio. Oh, this is a classic. Do you remember last week I did a deep dive on Bread Financial Holdings? Tony: Yes. Cameron: But I said that as I was preparing for that, I was gonna add them to our QAV light portfolio. But, uh, then noticed [00:09:00] that they were, uh, what we call a Josephine, the share price was going backwards. Mm-hmm. So I said I’d have to find something else to buy. So I bought. A company called EW Scripps Co. A, diversified Media Enterprise Ticket Code, SSP. They were the next on the buy list last week. They went up 20% last week after I bought them. I was like, uh, that’s very nice. Thank you for that. They’ve dropped back to, uh, they’re up 11%, uh, since then, but, um, yeah, they came out with an announcement late last week with their Q4 revenue that said that, uh, fell Q4 revenue fell 23%. But the share price still went up. I think they sold a station, WFTX, a Fox affiliated station in Fort Myers, Florida for [00:10:00] $40 million, which they said they were gonna use to pay down debt and strengthen their balance sheet. So that may have helped. Whatever reason it came out good, but also I’ve had a, a few things I had to sell, uh, today, or one thing actually I had to sell today. VLRS. We did a deep dive on them. Not that long ago. They are a, um, like budget airline. Tony: That’s right. Cameron: Yeah. Out of Latin America. Well, they, they’ve not had a good week. Uh, um, it’s uh, been a bit of a disaster for. The poor Mexicans. I dunno if you’ve been reading about this in the news, but, uh, there was some drug, Lord that was executed element, um, uh, ante. The leader of [00:11:00] the CJNG drug cartel was killed by the Mexican Army or by Donald Trump, depending on who you believe. I think he took credit for it. And there’s been a lot of, uh, trouble in Mexico. Mm-hmm. As a result, become a bit of a no fly zone. Between February 23rd and 24th, over 175 flights were canceled nationwide. Valis was, primary. Hubs were the hardest hit Guadalajara. Saw a 76% cancellation rate per had a 62% cancellation break, and this is happening right before the 2026 spring break season, which is March 8th to March 22nd, 20,000 passengers stranded in 48 hours. The market is pricing in a massive hit. So that happened. Then they had a bit of an earnings blood bath. Valis reported an EPS of 4 cents, which missed the consensus [00:12:00] estimate of 27 cents by a bit. Um, Tony: buy that much. Cameron: I saw somebody posted on a Facebook page or read it or something the other day saying, does anyone, anyone still say that? Missed it. Buy that much. They said, they said that at work recently, and the person they said it to is like a Jen Z or looked at them like, what? Oh, Tony: really? Oh, no, Cameron: you’re, you’re officially old if you do get smart lines, I think. Yeah. Um, so yes, their, their, uh, results weren’t great and then their 2026 guidance. It wasn’t good. They’re still dealing with engine problems, et cetera, et cetera. So anyway, lot of, lot of problems Tony: and airline stocks all around the world are decreasing at the moment. ’cause the oil price is going up. Cameron: Exactly. And we did talk about the Pratt and Whitney engine groundings, um, when I did the deep dive on ’em. So anyway, bottom line is I had to sell VL VLRS. They were a three point trend line [00:13:00] sell. But the thing is we do have. Rules that tell us what to sell mm-hmm. And when to sell it. This triggered one of those rules. So I sold it and I replaced it with a company that we talked about, uh, long time ago on the show. D Aos, DAC, which is a Greek, uh, shipping company. Tony: Mm-hmm. Cameron: Um. And its share price has already gone up as a result of the Middle East crisis. Jumped from $108 last week to 118 today. But, uh, yeah, so I added that to our light portfolio this morning. DEOs is a holding company and an international owner of container ships chartering its vessels to a range of liner companies. The company’s principle business is the acquisition and operation of vessels, conducts [00:14:00] its operations through the vessel owning companies whose principle activities, the ownership and operation of container ships that are under the management of a related party of the company. They have 50 container ships aggregating approximately 329,000 590 20 foot equivalent units. Tuss, I remember when we talked about tus back on the show, Tony: the backbone of World Commerce. Cameron: Yeah. Um, so that happened. But, uh, that’s not the company. I’m gonna be doing the deep dive on today. Tony: Well, gly, why not? Cameron: Thank you for that Reveal. The sneak reveal. The company that I’m talking about today is Neighbors Industries. No, not owned by Jim Neighbors from whatever that show was. What was that show? Ga Tony: Gamma, USMC. Think [00:15:00] that the name of the show, was it you? Yeah. You think it gets smart, don’t you? Cameron: Yeah. Well, golly, Tony: golly. Sar Goy, Kyle, get your stuff out. Cameron: Neighbors Industries. Um, it’s uh, 74-year-old drilling giant that has spent the last decade. Acting more like a distressed debt workout than an oil field service company, but they’re a global oil and gas drilling contractor based in Houston, Texas. They own the world’s second largest land drilling rig fleet with over 250 rigs operating in 20 countries. But has an interesting story, as I mentioned to you, off air. Uh, of, of Oh, oh, O Oh, hold on. Oh, oh. [00:16:00] Tony: Cramp. What? Cramp. While you’re fixing your, while you’re fixing your cramp. I was just checking with ChatGPT about a rumor I’d heard about Jim Neighbors that he was actually secretly married to Rock Hudson. But, uh, according to Jet GPT, that rumor isn’t true. Cameron: Well, that’s disappointing to hear. It’s Tony: Carly. Cameron: Oh, that Tony: was bad. Shaza. Shaza. Cameron: A bad cramp. Oh. Um, so neighbors drilling goes back to. 1952. Claire Neighbors. Tony: Black and white. Cameron: Yeah. Tony: Yeah. Cameron: Um, I think they, this is a big thing in Texas. You give boys, girls names, Claire Neighbors, um, grew from a small West Texas shop into the world’s largest land drilling contractor. But the, the roots of this business actually go back further than that [00:17:00] goes back to the Guggenheim family and their business interests in South America. Now I, I, I knew nothing about the Guggenheims. I mean, I’ve been to the Guggenheim and I’ve been to, uh, when we were at, um, when we were in LA a couple of years ago, we went to the the Villa. Tony: Mm-hmm. Cameron: Um, which is. Uh, a recreation of, uh, the villa that was owned by Julius Caesar’s father-in-law, Lucius CalPERS Pizo, uh, which is the villa where they found the pappi that were destroyed when the volcano went up. It’s the, the villa at Hercule. Neum, you know, the villa of the Pappi. Anyway. Tony: No, I haven’t heard about it. Cameron: You haven’t, you don’t listen to my podcast since about that time? Tony: I do, but not for a long [00:18:00] time. Cameron: When, um, the volcano off of Naples, um mm-hmm. Erupted in 79, ce um, dis Herculaneum was like a resort city not far from that, that sort of area. Tony: Yep. Cameron: And, uh. About late 19th century, some guys were digging around there and they came across a hole in the ground and they pulled out these little bits of things that they thought were just charcoal, and they started throwing them on the fire until one of them cracked open and they saw writing on the inside of it. Tony: Oh. Cameron: So it turned out that, uh, Julius Caesar’s, they think it was Julius Caesar’s father-in-law, uh, Capus Pizo. That had a villa and he had a massive library, and these books were destroyed when after the eruption, but they were sort of, they, they were scrolls that are burnt on the outside but [00:19:00] survive on the inside, but you can’t open them up without destroying them. But what they’ve been doing in the last couple of years is this non-destructive laser scanning that can go through them and read. Page by page, the writing that’s on there, and then use computers and AI to reconstruct it. And, uh, we’re discovering these books that were in this library in 79 ce, it’s amazing. It’s called The Valor of the Papyri. Look it up. It’s fascinating. But anyway, well listen to my podcast on, but so the g getting outta that, the Guggenheims Maya Guggenheim was a Swiss citizen of Ashkenazi Jewish. Ancestry arrived in the United States in 1847. Surname comes from the Alsation Village of Guggenheim. He met a woman called Barbara Meyer, uh, who he married in the United States, and over the next few decades, they had 11 children and [00:20:00] descendants became known for. Operating businesses in the mining and and smelting sectors, Guggenheim Exploration. And they had a company called the American Smelting and Refining Company. And then in 1882 with seven of his sons, he organized the M Guggenheim’s sons later reorganized as the Guggenheim Brothers. And in the early 20th century, they had one of the largest fortunes in the world. Uh, 1912, they organized the Chile Exploration Company Chix and bought the Chu Kata op, uh, open pit copper mine. It’s now the largest open pit copper mine in terms of excavated volume in the world. But the story behind that is interesting. So an American engineer named Charles Bradley developed a method of processing low grade [00:21:00] oxidized copper oes. Guggenheim’s, uh, sort of got control of that process and following World War I. They sold this all off, but before that, they sort of just went around and bought these like low grade copper mines in Chile and built it, built it up to be quite huge. Um, but then sold out of that and bought nitrate. Mines. They got into fertilizers and explosives after World War I. They sold, they sold the the copper mine to Anaconda Copper in 1923, which of course led me down a rabbit hole of blue Horseshoe Loves Ana cot steel. It’s not Anaco steel. It’s Anaconda copper. Mm-hmm. Tony: And there was a company listed on the Australian ASX called Anaconda Nickel for a while. [00:22:00] Cameron: Right. I think we’ve made gags about that in the past. In 1924, they um, used the profits of the sale of the CCU Chu, Marta Copper mine to purchase Anglo Chilean nitrate and Railways Company Limited, which was a British business, bought a bunch of other things, amalgamated it all into this big nitrate corporation. Um, and then in 1931, they partnered with the Chilean government to form ACH the Chile $375 million behemoth that controlled nearly the entire natural nitrate supply of the planet. Wow. They cornered the market for nitrates Tony: fertilizer. Cameron: Fertilizer and explosives. Yeah. Tony: Mm-hmm. Cameron: Which was, uh, you know, a [00:23:00] big deal. Unfortunately for them, they underestimated the Germans. Never underestimate the Germans th. While they were digging nitrate out of the ground, German chemists, Abel Bosch, figured out how to create it directly out of the air and create synthetic nitrates, and then there was a price war. The synthetic nitrates were becoming cheaper and easy to produce. The monopoly that they had of digging it outta the ground, uh, wasn’t as valuable as it once was. Great depression hit in 1929. Global demand for fertilizer collapsed. The Guggenheims were left holding a mountain of debt. They ran the company separately until 1950, until they merged them into the Anglo Ro Nitrate Corporation Limited, and then Salvador Linde took over Chile and nationalized the nitrate industry. [00:24:00] They were forced to sell all of their assets to the government in 1971. They, the government paid them $7,885,590. Which resulted in a $25,912,956 loss for the company. Hmm. The, uh, historian Irwin Unger, who wrote a bio on the family, summed up the family’s nitrate operation saying, all told the nitrate venture had been a disappointment and it diminished the family’s role in the world of business. The Guggenheims soon ceased to be industrial movers and shakers, and became known to the public, primarily as patrons of the arts and sciences. So there you go. Go. So, Tony: and the link with neighbors, drawing ears, Cameron: getting to that. Tony: Oh, okay. Cameron: Yeah. Tony: And then the earth cooled and Cameron: dinosaurs. Tony: Dinosaurs, runway. Cameron: Come on, Guggenheims. You learn something. [00:25:00] Tony: So. Cameron: After they got outta the nitrate business, they reorganized what was left into a new company. The Anglo Company Limited, incorporated in The Bahamas throughout the seventies. Uh, they acquired a number of companies including nabs Drilling. Tony: Is this, is this related to like, there’s an Anglo company now, a big mining company around the world? Which in Australia has Anglo Gold shanty and various other companies? Cameron: I don’t think so because, um, Anglo went into work in oil exploration then the 1980s oil GL. Scan and Anglo went into bankruptcy. Tony: Oh, okay. Cameron: Came out of chapter 11 in 1988. Then it purchased a Canadian Drilling and Supply company, Westburn Group, and then changed its name to Neighbors Industries Incorporated in 1989. So I think anything that it owns is probably under the [00:26:00] neighbor’s, uh, parent now. But I mean, it may still have businesses called. Anglo, I didn’t go into that. I thought they were Tony: South African based. The Anglo mines right? I could be wrong. Cameron: So they started acquiring drilling and drilling equipment companies. In 1991, a guy called Anthony Petrillo was hired, became deputy chairman, president and Chief operating Officer. Previous to that, he’d been the managing director of the New York Office of Law Firm, baker and Mackenzie. And then 20 years later when the neighbor’s CEOU, Eugene Eisenberg stepped down, Patreo became the CEO, and he’s still the CEO today. So he’s been running the company as either president, chief operating officer, or CEO since 1991. Tony: Wow. Cameron: Hmm. Only owns about 3% of the company though. Which is, it’s surprising. Interesting. Yeah. Tony: Yeah. Cameron: I mean, it’s a big [00:27:00] company, uh, and it has a lot of institutional investors. Right. In 2016, they signed a contract with Saudi Aramco, the largest oil company in the world to form a joint venture called Sanad, S-A-N-A-D. The Saudi Aramco Neighbors Drilling Company commenced operations in 2017. And that’s a big deal, but they’ve got a lot of, uh, a lot of their businesses tied up in that as we’ll. Get into when I break down the numbers in a minute. Institutional investors own about 75% of the company, and they’re basically a, a general contractor today in the oil patch. They don’t own the oil, they just provide lots of rigs to get the oil outta the ground labor. Lot of high tech stuff. We’ve covered companies like this on the podcast over the last year or so. It’s a big [00:28:00] business. Um. We, we run the rig, we run the teams, you own the land with the oil, we just come in and get it up and running. You can get up to speed quickly. You can shut it down quickly. Uh, you know, they, they can move their stuff around to other contracts. All that sort of stuff that we’ve talked about in the past. They got three main segments, the US and international drilling. This is the bread and butter of the business they operate. A fleet of 158 rigs globally with a massive footprint in Saudi Arabia. About 79% of their revenue comes out of drilling 30% in the us, 49% international. They have something called Drilling Solutions, which is the high margin software and automation that helps them drill with fewer people. That’s about 16% of Rev. And then something called RIG Technologies, which is the factory. They build and sell rig [00:29:00] components to themselves and to competitors. That’s about 5% of revenue. Uh, I was looking into why it’s cheap, dirty, dirty stories and risks. There’s always a dirty story involved in these American companies we’ve learnt over the last year or so. Um, nothing really recent in their history. Uh, there was a really nasty sexual harassment case on a rig, uh, about. Decade ago, 2014, uh, of a, of a man who was like accused of being, uh, homosexual by his colleagues. And he ended, ended up so he, Tony: he thought about neighbors the same way I thought about neighbors. Cameron: They accused him of being married to Rock Hudson. Yeah. And he took him to court. It was a big deal actually, that. [00:30:00] I believe changed, um, some regulatory stuff in, I think it was in California, where it was a man that was getting sexually harassed by other men who were accusing him of being a homosexual. Even though they knew full well he wasn’t. They’d met his girlfriend even before he started working there, but it was just, you know, you’re a fag and you’re gay, and all this kinda stuff. Constant harassment and photos of him. And it’s, I read the story on it was like sort of what they put down to a roughneck culture, but um, it blew up and I think there were regulatory changes around it. I think before then, it was assumed by the courts that, um, only women could be sexually harassed by men in the workplace. Um, they’ve also been a serial diluter, a serial diluter. That’s a good, that’s a good one. A serial diluted. They’ve diluted [00:31:00] their, um, what do you call it? Their, their Tony: shareholders. Cameron: Shareholders, yeah. Mm-hmm. Uh, I was thinking of something else. Um, share count grew by 52.8% in the past year alone. But it’s an interesting story to this, which I’ll get into in a second. It was regarding an acquisition. The other, only other thing I could come up with about them that, uh, is sort of high risk is that 30% of their 2025 revenue came from Saudi Aramco. So if there’s any problem with that, uh, it could be a big chunk of their revenue. But Saudis are doing okay from what I heard. Yeah, Tony: they seem pretty switched on, don’t they? Especially in the old space. Cameron: Yeah, I hear they may have had something to do with the Iran strike. I heard a, I read it in the New York Times, Tony. That’s all I’m saying. Okay. [00:32:00] I saw some suggestion that there may have been a late night phone call to Donald Trump’s golden toilet from an unnamed prince of the realm. It’s a, Tony: it’s a funny old world we live in, isn’t it really? Cameron: Yeah. So, um, and the acquisition I mentioned last year, about a year ago, March, 2025, they bought a company called Parker Wellbore for $180 million or thereabouts. They’re a, they’re a leading rental provider for down hole tubulars, Tony. Tony: Okay. Cameron: You ever had a, I had a down hole. Tubular once had to go see a doctor. He said, look, it’s a day procedure. Don’t worry about it. Down hole. Tubulars are cylindrical steel pipes used in oil and gas wells. What? They [00:33:00] sound like tubes that go down. Holes down hole. Yeah, Tony: exactly. Cameron: Uh, but they didn’t have the cash to buy Parker. Well, Bo, so. They issued equity for it. Um, and the CEO Tony Petre is basically pitching this as a master stroke of financial engineering. So what he did was he issued 4.8 million new common shares directly to Parker’s stockholders to take over the company. And they, he had about 9 million shares outstanding at the time. So that added sort of 53% roughly to the, um, shares outstanding. But then he immediately turned around and sold one of their divisions called Quail Tools [00:34:00] for $625 million. So he bought it for $180 million worth of shares. Tony: Oh, that’s, that is a good deal. Cameron: Sold Quail Tools for $625 million. Tony: That’s a great deal. Cameron: Makes you wonder why the people at Parker Wellbore didn’t sell Quail tools for $625 million. I didn’t get into that, but he used that $625 million to pay down their debt. So he said we effectively sold equity to fund the Parker acquisition at approximately $130 per share. Very significant premium to the then current stock price. So basically using. Yeah, you could just basically print free money by printing shares, buy it, and then pay down $554 million in debt. So it sucks. If you were a shareholder, you got diluted. Yep. But, [00:35:00] um, they paid down the debt and they’re gonna save roughly 40 to $50 million a year in interest payments. Tony: Mm-hmm. Cameron: So it, Tony: so he could have issued shares to his own shareholders and then paid down the debt. That would also have worked. Cameron: Yeah. But then he wouldn’t have had the Parker Wellbore down hole tubular business. Tony: True. Cameron: To show for it. Tony: And he couldn’t. Yeah. And he couldn’t have sold quail tools. But with all that round Robin, same result. Cameron: Hey, listen, I’m not gonna argue with Tony Petrillo on how much of a master stroke of financial engineering this was. Tony. Looks pretty impressive on paper. Tony: Sounds good. Cameron: Anyway, their market cap’s about 1.14 billion, but they’ve, they’re carrying debt of 1.55 billion, still down from over like 2 billion, uh, until they did this deal. So balance sheet is not exactly [00:36:00] pristine, but they’ve also pushed their next major maturity out to 2029. So they’ve got a little bit of runway before they need to worry about it. Um. That’s basically the basics of the business. It’s, it’s kind of a bit of a cigar butt turnaround here, but they’ve, they’ve sort of stripped a lot of stuff back over the years. They’ve really just got this drilling business, but if I get through the financials on it, uh, their EPS is $17, but it’s not really, um, it’s really more like, uh, negative. Something because I think that’s all from the sale of the business. Extraordinary items. Okay. They got from flipping quail tools, Tony: right? Cameron: Um, the t the T-T-M-E-P-S is actually sort of minus $5 and analysts are calling for a minus $4 60 EP EPS for [00:37:00] next year. So, but they’re investing all of that money then not Tony: paying down debt. Well, Cameron: they paid down debt from what they, they sold it? Tony: Yep. Cameron: Yeah, but they kept some, Tony: oh, okay. Cameron: They sold 600, they sold it for 650 million and they paid down $554 million in debt and used the rest to stick into the business. Right. A hundred million roughly. They’re losing money, but they’re investing it in buying stuff basically. Um. Their op price to operating cash flow is 1.65. Tony: Mm-hmm. Cameron: So you are paying $1.14 billion for a company that generated 693 million in operating cash flow over the last year. A lot of raw cash generating power in these oil rigs that they’ve got. Yeah. In Saudi Arabia, among other places. Mm-hmm. [00:38:00] So it’s got a price to book of 1.93. The book Value Growth CGA is 17% over the last three years. So they’re aggressively building the asset base through acquisitions, um, that really. Isn’t showing up in the, the valuation of the business yet. The Petrovsky F score is a seven out of nine, which is very good. The stock rank in stock, EDIA is a 94, so that’s very, very strong. The free cash flow though, if you look at it, is despite the operating cash flow of 693 million, the free cash flow is negative 22.6 million. ’cause they’re pouring every cent that they have back into CapEx, probably these rigs that they’re throwing up in Saudi Arabia. Um, so they’re, they’re spending everything that they’ve got and then some having to buy stuff, sell [00:39:00] stuff, uh, to, to keep the. Plates spinning. It’s, um, sort of an asset rich zombie. Yeah. Looks like it’s losing money, but it’s got a lot of assets and is generating a lot of cash flow. It’s just spending more than it’s, uh, making. Tony: And, and the risk is, um, with any drilling company is that, uh, if there’s a downturn in the oil market, then they’re stranded holding all these, All Ords. They can’t. Um, rent out. Cameron: Well, thank goodness they have Benjamin Netanyahu on speed dial because I think the oil price is gonna be doing okay for a little Tony: while. Yeah. Yep. That’s, that’s how, that’s how large US companies risk mitigate, isn’t it? Cameron: Let’s go blow something up. Um. No, I have no, I have no evidence to back up the fact that they have Bibi Netanyahu on speed dial. But, uh, the, the current [00:40:00] goings on in the Middle East are probably good for the oil prize Okay. For the foreseeable future. So that’s basically the neighbor’s industry’s story. Tony from the Guggenheim’s through to Saudi Arabia, Jewish mining Company through to building oil wells for the. Arabs, uh, they, uh, let me go through the scoring price to operating cash flow. As I said, 1.65, quality rank and stock Edia 58. Didn’t score ’em for that. We only score ’em if they’re over 60, but the, they got a score for the stock rank. Above 90 F scores above 4.5 scored ’em for that. The price is higher than both our IV one and our IV two. It’s also higher than book and book plus 30 doesn’t have a new upturn, uh, book value growth is positive. As I said, the PE [00:41:00] is nothing ’cause they’re not making any money. Um, so the yield is, um, nothing. The price their IV is, uh, IV number two is not better than their IV is not better than, uh, double the share price. IV number two. Um, so when I scored ’em on the QAV score and they got a score of seven outta 10 70% and a QAV QAV score though of 0.43 due primarily to their, Tony: mm-hmm. Cameron: Very, very attractive price to operating cash flow. So, um, you know, all minor, all, all minor rig business. Tony. That’s really it. That’s all I got for these guys. Uh, not owned by Jim Neighbors. They’re not married to, uh, rock Hudson. Rock Tony: Hudson. Cameron: Yeah. But, um, Tony: interesting isn’t it? I mean, it’s, it’s cheap. That’s the biggest thing going for it. Throwing off lots of operating cash. Cameron: Yeah. Tony: [00:42:00] But heavily indebted. Um. In an industry which will be doing good for a while, but whether it continues doing good long term, who knows? Cameron: Mm. Tony: Um, I mean, the Saudis have been for years trying to develop other industries for the day when oil is in decline, so that they could be 10 years away or 20 years away. No one knows or may never come. Cameron: Mm. Tony: Um, so yeah, there’s a, there’s a fair bit of risk with this company, heavily indebted, renting out all rigs, which one day may not be needed. Um, but until then, running as fast as it can to fix up its balance sheet and become profitable again. Cameron: Mm. And we don’t forecast the future. Tony: Unfortunately not. Yeah. Yeah. Cameron: So I added them to our QAV light. Portfolio yesterday and uh, we will see how they go. [00:43:00] Uh, Tony: well, we’re worse at forecasting the future than maga my man is, put it that way. Cameron: So in our last show we talked about maga, my man and the poly market scandal. Um, there was, uh, somebody. Who was making lots of bets on poly market about when Israel in the United States would attack Iran and when the Ayatollah would be killed and managed somehow to get them all right and made a huge profit. Tony: They should open a market as as to who the real identity of Mabb my, my man is. Cameron: Oh, I’m sure that’s on there. I’m sure it is. Tony: Yeah. Cameron: I did see, and some we talked about the last, somebody pointed out that Donald Trump Jr. Is on the board of Poly Market and has invested many, many millions of dollars into it and, uh, may or may not. Have an account under a pseudonym on their trading on information. But, uh, apparently that’s all [00:44:00] legal and above board in the Tony: United States. We should, as we know, well, we should like put up a honey trap and set up a market for who mag my, my man really is. And when that person bets the house, we go, aha. Gotcha. Cameron: Uh, by the way, speaking of the light portfolio. We’ve only been running it for, uh, I’ve been running it for a couple of months. Let’s see it started, um, this one December, late 22nd of December, but bought the first shares in it. It’s down about two and a half percent versus the s and p, which is basically neutral in that period of time. But some of the stocks, uh, I talked about having to sell VLRS, but, uh, cord Energy, which, uh, we only added. A couple of weeks ago, uh, end of January, we added cord energy. They’re, uh, independent exploration and production company. It’s up, [00:45:00] uh, 18.6%. Since we added at the end of January. As I said, SSP is up 11% was up 20 now up 11. The rest of them are just trundling along. Tusk, uh, mammoth Energy Services we talked about, it’s up 1%. Um, eco Petrol is up. Uh, no, it’s down 1% and Shinhan Financial is down 6%. SHG, the other Korean one that we talked about. Neighbor Industries has actually dropped 1.5% after I added it yesterday. So, uh, if you haven’t already added it to your portfolio, maybe just watch and see what happens. Wait until it turns around again, which it may or may not do. And if it doesn’t, we will sell it and replace it with something else. Tony: Correct. Cameron: But it, as we know, it does take time for these portfolios to, Tony: it does Cameron: establish themselves. Tony: Yeah, it does sometimes. We get out [00:46:00] performance, but you just have to wait for it to ramp up, don’t you? And as, as, uh, even Warren Buffet says, you know, 60 out of 10 in terms of stock picks and getting them right is a good score. Cameron: Yeah. Tony: So we’re gonna, we might churn for a bit until something takes off. Cameron: Yeah. Well, I, what I found over the six or seven years that I’ve been doing it with you is that when we start a new portfolio, there’s moving pieces. It’s like Mo um, Tony: mm-hmm. Cameron: What do you call it? The chairs game. The kids play. Um, d dancing chairs, moving chairs. Tony: Pass the parcel. Cameron: No, not that one. The one where you have to get off a chair and go sit on another chair. Whatever that should, whatever that kid’s game is obviously a long time since I hosted a kid’s birthday party. Um, you know, we, we have to move the pieces around. We’ll buy, we’ll buy a couple of companies and they won’t work out and they’ll breach one of our cell triggers and then we’ll. By the next one before you end up [00:47:00] with a good, stable portfolio of stocks. Correct. We, we get rid of the duds as they fail and just keep adding companies until we have a portfolio of mostly winners. Then you end up with your 15 to 20 winners and they generally do well. You’ll have to sell one or occasionally every now and again, but once you get a portfolio of 15 to 20 good companies that they just get a lot of. Wind in the sails and keep running for a very long time. Tony: It is something we’ve seen time and time again, isn’t it? Whenever we start a new light portfolio or dummy portfolio, it just takes a bit of time. Even with the US one, I remember it was, um, underperforming for its initial stages. Cameron: No, on the contrary, it, it. It, it, it kind of did. Okay. So I started the main US one, as I said, in September 23. It sort of, it tracked along [00:48:00] for three or four months. Then it dipped down a little bit for a while, for a couple of months. Mm-hmm. Then it tracked a lot. It got back to neutral for a couple of months. Then by July, 2024. Mm-hmm. So that’s, uh, what, eight or nine months? It went nine months bonkers. Tony: Mm-hmm. Cameron: By November, 2024, it was doing triple market. It was up 90% when the market was up 30%. Then Trump got elected and it gave up a lot of its returns. Um, by November last year, it was back to basically neutral. To the s and p 500, up 50, up 52%, but tracking the s and p and then it’s doubled since then in the last three months, four months. So yeah, it’s gone in, it’s gone. It’s had a couple of cycles just in the CO two and a half years we’ve been running it. It’s, it’s [00:49:00] crazy. But um, yeah. Any who? There you go. We just follow the system, follow the rules. And for new people listening to this, you know, the, as I was saying to one of our new members when I had a call with her this morning, um, the basic. Thesis behind QAV O is explained as we look for companies that are performing well, generating cash, seem to be well run, and we buy them when we can get ’em at a discount. Correct. And then we hold ’em for as long as we possibly can and wait for the market to catch up. We have rules in place that’ll tell us if we have to sell ’em, but they’re very, very strict rules and there’s only a couple of ’em. And generally we just try and hold ’em as long as we can. Wait for the market to agree with us that it was undervalued in the first place. And, um, more often than not, that works out. Tony: Yeah. Or the company’s taken over and somebody else sees value in it. All those kinds of things happen too, don’t they? Cameron: Yeah. [00:50:00] Yeah. If you, if you find a, a well run business and you can buy cheap. More often than not, that turns out to be a good investment. It’s not rocket science, it’s not quantum mechanics is what I always say to people, right? Tony: Yeah, exactly. You don’t need to know the ins and outs of the drilling industry in Saudi Arabia to be able to do this. Cameron: Yeah. Is it making money and is it sheep? Tony: Hmm. Cameron: And that’s pretty much 90% of what you need to know. Tony: It’s a bit like buying cars, isn’t it? Right. Is it? Can I drive this on the road? Is it a good price? Is it reliable? Okay, I’m gonna buy it and drive it until I have to sell it. Cameron: Yeah. Tony: Yeah. Cameron: But, but as I said to this new member this morning, like, I think to give you your due, your stroke of genius was figuring out how to. Take something that’s relatively amorphous for most of us, like value inve or vesting, let alone value investing [00:51:00] and reducing it down to a relatively simple algorithm. Tony: A checklist. Cameron: Yeah, a checklist, yeah. Which says, look at these 20 things and score. And if it has a good score, buy it. Tony: Yep. Cameron: Which Tony: no, exactly, Cameron: which is Mabb makes it doable for those of us. Yeah. That don’t have your head for numbers or math or, or whatever it is that makes you weird. Um, thank Tony: you. I think Cameron: that’s a compliment. As I said to Maria, a new member this morning, I said, you know, Tony’s a nerd and lucky for us, he. Took his nerdiness and turned it into something that we can all use. The Einstein of Value Investing. That’s what I like to call E. This is your e QAV is your e equals mc squared. Tony: Right. I don’t know what to say about that. I, I don’t think it is, but anyway, it works. [00:52:00] Cameron: It does work. Yeah. Tony: So does the more of a Chevrolet. More of the Chevrolet of investing. It’s, it’s, you know, Cameron: just works Tony: paired back and it works. You can drive it every day. Yeah. Don’t have to think about it. Get you the work, get you the way. Cameron: No, no, no, no, Tony: no. You, Cameron: you, you did, you did good tk. You did good. Alright, well that’s the show. Thank you, tk. You can go play golf. Thanks. Tony: I’m m. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Mar 8, 2026

54m
33

(Fixed Audio) Breaking Bread (BFH) – QAV AMERICA 41

In this episode of QAV America, Cameron and Tony navigate the “completely bonkers” landscape of 2026, where a Supreme Court reversal on Trump’s previous tariffs and the looming shadow of AI bubbles have left investors guessing. The duo breaks down the hidden “gotchas” of American Depository Receipts (ADRs), specifically examining the tax hurdles and custody fees associated with South Korean plays like Shinhan Financial Group (SHG) and Korea Electric Power (KEP). The centerpiece of the episode is a “Pulled Pork” deep dive into Bread Financial (BFH)—a high-yielding, unloved credit card “stub” that has spent years amputating its legacy loyalty businesses to emerge as a pure-play lender. Despite the “Trump Slump” threat of capped interest rates and a “stinky” past involving a bankrupt spin-off, BFH boasts a massive QAV quality score and looks dirt cheap on a price-to-cash-flow basis. Episode Timestamps [00:00:00] Introduction: Value investing in the North American market.[00:00:50] SCOTUS vs. Tariffs: The impact on Learning Resources Inc. and the $260 billion repayment mystery.[00:02:15] The AI Bubble: Data center capital costs and the Mag Seven depreciation talk.[00:08:45] ADR Deep Dive: Navigating fees and taxes for Shinhan Financial Group (SHG).[00:13:50] Performance Check: Korea Electric Power (KEP) up 31% and Zepp Health Corp (ZEPP) up 665%.[00:15:30] Pulled Pork Scorecard: Win ratios and Ford Motor Company (F) resilience.[00:16:30] Portfolio Winners: Gains in Willis Lease Finance (WLFC), Inter & Co (INTR), and Euroseas (ESEA).[00:18:15] The Finance/Shipping Heavyweight List: Bladex (BLX), StealthGas (GASS), and Korea Telecom (KT).[00:20:45] Deep Dive: Bread Financial (BFH)—The Invisible Store Card engine. Transcription   Cameron: [00:00:00] Welcome back to QAV America Tony, for, uh, new listeners to Australians Value. Investors been talking about value investing on a podcast for years in Australia. Now we’re doing an American version where we talk about the North American market. And we can’t start talking about the North American market, Tony, without talking about Donald Trump and tariffs and SCOTUS and all that kinda stuff this week. So, um. Um, as we, we were talking a little bit about it on our Australian show that we just finished, but as everyone knows, uh, the Supreme Court overturned trump’s, uh, tariffs that he had implemented a year or so ago under the International Emergency Economic Powers Act, which the Supreme Court said, nah, you can’t do that. That doesn’t work. The company that took it. All the way up to the [00:01:00] Supreme Court was Learning Resources Inc. A relatively small family owned maker of educational toys, uh, that said it was going to increase their. Tariff costs 44 times and that there was no way they could survive and afford to cover that. They didn’t have the capital to front run the tariffs. They couldn’t relocate their manufacturing quickly. Like bigger companies might’ve been able to, and uh, Trump called them. Dirty sleaze bags or just sleaze bags and unpatriotic unpatriotic sleaze bags. How dare you tell me that? The illegal thing that I did was illegal. You’re sleaze bags, major sleaze bags. Yes. And as I said in the last show, when some. [00:02:00] When somebody who’s been found guilty of sexual assault calls you a slee bag, slee major sleighs bag, you know, well, you’ve got problems. You need to take a long, hard look in the mirror, sir. Um, anyway, so what that means, uh, how they’re going to pay back the $260 billion in tariffs that they collected in 2025, uh, uh, remains to be seen. No one knows what it means, and he’s went immediately hit. Every country in the world with a 15% global tariff. No one knows what that means. No one knows what’s going on. It’s just completely bonkers. Completely, completely bonkers. But, you know, you and I were talking at the end of the Australian show about what AI is gonna do, and it’s, there’s you, you talked a lot on the last show about. Um, which you can talk about again if you want, on this show about the, uh, depreciation of capital costs for the mag [00:03:00] seven. Do you wanna do your little talk about that again?[00:04:00] [00:05:00] [00:06:00] Yeah. And you know, a lot of people are calling out the fact that the amount of revenue that these businesses are gonna have to generate in order to pay back all of this money that they’re raising for building data centers. It’s hard to see how that’s gonna happen. A lot of people are calling it an AI bubble, and, uh, yeah, the counter argument to that is, well. It’s pretty certain that AI is gonna be something and somebody’s gonna make [00:07:00] something, some money out of it. Although it also, the counter argument to that is that it can completely collapse socioeconomics as we know it and everyone loses their jobs and that creates recessions, depressions, uh, that could trickle, that could, you know, we could never recover from The point you and I were making on the show before was that. With Trump and the tariffs and with AI bubbles and all of this kinda stuff, no one knows, no one has any idea what the future looks like right now. So all we can do as investors is just keep doing what has worked in the past, which as far as we’re concerned, is by a dollar for 50 cents. And, uh, just until things change, so. Yeah. Until things change. And then when things change, we’ll [00:08:00] reassess. Reevaluate. Yeah. But right now we just keep doing what we’ve always been doing, which has worked pretty well so far. Double market returns for as long as anyone’s been tracking value investing. Yeah. Well, we’ll see. Meanwhile, we’ll just keep doing what we’re doing. Um. Last week on the show, we were talking about Shinhan Financial Group, and that raised the issue of ADRs yet again. American [00:09:00] Depository Receipts. And I did do a shout out when I did my Reddit post on Shinhan. I invited people to share their views on ADRs with me. No one replied, so I spent some time in. Uh, so I did, um, spend some time in Gemini working through it, and I’m gonna try and summarize my understanding of it as quickly as possible. So there’s a couple of gotchas here as I understand it. One is that there are. Cus there, there, there are called custody fees that the depository bank charges pass through fees for servicing the A DR. These are typically about two to 5 cents per share [00:10:00] annually. So depending on the value of the share, you gotta keep that in mind. There’s also dividend processing when SHG, for example, pays a dividend, the depository bank takes a cut. Often one to 3% of the dividend amount for converting the currency and distributing the funds so you don’t get the full value of the dividend. Then you’ve got the tax issues. Uh, this is apparently where most US investors end up taking a bit of a haircut if they didn’t plan for it. In, in the South Korean case with FSHG, the statutory withholding tax on dividends for non-residents is 22%, which includes a 2% local inhabitant tax. Then you’ve got the US Korea Tax Treaty. Under the current treaty, US residents can typically have this reduced to 15%. However, you have to get your broker to apply the treaty rate at the source, which is apparently notoriously difficult for retail [00:11:00] investors. You can usually claim a foreign tax credit on your US tax return using something called a Form 1 1 1 6. But this only offsets your US tax liability. So if you hold SHG in an IRA or a 401k, you might not be able to reclaim the 15 to 22% at all because those accounts are tax exempt and aren’t recognized as such by Korean tax authorities. So you’re missing out on that dividend altogether in that case. Then you’ve got the currency and exchange issues that I mentioned last week. Even if, say, SSHG stock rises by 5%, if the one continues to weaken against the US D or A DR could be flat when you go Tony (2): sell it, the of [00:12:00] in the Although that hasn’t been the recently while the one weakens, that can create a double whammy where the local bank stop stock drops and the currency devalues Cameron: simultaneously. But again, it’s just a level of complexity that you have to factor in. Then you’ve got. The Korea discount that we talked about a lot on last week on the show last week. Then you’ve got the geopolitical tail risk, um, in, particularly in South Korea, which is, uh, I dunno if you know this, but it’s very close to North Korea and Tony (2): close to it, Cameron: that’s, they did a good job when they came up with the names of North and South. Yeah, Barry and Stan did a great job and they went, so there’s, you know, there’s this constant as assessment of risk about [00:13:00] the, the, uh, treaty between North and South Korea and what happens there. So, but that’s not really anything to do with the ADRs. That’s just another geopolitical risk with investing in South Korean companies. So, look, there, there are complications. Um. For US investors with ADRs and I, and I don’t know from a QAV perspective how that translates. Does it mean that we should just not look at ADRs in future when we’re building a portfolio? Should we factor them out because of this additional level of complexity or, you know, career electric power is done quite well. It’s um. Up, I think about 30% since we last talked about it. Hold on, let me, um, Tony (2): pull up my Paul pork Cameron: Hmm[00:14:00] hmm. Yeah. Yeah. Career. Mm. And I think with AI in your back pocket now to help you, uh, navigate the a DR complexities, it shouldn’t be that hard. Should be just gimme an email to write to my broker. Uh, tell me, you know, what tax forms I need to fill out. Career Electric Power is up 31% since we did a deep dive on it at the end of November. So little over two months, it’s up 31%. I mean, it’s pretty good. You don’t really want to be turning your nose up at that. Right. Yeah, that’s a way of doing it too. [00:15:00] Tony (2): Use them as a backup. Cameron: But then you got Zep Health Corporation, which I think was an A DR. It’s up 665%, so you would’ve missed out on that. Oh, the tax. Yeah. Well now that I’m on my list of Paul Porks, just a quick summary of how they’ve done. So these are the deep dives that we’ve done on the show since March of last year when we started doing the show on a weekly basis, more or less. Um, I’ve done 38 I stocks, 29 of those are up, nine are down. Uh, so it’s about a 76% win ratio and. If I average out, which isn’t very scientific, but if I average out the performance of all of those, the average profit is 38%. But a lot of them are up, you know, very, very, uh, nicely [00:16:00] so, and Ford Motor Company, and we talked about their losing $8 billion, uh, last week. They’re still up 26% since we talked about ’em in May last year. So even with all of that, they’re still doing okay. Yeah, possibly. Um, alright, uh, well while I’m here, let’s, uh, just talk about our portfolio, uh, briefly and then I’ll get into my deep dive for the week. So the portfolio we’ve been running in the US since September, 2023. Is currently up 103% versus the s and p 500, up about 54% over that time. So not quite double market, but uh, very close to double market. [00:17:00] And in the last. 90 days it’s up 34% versus the s and p up three and a half. And it’s funny, I was uh, I was on the value investing subreddit the other day and I saw somebody say, all of my stocks are down over the last 90 days. I dunno, is anyone making any money? Is anyone’s portfolio doing well? Everyone was like, no one’s down and this is down and everyone’s down. I was like, oh, I’m up 35%. I don’t know what your problem. And no one said anything. like expected, at least prove it. got? Show me your portfolio. Nothing. No one said Tony (2): boo, Cameron: like All right. Yeah. Back to my knitting then, I guess. Yeah, yeah, Well over a year anyway. Uh, in case people, uh, new listeners are wondering what the stocks that have [00:18:00] done the best in our portfolio, um, over the last couple of years are. I’ll read out a quick list of the top ones. Willis Lease Finance up 318% in over International, UP 128% Euroes up 118 BLX, the Foreign Trade Bank of Latin America up a hundred percent. Sarcos Energy Navigation Up 81, stealth gas up 62 and there’s a few more. Tony (2): Um, but no Cameron: mag sevens, no tech stocks. Um. Nothing like that. All and banks. Fin Finance, literally like Willis Lease Finance, foreign Trade Bank, regional Management, Jackson Financial and UBS, and I think Renaissance Air Holdings is also real estate or finance investment as well. Um, and then a couple of shipping companies, ues, Sarcos Energy, stealth Gas, kt, I think, are they shipping? Can’t remember even what they [00:19:00] do. Oh, no. Korean, another Korean based company. Korea Telecom. Tony (2): Is that where Cameron: they’re. Uh, yeah, Korea, basically. Korea, telecom. Um, they’re up 55% since we added them. Uh, when did I add Korea Telecom? Uh, September, 2004. Tony (2): So there you go. Cameron: that’s Korean company, handle the tax. Hmm, hmm hmm. Nice. Yeah, it’s basically like it.[00:20:00] Uh, alright, so let me, uh, get onto my stock. Of the week. Now complication with this one. As I mentioned to you on our last show, when I looked at this over the weekend, it was a buy. When I went to add it to our light portfolio this morning, it had become a Josephine, which for new listeners, means that the share price today is low than it was at the end of last month, which means we won’t buy it. ’cause if it’s slipping backwards, we wanna hold on and A, C, Y, and B. Maybe we can buy it cheaper tomorrow than we can today. So let’s see how far it’s gonna slide. So I’m not gonna add that to the light portfolio this week unless it turns around. By the time I check it again tomorrow, I’ll have to add something else, but I’m gonna talk about it anyway ’cause I’ve done my research on it and it is up pretty high on our buy list this week. The company is called Bread Financial and. Slightly disappointingly [00:21:00] A, they don’t make bread. And B, there’s no murders, there’s no, uh, Like out of all of the stories that we’ve done in recent weeks, this Tony (2): is kind of a boring one, Tony, Cameron: like no one got killed in the making of this story. No. Ah, Wow.[00:22:00] right, right. Right,[00:23:00] right. Yeah. Yeah. There you go. I did, I did think of you when I was researching this ’cause I Tony (2): knew Cameron: background in, uh, loyalty programs. Well, so Bread Financial, um, was started in 1996 from the merger of World Financial Network. National Bank, which was uh, a credit card bank that spun over a company called The Limited and JC Penney’s credit card processing unit. Basically the back office engine for people that wanted store cards. And it wasn’t a founder led startup. It was sort of a, a corporate mey thing and has had a lot of institutional ownership and continues to have [00:24:00] a lot of institutional ownership today. Uh, it looks like institutions own roughly 90% of the float could be even more Vanguard, own 11%. BlackRock own about 10%. Um, there’s also an activist holder called Turtle Creek Asset Management that has about a six or 7% stake. Although I think they’ve trimmed their position recently, but the got people a little bit interested in the prospects of this business when Turtle Creek started buying in a few years ago. The CEO is a guy called Ralph Andretta, formerly Citibank. He’s been running it since 2020 and he’s kind of spent the last few years amputating a lot of the cards. So BFH, uh, and I’ll, I’ll talk about why they’re called Bread in a moment, but they’re basically the invisible store cart. [00:25:00] You know, we, we we’re very familiar with those Tony (2): had a number of Cameron: businesses like that in Australia, but basic Exactly, exactly. If you go to a specialty retailer like Victoria’s Secret, speaking of Les Wexner, uh, deposition, um. And they offer you a, a, a loyalty card, get 10% off if you, blah, card, et cetera, et In the United States Bread is often the company that’s providing that card. They’re basically providing you with a Tony (2): loan for Cameron: credit to buy stuff from the shop. And most of their money now comes from two big buckets, the loan book, interest and fees on private label and co-brand cards. They also have things like the bread cashback, amex, and the saving sides. They also run a direct to consumer digital bank called Bread [00:26:00] Savings that gathers deposits and funds those loads directly. But it’s, it’s, yeah, a lot of it’s subprime or near prime loans, high risk rate for these sorts of things. Um, probably. The first thing that people are gonna default on if they hit hard times US economy is either the greatest economy that there’s ever been in the history of economies. Tony (2): Donald Trump, Cameron: economists, not so good in lots of areas. So, yeah, well, you have to get rid of your mistress first and then take back her. Uh, lingerie before your wife finds out. Um, now there is a thing going on at the moment, uh, that’s a bit of a Trump slump for credit card companies, um, amongst. [00:27:00] Putting in place illegal tariffs and then having them overturned and coming up with new tariffs whose legality are debatable. On January 12th, president Trump called for a one year cap of 10% on credit card interest rates starting January 20th, eight days later, and provided as usual. No details on how that was all gonna work.[00:28:00] how it’s gonna work. If it’s gonna work. January 20th came and went by the way, happened. So, um, it would be a, you know, would save Americans a hundred billion dollars a year. I read if it went ahead or for the year. Yeah. Well, um, you know, I’m sure Trump has thought all that through in make sure that, that, uh, there are no get outta jail free This bill targets. Interchange fees or swipe fees as they’re known charged by Visa or MasterCard. And some analysts believe that this [00:29:00] 10% interest cap is a maximalist opening move on behalf of the Trump administration to threaten the crown jewel of the banks and get Tony (2): them Cameron: come to the table to discuss playing along with the CCCA and. It sort of signals, uh, move away from the Republican party’s traditional pro bank policies. But whether or not it actually anything happens or not, it’s a bit like Trump was gonna reduce the reduce, um, pharmaceutical costs as well, I think, and ended up just saying he could get Trump drugs and apparently the White House had been floating the idea of Trump cards. You can get your own Trump credit card with it. 10% interest rate. Um. Anyway, that is it. I mean, it, it sounds like a joke thing, but again, if you’re a credit card company or an investor in a credit card company, [00:30:00] you have no idea about is this real? Is this just talk? Is anything gonna happen? If it, if something happens, is this gonna wipe hundreds of billions of dollars off of credit card companies? Valuations. Um, or nothing could happen. I mean, so who the hell knows could have something to do with it. Yeah. Tony (2): As of this point in time, we’re recording this on, uh, February the 24th. So a month and a bit has passed since the No credit APRs hovering between 22 and 24% on average. Legal experts and banking groups say the president lacks authority to cap rates via executive Cameron: law is required to override existing state level parity and [00:31:00] national banking rules. And we know that if President Trump cares about anything, Tony, it’s uh, very, very strict. Yeah. Obeying the laws, uh, sticking to it like crossing t’s and dotting i’s, that’s what he’s really good at. doing anything that could provide any blowback or cause embarrassment Tony (2): complexity Cameron: the track. Tony (2): so. as [00:32:00] Cameron: just wanna flag that one of the risks for companies like Bread Financial. Um, something might happen, might not happen, no one knows. Now there is a little bit of a stink around BFH. There’s a. Company called Loyalty Ventures. Uh, they spun off their air miles loyalty business. As you earlier on. You’re familiar with that? In 2021, uh, not long after they spun it off, it spiraled into bankruptcy. Uh, this led to a class action lawsuit alleging BFH or Alliance Data, as they were known at the time, had misled investors about the health of the loyalty business before dumping it. Uh, they were previously known as Alliance Data Systems, a DS, and they had this, uh, strategic transformation. They started to sell off some of their non-core businesses. Air [00:33:00] Miles was one of those, and, uh, they sold it, uh, off. And as I said, uh, it, it. Quickly collapsed. A DS required the newly formed company Loyalty Ventures who bought it to pay it a $750 million dividend as part of the split, which loyalty funded by taking on. A massive amount of debt. And then shortly after the spinoff, loyalty ventures, main customer, Sobes, S-O-B-E-Y-S, exited the uh, Tony (2): Miles program Cameron: and the whole thing sort of Tony (2): plummeted. Sobeys is a national Cameron: supermarket chain in Canada. I’m sure you’re familiar with seeing as you lived in Canada for quite a few years. And yeah, 18 months later, loyalty ventures went into bankruptcy. So there’s [00:34:00] class action lawsuits. What did a DS know? What didn’t they tell the market? Tony (2): Did they make false and misleading statements about misleading statements about the health Cameron: of the business, et cetera, et cetera. Uh, by the way, they also sold off their data epsilon for Tony (2): 4.4 Cameron: Um, and they also started, uh, having rising losses after COVID, um, credit card during the peak in 2021 of, fuck. Sort of COVID credit card companies were making the most out of artificially low interest rates due to government stimulus and COVID packages. And as the economy started to normalize, losses started to go up. So BFH, um, has started to suffer from that. By the way, the BFH thing I [00:35:00] didn’t mention, they bought A-A-B-B-N-P-L company. Buy now, pay Uh, Afterpay is the one that Australians will remember bought. Yeah, so they bought one of those, it was BR Financial. Then they rebranded to sort of get away from the stink of the loyalty ventures, Tony (2): uh, Cameron: Oh right. Right, [00:36:00] right. So they probably don’t want this CCA to pass. Yeah. Right. So to rebrand as Bread Financial, they had to spend heavily on modernizing their legacy systems. They invested over a hundred million dollars annually over the last few years into digital innovation and credit card processing transitions. Um, so they, they’ve sort of. Gotten rid of all these legacy businesses and they’re just a pure credit card backend system now, but they’ve had to spend a lot of money to do that. But they’re finally clean and the businesses, um, seems to be doing quite well actually, despite [00:37:00] all of that. Um. They have a market cap of around $3.35 billion, about 3.6 billion cash in the bank. But we know that looking at cash flow for financial companies is always Tony (2): a bit tricky. Cameron: Bit different to your normal Tony (2): business. Cameron: We don’t let that stop us, but it’s a little bit tricky than the normal, um, looking at a manufacturing business or a retailing business or something like that. But, uh, the, the less, the, the stub of the business that’s left is doing quite well and seems to be. Uh, quite profitable. They’re generating roughly 19% net margins, uh, when the economy isn’t tanking and they’ve got, uh, quite a good dividend that they’re paying. They’ve got a 92 cent dividend that’s due to go X in a couple of days. 27th of February, what is it [00:38:00] now? 24th in a few days, the. Analyst forecasts for the stock are running around about 82, 80 $3, which is about nine or 10% above where it currently is. So analysts on general seem to think it’s gonna go up. So it, it looks like a bit of a. I wouldn’t say a cigar, but, but a company that has gotten rid of a lot of its non-core businesses kept the one that seems to be making money at the moment. But with all of the changes going on in the US economy, we don’t really know what Tony (2): the future holds. Cameron: But that’s a good thing that. We don’t try and predict the future, so we don’t have to worry about that so much. But some of those future things while I’m on it, just to give people a perspective, the economic forecasts for the US unemployment rate rising from four point half to 4.6%, uh, this year, which sounds low by historical standards, but [00:39:00] credit card. Processing companies are extremely sensitive to any unemployment rates, the sort of low hire, low fire labor market over the last two or three years might cool off. We also know that, um, there’s this big hiring freeze going on according to Jerome Powell in the US where companies are starting to not hire people because of. The expectations that AI is going to do a lot of those jobs that university graduates would be doing in the next couple of years, years. So, um, how that plays out and what that means to the unemployment rate in the US remains to be seen. There are anticipated federal reserve cuts this year in the US with the change of the Chairman of the Fed Trump’s trying to get rid of JJ Powell and replacing with Kevin Walsh. I think that’s his name, Walsh. [00:40:00] Um, so that, you know, interest rate cuts are gonna have an impact on credit card companies and their margins and their rates mean that their profits go down. We know that when in you’ve, you said on the show last week that when interest rates go up, banks tend to make more money because they Tony (2): their Cameron: Uh, push them up a little bit more. It’s the opposite of inflate their margins. Tony (2): Mm-hmm. Cameron: But you add to that, the fact that. Consumer sentiment in the [00:41:00] US is at the lowest it’s been since 1978, actually lower than 96% of months since 1978. So consumers, Jimmy Carter. No, Gerald Ford was out in 75. Yeah, Jimmy Carter came in. Jimmy Carter was there until Reagan. In between Ford and Reagan. Um, so, you know, again, that could be the canary in the coal mine for where the economy’s going. No one really knows. It’s all up in the air. Um. If I look at their, if you look at their revenue and their operating profit in stocked over the last few years, the. 2020, their [00:42:00] total, this is, you know, before some of their divestments obviously, but their total revenue was about 3.8 billion. Went up to 4.8 billion in 2023. The estimate for this year is a little bit south of 4 billion, going a little bit over 4 billion next year. So they’ve sold off a bunch of businesses, but they’re, if you look at their operating profit. It’s gone all over the place as well. It was as high as, uh, uh, over a billion dollars in 2021, but it was 381 million in 2024. 615 million in 2025. Don’t have an estimate here for 2026. But their net profit went up from 2 77 to five 18 last year. It’s determined to be about 4 31 this year. Earnings per share has gone from $4.30 in 2020 up to $10 90 in 2025. Operating margin is running at about 13.7%, not the highest. Um, or the lowest, but [00:43:00] it’s, it’s Tony (2): they, Cameron: look like a, a fairly strong business that’s, uh, doing well, making money. But when you look at, uh, their QAV numbers, uh, it’s very cheap. And again, I know that they’re financial services company and, and it’s a little bit different from looking at, um, some other kinds of businesses. But their price to operating cash flow is 1.56. Which is, uh, really cheap on Wikipedia. I could score them for a quality rank. Their quality rank is 60. We score ’em for that. Their stock rank was above 90 and their F score was above 4.5. So they scored for all of those. Their price was above our. Intrinsic value number one, but below our intrinsic value number two. So I’ve got a point for that. Uh, their price is less than their book price and it’s also of course less than book plus 30. So they got points for that. They do have a new three point [00:44:00] upturn, so I score them for that book. Value growth is positive, so I scored them for that. Their, um, prop calf is obviously less than seven and they’ve got a positive uptrend. So all in all, when I scored them, Tony, they got a 11 outta 14 or a 79% quality score in the QAV system, and a QAV score, a final QAV score of eCore of Tony (2): 0.5, Cameron: which is very high. So. Lot less, um, controversial than a lot of the companies that I’ve talked about in recent weeks, but, you know, kind of a pretty boring credit card company. The future for these sorts of businesses, as I said in the US is a little bit tricky, but then the future of everything in the US is a little bit Tony (2): right now. So we don’t just look at the [00:45:00] Cameron: Interest rate fluctuations and all that kinda stuff. Mm-hmm. Yeah.[00:46:00] Mm-hmm. The default rate is built in. Yeah. Yeah, and, and as I said Tony (2): before, our [00:47:00] portfolio, uh, is already full of, um, Cameron: financial services companies. They’ve been turning up a My American buy list for the last two years and we’ve just bought them and we’ve done very well out of them. Um, Willis Lease Finance Company in particular. So, uh, yeah. You know, it’s, my job is Tony (2): not to question Cameron: what the buyer tells me is good value. Tony (2): It’s just to shut up Cameron: and buy it. Oh, that’s a good slogan. Shut up and buy. Yeah. Right.[00:48:00] [00:49:00] Mm. Well, uh, as I, just to finalize on that, I’m not adding them to our portfolio because they’re currently, uh, Josephine, but we’ll keep an eye on it and, um, if it turns around, they might end up on our. Might end up in our portfolio, but uh, I’ll have to pick something else out of our buy list this week. And just for new listeners, if you dunno how QAV works, we, we have a couple of membership services. Tony (2): We have a thing QAV Light we uh, add stocks and sell stocks from a portfolio based on the QAV system that Tony’s developed over the last 25, 30 years. if you’re a QAV light member will tell you what we are buying and what we’re selling, and you can along. And then we also have a thing called QAV Club, where we actually give you the full list that we produce each week and teach you how to build buy list based on the system that [00:50:00] in the US has more like. Cameron: A hundred stocks on it each week that you can go through and choose from based on any particular requirements you may have from your investing philosophy. But we basically score all of these companies against a whole bunch of financial metrics and then decide what’s a buy and what’s not. And you can run your own portfolio from that. So go to our website, QAV america.com if you wanna learn more about how Q’S member services work. Otherwise just listen to the podcast and we’ll tell you what we’re doing each week. So that is bread Tony, the bread of life. Yeah. Yeah, probably. It’s probably all, it’s a bread money thing, I Tony (2): imagine. [00:51:00] Cameron: Thank you, Tony. Have a good week. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser [00:52:00] before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 [00:53:00] 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Mar 1, 2026

53m
32

Breaking Bread (BFH) – QAV AMERICA 41

In this episode of QAV America, Cameron and Tony navigate the “completely bonkers” landscape of 2026, where a Supreme Court reversal on Trump’s previous tariffs and the looming shadow of AI bubbles have left investors guessing. The duo breaks down the hidden “gotchas” of American Depository Receipts (ADRs), specifically examining the tax hurdles and custody fees associated with South Korean plays like Shinhan Financial Group (SHG) and Korea Electric Power (KEP). The centerpiece of the episode is a “Pulled Pork” deep dive into Bread Financial (BFH)—a high-yielding, unloved credit card “stub” that has spent years amputating its legacy loyalty businesses to emerge as a pure-play lender. Despite the “Trump Slump” threat of capped interest rates and a “stinky” past involving a bankrupt spin-off, BFH boasts a massive QAV quality score and looks dirt cheap on a price-to-cash-flow basis. Episode Timestamps [00:00:00] Introduction: Value investing in the North American market.[00:00:50] SCOTUS vs. Tariffs: The impact on Learning Resources Inc. and the $260 billion repayment mystery.[00:02:15] The AI Bubble: Data center capital costs and the Mag Seven depreciation talk.[00:08:45] ADR Deep Dive: Navigating fees and taxes for Shinhan Financial Group (SHG).[00:13:50] Performance Check: Korea Electric Power (KEP) up 31% and Zepp Health Corp (ZEPP) up 665%.[00:15:30] Pulled Pork Scorecard: Win ratios and Ford Motor Company (F) resilience.[00:16:30] Portfolio Winners: Gains in Willis Lease Finance (WLFC), Inter & Co (INTR), and Euroseas (ESEA).[00:18:15] The Finance/Shipping Heavyweight List: Bladex (BLX), StealthGas (GASS), and Korea Telecom (KT).[00:20:45] Deep Dive: Bread Financial (BFH)—The Invisible Store Card engine. Transcription   Cameron: [00:00:00] Welcome back to QAV America Tony, for, uh, new listeners to Australians Value. Investors been talking about value investing on a podcast for years in Australia. Now we’re doing an American version where we talk about the North American market. And we can’t start talking about the North American market, Tony, without talking about Donald Trump and tariffs and SCOTUS and all that kinda stuff this week. So, um. Um, as we, we were talking a little bit about it on our Australian show that we just finished, but as everyone knows, uh, the Supreme Court overturned trump’s, uh, tariffs that he had implemented a year or so ago under the International Emergency Economic Powers Act, which the Supreme Court said, nah, you can’t do that. That doesn’t work. The company that took it. All the way up to the [00:01:00] Supreme Court was Learning Resources Inc. A relatively small family owned maker of educational toys, uh, that said it was going to increase their. Tariff costs 44 times and that there was no way they could survive and afford to cover that. They didn’t have the capital to front run the tariffs. They couldn’t relocate their manufacturing quickly. Like bigger companies might’ve been able to, and uh, Trump called them. Dirty sleaze bags or just sleaze bags and unpatriotic unpatriotic sleaze bags. How dare you tell me that? The illegal thing that I did was illegal. You’re sleaze bags, major sleaze bags. Yes. And as I said in the last show, when some. [00:02:00] When somebody who’s been found guilty of sexual assault calls you a slee bag, slee major sleighs bag, you know, well, you’ve got problems. You need to take a long, hard look in the mirror, sir. Um, anyway, so what that means, uh, how they’re going to pay back the $260 billion in tariffs that they collected in 2025, uh, uh, remains to be seen. No one knows what it means, and he’s went immediately hit. Every country in the world with a 15% global tariff. No one knows what that means. No one knows what’s going on. It’s just completely bonkers. Completely, completely bonkers. But, you know, you and I were talking at the end of the Australian show about what AI is gonna do, and it’s, there’s you, you talked a lot on the last show about. Um, which you can talk about again if you want, on this show about the, uh, depreciation of capital costs for the mag [00:03:00] seven. Do you wanna do your little talk about that again?[00:04:00] [00:05:00] [00:06:00] Yeah. And you know, a lot of people are calling out the fact that the amount of revenue that these businesses are gonna have to generate in order to pay back all of this money that they’re raising for building data centers. It’s hard to see how that’s gonna happen. A lot of people are calling it an AI bubble, and, uh, yeah, the counter argument to that is, well. It’s pretty certain that AI is gonna be something and somebody’s gonna make [00:07:00] something, some money out of it. Although it also, the counter argument to that is that it can completely collapse socioeconomics as we know it and everyone loses their jobs and that creates recessions, depressions, uh, that could trickle, that could, you know, we could never recover from The point you and I were making on the show before was that. With Trump and the tariffs and with AI bubbles and all of this kinda stuff, no one knows, no one has any idea what the future looks like right now. So all we can do as investors is just keep doing what has worked in the past, which as far as we’re concerned, is by a dollar for 50 cents. And, uh, just until things change, so. Yeah. Until things change. And then when things change, we’ll [00:08:00] reassess. Reevaluate. Yeah. But right now we just keep doing what we’ve always been doing, which has worked pretty well so far. Double market returns for as long as anyone’s been tracking value investing. Yeah. Well, we’ll see. Meanwhile, we’ll just keep doing what we’re doing. Um. Last week on the show, we were talking about Shinhan Financial Group, and that raised the issue of ADRs yet again. American [00:09:00] Depository Receipts. And I did do a shout out when I did my Reddit post on Shinhan. I invited people to share their views on ADRs with me. No one replied, so I spent some time in. Uh, so I did, um, spend some time in Gemini working through it, and I’m gonna try and summarize my understanding of it as quickly as possible. So there’s a couple of gotchas here as I understand it. One is that there are. Cus there, there, there are called custody fees that the depository bank charges pass through fees for servicing the A DR. These are typically about two to 5 cents per share [00:10:00] annually. So depending on the value of the share, you gotta keep that in mind. There’s also dividend processing when SHG, for example, pays a dividend, the depository bank takes a cut. Often one to 3% of the dividend amount for converting the currency and distributing the funds so you don’t get the full value of the dividend. Then you’ve got the tax issues. Uh, this is apparently where most US investors end up taking a bit of a haircut if they didn’t plan for it. In, in the South Korean case with FSHG, the statutory withholding tax on dividends for non-residents is 22%, which includes a 2% local inhabitant tax. Then you’ve got the US Korea Tax Treaty. Under the current treaty, US residents can typically have this reduced to 15%. However, you have to get your broker to apply the treaty rate at the source, which is apparently notoriously difficult for retail [00:11:00] investors. You can usually claim a foreign tax credit on your US tax return using something called a Form 1 1 1 6. But this only offsets your US tax liability. So if you hold SHG in an IRA or a 401k, you might not be able to reclaim the 15 to 22% at all because those accounts are tax exempt and aren’t recognized as such by Korean tax authorities. So you’re missing out on that dividend altogether in that case. Then you’ve got the currency and exchange issues that I mentioned last week. Even if, say, SSHG stock rises by 5%, if the one continues to weaken against the US D or A DR could be flat when you go Tony (2): sell it, the of [00:12:00] in the Although that hasn’t been the recently while the one weakens, that can create a double whammy where the local bank stop stock drops and the currency devalues Cameron: simultaneously. But again, it’s just a level of complexity that you have to factor in. Then you’ve got. The Korea discount that we talked about a lot on last week on the show last week. Then you’ve got the geopolitical tail risk, um, in, particularly in South Korea, which is, uh, I dunno if you know this, but it’s very close to North Korea and Tony (2): close to it, Cameron: that’s, they did a good job when they came up with the names of North and South. Yeah, Barry and Stan did a great job and they went, so there’s, you know, there’s this constant as assessment of risk about [00:13:00] the, the, uh, treaty between North and South Korea and what happens there. So, but that’s not really anything to do with the ADRs. That’s just another geopolitical risk with investing in South Korean companies. So, look, there, there are complications. Um. For US investors with ADRs and I, and I don’t know from a QAV perspective how that translates. Does it mean that we should just not look at ADRs in future when we’re building a portfolio? Should we factor them out because of this additional level of complexity or, you know, career electric power is done quite well. It’s um. Up, I think about 30% since we last talked about it. Hold on, let me, um, Tony (2): pull up my Paul pork Cameron: Hmm[00:14:00] hmm. Yeah. Yeah. Career. Mm. And I think with AI in your back pocket now to help you, uh, navigate the a DR complexities, it shouldn’t be that hard. Should be just gimme an email to write to my broker. Uh, tell me, you know, what tax forms I need to fill out. Career Electric Power is up 31% since we did a deep dive on it at the end of November. So little over two months, it’s up 31%. I mean, it’s pretty good. You don’t really want to be turning your nose up at that. Right. Yeah, that’s a way of doing it too. [00:15:00] Tony (2): Use them as a backup. Cameron: But then you got Zep Health Corporation, which I think was an A DR. It’s up 665%, so you would’ve missed out on that. Oh, the tax. Yeah. Well now that I’m on my list of Paul Porks, just a quick summary of how they’ve done. So these are the deep dives that we’ve done on the show since March of last year when we started doing the show on a weekly basis, more or less. Um, I’ve done 38 I stocks, 29 of those are up, nine are down. Uh, so it’s about a 76% win ratio and. If I average out, which isn’t very scientific, but if I average out the performance of all of those, the average profit is 38%. But a lot of them are up, you know, very, very, uh, nicely [00:16:00] so, and Ford Motor Company, and we talked about their losing $8 billion, uh, last week. They’re still up 26% since we talked about ’em in May last year. So even with all of that, they’re still doing okay. Yeah, possibly. Um, alright, uh, well while I’m here, let’s, uh, just talk about our portfolio, uh, briefly and then I’ll get into my deep dive for the week. So the portfolio we’ve been running in the US since September, 2023. Is currently up 103% versus the s and p 500, up about 54% over that time. So not quite double market, but uh, very close to double market. [00:17:00] And in the last. 90 days it’s up 34% versus the s and p up three and a half. And it’s funny, I was uh, I was on the value investing subreddit the other day and I saw somebody say, all of my stocks are down over the last 90 days. I dunno, is anyone making any money? Is anyone’s portfolio doing well? Everyone was like, no one’s down and this is down and everyone’s down. I was like, oh, I’m up 35%. I don’t know what your problem. And no one said anything. like expected, at least prove it. got? Show me your portfolio. Nothing. No one said Tony (2): boo, Cameron: like All right. Yeah. Back to my knitting then, I guess. Yeah, yeah, Well over a year anyway. Uh, in case people, uh, new listeners are wondering what the stocks that have [00:18:00] done the best in our portfolio, um, over the last couple of years are. I’ll read out a quick list of the top ones. Willis Lease Finance up 318% in over International, UP 128% Euroes up 118 BLX, the Foreign Trade Bank of Latin America up a hundred percent. Sarcos Energy Navigation Up 81, stealth gas up 62 and there’s a few more. Tony (2): Um, but no Cameron: mag sevens, no tech stocks. Um. Nothing like that. All and banks. Fin Finance, literally like Willis Lease Finance, foreign Trade Bank, regional Management, Jackson Financial and UBS, and I think Renaissance Air Holdings is also real estate or finance investment as well. Um, and then a couple of shipping companies, ues, Sarcos Energy, stealth Gas, kt, I think, are they shipping? Can’t remember even what they [00:19:00] do. Oh, no. Korean, another Korean based company. Korea Telecom. Tony (2): Is that where Cameron: they’re. Uh, yeah, Korea, basically. Korea, telecom. Um, they’re up 55% since we added them. Uh, when did I add Korea Telecom? Uh, September, 2004. Tony (2): So there you go. Cameron: that’s Korean company, handle the tax. Hmm, hmm hmm. Nice. Yeah, it’s basically like it.[00:20:00] Uh, alright, so let me, uh, get onto my stock. Of the week. Now complication with this one. As I mentioned to you on our last show, when I looked at this over the weekend, it was a buy. When I went to add it to our light portfolio this morning, it had become a Josephine, which for new listeners, means that the share price today is low than it was at the end of last month, which means we won’t buy it. ’cause if it’s slipping backwards, we wanna hold on and A, C, Y, and B. Maybe we can buy it cheaper tomorrow than we can today. So let’s see how far it’s gonna slide. So I’m not gonna add that to the light portfolio this week unless it turns around. By the time I check it again tomorrow, I’ll have to add something else, but I’m gonna talk about it anyway ’cause I’ve done my research on it and it is up pretty high on our buy list this week. The company is called Bread Financial and. Slightly disappointingly [00:21:00] A, they don’t make bread. And B, there’s no murders, there’s no, uh, Like out of all of the stories that we’ve done in recent weeks, this Tony (2): is kind of a boring one, Tony, Cameron: like no one got killed in the making of this story. No. Ah, Wow.[00:22:00] right, right. Right,[00:23:00] right. Yeah. Yeah. There you go. I did, I did think of you when I was researching this ’cause I Tony (2): knew Cameron: background in, uh, loyalty programs. Well, so Bread Financial, um, was started in 1996 from the merger of World Financial Network. National Bank, which was uh, a credit card bank that spun over a company called The Limited and JC Penney’s credit card processing unit. Basically the back office engine for people that wanted store cards. And it wasn’t a founder led startup. It was sort of a, a corporate mey thing and has had a lot of institutional ownership and continues to have [00:24:00] a lot of institutional ownership today. Uh, it looks like institutions own roughly 90% of the float could be even more Vanguard, own 11%. BlackRock own about 10%. Um, there’s also an activist holder called Turtle Creek Asset Management that has about a six or 7% stake. Although I think they’ve trimmed their position recently, but the got people a little bit interested in the prospects of this business when Turtle Creek started buying in a few years ago. The CEO is a guy called Ralph Andretta, formerly Citibank. He’s been running it since 2020 and he’s kind of spent the last few years amputating a lot of the cards. So BFH, uh, and I’ll, I’ll talk about why they’re called Bread in a moment, but they’re basically the invisible store cart. [00:25:00] You know, we, we we’re very familiar with those Tony (2): had a number of Cameron: businesses like that in Australia, but basic Exactly, exactly. If you go to a specialty retailer like Victoria’s Secret, speaking of Les Wexner, uh, deposition, um. And they offer you a, a, a loyalty card, get 10% off if you, blah, card, et cetera, et In the United States Bread is often the company that’s providing that card. They’re basically providing you with a Tony (2): loan for Cameron: credit to buy stuff from the shop. And most of their money now comes from two big buckets, the loan book, interest and fees on private label and co-brand cards. They also have things like the bread cashback, amex, and the saving sides. They also run a direct to consumer digital bank called Bread [00:26:00] Savings that gathers deposits and funds those loads directly. But it’s, it’s, yeah, a lot of it’s subprime or near prime loans, high risk rate for these sorts of things. Um, probably. The first thing that people are gonna default on if they hit hard times US economy is either the greatest economy that there’s ever been in the history of economies. Tony (2): Donald Trump, Cameron: economists, not so good in lots of areas. So, yeah, well, you have to get rid of your mistress first and then take back her. Uh, lingerie before your wife finds out. Um, now there is a thing going on at the moment, uh, that’s a bit of a Trump slump for credit card companies, um, amongst. [00:27:00] Putting in place illegal tariffs and then having them overturned and coming up with new tariffs whose legality are debatable. On January 12th, president Trump called for a one year cap of 10% on credit card interest rates starting January 20th, eight days later, and provided as usual. No details on how that was all gonna work.[00:28:00] how it’s gonna work. If it’s gonna work. January 20th came and went by the way, happened. So, um, it would be a, you know, would save Americans a hundred billion dollars a year. I read if it went ahead or for the year. Yeah. Well, um, you know, I’m sure Trump has thought all that through in make sure that, that, uh, there are no get outta jail free This bill targets. Interchange fees or swipe fees as they’re known charged by Visa or MasterCard. And some analysts believe that this [00:29:00] 10% interest cap is a maximalist opening move on behalf of the Trump administration to threaten the crown jewel of the banks and get Tony (2): them Cameron: come to the table to discuss playing along with the CCCA and. It sort of signals, uh, move away from the Republican party’s traditional pro bank policies. But whether or not it actually anything happens or not, it’s a bit like Trump was gonna reduce the reduce, um, pharmaceutical costs as well, I think, and ended up just saying he could get Trump drugs and apparently the White House had been floating the idea of Trump cards. You can get your own Trump credit card with it. 10% interest rate. Um. Anyway, that is it. I mean, it, it sounds like a joke thing, but again, if you’re a credit card company or an investor in a credit card company, [00:30:00] you have no idea about is this real? Is this just talk? Is anything gonna happen? If it, if something happens, is this gonna wipe hundreds of billions of dollars off of credit card companies? Valuations. Um, or nothing could happen. I mean, so who the hell knows could have something to do with it. Yeah. Tony (2): As of this point in time, we’re recording this on, uh, February the 24th. So a month and a bit has passed since the No credit APRs hovering between 22 and 24% on average. Legal experts and banking groups say the president lacks authority to cap rates via executive Cameron: law is required to override existing state level parity and [00:31:00] national banking rules. And we know that if President Trump cares about anything, Tony, it’s uh, very, very strict. Yeah. Obeying the laws, uh, sticking to it like crossing t’s and dotting i’s, that’s what he’s really good at. doing anything that could provide any blowback or cause embarrassment Tony (2): complexity Cameron: the track. Tony (2): so. as [00:32:00] Cameron: just wanna flag that one of the risks for companies like Bread Financial. Um, something might happen, might not happen, no one knows. Now there is a little bit of a stink around BFH. There’s a. Company called Loyalty Ventures. Uh, they spun off their air miles loyalty business. As you earlier on. You’re familiar with that? In 2021, uh, not long after they spun it off, it spiraled into bankruptcy. Uh, this led to a class action lawsuit alleging BFH or Alliance Data, as they were known at the time, had misled investors about the health of the loyalty business before dumping it. Uh, they were previously known as Alliance Data Systems, a DS, and they had this, uh, strategic transformation. They started to sell off some of their non-core businesses. Air [00:33:00] Miles was one of those, and, uh, they sold it, uh, off. And as I said, uh, it, it. Quickly collapsed. A DS required the newly formed company Loyalty Ventures who bought it to pay it a $750 million dividend as part of the split, which loyalty funded by taking on. A massive amount of debt. And then shortly after the spinoff, loyalty ventures, main customer, Sobes, S-O-B-E-Y-S, exited the uh, Tony (2): Miles program Cameron: and the whole thing sort of Tony (2): plummeted. Sobeys is a national Cameron: supermarket chain in Canada. I’m sure you’re familiar with seeing as you lived in Canada for quite a few years. And yeah, 18 months later, loyalty ventures went into bankruptcy. So there’s [00:34:00] class action lawsuits. What did a DS know? What didn’t they tell the market? Tony (2): Did they make false and misleading statements about misleading statements about the health Cameron: of the business, et cetera, et cetera. Uh, by the way, they also sold off their data epsilon for Tony (2): 4.4 Cameron: Um, and they also started, uh, having rising losses after COVID, um, credit card during the peak in 2021 of, fuck. Sort of COVID credit card companies were making the most out of artificially low interest rates due to government stimulus and COVID packages. And as the economy started to normalize, losses started to go up. So BFH, um, has started to suffer from that. By the way, the BFH thing I [00:35:00] didn’t mention, they bought A-A-B-B-N-P-L company. Buy now, pay Uh, Afterpay is the one that Australians will remember bought. Yeah, so they bought one of those, it was BR Financial. Then they rebranded to sort of get away from the stink of the loyalty ventures, Tony (2): uh, Cameron: Oh right. Right, [00:36:00] right. So they probably don’t want this CCA to pass. Yeah. Right. So to rebrand as Bread Financial, they had to spend heavily on modernizing their legacy systems. They invested over a hundred million dollars annually over the last few years into digital innovation and credit card processing transitions. Um, so they, they’ve sort of. Gotten rid of all these legacy businesses and they’re just a pure credit card backend system now, but they’ve had to spend a lot of money to do that. But they’re finally clean and the businesses, um, seems to be doing quite well actually, despite [00:37:00] all of that. Um. They have a market cap of around $3.35 billion, about 3.6 billion cash in the bank. But we know that looking at cash flow for financial companies is always Tony (2): a bit tricky. Cameron: Bit different to your normal Tony (2): business. Cameron: We don’t let that stop us, but it’s a little bit tricky than the normal, um, looking at a manufacturing business or a retailing business or something like that. But, uh, the, the less, the, the stub of the business that’s left is doing quite well and seems to be. Uh, quite profitable. They’re generating roughly 19% net margins, uh, when the economy isn’t tanking and they’ve got, uh, quite a good dividend that they’re paying. They’ve got a 92 cent dividend that’s due to go X in a couple of days. 27th of February, what is it [00:38:00] now? 24th in a few days, the. Analyst forecasts for the stock are running around about 82, 80 $3, which is about nine or 10% above where it currently is. So analysts on general seem to think it’s gonna go up. So it, it looks like a bit of a. I wouldn’t say a cigar, but, but a company that has gotten rid of a lot of its non-core businesses kept the one that seems to be making money at the moment. But with all of the changes going on in the US economy, we don’t really know what Tony (2): the future holds. Cameron: But that’s a good thing that. We don’t try and predict the future, so we don’t have to worry about that so much. But some of those future things while I’m on it, just to give people a perspective, the economic forecasts for the US unemployment rate rising from four point half to 4.6%, uh, this year, which sounds low by historical standards, but [00:39:00] credit card. Processing companies are extremely sensitive to any unemployment rates, the sort of low hire, low fire labor market over the last two or three years might cool off. We also know that, um, there’s this big hiring freeze going on according to Jerome Powell in the US where companies are starting to not hire people because of. The expectations that AI is going to do a lot of those jobs that university graduates would be doing in the next couple of years, years. So, um, how that plays out and what that means to the unemployment rate in the US remains to be seen. There are anticipated federal reserve cuts this year in the US with the change of the Chairman of the Fed Trump’s trying to get rid of JJ Powell and replacing with Kevin Walsh. I think that’s his name, Walsh. [00:40:00] Um, so that, you know, interest rate cuts are gonna have an impact on credit card companies and their margins and their rates mean that their profits go down. We know that when in you’ve, you said on the show last week that when interest rates go up, banks tend to make more money because they Tony (2): their Cameron: Uh, push them up a little bit more. It’s the opposite of inflate their margins. Tony (2): Mm-hmm. Cameron: But you add to that, the fact that. Consumer sentiment in the [00:41:00] US is at the lowest it’s been since 1978, actually lower than 96% of months since 1978. So consumers, Jimmy Carter. No, Gerald Ford was out in 75. Yeah, Jimmy Carter came in. Jimmy Carter was there until Reagan. In between Ford and Reagan. Um, so, you know, again, that could be the canary in the coal mine for where the economy’s going. No one really knows. It’s all up in the air. Um. If I look at their, if you look at their revenue and their operating profit in stocked over the last few years, the. 2020, their [00:42:00] total, this is, you know, before some of their divestments obviously, but their total revenue was about 3.8 billion. Went up to 4.8 billion in 2023. The estimate for this year is a little bit south of 4 billion, going a little bit over 4 billion next year. So they’ve sold off a bunch of businesses, but they’re, if you look at their operating profit. It’s gone all over the place as well. It was as high as, uh, uh, over a billion dollars in 2021, but it was 381 million in 2024. 615 million in 2025. Don’t have an estimate here for 2026. But their net profit went up from 2 77 to five 18 last year. It’s determined to be about 4 31 this year. Earnings per share has gone from $4.30 in 2020 up to $10 90 in 2025. Operating margin is running at about 13.7%, not the highest. Um, or the lowest, but [00:43:00] it’s, it’s Tony (2): they, Cameron: look like a, a fairly strong business that’s, uh, doing well, making money. But when you look at, uh, their QAV numbers, uh, it’s very cheap. And again, I know that they’re financial services company and, and it’s a little bit different from looking at, um, some other kinds of businesses. But their price to operating cash flow is 1.56. Which is, uh, really cheap on Wikipedia. I could score them for a quality rank. Their quality rank is 60. We score ’em for that. Their stock rank was above 90 and their F score was above 4.5. So they scored for all of those. Their price was above our. Intrinsic value number one, but below our intrinsic value number two. So I’ve got a point for that. Uh, their price is less than their book price and it’s also of course less than book plus 30. So they got points for that. They do have a new three point [00:44:00] upturn, so I score them for that book. Value growth is positive, so I scored them for that. Their, um, prop calf is obviously less than seven and they’ve got a positive uptrend. So all in all, when I scored them, Tony, they got a 11 outta 14 or a 79% quality score in the QAV system, and a QAV score, a final QAV score of eCore of Tony (2): 0.5, Cameron: which is very high. So. Lot less, um, controversial than a lot of the companies that I’ve talked about in recent weeks, but, you know, kind of a pretty boring credit card company. The future for these sorts of businesses, as I said in the US is a little bit tricky, but then the future of everything in the US is a little bit Tony (2): right now. So we don’t just look at the [00:45:00] Cameron: Interest rate fluctuations and all that kinda stuff. Mm-hmm. Yeah.[00:46:00] Mm-hmm. The default rate is built in. Yeah. Yeah, and, and as I said Tony (2): before, our [00:47:00] portfolio, uh, is already full of, um, Cameron: financial services companies. They’ve been turning up a My American buy list for the last two years and we’ve just bought them and we’ve done very well out of them. Um, Willis Lease Finance Company in particular. So, uh, yeah. You know, it’s, my job is Tony (2): not to question Cameron: what the buyer tells me is good value. Tony (2): It’s just to shut up Cameron: and buy it. Oh, that’s a good slogan. Shut up and buy. Yeah. Right.[00:48:00] [00:49:00] Mm. Well, uh, as I, just to finalize on that, I’m not adding them to our portfolio because they’re currently, uh, Josephine, but we’ll keep an eye on it and, um, if it turns around, they might end up on our. Might end up in our portfolio, but uh, I’ll have to pick something else out of our buy list this week. And just for new listeners, if you dunno how QAV works, we, we have a couple of membership services. Tony (2): We have a thing QAV Light we uh, add stocks and sell stocks from a portfolio based on the QAV system that Tony’s developed over the last 25, 30 years. if you’re a QAV light member will tell you what we are buying and what we’re selling, and you can along. And then we also have a thing called QAV Club, where we actually give you the full list that we produce each week and teach you how to build buy list based on the system that [00:50:00] in the US has more like. Cameron: A hundred stocks on it each week that you can go through and choose from based on any particular requirements you may have from your investing philosophy. But we basically score all of these companies against a whole bunch of financial metrics and then decide what’s a buy and what’s not. And you can run your own portfolio from that. So go to our website, QAV america.com if you wanna learn more about how Q’S member services work. Otherwise just listen to the podcast and we’ll tell you what we’re doing each week. So that is bread Tony, the bread of life. Yeah. Yeah, probably. It’s probably all, it’s a bread money thing, I Tony (2): imagine. [00:51:00] Cameron: Thank you, Tony. Have a good week. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser [00:52:00] before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 [00:53:00] 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Feb 28, 2026

53m
31

SHG – The Seoul of Value: QAV AMERICA 40

In this episode of QAV America, Cameron and Tony navigate a volatile week in the US markets, lead by Ford’s staggering $8.2 billion loss for 2025 and their strategic retreat from full electrification. The duo reviews the impressive performance of their “deep dive” portfolio, noting that many previously analyzed stocks have seen triple-digit or high double-digit gains. The centerpiece of the episode is a “Pulled Pork” deep dive into **Shinhan Financial Group ($SHG)**, a South Korean banking giant. Despite a litany of scandals involving cartel-like collusion, fraud, and political instability in Korea, the hosts weigh the risks against the “Value Up” government catalyst that may finally unlock the company’s depressed valuation.— Episode Timestamps **[00:00:00]* – Introduction and the state of the US market. **[00:00:48]* – **Ford ($F)**: Analysis of the $8.2 billion loss and the pivot away from EVs. **[00:04:41]* – Portfolio Review **[00:12:15]* – Deep Dive (Pulled Pork): **Shinhan Financial Group ($SHG)* history and Korean banking. **[00:48:38]* – Tribute: Remembering Robert Duvall. Transcription   Cameron: [00:00:00] Welcome to QAV America, Tony. This is episode 40, uh, for brand new listeners. Welcome. This is a show where we talk about value investing in the US markets. You might notice from our accent. That we are not accents, that we are not Americans. We are Australian value investors that have been doing a podcast about value investing in Australia for many years. And these days we do also do one about the American market because why not? And, uh, it’s been an interesting week, Tony, in the American markets. Ford reported their worst quarterly earnings in four years on Tuesday, and a net loss of $8.2 billion for 2025. What’s $8.2 billion between friends, Tony? Tony: Is this part of the great ev write down? I’ve been reading about all the, uh, EV manufacturers are getting back into producing V [00:01:00] eight cars Cameron: Yeah. Drill, baby drill. Tony: Yeah, yeah, Cameron: Yes. Tony: of companies riding down their ev. Investments Cameron: is, Tony: off E investments. Cameron: This is their largest loss since the 2008 recession. At least 4.8 billion of it was due to the EV division. Tony: Yeah. Cameron: Article I’ve got says E uh, electric vehicle sales were battered and previous corporate plans were shattered. Oh, look at that. That’s nice. Battered and shattered Tony: Yeah. Cameron: across the industry this year following the. Tony: how I like my fish and chips. Cameron: Following the Trump administration’s push to slash a seven and half thousand federal EV tax credit that was signed into law by former President Biden in 2022. Ford was one of many automakers committed to an electrified future that was hit hard by the decision. In response, the company said that it will. Pivot from full electrification to partial [00:02:00] electrification, and in December announced a major set scale back of its electrical vehicle, pla electric vehicle plans, which included killing the electric pickup truck, F-150 Lightning. I think the customer has spoken. That’s the punchline. Ford, CEO. Jim Farley said in an earnings call on Tuesday, I think uh, Donald Trump has spoken more than the customer. Tony: Yeah, I Cameron: Mm-hmm. Tony: Well, aren’t there, isn’t there, hasn’t there been a wine back of tax credits as well for EV cars? So a way, the customer has spoken ’cause they’re not buying EVs unless they get a tax rebate for it. Cameron: Yeah, Tony: Yeah. Cameron: Uh, in the absence of a tax credit, Ford and other automakers such as GM are betting on two things to spur customer demand in the us affordability and autonomous driving. At the core of that plan is a $30,000 electric vehicle with eyes off driving that Flo Ford plans to unveil in 2028. Tony: oh my God, it’s like. We’ll pivot to EVs. [00:03:00] pivot back to Hemis. pivot to driverless cars. It’s Cameron: Well, they gotta do something Tony: it if it’s their own money, would they be doing that Cameron: well. Tony: money? Sure. 8 billion. Cameron: What’s 8 billion? Tony: Yeah. Cameron: While the American EV industry suffers Chinese electric vehicle giants enjoy government subsidies that give them at times dangerously good pricing power. Chinese EVs. Yeah. Dangerous to who? Chinese EVs go for unbelievably low prices. And while they’re not allowed to be imported into the United States, the low pricing has made it very tough for American EV makers to compete elsewhere in the world. Even long-term American Ally Canada decided last month to allow Chinese EV imports. Tony: Well, I’m glad that the America’s calling Canada a long term ally now and not 51st state or, or worse. Cameron: Gizmodo. I don’t think that’s how Donald Trump would refer to them, but Tony: Yeah. Cameron: bunch of Commies is probably how he’d [00:04:00] refer to them. Um, so I did a deep dive on Ford on episode six of this show back on the 21st of May, 2025. The share price is up 30.7% since then, so Tony: pivoting is good. Cameron: it’s done okay. Despite all of this that’s even taken into account. Uh, this new loss announcement, there were $10 80 when I talked about ’em. There are $14 12 at the moment, so yeah, it’s okay. Tony: Oh yeah. And for a large cap company, it’s pretty good. Cameron: Everyone told me I was crazy when I talked about that one back then. Tony: Too much Cameron: Yeah, 30% less than a year. Not too bad. Looking at the other companies that we’ve talked about over the last year on the show, um, Zim Integrated Shipping was the first we did back in March of 2025. It’s up 23% since then. I’ll do ’em in the [00:05:00] in episode order. Um, CX ChemX is up 122%. Dac. DACD, AOS Corporation, big Greek Shipping Company, up 31% Canadian, Imperial and Bank of Commerce. Speaking about their great ally, up 50%. NL Chile is up 6.3. Ford’s up 30 IHS holding up 54. Jackson Financial, up 37 Orx Corporation, up 73. Precis Precision Drilling up 82. POSCO Holdings up 35 Zep. Health Corporation up 682%. Sasol up 59. Bausch Health is down five. Seneca Foods up 25. Gray Media up six Titan Machinery down 0.1. Kimball Electronics down 15.9 Sno up 15 methane X up. 22 community health systems up 13 Cow Main foods [00:06:00] down. 12 dous, which was a XL up. 17 American Airlines has gone nowhere. Topgolf is up 18.8. Pg and e is up 15.9. KA career, electric Power, doing another Korean company. Today it’s up 28%. It’s air cap is up 14. Veil is up 29.1%. Z Davis is down 16. A MC is down 20. Zfa is up. Six is up. 6.6 Tony: Is that the bad money of our Cameron: VLRS, the bad bunny. Tony: Yeah. Cameron: Why is it a bad bunny? Tony: Well he went on the Super Bowl halftime Cameron: Oh, Tony: sung everything in in Cameron: oh God. I didn’t even make that connection. I’m so outta the loop on, uh, super Bowl halftime shows. I watched the Prince Super Bowl halftime show from 2007 last night. That was pretty good. A MTD is down a little bit. Tony: when it Cameron: It did. It’s [00:07:00] raining. And not only is he playing guitar and singing, but he has two dancing girls in stiletto heels. Dancing with like an inch of water on the platform. I’m, like I said, Chrissy, how is that not a health and safety risk? Anyway, the por the, uh, the deep dive stocks are doing pretty well. Um, let me, let me just also, uh, talk about the, uh, portfolio while I’m here. The actual QAV America portfolio. Uh, last week when we talked about it, it was up about a hundred percent. Um, as of today, it’s up 101.36% since inception, which is September 23 versus the s and p 500, which is up about 50% over the same period of time, 50 53, 54. So doing about double market. Um, [00:08:00] since then. Tony: And no gas strips to be seen. Cameron: Yeah, I wrote an article last week sort of comparing, uh, astrophysics to, uh, value investing and I said that we tend to invest in large planets companies with a lot of mass, a lot of gravity, gravity being cash flow masses, cash. Not gas giants that are all hype and speed and momentum and shiny and look pretty, but don’t actually have a functioning ecosystem yet. Uh, yeah, we don’t have any gas giants. Um, in the last, well, let’s see, year to date, uh, well that’s not a very good analogy. The last 12 months were sort of neck and neck with the s and p around about 20%. But, uh. You know, the last, we’ll say three months, we’re up about 25% versus the index up about one and a half. Actually, we’re 26 point a half versus one point a half. So it’s been a really good, it’s actually just since the [00:09:00] beginning of the year, since the beginning of January, which is, I know just a month and a bit now, six weeks, we’re up 20, 23% in six weeks versus the s and p 500 negative. 0.14%. So, uh, things are going well. And one of the companies that’s been doing well is in my news, I’ve, uh, did a news report this morning of some of our stocks, Latino’s, the other bad money in our portfolio, BLX. Reported record earnings for 2025 with significant growth in net income and portfolio alongside a strong fourth quarter performance. 2025 net income increased 10% year over year to 227 million. Fourth quarter net income of 56 million marking one of the strongest quarters in their history. So, uh, good on BLX. [00:10:00] Um, what else have I got? Oh, Renaissance r and r. They’re also in our portfolio, they’re up about 15%. Uh, they said that their, uh, reported earnings exceed analyst estimates indicating a positive operational performance. Um, 29.6 year on year growth, they reported. So, uh, yeah, that’s good. Jackson Financial has, has formed a long-term partnership with TPG, that includes a significant equity investment. They’re gonna make a $500 million common equity investment for roughly six and a half percent ownership. So Jackson I mentioned before, we did a deep dive on them back in June of last year. They’re up 37% and we hold them in the portfolio, uh, and they’re up 25% since I added them the second [00:11:00] time. I added ’em back in September last year. Then sold them within a week and then added them back, uh, in August of 2025. And, uh, yeah, they’re up. 25, 20 6% since then. Tony: We went back to Jackson. We got married in a fever Cameron: Uh, I, Tony: than a pepper. SPR Cameron: well I think the reason, I dunno what that is. I think we, the reason we sold ’em, Tony: Jackson. Cameron: yeah. I dunno what you’re going on about. Tony: were just talking about. walk the line in the Australian show. That’s, Cameron: Oh. So Johnny Cash song Tony: with June Carter Cameron: and June Carter Cash, she was great, loved her voice. Um. I think when, when we were working out some of the bugs in our process, our, our QAV process for the American market, we were not, uh, including stocks that had a low ZED score and then we decided to ignore the ZED score, the ZED one score, and Jackson had a bad ZED one score or a like actually looking at them now they have a [00:12:00] non-existence ED score being a financials company, Tony: Hmm. Cameron: anyw who. So that’s, uh, a bit of the news from around the stocks in the QAV universe in the United States. Tony, which leads me to my pulled pork, my deep dive for this week, which is another one I have not added to our light portfolio yet, because I wanted to talk to you about it because. Tony: Oh, Cameron: Like some of the ones that we’ve done recently. O it’s, uh, it’s a bit of a worry. Tony: Really. Cameron: yeah, yeah. Tony: it. ’cause it looked good to Cameron: Did it? Okay. Tony: Yeah. Cameron: Well this is a company called Shi Han. Um. She hin, Shinhan Financial Group. Japanese, no, sorry, Korean started, well, sort of started outta Japan fully enough, but it’s a Korean, [00:13:00] uh, bank with a bit of a turgid history, not, Tony: Why am I Cameron: yeah, yeah. Surprisingly for stocks that we do on this show. So SHG goes back to 1982, founded by a gentleman called Lihi Gun and a group of Korean, Japanese businessmen. It was South Korea’s first bank, built entirely on private capital rather than government banking 1982, Tony: Yeah. Cameron: and I thought. That’s a bit late, um, seeing as the country was sort of quasi founded after the, or during the Korean War or leading to the Korean War, really, so early fifties. Um, and so I did a little bit of a deep dive on that. So. It was pretty much a command economy, uh, for the first couple of decades. As people may or may not know, [00:14:00] everyone thinks of North Korea as being a dictatorship. What a lot of people in the west don’t realize is that South Korea was a dictatorship as well for the first 30, 40 years, and now it’s just. Very, very corrupt, uh Tony: oh. says you. Cameron: oh. And says, uh, the, the people who just took the last president to court, he was just found guilty of fraud. And I think every one of their, I. Presidents, uh, in, or prime ministers in the last 30, 40 years has either gone to jail for fraud or corruption or committed suicide while on charges of fraud and corruption. Um, it’s, uh, it’s not just me. It’s, uh, it has a lot of problems. Tony: Okay. Cameron: Um, but yeah, for 20 years leading up to Shin Han’s, founding the South Korean government. Owned all the banks, staffed them and used them as basically their personal economic steering wheel for [00:15:00] the South Korean economy. Private banking door was locked, and then they had like a brief experiment with private banking in the late 1950s, but that ended in a military coup when General Park Chung, he cease power in 1961, we talked about him. Own Korea Electric power, that episode, because he was the guy that, um, built KEP or the, the precursor to that, um, he apparently viewed the private owners of the country’s commercial banks, um, as dealing in the illicit was as illicit accumulators of wealth, um, was I think a term that he used. Yeah, Tony: the Cameron: he is the legitimate general. Yeah. They were illicit. So he basically renationalized the entire banking sector, and it stayed that way until it sort of started to loosen up in the early eighties. Tony: Well, don’t forget to cam, I don’t know if it’s a coincidence or [00:16:00] not, but Australia opened up its financial regulations in that, around that time as well, late, uh, would’ve been Keating and Hawke. So early eighties we allowed foreign banks to take out licenses. We floated the dollar. A few other things as well. Cameron: Commonwealth, Tony: up our banking system to competition. Cameron: Commonwealth Bank wasn’t privatized until the nineties. Tony: 92. Cameron: Yeah, right. Yeah, fair point. The other, the other complicating factor in South Korea is the chabos, the big family conglomerates that run Samsung and lg, et cetera, et cetera. I. Tony: how you pronounce Cameron: dunno. I have no idea. I did look it up. Tony: Oh, I just thought that was a different version of cabal. Cameron: Kaar. Oh yeah, you’re probably right. Yeah. Tony: Hmm. Cameron: chime, meaning money bowl, meaning faction. Um, on the model of tsu, Japanese tsu. I dunno. My, uh, what do you, what do you call [00:17:00] those pronunciation things? Um, Tony: Language, speech. oh, aren’t you clever? Aren’t you funny? Aren’t you hilarious? You know where you, I’m gonna ask, I’m gonna ask Gemini now. You’ve, now you’ve done it. you can ask me, just make it clear. How do you pronounce? get a straight answer out of Gemini. You blame Gemini. Ah, I got this output. It was all wrong from ai. Ai. Uh, dear me, dear me, Bob, we’re both wrong. Okay? Yeah, that’s how they said. Most English speakers pronounce it J Bowl. Um, but it should be more like a show bowl, which is pretty much what I said the first time. So we went down this whole thing for nothing. Show bowl, uh, yeah, they were [00:18:00] concerned that there was just gonna be used if, if the show bowls got hold of them, they’d just be used as private piggy banks. Cameron: So. In 1982, they started to loosen it up a little bit. Shinhan Bank was established by a bunch of, uh, uh, Korean expats that had made a lot of money in Japan, like the Korean diaspora that had gone to Japan, I believe. So anyway, it was set up and it was partially owned by the National Pension Service, owned 8.04% of it, still do. And today, BlackRock owned 5.65% of it. The chairman is a guy called Gin O Dong. He’s currently, um. Under a lot of intense pressure to do what they call a value up, which I’ll get into in a moment. There’s another issue, like I mentioned to you in our Australian show, digging down into this was brain [00:19:00] numbingly confusing. Um, there’s a whole bunch of issues when we’re trying to look at Korean companies that are dual listed and listed in the US There’s the whole a DR issue. There’s the value of the Korean one, the exchange rate. It’s at a 17 low, 17 year low at the moment. And then there’s also this issue of. Deliberately depressed valuations. ’cause there’s a 60% inheritance tax, uh, in South Korea. So apparently a lot of the companies, uh, the, the families that have a lot of money tied up in these things and have some parent control, wanna keep the value of them low. So when the family members die, they don’t give it all up in tax. Yeah. Anyway, uh, the core business is, you know, basically they’re the financial toll booth for South Korea. These guys are huge. [00:20:00] You do anything financial in South Korea, you’re probably dealing with shinhan in some way, shape, or form. Everything from credit cards to corporate factory expansions. They are, uh, a massive, massive enterprise. And they also have a global footprint too. Now they’re quite big in Vietnam, Japan and Kazakhstan. They are the first Korean bank to hit 1 trillion KRW in annual overseas profit. That sounds like a lot, but when you convert it to US dollar, it’s, it’s not that impressive. Um, I did. Where’s the exchange rate? Uh. Oh, I didn’t write it down here, but it’s like 0.0000, there it is. Uh, no, that’s something else. It’s 0.00067 of A-U-S-D-I think for every one, one. But, uh, still they’re doing very, very well in that front, uh, [00:21:00] very big business. Uh, 4.97 trillion WAN profit in 2025. I’ll get into the numbers a bit later, but got some problems. The dirty side of it, Tony. Um. Uh, where do I start? The KFTC, which is, uh, not Kentucky Fried Tasty Chicken. I thought it was like the Korean Yeah, I thought it was the Korean version. Yeah, can Tasty Kentucky Fried Tasty Chicken, but no, it’s, uh, the Korean Fair Trade Commission in January of this year. Declared that the Korean banking system had been operating as a coordinated cartel. They slapped the big four banks with a combined KRW $272 billion fine for colluding on loan to value ratios between 2022 and 2024. Bank officials allegedly exchanged over [00:22:00] seven and a half thousand sensitive data points via shared Excel files. To make sure that their lending limits were perfectly aligned by coordinating how much they were willing to lend against a property, they eliminated the need to compete for customers. If you’re a home buyer and soul, you weren’t shopping around, you were walking into a preset trap. The KFTC estimated this coordination allowed the banks to generate. 6.8 trillion one in excess interest income. Uh, Shinhan wasn’t the worst offender here. The worst offender was Hana Bank and Shinhan followed. Second Hana Bank got a fine of 87,000,000,001, and Shinhan was 63.8 billion one. So, you know, we like to look for businesses with good, honest management that are doing a good job keeping their nose clean. Buffet and Munger style.[00:23:00] This is, Buffett liked a good monopoly, well this is a oligopoly. There’s four of them, but, uh, mm-hmm. yes, also a bit of a kleptocracy by the sounds of it. This isn’t their only scandal. They’ve got two other major scandals that I came up, uh, or found out about this relationship between them and Haner Bank is interesting. They’re kind of frenemies who sue each other. There was a thing called the Lyme Asset Management scandal, which was a $1.6 trillion KRW Ponzi fraud that saw both. Banks act as distributors, but Shinhan Securities was the prime broker and the other banks blamed them. And then on February 5th of this year, it’s like a week ago. The sole Southern District Court ruled that Shinhan investment in securities had to pay 36.4 billion in damages [00:24:00] to Hana Bank because Hana Bank had already been forced by regulators to reimburse its retail customers for mis-selling fraudulent funds. So then Hana turned around and sued Shinhan to claw that money back. Hold on. We committed a crime and you helped us, so we’re gonna sue you for helping us commit a crime. And they were also collaborating on the, you know, the cartel. Um, so they were, they’re suing each other. They were sharing data to rip off customers, ripping off customers left, right, and center. Tony: Well, all I can say is I think that the, what’s it called, the Korean finger Looking good regulator should, should be exported to Australia and the US Yeah. Well, they’re actually regulating. of the same activity. Yeah. they’re actually Yeah, Cameron: Yeah. Congratulations to the KFTC and wait. There’s more Steve Jobs like to say. Um. [00:25:00] Also in January of 2026, so this is all in the last month. These stories. Uh, this is in the US. A lawsuit was filed in the Southern District of Flora, Florida against the M 360 CRE Income fund. Um, so this was a, a failing real estate fund that was failing back in 2020 when the US commercial real estate market was wobbling as a result of c. And Shinhan was allegedly allowed to redeem $151 million secretly at full valuation while smaller retail investors had their redemptions temporarily paused and then dropped by over 67%. So the lawsuit claims that Shinhan walked away with its principle intact, and plaintiffs are calling that preferential treatment and securities fraud. [00:26:00] So they’ve got those three things going on right now. Then in 2024, there was another story. Um, they had a, there was a, you know, markets were sort of having a mini crash. A team at Shinhan Securities ETF department lost 130 billion KRW, about 95 million USD on. Unauthorized futures trading. Instead of reporting it, they allegedly engaged in ghost trading, creating false swap transactions to mask the deficit, which went unnoticed for over two months, only surfacing during a quarterly audit. So lots of shonky shady stuff going on at Shinhan. The Shinhan Shonky, shady Trading Bank, allegedly. Well, some of it’s more than allegedly. Some of it they’ve been fined and [00:27:00] some of it is allegedly. Yeah. So. This is why I hesitated before adding them to Really you you Googled, have you Googled any of the banks in Australia recently or Googled any of the banks on Wall Street recently? I know, I know. You know, we look at the numbers. correct. Um, so more on these guys. They recently, uh, sort of got rid of Shinhan, they’re Shinhan AI subsidiary, which is probably a good move. Um, and so yeah. Anyway. That’s it. Now then we’ve got this currency drag thing. So the Korean wand has hit 17 year lows, as I mentioned before, and I was trying to, I was trying to work this out, so like the whole a DR thing still does my head in. Um, and how it, there’s some sort of arbitrage thing going on [00:28:00] between shares and listed on the New York Stock Exchange and the Korean stock and ADRs and. There’s some, this, it’s too complicated for me, Tony. I’ve tried, I spent hours trying to understand this and my brain just melted in the process, but. For whatever reason, even if the shares on the stock exchange go up, if the one falls, it can have an impact on your ability to, uh, well, certainly the dividends that you are gonna get paid, the, the yield from it, but also something to do with the, um, value of the shares can be impacted by the fall of the one. Tony: Oh yeah, definitely. Well, I don’t know. I, it’s without going through the balance sheet of the bank, I dunno whether a falling one helps ’em or hurts them because, If, if they’re making loans, like you said before, which I also found out they’re a big player internationally. [00:29:00] So currency’s gonna be mixed, a mixed Yeah. right across their portfolio. So going up and going down, mainly big banks would have a little hedged anyway, but it’s more about what’s happening to their profit when it repatriates into US dollars or Australian dollars or wherever else it’s, um, being bought. Um, and what people think is gonna happen to interest, margins and career. If the dollars. Of the ones, the valuing over there, like seen the RBA or the Reserve Bank in Australia raise interest rates for the first time and it’s coincided with our currency. Increase improving, increasing us is going in the reverse way. It’s dollars devaluating and it’s likely that they’ll cut interest rates over there. So, with banks generally, the general rule of thumb is if interest rates are increasing, the banks do better. They get a better Yeah. better spread on, you know, the, what they have to pay out and deposits and what they can borrow Yeah. So, um, it doesn’t always work that way, but that’s [00:30:00] a bit of a, a rule of Yeah. Yeah. So I dunno how I. I’d have to go through and look at it almost line by line to work out whether a dropping, you would think a dropping currency in Korea would mean interest rates would be cut, which would hurt their margins, which would depress the share price. But a very superficial analysis of mine. Cameron: Well, I tried to drill down into why the one is crashing to 17 year lows and. I think it’s a combination of domestic political chaos and the Trump tariffs. Um, as I mentioned before, president Yung, uh, was arrested. He was impeached and then arrested, uh, after he briefly declared martial law in December of 2024. Tony: Yep. Uh, Wikipedia says, first time it had been declared in South Korea since the military dictatorship of wan. In [00:31:00] 1980, he accused members of the National Assembly of supporting North Korea, but lifted martial law after the assembly passed an emergency motion nullifying the declaration. A few hours later, amid widespread criticism and mass protests and impeachment motion was introduced against Yon. Cameron: The next day, though it fell short of the 200 votes needed to pass. Yun was successfully impeached and su. Bended from his presidential powers In a second vote 10 days later, Yuan subsequently, subsequently became the first sitting president in South Korean history to face an arrest warrant, and in January of 2025, the first to be arrested and incarcerated. So, uh, there you go. He’s currently detained and being investigated for an insurrection, for heading an insurrection and may face either life imprisonment or the death penalty if convicted. Tony: So high stakes gain politics in Korea. um, when you, when you talk about the currency devaluing exact against the US dollar or against the Australian dollar or [00:32:00] Uh, US dollar. Cameron: Yeah. Tony: Yeah. Okay, I haven’t checked against Australian Dollar, but Yeah. Which means it’s actually going down a lot because the US dollar’s been devaluing against a lot of currencies around the world Yeah. Right. which is what has the Donald Trump’s been trying to engineer to boost Yeah. it’s not always a bad thing. So apparently, um, surprising to me because I didn’t have the impression that South Korea had a stable, mature democracy in the first place. This, uh, has shattered its images being a stable, mature democracy, and big money managers have reclassified it as a frontier style risk. So that’s playing into this apparently. Well, Korea does have what they call the corporate governance discount as well. Um, as you said before about the balls, cha balls, whoever you Shabo she balls that. Um, so. I think it’s called Resu in Japan, and it’s called something [00:33:00] else in Germany. But some company, some countries have this history of families building up a business and then cross investing it with each other’s companies. Um, and then what you find is that’s really good, in the GFC type environment because large parcels of big companies are held. By other big companies so they don’t trade. you don’t get big sell offs in share markets. but it does tend to depress things in the good times because you don’t see much liquid float those companies. And as you said before about inheritance tax, the families are gonna run the businesses to suit themselves, uh, in the main. And so little shareholders may have different interests. know, so that, that’ll affect things like how much dividend is paid, depending on whether the family wants income or not. it’ll, it’ll impact capital expenditure at the companies depending on how the families are going. As you said, they, there are sometimes allegations of [00:34:00] collusion because across industries there’ll be the one ownership of many companies and, um, you know, if it, if it suits, uh, the manufacturing. Part of the portfolio to do one thing. It may not suit the banking part of the portfolio to do one thing and all the cross ownerships will get together and agree not to do it. So, know, there’s all those kinds of things. So if you look across the board in Korea, um, they generally trade at a lower than US companies. Um, safe to take and courier’s got some big companies, LG and um, car manufacturers and, uh, those Yeah. if you look at, um, comparisons to US companies, they trade on much lower multiples and the, and the banks, no exception. Hmm. um. You know, I don’t know what the numbers are, but you’d say a, a decent bank in the US might trade on two times book three times book. think this company’s trading on less than one times book, and that’s generally because of this cross ownership of the families in Korea and the corporate governance issues that it raises. [00:35:00] So they often see career as a, as a value investors, you know, um, a place where value investors often wind up, um, investing in because of that discount. Well. You wouldn’t be investing investing in the presidencies because, just to give you an, an indication, I, I mentioned it being a mature, stable democracy. Let, let me run through the list of presidents and what’s happened to them in recent decades. So Hun Duwan, 1980 to 1988, sentenced to death, uh, later commuted for the 1979 coup and the Guang Z massacre pardoned in 1997, RO TW 1988 to 1993. Cameron: Sentenced to 17 years in jail for mutiny, treason, and massive slush funds. Also pardoned. In 1997, Kim Jung Sam went from 93 to 98, was disgraced. His son was in prison for bribery and tax evasion. He left office [00:36:00] during the 1997 IMF crisis. Was replaced by Kim da Jung, 98 to 2003 disgraced. He won a Nobel Peace Prize, but his three sons were all arrested and investigated for corruption during his term. He was replaced by Ro Muon, 2003 to 2008. Jumped from a cliff and committed suicide in 2009 while under investigation for a $6 million bribery scandal involving his family. He was replaced by Lee ung Buck 2008 to 2013, sentenced to 15 years for bribery and embezzlement, notably involving Samsung. Pardoned in 2022 was replaced by Jun High, 2013 to 2018. Impeached in jailed. Sentenced to 24 years for the choice soon still influence pedaling scandal. She was pardoned in 2021 and then Yuk Sun Y who just, he was the first sitting president to actually be impeached and jailed. [00:37:00] So, you know. They seem to have a Tony: stronger Supreme Court over there than say the US does. you know, a lot of those scandals you could say, have happened before in history in other parts of the world, and they generally. under the radar or get off with a, you know, without any sort of prosecution at all, really. Or even if someone does get impeached in the US, it doesn’t seem to count for much. Cameron: Yeah, and I think it’s also part of the, the sort of political structure of South Korea. You have this, the, the presidency is pretty much an imperial presidency. Like they have immense power over the bureaucracy in the economy. It’s like a winner takes all kind of deal. And then you’ve got the show bowls participating on all of that. And there’s sort of a tendency to criminalize previous administration’s, uh, sort of a retribution cycle that they have over there, like a. Combined with a public blood lust for [00:38:00] justice. So, um, you know, I think kind of where the US is heading, you know, it’s, they’re sort of heading down that South Korea model. Let’s, reminds me of, uh, solar and Mabb and Rome. We just behead our enemies and let the blood flow in the streets. Mm-hmm. the one into another tailspin. Um. Then you’ve got a lot of capital apparently flowing outta the country because of the Korean discount. Sort of hampers, uh, goes back to what you were talking about before. A lot of the, uh, retail investors, uh, looking outside of Korea. To invest in overseas companies. [00:39:00] Mm-hmm. Then you’ve got the interest rate gap and the career discount that you talked about, and then you’ve got the inheritance tax that I mentioned and how that plays into keeping prices down. Then there’s this value up battle that I mentioned before. So to sort of combat this, um. Inheritance tax thing where people are trying to keep the values of companies down. The government is pushing through this intervention to basically, uh, force companies to allow the shares to reach a, a real value, like to normalize their value. And they’re doing that based apparently on a, something that they did in Japan. It was a direct copy paste of the Japanese strategy. Tony: say, it reminds me of what Ja Japan, Cameron: I. Tony: done in the last year or Right. And apparently in Japan, they realized if they’re just publicly shamed, [00:40:00] companies that were trading below 1.0 book value, one times book value, um, you know, it was a matter of face it, they would start, uh, buying back shares or, or raising dividends and, and worked in Japan. Cameron: So Korea’s running the same play, basically. Um, they have a three part mechanism. To do it. They have the carrot, the stick, and the engine. The carrot is, uh, you will if, if they. Significantly increased dividends. They’ll see their corporate tax rate drop by five to 10%, and individual shareholders can get reduced withholding taxes on those dividends. The stick is they’ve created the career exchanges. Created a VIP club index, the career value. Index. If a company’s big and profitable but doesn’t return enough cash to shareholders, it gets left out. [00:41:00] If you get snubbed by this index, it’s a reputational blow to the CEO. So they all wanna be part of the value up club. And then the engine is the National Pension Service that I mentioned before, which is the world’s third largest pension fund. Mm-hmm. They’ve been told to use the Value Up Index as the new benchmark. So billions of dollars of forced buying is flowing into the companies that are part of the Value Up index. It’s pretty smart. You know, I Tony: It is very smart play, right? A again, I love these regulators in Korea. We should get them over here. Some of, you imagine if the ASX did oh, some of our prime ministers going to jail or having to commit suicide. Fantastic. I can think. I can think of half a dozen. ASX naming and shaming companies Cameron: I know, right? a value op club Yeah. The Value Up club. By the way, Tony: did you see The ASX CEO got sacked I did. Yeah. Yeah. [00:42:00] Um, so anyway, um, shin, idea. yeah. Shinhan is trying to be the valedictorian of the value up class, so Biggest Cameron: yeah. Tony: The biggest value in the Yeah, V. they’re trying to be good students. They’re aggressively buying back shares so they can stay at the top of the value up index. Um, but you know, so it, there’s, um, it’s a war going on between the government and the shy bowls apparently, that are the big investors, uh, that, that wanna keep this down. Cameron: So, you know, whether or not the government wins or the shy bowls win and, um, we have more presidents committing suicide are going to jail for trying to do this. Who knows? But as we’ve seen with, uh. The 28% increase in career electric power since we talked about it, which I assume is something to do with this value up play. Um, also [00:43:00] just the basic economics that we talked about on that show, they’d been forced to keep energy prices low and they were reevaluating, et cetera, et cetera. But it’s all interesting. It’s all. It’s very complicated. You know, it’s like all of these stocks that we do in the American market, uh, a lot more going on than there is in your typical Australian business. Tony: Yeah. However, it, it does remind me of, of Australian banks, I mean, we’ve got four banks, they’ve got careers, got four banks. big four. This is depending on the metric, you measure it, this is number one or number two. So it’s like the Commonwealth Bank in Australia and probably Mm. like JP Morgan Chase in the us. It everything. Retail, banking, credit cards, business loans, uh, wealth management. Yeah. It’s a one stop shop. Yeah. And a large market Yeah. And unlike Australian banks these days more active in international markets, Yeah. Australian banks have struggled to make much of a play overseas. [00:44:00] So just, uh, I did the amended scoring because, so they report encyclopedia in one. So I had to, uh, adjust some of our numbers, particularly the EPS and the future EPS. Cameron: Uh, they came down a little bit in SCORE when I did that, but not too much. So basically they had a QAV score of zero per 0.24. They were sort of top 10. Um, a lot of the ones in the, the top 10 this week we already own or already talked about. Um, they were. Still on the list, uh, including some of the ones we’ve talked about in recent weeks are still up at the top. So 0.24 average daily trade is, uh, what’s that? 16 million, 17 million, something like that. Price to operating cash flow. 3.26. That’s good. It’s good. It’s not as low as some of the ones that we’ve had recently, but it’s, you know, it’s in the middle of our Tony: That’s Cameron: thing. It’s pretty low. Tony: a, for a big bank operating in a near monopoly. [00:45:00] able to shrug off corp, uh, you know, government fines and legal challenges and all the Yeah. and you get it for three times cash flow. That’s Yeah, yeah. Good point. Wikipedia give ’em a quality rank of 57, so we only score over 60. They don’t score for that, but they do score for stock rank, uh, over 90 and an F score over 4.5. We couldn’t score them for our IV number one. Uh. I readjusted. The IV number one was 33.9, and the share price had closed at about 69.83. Cameron: So they’re much higher than our IV number one. But our IV two adjusted for the exchange was $71 18. So it scored for that, but not for, uh, double that. Price is, uh, less than Book. Price is less than Book plus 30. The price to book is, uh, what did I say, like [00:46:00] 0.85 is their latest price to book. So it’s, Tony: trading at less than one times a Cameron: yeah. Tony: book. You talk to anyone in Australian banking circles and they will say, if you can buy a bank for less than twice book, it’s a, you know, do it. It’s a great Really? Okay. Hmm. Uh, so I scored ’em for those, not a new three point upturn. Um, but the prop calf is obviously less than seven. Forecast IV is, uh, not better than double price. Yield is not higher than bank debt. The PE is, uh, not less than the yield. Growth over PE is not greater than 1.5, but I ended up with a. Cameron: Quality score in QAV of 77%. After the adjustments, 10 outta 13, they scored four. And as I said, uh, a final QAV score of 0.24. So messy, very messy, Tony, but cheap. Messy but cheap. I’ve married a few women like that over the years, but um, I [00:47:00] thought I’d learn my lesson. Tony: They weren’t Korean, They weren’t? No, no. I No, a, I’ve had a couple of Korean girlfriends, but, uh, didn’t marry them. Cameron: No. So what do you think Tony Tony: I Cameron: really. A lot of, a lot of Tony: value. Investors will look for what they call a catalyst before they invest. So they as a way of protecting them from buying stocks, which are cheap for a reason. They’ll say, I know this is cheap. I know this is changing. That’s the catalyst. Now it’s time to invest. And I think what you’ve described as the value club or the value up process is exactly that catalyst. It’s a great time to invest in a company like this and possibly even all Korean large companies as well. Cameron: Wow. Okay, well there you have it folks. Tony gives it the thumbs up. I wasn’t sure about this one. I thought this is the one he was gonna hit on the head. No. Too dirty, too messy. But uh, all. I tell you what, if you look at their share price, it’s been going great [00:48:00] guns. Actually, it was trading as low as like $32 a year ago. Now it’s up around 70 bucks, so it’s, Tony: you go. I reckon that’s the value up. Yeah. Change. but still coming in is very cheap on our buy list, you know? Yeah. thing I should also mention too is that Korean companies traded a discount because of North Korea. So they’re seen as, you know, a potential, something could come out of left field potentially to hurt the economy or worse. Um, so it’s, it’s almost straight into the war zone discount. N not quite in South Korea, but it’s, you know, this, it’s seen as having a, a level of hazard investing in Korea ’cause of that. Interest. Okay. Well that’s it Tony. That’s all I have. We did a veil of Robert Devale on the other show. I guess we can mention that briefly. It’s, um, great American actor. Sadly, well, not sadly, he was 95. Like he. You know, life. great life, great career. As I said [00:49:00] on the last show, he, I looked at IMDB and he was working up until a couple of years ago. Cameron: He was still working in his early nineties. He’s one of those guys that, you know, you put, you could put in the crotch of the old man role, like a Gene Hackman, or I don’t know, whoever else. Lots of um, uh, Laura DE’s, dad, Bruce de, all of those sorts of guys. Yeah. exactly. Yeah. Tony: Yeah. Was he was, I think he was in the crutch of the old man role, wasn’t he in, was it Stone Lines? The one with, uh, Michael Kane. Where they, um, used to sit in their front porch and shoot at anyone that tried to visit them. Cameron: I hadn’t seen that film. That sounds good though. I think it’s developed. That’s Yeah. It’s good one. Yeah. And, and like Clint, yeah, there’s lots of crochety old man roles, I guess, in Hollywood that he got his fair share of, but um, yeah. What a tr tremendous career. Tony: Great actor. Great Santini, um, Kilgore in Apocalypse Now. Hmm. The lawyer in, uh, what was his name in, uh, Tom. Tom Hagen in The Godfather. Yeah. I mean, [00:50:00] you know, lots of classic roles that he just made his Yeah. Mm-hmm. Uh, well that’s it, Tony. We’ll see what happens this week. But look, you know, I, I, I think it’s fair to say, based on the pulled porks that I read out before and our portfolio that QAV works in Cameron: the US market. Tony: And, and probably the Korean market too. Yeah, no, it does. I agree. Cameron: I mean, you know, I know before we started the North American show, we were worried about, you know, the, the accounting systems being different from the Australian and the reporting schedule’s a bit different and this, that and the other. But at the end of the day we’re, it’s still. Finding stocks that, uh, generating cash that we can buy cheaply. Um, and that, Basic business yeah, basic, yeah, basic investing. We are finding Hmm. companies with mass, with gravity. Tony: The only [00:51:00] question i’d I’d still have unanswered and I don’t know the answer to, and it’d be great if someone could. Yeah. Um, right in from the US is whether these overseas companies are causing a problem and, and, providing a valuation discount as well. ’cause people just either can’t do it from a tax point of view or there’s some other stopping them from taking, uh, making investments in adr. I, you know, maybe pension funds don’t allow it. I don’t know. So we might even, you know, just flag them like if we have a US. company, um, flag it, in the portfolio or something like that so we can see if they perform differently to the ADRs. Cameron: Yeah, I’ll make a note of that. Good job. Tony: Hmm. Alright, well thank you tk. Thank you for giving that one the thumbs up. I’ll add that to the live portfolio this week and we’ll see how it goes. Cameron: Have a good week. Tony: Good. All right. Cheers. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Feb 20, 2026

51m
30

TUSK – The Cobra’s Bite – QAV AMERICA 39

In this high-stakes episode, Cameron and Tony celebrate a “bonkers” run for the QAV America portfolio, which is currently outperforming the S&P 500 by nearly double. After reviewing news on Seneca Foods (SENEA) and the curious 15% share price drop for Regional Management (RM) following record earnings, the duo dives into the murky waters of Mammoth Energy Services (TUSK). What begins as a look at an energy services “roll-up” quickly transforms into a true-crime corporate thriller involving a $1.8 billion contract, a FEMA bribery scandal, and a forfeited 40-foot luxury catamaran. They analyze whether TUSK is a “mammoth in the making” or a “wild pig,” weighing its current status as a cash-heavy “stub” with zero debt against its history of “dirty stories” and its new pivot into aviation rentals and fiber optics. — Episode Timestamps [00:00:00] Intro: Market “conniptions” and the US sneezing on Australia.[00:00:50] Portfolio Performance: The dummy portfolio hits 103% since inception (Highlights: WLFC, BLX, ESCA, GASS).[00:05:40] Stock News: SENEA (Seneca Foods) Q3 results show improving margins.[00:06:20] Stock News: RM (Regional Management) beats expectations but the share price craters.[00:07:50] Deep Dive: TUSK (Mammoth Energy Services) Transcription   Cameron: [00:00:00] Welcome back to QAV America, Tony. This is episode 38 of QAV America. Been a turbulence week, weak in the American markets. Bitcoin is down, gold and silver are down. New Fed chairman nominee sell. America Trades are still going on. The president of the United States are suing the United States government for $10 billion. Nothing to see here. Jeffrey Epstein. Millions of files released. Oh wow. It’s a lot to keep up with. One of the good things about QAV is we don’t have to keep up with it. Tony Kynaston: correct and, and of course the Melania Trump, uh, premier. Cameron: Uh, and, uh, Jeffrey Epstein, not, not in it as, from what I can tell. I, I don’t understand. Anyway, Tony Kynaston: Bezos. You [00:01:00] think $40 million would give you a walk on cameo or you’d it in front of the blue rocket or something, wouldn’t you? Cameron: meanwhile, Elon Musk is merging SpaceX and X ai, uh, news is today, Tony Kynaston: Uhhuh. Cameron: I think SpaceX’s building is buying Twitter or taking over Twitter and x ai, which is part of that, uh, something, something I don’t understand. It’s all going on. Microsoft’s share price are down. Ai, the Mag seven share prices are down, but they’ve been down before. Tony Kynaston: guy? Cameron: Well, I’m glad you asked Tony. Our portfolio is doing Doing okay. Doing okay. Let me, let me bring it up and we can talk about it in some detail. I did have to sell, uh, a couple of stocks out of QAV Light, the new light portfolio yesterday. I’ll get into that in a second. But the [00:02:00] dummy portfolio that I’ve been running on in the US since September, 2023 is, has returned 98.41% since then. So it’s doubled in little over two years versus the s and p 500, which is up 57% over that same timeframe. So not quite doing double market, but pretty close to double market and. It’s really boomed since, um, well let’s see, as of 19th of November last year we were neck and neck. We’d been up, we’d come back. We were neck and neck with the s and p about November last year. So it’s broken away since then. Doing very well the last couple of months, two months, two and a half months, absolutely killing it. Um, [00:03:00] just to give you a sense, our rockstar Willis Lee’s finance company currently sitting at about 300% gain Innova, which is actually in my news items today. Uh, I’ll get to that in a minute. It’s up 188%. Euro, CS ESEA is up a hundred percent. Uh, BLX Foreign Trade, bank of Latin America up a hundred percent. Regional management are up 66%. Gas, stealth gas transport, shipping company up 60% UBS also in the news today, up 55%. So yeah, doing, doing quite well across the board. The QAV light portfolio, as I mentioned, I sold a couple of stocks this week. I just decided they’d hit their three point trend line and I’d given up, I dumped them. So that was, um, A MTD idea, dear that we talked about a little while ago. Calvin Cho’s Company, they [00:04:00] breached their three point trend line and spider net and, um, XL PR infrastructure, X-I-F-R-Z-A. Um, they also breached their three point trend line. So rules are rules. Tony Kynaston: yeah. Cameron: thing about QAV, we have rules tell us what to do. Sold those. And I have bought, uh, the stock that I’m gonna do a deep dive on today. Ec eco petrol sa out of Colombia. Tony Kynaston: Not, Cameron: am, Tony Kynaston: not eco petrol as in it’s green petrol. It’s Ecuadorian petrol, maybe Cameron: no, they’re very eco, very eco-friendly, very, oh, no one has ever been more eco-friendly than these guys, Tony. They’re the most eco-friendly company you’ve ever seen. Tony Kynaston: Or company. You Cameron: Well, they are Tony Kynaston: don’t Cameron: see. They are, Tony Kynaston: look at those wells over there. [00:05:00] Look over here. Plenty of windows over here. Cameron: listen. As Barry and Stan would say, um, if you don’t have oil, you don’t have energy. If you don’t have energy, you can’t, you know, you can’t drive tractors to plant trees, Tony Kynaston: Oh right. Cameron: you know, yeah, it’s, it’s oil is there to grow trees. Um, couple of news updates in Nova I mentioned they’ve come out with their Q4 figures revenue of 839.4 million, up 15.1%, year on year, adjusted EPS of 3.46 or $3 46, exceeding estimates by 9.1%. Record originations in small business lending for eighth consecutive [00:06:00] quarters, and pending acquisition of Grasshopper Bank. Aimed at expanding market access and simplifying regulation. Um, I watched a Bruce Lee documentary over the weekend Be Water, and of course they talked about his script that he wrote called Warrior and took to Hollywood about, uh, Kung Fu Master Walking the Earth. And they were like, nah, don’t like it. And then they came out with David Carradine and Kung Fu as Grasshopper. Tony Kynaston: I wonder how Cameron: They, Tony Kynaston: how, how many writers there are out there who submitted things to Hollywood got rejected, and then five years later, see it up in lights on the big screen. Cameron: well, the thing is with Bruce, uh, Bruce knew that the big concern was they, they didn’t want him in it, right? They, they, they didn’t think you could have a Chinese American starring [00:07:00] in a role in 19. 70, 71, whatever it was. Sad thing about the documentary is a, after he got frustrated with his inability to break through to anything in Hollywood, went to Hong Kong, made four movies in two years, and then like five days before enter the dragon was due to launch, uh, which was kind of a co-production with Hollywood and Raymond Chow. Uh, he died and, but then they show you the opening of it at the Groman’s Chinese Theater in la Just Bruce Lee everywhere. Massive. Like his dream he had finally done it. Had to go to Hong, back to Hong Kong. Cracked the whole Hollywood thing downtown. Groman’s Chinese Theater. La Bruce Lee is Stars Inn. And he wasn’t alive to see it. He died five days before, you know, he had [00:08:00] achieved his. And you know, you look at him today and he really did have such a huge influence on the, the, there was a girl at my Kung Fu studio last, oh no, she said she saw a Nip Man film. She came along, but you know, his, his influence on people studying martial arts and on martial arts in films and the perception, the portrayal of Asians in American TV and cinema. Anyway, how’d I get onto that? Grasshopper bank. Tony Kynaston: no idea. Cameron: Grasshopper Bank Kain of Kung fu, uh, UBS group also, uh, uh, again, announced their Q4 uh, earnings with projected increase in earnings per share, despite a decline in revenues year over year. Uh, earnings estimate is 25 cents per share, indicating an 8.7% increase year over year quarterly revenue expected to decline to 11.62 billion. Strong performance in global wealth management and investment banking is [00:09:00] anticipated. So little bit of a mixed bag there for UBS group. Um, so we, we talked a little bit on the Australian show this week, Tony, about gold and Bitcoin. I did have a laugh at Bitcoin’s expense. Bitcoin has doubled in value over the last five years. It went up and then it came back. Gold and silver and the process of coming back, but they’ve still, you know, had a really good run. But we’ve talked before a lot over the years about these things as a store of value. And I was having this discussion with somebody at Kung Fu the other night. He asked me about Bitcoin, you know, what do you think about Bitcoin? And I was like. You know, it’s a pump and dump. Pretty much. That’s my take on it. Um, but this whole idea of, uh, a store of value, you know, despite what you might think about the inherent properties of cryptocurrencies, uh, versus fear [00:10:00] currencies or the inherent value in gold, uh, something that can be used in jewelry or something that can be used in electronics or a store of value. The challenge that I have, I always try and point out to people as somebody who has learnt from you to try and think about investing rationally, is the question I have to ask myself before I can invest in anything is what is the value of one unit of this thing, whether it’s a share or a coin or a gram, and can I buy it at a discount to its value today? Um, and I can’t figure out how to come up with a value for a coin or a gram of gold. What is the inherent value? I mean, it’s essentially the price is the only thing that I have to measure it on. And so then the question is, well, how do I know if that price is high or [00:11:00] low? And I, I, there’s no, I have not found an answer to that question. How do I tell if that price is high or low? Then you get, well, there’s a limited supply of it, and as I always say, there’s a limited supply of autograph photos of my high school graduation too. Does that mean that they’re, they have intrinsic value? Probably not. You know, these things have the value that the market puts on them. That’s it, which is flaky. Tony Kynaston: Yeah, for sure. And I mean, there is that collectible argument, um, that of limited supply. But you know, if, like, if Air Jordans put out a range of sneakers, they get snapped up. But next year they put out a range of different sneakers that get snapped up. What’s the resale value of the first op they put out? Um, it’s like they create their own supply demand, the underlying value of the sneakers is probably a hundred bucks. So, um. Value is what you get. Price is what you pay. It’s the, it’s the same. [00:12:00] Gold only interests me in terms of gold miners, um, because as gold, the gold price rises, they make a bigger margin. So you can work out the value buying a gold mining company. You can’t work out the value of gold itself. And more and more these days, it’s being used by central banks to, um, hedge their holdings of US treasuries. Um, so as the US dollar drops, they buy gold so they can try and keep their balance sheet intact. Um, and as we saw on Friday when, uh, new fed chair was uh, nominated, people thought his background was a hawk and that he might not. Lower interest rates as quickly or as, as much as the market and Donald Trump wanted, therefore gold came down in value. ’cause uh, people predicted if there are less interest rate cuts, there’s gonna be less central bank, um, buying of gold. it seems to have stabilized after the weekend. And [00:13:00] I dunno if that’s because the Fed chair elect has come out and he’s gonna cut rates or the market thinks he’ll cut rates to keep Donald Trump happy and to keep his job But, um, right. Underlying goal itself has really has no value except as manufacturing input into Julian Electronics, which has some value. But, um, uh, you know, that’s, it’s much lower probably than what the price of gold is. Cameron: Yeah. What’s the value of a gold necklace? Well, whatever somebody’s willing to pay for it really. Uh, and the whole Bitcoin thing, like bitcoin’s come off roughly 30% since, uh, since it’s highs. I. But at the time when it was selling for its highs, everyone was saying it was buy and it was gonna go up forever. It was gonna be a million dollars a coin or whatever. So like, why has it come back by 30%? The people that are selling it obviously don’t [00:14:00] believe that, or they wouldn’t be selling it. Uh, I mean, look, it is true that sometimes you are, you are forced to sell things that you do believe is gonna continue to go up in value for a variety of economic reasons. You need the, the cash to pay a bill or to cover something else. You need it to hedge something. Tony Kynaston: Mm-hmm. Cameron: Or, you know, you know, your boss is forcing you to take profits to make a balance sheet look good or to pay a tax bill or whatever it is. There are reasons why a, a purely rational person will sell something even though they think the value might be higher, but. The market should be snapping it up when they’re selling it. If everyone really believes that all of the advocates should be buying it up when it’s being sold and they’re not. So the whole artifice that the story is built on is just a sham. Uh, but, you know, try telling that to the, the pumpers, ah, you know, I genuinely believe [00:15:00] that they, they sell it, let the price go down. Then they do another pump cycle. Buy it again at a lower price, pump it up, let all the mums and dads get caught up. Then they trick them into selling it, and then they buy it cheaper and re rinse and recycle. Tony Kynaston: And now it’s being done at, at an industrial scale because Wall Street are allowed to, uh, issue ETFs that hold bitcoins. And I suspect that’s what has happened, that there was a tremendous amount of buying of bitcoins when those ETFs were set up about a year ago when they became to do so legally. And now that buying is dried up and Bitcoin prices dropped. And you’re right, there might be some more ETFs set up to soak up what’s, you know, the up Bitcoin at the price and we’ll go through that same cycle again. But that’s all. There’s, it could may as well be called paperclip. Really that’s all people are doing. Look, there, there are some people who use it as a money exchange. So if you know you’re visiting Venezuela at the moment, Bitcoin [00:16:00] might be the best way to transfer money and out of the country. I, I would think that’s a limited use for Bitcoin. I, I actually thought that would be the best use of Bitcoin going forward, but it’s just too damn unstable to be able to, to use it as a currency exchange. Maybe when stable coins become more prolific, you can use it to disintermediate exchange. Um, there’ll always be some friction in that market, but perhaps less with Bitcoin. And the only other use is being on the black market to, for criminals to trade or to buy drugs or worse. Um, so I, I Cameron: Autumn Tony Kynaston: any other use for it except pump and dump. Cameron: Gussy favor with presidents of large economies. Uh, the president of the United States is suing the United States government for $10 billion. Tony, Tony Kynaston: You’ve muted yourself. Sorry. Cameron: no, I didn’t mute myself. My computer muted me so much for my attempt in a reboot. Tony Kynaston: You shouldn’t talk So Cameron: Yeah, Tony Kynaston: about the US government? Cameron: [00:17:00] CIA is muting my microphone. Tony Kynaston: Mm-hmm. Cameron: Well, let’s get into talking Dispar disparagingly about the Colombian government then just for a change. Um. Tony Kynaston: Well, well, I, I’d like to go on the record saying I love the Colombian government. I don’t, I don’t want to, don’t wanna end up like the last scene in Scarface, so I’ll, um, I’ll let you talk about them. Cameron: The current Colombian government, uh, is okay, it’s previous Colombian governments that might have been the issue. Well, listen, we’re gonna talk about ec eco Petrol high on our buy list this week. Not as high as I thought they were initially, because they had to redo the numbers to account for the fact that they were report in Colombian peso. Um, but once I redid some of particularly the earnings per share numbers, which changed our internal values, uh, intrinsic valuations, um, score came down a little bit, but it still would’ve been top 10, um, in our bio list. So I, I’m using it anyway, [00:18:00] but just to let people know if they are looking at the numbers in Wikipedia that you have to, uh, adjust for the Colombian peso. I think the Colombian peso is currently worth 0.0, 0, 0, 0 0 2 US dollars. Something like that. Tony Kynaston: Right. Cameron: it out. Yeah. So, um, interesting company. This basically goes back to the early 20th century when, uh, the President of Columbia, Gus, no, not Gustavo Petra, he’s the current guy, or Raphael Reyes issued something called the DeMar Res Concession. He was a general, nearly went to war with the United States over Panama, decided at the last minute, probably not a good idea, to go to war [00:19:00] with the United States over Panama. So they pulled back, this is before he became president. He became president. Tony Kynaston: a, he was a president, was he? Cameron: Well, they were gonna go to war over Panama. Panama was part of Columbia. Panama was claiming their independence and Columbia was gonna fight for it. Then they realized that the United States was gonna probably enter on the side of Panama, and they decided, Hmm, maybe not then. Okay. So he did a deal with the United States instead, he came up with something called the Demares Concession, which basically allowed an American subsidiary of Standard Oil Company called the Tropical Oil Company. Pretty sure I used to, Tony Kynaston: a Cameron: I used to use that to get a suntan in the eighties. Yeah. Smelled like pineapple or No coconut. Coconut oil. Yeah. Yeah. Don’t think it was coconut oil, but it smelled like [00:20:00] coconut oil. Uh, yeah. He issued them the DeMars concession in the early 20th century. Uh, he gets a mention. By the way, Raphael Reyes in Gabrielle Garcia Marquez’s, 1985 novel Love in the Time of cholera. You ever read that? Tony Kynaston: No, I’ve read a hundred years of Soli shoe, but not the other one. Cameron: Did you like that one? Tony Kynaston: I did. Yeah, that’s fine. Cameron: I loved it. Loved it. Yeah. Uh, loved love in the time of cholera too. Terrific. Um, what does he, what do they call that? It’s like, um, his style. Magical realism. Yeah, it’s great. First time you read it, you’re like, what the hell is going on? Yeah. No really good stuff. Uh, good friend of Fidel Castros, Gabriel Garcia Marquez. Tony Kynaston: another magical realist Cameron: Well, he used to send [00:21:00] his manuscript drafts to Castro, who would correct them and send them back to him. Castro was running a country. Tony Kynaston: I was gonna say he had enough time to do, to read the, Cameron: Yeah, Tony Kynaston: It wasn’t sure. It wasn’t outsourced Cameron: I’m pretty sure. Tony Kynaston: chat, Cameron: he would, Tony Kynaston: the script for me. The corrections. Cameron: uh, yeah, he would, he would mark it up and send it back to him. Uh, astonishing. Anyway, so that concession ended in 1951 and they sort of nationalized the oil and this company has been around ever since. And, um, it’s been. You know, a difficult time in Columbia, let’s say the last 75 years politically, economically [00:22:00] hasn’t all been smooth sailing. But this company is basically the national oil company of Columbia, and they’ve got a few challenges at the moment. Um, the current administration under President Gustavo Petro, who’s been the president since 2022, he became the first left wing president in the recent history of Columbia. Anyway, former Gorilla Fighter age of 17, he was a gorilla fighter. He’s clamping down on the oil industry, which is, uh, having an effect on eco petrol’s share price and, and the consideration of his future. But they’ve, they’re making some investments in other areas that might get them out of oil just in time. Tony Kynaston: Hang on. Cameron: So Tony Kynaston: own still still own a fair bit of eco petrol? Cameron: yeah, they do, they own 88 and a [00:23:00] half percent of it. Fair bit, but it was floated, uh, in 2007 on the Colombian Exchange and then later on the New York Stock Exchange. So, you know, bit of both. Bit of both. Best of both worlds. Yeah. But it’s really cheap and um, some of that has to do with the fact that Gustavo Petro, I keep thinking gustavo free becoming the President of Columbia. That would’ve been a good spinoff for, for breaking Bad if they hadn’t have blown him up at the end. Um, I. He is an outspoken critic of fossil fuels. One of his campaign. Tony Kynaston: percent of an oil company. Cameron: Yeah. So, Tony Kynaston: Sorry. You just mark it. Knock at your worst asset, don’t you? Yeah. Cameron: he’s a believer. [00:24:00] Tony, you are the last person Tony Kynaston: or Cameron: in transitioning away from oil. The green future. Sustainable. Tony Kynaston: in the world. Cameron: Wow. You’re in a Tony Kynaston: future. Yeah. But we have to transition. Could take a while. This is like a, it was that Kiwi comic to come on the, uh, seven 30 news. Uh, Fred Cameron: John John Clark. Tony Kynaston: Yeah. Yeah. Yeah. We’re, look, I run an oil company, but we’re transitioning. We’re very eco-friendly. Cameron: Yeah. Well, you know, they’re eco-friendly. It’s in the name Tony. Tony Kynaston: Yeah. Cameron: Yeah. Like Tony Kynaston: So is that, is that the change that, what’s his name? Pedro Garcia has made to Cameron: Gustavo Petro. Tony Kynaston: Gusta. Cameron: It’s like Elon Musk tweeted the other day that, you know, the Nazis were socialists ’cause it’s in the [00:25:00] name, the National Socialist Party. You know, they were must have been socialists. Tony Kynaston: Mm Cameron: Any who, they were like, this is the guy that we’re letting determine the future of humanity with his AI and his robots and his rockets. Really? Tony Kynaston: mm Cameron: That’s his, uh, that’s his, uh, logical bloody frame of train of thought. Any who? Tony Kynaston: he’s a big troll. Cameron: Yes. He’s a big troll. Gustavo Petra, on the other hand. Is forcing eco petrol to liquidate their oil business into a clean, green Tony Kynaston: Really. Cameron: machine. Well, yes. Slowly though, Tony, slowly, slowly, Tony Kynaston: Yeah. It’s a period of transition. Ooh. Cameron: we will get into the transition in a minute. Um, they, they’ve had a number [00:26:00] of, um, scandals as you would possibly imagine being an oil company in Columbia. Um, did you read about the Ika scandal? The Tony Kynaston: I Cameron: heist? Tony Kynaston: No. Cameron: this is a, you love this one. Um, 2007 Eco Petrol launched a modernization project for the Nia Refinery known as Ika. To double its capacity. They got a contractor in that provided them with a lump sum, turnkey quote. Uh, contractor takes all the risk. It was gonna cost, I think, 3.8 billion US dollars. Uh, three years into it. The board switched it to a cost reimbursable model And the contractor, Chicago Bridge and Iron basically ended up with a [00:27:00] blank check to, to. Take as long as you want and cost as much as you want. And we’ll foot the bill, um, based out of Texas, despite the fact that it’s called Chicago Bridge in High, I think originally out of Chicago. Tony Kynaston: there. Cameron: Yes. Yes. Well done. Congratulations. Um, yeah, so it, it, it changed and instead of costing 3.3 billion, it cost over $8 billion for this project and represented roughly 5% of Columbia’s national budget at the time. Tony Kynaston: Oh dear. Cameron: Um, and what made it a sensation weren’t just the overruns, but the type of spending that the comptroller general uncovered. [00:28:00] There was about $16 million spent on prostitution services and social escorts for executives and contractors often build as labor relations. Tony Kynaston: $16 million. Cameron: Gotta keep, gotta keep the executives happy, Tony. Tony Kynaston: how many? How many hookers are there in Columbia? $16 million. Cameron: And what do they charge? You know, you imagine what your average Colombian hooker charges and then figure out how much of that you get for $16 million. Tony Kynaston: Originally they had a fixed price contract, but they moved to, uh, cost. plus Cameron: Oh, cost plus hookers, uh, bills were found for luxury spa treatments, high-end alcoholic beverages, and no-show jobs where people were paid to do nothing while the project sat idle. People who have [00:29:00] watched the Sopranos know how Tony Kynaston: of as well. Cameron: knows how that works. Yeah. So, um, multiple former eco petrol CEOs and directors were indicted for unfair administration and falsifying public documents, and an international arbitration tribunal in New York ruled in June of 2023 that CB and I was grossly negligent and ordered them to pay ref a car over a billion dollars. USD. Tony Kynaston: Is that Cameron: So well, well, CB and I’S parent company McDermott filed for bankruptcy. So Tony Kynaston: Yeah. Cameron: yeah, that’s, they’re not seeing that money any time soon. So, um, when we did A-M-T-D-I-D Tony, we talked about the concept of a spider net. Um, [00:30:00] these guys were a bit of a spider net eco petrol. They’re becoming a spider net. Yeah, spider net. It’s working so well for A MTD. So let me break down where these guys are getting their money from and where they’re transitioning to. Despite your unfounded cynicism. They still got the oil Tony Kynaston: my cynicism has been a finely honed weapon in my arsenal over many years. Cameron: weapon in your what? Tony Kynaston: Arsenal. Cameron: Oh, arsenal. Former Shell Senior executive. Yeah. No one to talk. Tony Kynaston: the oil industry. They’ve been transitioning for a long time. Cameron: Uh, so the most of their money’s still coming from oil. They still produce 750,000 barrels of oil a day. Bowed, uh, still have the rubles and the kaon fields, [00:31:00] but they’ve got another little asset called cite, C-E-N-I-T, cite, which is the toll road of moving any oil around Columbia. Basically, it’s a wholly owned subsidiary that owns the pipelines of oil in Columbia. If you drill oil in Columbia, you basically have to pay eco petrol to move it. They’ve got a monopoly. And the great thing about this is it doesn’t really care what the oil price is. Um, they still get their margin, so it’s way more stable than your typical oil driller. Basically, you have three branches of the Andes Mountains dense jungles, limited roads. Moving oil by truck is prohibitively expensive and dangerous, so the only way to get it around is through the pipelines and they own all the [00:32:00] pipelines. So that’s, uh, a good big money earner for them. Tony Kynaston: monopoly, Cameron: Yes. Good. Uh, a moat, we don’t use the monopoly word in value investing, Tony, we just call it a moat. It’s much more for the other M word. It’s shorter. Sounds better. It’s a moat. Tony Kynaston: a motor oil, Cameron: Yes. Tony Kynaston: on fire if when the vandals get close. Cameron: And under Colombian law, oil transport is considered a public service. So is legally required to provide open access to its pipelines to any producer as long as they pay the money. So you pay the money, he gets to dance in our pipelines. Um, the checkmate though is at the ports, the, the pipelines end at maritime terminals. And [00:33:00] Eco Petrol slash Suneet owns the majority of the storage and loading facilities. So. Even if you were to build your own pipeline, you’d still have to pay eco petrol to store the oil and pump it into a tanker to get to the other end. So they’ve got all of that stitched up. And then the pivot, the transition in 2021, they bought 51.4% of ion, uh, the national grid of Latin America, ISA high voltage transmission lines in Columbia, Brazil, Chile, and Peru. So they’re using dirty oil money to buy electricity monopoly. Basically, it’s the lifeboat for when the oil runs out. They’re gonna control the power grid of Latin America Tony Kynaston: how is the power generated in Latin [00:34:00] America? Cameron: rainbows and, and, uh, thoughts and prayers. Tony. Tony Kynaston: Right. So they could be transiting from oil to coal or, or gas. Cameron: Wind. Lots of wind. Tony Kynaston: right? Cameron: And, um, Aztec, uh, shamans. Tony Kynaston: Pyramids. It’s pyramid pout. Cameron: Shaman’s, again, a tap into, um, shamanic, uh, energy. Lemme tell you a story. So my son Taylor, uh, was back from LA this week for a couple of days, and he told me, he said he, he said, look, there’s this girl that reached out to him that wanted to catch up with him. He caught up with her and, um, they’re having a coffee and she’s an entrepreneur. She owns a, she’s buying a magazine, Hollywood Reporter in Australia. Tony Kynaston: okay. Cameron: and, [00:35:00] uh, she’s an Aussie, but based in LA I think, no, this was in Sydney. You caught up with her in Sydney actually. And, um. She’s doing all this stuff. And then he said, wow, you know, she’s only same age as him, mid twenties. And he’s going, you’ve accomplished so much. How? And she goes, well, when I go see my charman, uh, we do all of these, uh, mushroom trips and I get to speak to my, um, higher evolved, uh, self, and it tells me what I have to do, and then I just go and do it. So I just go, I have meetings with my shaman and I do my, have this trip and, uh, do acid or mushrooms or whatever it is. And then, you know, I find out what I have to do for the next year and I come back and I do it. And then I, and I said, was she messing with you? He goes, no, no. Totally straight face. Totally straight face. Tony Kynaston: attract high quality people. Cameron: [00:36:00] And he is like, well, obviously works. I, maybe I need to go meet with her shaman. She’s doing quite. So, um, they bought, so this is the bit that I don’t understand. Eco Petrol bought this from the Colombian government. So essentially the government owned oil company bought this stake from itself, Tony Kynaston: Like suing, is it like the president suing the IRS? Cameron: the moving money from the left pocket to the right pocket. Tony Kynaston: Mm-hmm. Cameron: Um, but whatever, Tony Kynaston: Yep. Cameron: for investors in ec it means that they now have an asset that, uh, could mean that they have a future beyond oil. Tony Kynaston: So they have Cameron: So. Tony Kynaston: monopoly and they have the electrical grid monopoly. Cameron: High voltage [00:37:00] transmission Monopoly. Yeah. Yeah. Tony Kynaston: All right. Cameron: Which makes it, Tony Kynaston: two more houses and I can put up a hotel. Cameron: it’s a bit like that. Yeah. May fuck lane, they just bought, I don’t know if I ever told you about this, where I play Monopoly with Fox. If he doesn’t get to buy Mayfair and Park Lane, he quits. He goes, that’s it. I’m outta the game. Like, because that’s his whole strategy. He won’t buy anything until he gets Park Lane and Mayfair. He buys them. Then he just keeps doubling down, doubling down, doubling down, and putting hotels on. If I buy them, he is like, ah, I quit. He just, he, Tony Kynaston: a bad strategy. Cameron: yeah, it, it, it’s worked for him many times, but if he can’t control the real estate, he just doesn’t wanna play. That’s it. I’m outta the game. Um, so anyway, bottom line is they’ve bought these things. It’s sort of a strategic pivot for them and. So despite the fact that they’ve got a bit of a turgid history and, uh, the president [00:38:00] of the country seems to be forcing them to get out of oil, getting the oil business out of oil, they’re, they’re sort of spending serious amount of money to transition into this new thing. And they still have the pipelines for when, while the oil is still running. They recently, Cho Cho, they recently cho, changed auditors from Ernst and Young to Deloitte, unlike A MTD, uh, that we talked about, not a strip mall accountant. Um, and there’s also something called the FEPC, which is worth, uh, understanding The Colombian government subsidizes gasoline for its citizens. They don’t often pay eco petrol cash for this. They get paid in receivables or delayed transfers. So Eco Petrol is essentially lending the government money to buy its [00:39:00] own product. Um, so there’s some complicated stuff with the financials that makes it hard to, it’s hard to track, Tony Kynaston: That does go on in the oil industry. From my experience, you, you can get what’s called post David checks, so you deliver, you’re basically delivering on credit and then getting paid afterwards. Cameron: right? So you’re basically buying a, a bit of a spider net of a company. Here. You’ve got the oil production, you’ve got the pipeline monopoly, you’ve got the electric grid, and you’ve also got a 9% yield. Basically. You got the Golden Goose here, which is in the wolf’s den. Um, I, I, if it delivers on some of this stuff, it could be a great deal, but right now it’s getting, well, it, the share price has shut up again recently, but it been getting punished [00:40:00] by the market for the last couple of years. One of the reasons for this is they got a $1.3 billion tax bill, 5.3 trillion Colombian pesos. Tony Kynaston: We got a 1.3 billion tax bill that Cameron: Yeah. Tony Kynaston: a huge, they made a huge profit. Cameron: Well, it’s for unpaid VAT and penalties related to fuel imports between 2022 and 2024. Eco petrol is contesting it, but it could be a big chunk of money that walks out the door. Could threatened, could threaten their 2026 dividend. Tony Kynaston: I think if they have to pay it, they should sue the IRS in Columbia. Cameron: Well, the president should sue because his government owns 88 point whatever percent of it. Um. [00:41:00] And their 2026 annual investment plan, which came out December last year, said they’re planning on spending between six and seven US billion dollars on hydrocarbons. They’re planning to drill 380 to 430 development wells. Now, Petro, uh, has, which is a great name for a petrochemical company owning president in the first place, isn’t it? Gustav Petro. The Petro King Tony Kynaston: It’s a giveaway. Yeah. Cameron: he hates oil. Tony Kynaston: Yeah. Cameron: he’s banned any further minds development of, well, no development, I think of regions, but they can apparently sink wells into regions they already have permits for. Tony Kynaston: Okay. Cameron: So. Tony Kynaston: And they’re spending $7 billion doing that, even though the president doesn’t want them to do it. Cameron: Well, you know, he hates oil. Tony, I dunno [00:42:00] how many times I have to tell you this. He’s transitioning, Tony, it’s, I can’t be, Tony Kynaston: he owns Cameron: I can’t be clearer than that. Tony Kynaston: $7 billion on drilling for oil. It’s like, it’s, Cameron: Look. Uh, he’s halted oil. Tony Kynaston: I do. Cameron: He’s, he’s halted all new oil and gas exploration contracts, but they can still mine existing contracts. You see how this works, Tony? It’s not very complicated. Tony, Tony Kynaston: So loophole you can drive a oil truck through Cameron: five to $7 billion oil truck through anyway. Um, so it’s a green administration, but they still need, still need the oil revenue. So these, these guys seem to be confident enough that they’re gonna be able to keep drilling new wells, uh, under their existing contracts. They’re also facing a massive national natural gas shortage, Tony Kynaston: [00:43:00] you. Cameron: estimating a massive deficit of 300 billion BTU per day by 2026. Um, not really sure what that. Is caused by, but um, they’ve got big natural gas problems. Apparently they’ve got a lot of boardroom changes going on. Several directors resigned in late 2025, citing disagreements with the government’s direction. So they’re being replaced by yes men for the Petro administration. Um, whether or not that is a good or a bad thing for the company remains to be seen today. The day we’re recording this. February 3rd, president Petro is visiting the White House to meet President Trump Tony Kynaston: I Cameron: to Tony Kynaston: I think I read a, an article about it Cameron: [00:44:00] write. Tony Kynaston: in the Cameron: Um, so I’m not sure if they’re discussing President Trump becoming the president of Columbia and what that means for the future of eco petrol. Tony Kynaston: Well, according to the Wall Street Journal, they’re talking about drugs uh, Columbia hasn’t done enough to stop the drug trade. And the President Petros going to the White House to point out that the, they’ve on record, uh, what do you call ’em? Not the laboratory closures and seizures and shutdowns. And the seizures of drugs is at an all time high. And Trump’s arguing it’s not. But after the meeting, Trump was, before the meeting, Trump was calling him a lefty. And after the meeting he was saying, well, I’m met him in person now he’s making sense. So we’ll see what happens. Cameron: Wonder how many Trump coins Petro had to buy on his way in. Tony Kynaston: Yeah. Cameron: Yeah. So we’ll see what happens. I mean, obviously the relationship with the United States [00:45:00] is, uh. Uh, possibly a good or a bad thing, depending on how you, uh, how these things play out. Not really sure what’s going on in terms of Venezuela and their oil. I saw there was some announcements this week by the new president of Venezuela that they’re enabling more foreign investment in the Venezuelan oil industry. Tony Kynaston: I mean, that’s the thing, isn’t it? I mean, if Venezuela ramps up and what happens to the Colombian oil industry if it’s trying to get out of oil and turn green, it’s, um, yeah. I, I suspect at some stage, the people of Columbia will say, look at all the money that Venezuela’s making out of oil, and we can’t keep warm. What’s going on? Cameron: Yeah. I don’t know, Tony. It’s, uh, beyond my pay grade, pay grade to figure out the implications of all of this stuff, but, um, Tony Kynaston: And nor does it matter to QAV in terms of investing. Cameron: well, it doesn’t really like, yeah. Tony Kynaston: I was gonna say, I did [00:46:00] notice just in the numbers, just in looking at the figures that company, revenue, profit and earnings per share have all decreased since 2022. Um, PE is its highest in the last three years, and there’s a negative earnings per share forecast. So a lot of reasons why the shares have declined over the last three years, just from a, a purely financial point of view. Cameron: But that said scores very well, um, for us on QAV, even when I rejigged the numbers for the Colombian peso. Yeah. Um, so the Rejigged QAV score is 0.27. It was 0.30, I think it did have a hundred percent quality rating on QAV until, uh, before I readjusted the IV numbers. Then it came down to 75%. Still pretty good. Um. Let me see. It scored, uh, stock edia wise. It scored for quality rank. It scored for stock [00:47:00] rank. It scored for F score. Um, it scores for price being less than book plus 30. It’s got a three point uptrend. Obviously book value growth is positive. Yield is higher than bank debt. As I said before, maybe when my mic was muted, the year percent. Tony Kynaston: Yep. Cameron: Uh, so with my rejigged numbers, it had nine outta 12, 75% as I said. So it scored, yeah, really well. Um, actually the, the original QOV score was 0.36, so it came down to a 0.27, but, um, and a huge average daily trade too. Average daily trade is, um, I don’t know, something like Tony Kynaston: Ben Cameron: hundred million. No, I don’t think so. My. Tony Kynaston: sorry. By the way, I was gonna ask you what, um, what, uh, oil graph are you using for the commodity check for these companies? [00:48:00] Because we use Brent Crude for the Australian companies, but this should be WTI, west Texas Intermediary, is where the you, where the American companies sell. Cameron: Oh, I haven’t been checking a separate one. Have you checked it? Tony Kynaston: I haven’t checked it. No, it’s um, but there are two, probably there’s more than two around the world, but they’re the two main ones Cameron: All right, well, Tony Kynaston: of oil and the differences in different markets. Cameron: I’ve got the WTI in front of me. Let me have a look. Ah, they won’t let me do that. I am a member, god dammit. Tony Kynaston: While you’re looking up that, the other thing I noticed in Wikipedia was that this company qualified for O Shaughnessy’s filter on value investing. So for listeners out there, O’Shaughnessy is one of our bibles. It’s um, what works on Wall Street, and he has a in there on a filter that he uses for value investing in this company meets the criteria in that filter [00:49:00] according to Edia. Cameron: I had that in my notes as well, Tony, although, no, that’s okay. Although I noted that his strategy is massively underperforming. The s and p have you? Yeah. If you click, Tony Kynaston: looked it up. Yeah. Lemme just find it again. Cameron: if you click through on Wikipedia to James O’Shaughnessys Cornerstone value Tony Kynaston: Mm-hmm. Cameron: over the last, it seems to have done about 137%, um, versus the s and p up 259%. Tony Kynaston: And let me just check that Um, I’ve got, when I click through it, uh, 95%. Since inception for him, 40% in Australia and 95.98 in the us. Cameron: Yeah. Versus [00:50:00] 250% over the same timeframe for the s and p. Tony Kynaston: I’m not seeing the s and p. Sorry. Okay. That’s interesting. Cameron: Hmm. Yeah. It’s 90, 93% for the US going back to July, 2014 Tony Kynaston: Mm-hmm. Cameron: the chart that I’ve got. Tony Kynaston: Yeah. Cameron: So, yeah. Um, so surprising when I saw that Tony Kynaston: Where are you getting the US numbers from? Sorry. In that graph? Cameron: it’s in the chart, um, I’ve got a, the comparison. When I click through, it shows me his United States performance versus the s and p 500 performance. You don’t see that in the Tony Kynaston: I’ve Cameron: chart? Tony Kynaston: I don’t, I don’t. Okay. So what I’ve got is I’ve got, uh, those three things. I’ve got, Australasia has done 34.82% over that time period, s and p ASX, all ordinary at 61.8 and the United States at [00:51:00] 82.6. Cameron: Hmm Tony Kynaston: see an s and p number. Cameron: hmm. Tony Kynaston: I’ll take your word for it, but that’s what I’m saying. Yep. Cameron: Yeah. Well, maybe we should get O’Shaughnessy on. He can explain it to us. Tony Kynaston: Yeah. Cameron: Um, I’m trying to look up, um, Tony Kynaston: Was Texas, Cameron: yeah. In Wikipedia, because this other one won’t let me do it. They don’t have it in stock. Pedia. They’ve only got Brent and stocked. Oh no. Crude oil. WTI. There we go. Five year monthly. Ooh. Tony Kynaston: I’ve just called up in Stock Doctor. I’ve got one called, um, Stock Doctor has crude oil, WTI caution us FOB and that is, um, looks like a cell to me. Just yeah, it’s just gone through probably in about October last year. Cameron: Brent Chart opened in Wikipedia now and it looks like a [00:52:00] cell two again. Tony Kynaston: you see the trading economics chart? Lemme see if I can get to it. Cameron: I’ve just opened up the, um, trading view chart and yeah, oil has turned down. Tony Kynaston: hmm. Cameron: I, wow. That has happened since I checked it on the weekend. Tony Kynaston: Yeah. Right. Cameron: So not a cell, but it’s definitely a Josephine. Tony Kynaston: Mm-hmm. Cameron: I wonder what happened to oil in the last day. I wish I hadn’t bought this now, but, uh. I might have to sell it again. There you go. Oil has turned around and gone from being a buy to a Josephine in a very, in a two day period. Tony Kynaston: So the headlines are saying the oil price has slid as Donald Trump talks is fears of US Strike and Iran. So it sounds like, um, the oil price was up because it looked like the US was going to [00:53:00] turn off Iranian oil supply. Cameron: They’ve already turned off Aranian Oil Supply. It’s under sanctions. No one can buy Aranian Oil. They’ve been under sanctions for 45 years. Anyway, what do I know? Tony Kynaston: obvious. Yeah. And sanctions don’t often work. Cameron: Hmm. Well there you go. Um, so before you buy, have a look at the oil price and uh, maybe hold off if the oil price is in decline again. Tony Kynaston: Or Cameron: It was only a buy for a week. Tony Kynaston: if you’re seeking some green, uh, energy exposure, have a look at EC Cameron: Yeah. Well maybe that’s, maybe we shouldn’t judge them on the oil price. Tony Kynaston: by bp. They, uh, they turn themselves green bike. Painting themselves green. Painting their brand green. Cameron: The logo’s green. Yeah. You know that they’re green. Yeah. I. Tony Kynaston: But, um, I actually, I [00:54:00] recently heard BP of reversing that stance that they’ve been taking. They come out and saying, said they’re listening their investments in green technology and energy Now Cameron: Right, because Tony Kynaston: Donald Trump was elected Cameron: Yeah. Tony Kynaston: and it’s drill, Cameron: Oh dear. Tony Kynaston: drill, baby drill. Cameron: Yeah. All right. Well that was sort of a, a downer for this episode. Um, Tony Kynaston: interesting story though. Cameron: interesting business in the middle of a transition. Um, we’ll see. Tony Kynaston: involvement. Cameron: Yeah. Prostitutes Tony Kynaston: involvement, Cameron: say Castro involvement. Tony Kynaston: prostitutes on time and cost. Cameron: Yeah. Cost reimbursement model for prostitutes. All right. Well. That’s QAV America for this week. Thank you [00:55:00] tk. Tony Kynaston: thanks Cam. It was very enjoyable. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial [00:56:00] product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). [00:57:00] No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Feb 13, 2026

50m
29

EC: Pump and Dump – QAV AMERICA 38

In this episode, Cameron and Tony navigate a turbulent week in the American markets, touching on the downturn of Bitcoin, gold, and the “Magnificent Seven” tech stocks. Despite the macro-volatility, they celebrate the continued outperformance of their US dummy portfolio, which has nearly doubled its value since September 2023. The conversation shifts to a critical look at “stores of value” like Bitcoin and gold, with Tony arguing that without an inherent way to calculate intrinsic value, these assets remain speculative “pump and dump” cycles. The centerpiece of the show is a deep dive into the Colombian oil giant, **Ecopetrol (EC)**. The duo explores its unique monopoly on Colombian pipelines and its strategic pivot into high-voltage electricity transmission, all while navigating the “magical realism” of Colombian politics, executive scandals involving “cost-plus” prostitution, and a president who hates the very oil industry his government owns. — ### Episode Timestamps * **[00:00:00]** – Market Turbulence: Bitcoin, Gold, and the Mag 7. * **[00:01:20]** – Corporate News: Elon Musk’s SpaceX and xAI merger. * **[00:01:50]** – Portfolio Update: US Dummy Portfolio vs. S&P 500. * **[00:03:15]** – Recent Sells: Exiting **AMTD** (AMTD IDEA) and **XIFR** (XLPR Infrastructure). * **[00:09:45]** – The Rationality of Gold and Bitcoin: Searching for intrinsic value. * **[00:15:30]** – Deep Dive: **Ecopetrol SA** (EC) – History and the “De Mares Concession”. Transcription   Cameron: [00:00:00] Welcome back to QAV America, Tony. This is episode 38 of QAV America. Been a turbulence week, weak in the American markets. Bitcoin is down, gold and silver are down. New Fed chairman nominee sell. America Trades are still going on. The president of the United States are suing the United States government for $10 billion. Nothing to see here. Jeffrey Epstein. Millions of files released. Oh wow. It’s a lot to keep up with. One of the good things about QAV is we don’t have to keep up with it. Tony Kynaston: correct and, and of course the Melania Trump, uh, premier. Cameron: Uh, and, uh, Jeffrey Epstein, not, not in it as, from what I can tell. I, I don’t understand. Anyway, Tony Kynaston: Bezos. You [00:01:00] think $40 million would give you a walk on cameo or you’d it in front of the blue rocket or something, wouldn’t you? Cameron: meanwhile, Elon Musk is merging SpaceX and X ai, uh, news is today, Tony Kynaston: Uhhuh. Cameron: I think SpaceX’s building is buying Twitter or taking over Twitter and x ai, which is part of that, uh, something, something I don’t understand. It’s all going on. Microsoft’s share price are down. Ai, the Mag seven share prices are down, but they’ve been down before. Tony Kynaston: guy? Cameron: Well, I’m glad you asked Tony. Our portfolio is doing Doing okay. Doing okay. Let me, let me bring it up and we can talk about it in some detail. I did have to sell, uh, a couple of stocks out of QAV Light, the new light portfolio yesterday. I’ll get into that in a second. But the [00:02:00] dummy portfolio that I’ve been running on in the US since September, 2023 is, has returned 98.41% since then. So it’s doubled in little over two years versus the s and p 500, which is up 57% over that same timeframe. So not quite doing double market, but pretty close to double market and. It’s really boomed since, um, well let’s see, as of 19th of November last year we were neck and neck. We’d been up, we’d come back. We were neck and neck with the s and p about November last year. So it’s broken away since then. Doing very well the last couple of months, two months, two and a half months, absolutely killing it. Um, [00:03:00] just to give you a sense, our rockstar Willis Lee’s finance company currently sitting at about 300% gain Innova, which is actually in my news items today. Uh, I’ll get to that in a minute. It’s up 188%. Euro, CS ESEA is up a hundred percent. Uh, BLX Foreign Trade, bank of Latin America up a hundred percent. Regional management are up 66%. Gas, stealth gas transport, shipping company up 60% UBS also in the news today, up 55%. So yeah, doing, doing quite well across the board. The QAV light portfolio, as I mentioned, I sold a couple of stocks this week. I just decided they’d hit their three point trend line and I’d given up, I dumped them. So that was, um, A MTD idea, dear that we talked about a little while ago. Calvin Cho’s Company, they [00:04:00] breached their three point trend line and spider net and, um, XL PR infrastructure, X-I-F-R-Z-A. Um, they also breached their three point trend line. So rules are rules. Tony Kynaston: yeah. Cameron: thing about QAV, we have rules tell us what to do. Sold those. And I have bought, uh, the stock that I’m gonna do a deep dive on today. Ec eco petrol sa out of Colombia. Tony Kynaston: Not, Cameron: am, Tony Kynaston: not eco petrol as in it’s green petrol. It’s Ecuadorian petrol, maybe Cameron: no, they’re very eco, very eco-friendly, very, oh, no one has ever been more eco-friendly than these guys, Tony. They’re the most eco-friendly company you’ve ever seen. Tony Kynaston: Or company. You Cameron: Well, they are Tony Kynaston: don’t Cameron: see. They are, Tony Kynaston: look at those wells over there. [00:05:00] Look over here. Plenty of windows over here. Cameron: listen. As Barry and Stan would say, um, if you don’t have oil, you don’t have energy. If you don’t have energy, you can’t, you know, you can’t drive tractors to plant trees, Tony Kynaston: Oh right. Cameron: you know, yeah, it’s, it’s oil is there to grow trees. Um, couple of news updates in Nova I mentioned they’ve come out with their Q4 figures revenue of 839.4 million, up 15.1%, year on year, adjusted EPS of 3.46 or $3 46, exceeding estimates by 9.1%. Record originations in small business lending for eighth consecutive [00:06:00] quarters, and pending acquisition of Grasshopper Bank. Aimed at expanding market access and simplifying regulation. Um, I watched a Bruce Lee documentary over the weekend Be Water, and of course they talked about his script that he wrote called Warrior and took to Hollywood about, uh, Kung Fu Master Walking the Earth. And they were like, nah, don’t like it. And then they came out with David Carradine and Kung Fu as Grasshopper. Tony Kynaston: I wonder how Cameron: They, Tony Kynaston: how, how many writers there are out there who submitted things to Hollywood got rejected, and then five years later, see it up in lights on the big screen. Cameron: well, the thing is with Bruce, uh, Bruce knew that the big concern was they, they didn’t want him in it, right? They, they, they didn’t think you could have a Chinese American starring [00:07:00] in a role in 19. 70, 71, whatever it was. Sad thing about the documentary is a, after he got frustrated with his inability to break through to anything in Hollywood, went to Hong Kong, made four movies in two years, and then like five days before enter the dragon was due to launch, uh, which was kind of a co-production with Hollywood and Raymond Chow. Uh, he died and, but then they show you the opening of it at the Groman’s Chinese Theater in la Just Bruce Lee everywhere. Massive. Like his dream he had finally done it. Had to go to Hong, back to Hong Kong. Cracked the whole Hollywood thing downtown. Groman’s Chinese Theater. La Bruce Lee is Stars Inn. And he wasn’t alive to see it. He died five days before, you know, he had [00:08:00] achieved his. And you know, you look at him today and he really did have such a huge influence on the, the, there was a girl at my Kung Fu studio last, oh no, she said she saw a Nip Man film. She came along, but you know, his, his influence on people studying martial arts and on martial arts in films and the perception, the portrayal of Asians in American TV and cinema. Anyway, how’d I get onto that? Grasshopper bank. Tony Kynaston: no idea. Cameron: Grasshopper Bank Kain of Kung fu, uh, UBS group also, uh, uh, again, announced their Q4 uh, earnings with projected increase in earnings per share, despite a decline in revenues year over year. Uh, earnings estimate is 25 cents per share, indicating an 8.7% increase year over year quarterly revenue expected to decline to 11.62 billion. Strong performance in global wealth management and investment banking is [00:09:00] anticipated. So little bit of a mixed bag there for UBS group. Um, so we, we talked a little bit on the Australian show this week, Tony, about gold and Bitcoin. I did have a laugh at Bitcoin’s expense. Bitcoin has doubled in value over the last five years. It went up and then it came back. Gold and silver and the process of coming back, but they’ve still, you know, had a really good run. But we’ve talked before a lot over the years about these things as a store of value. And I was having this discussion with somebody at Kung Fu the other night. He asked me about Bitcoin, you know, what do you think about Bitcoin? And I was like. You know, it’s a pump and dump. Pretty much. That’s my take on it. Um, but this whole idea of, uh, a store of value, you know, despite what you might think about the inherent properties of cryptocurrencies, uh, versus fear [00:10:00] currencies or the inherent value in gold, uh, something that can be used in jewelry or something that can be used in electronics or a store of value. The challenge that I have, I always try and point out to people as somebody who has learnt from you to try and think about investing rationally, is the question I have to ask myself before I can invest in anything is what is the value of one unit of this thing, whether it’s a share or a coin or a gram, and can I buy it at a discount to its value today? Um, and I can’t figure out how to come up with a value for a coin or a gram of gold. What is the inherent value? I mean, it’s essentially the price is the only thing that I have to measure it on. And so then the question is, well, how do I know if that price is high or [00:11:00] low? And I, I, there’s no, I have not found an answer to that question. How do I tell if that price is high or low? Then you get, well, there’s a limited supply of it, and as I always say, there’s a limited supply of autograph photos of my high school graduation too. Does that mean that they’re, they have intrinsic value? Probably not. You know, these things have the value that the market puts on them. That’s it, which is flaky. Tony Kynaston: Yeah, for sure. And I mean, there is that collectible argument, um, that of limited supply. But you know, if, like, if Air Jordans put out a range of sneakers, they get snapped up. But next year they put out a range of different sneakers that get snapped up. What’s the resale value of the first op they put out? Um, it’s like they create their own supply demand, the underlying value of the sneakers is probably a hundred bucks. So, um. Value is what you get. Price is what you pay. It’s the, it’s the same. [00:12:00] Gold only interests me in terms of gold miners, um, because as gold, the gold price rises, they make a bigger margin. So you can work out the value buying a gold mining company. You can’t work out the value of gold itself. And more and more these days, it’s being used by central banks to, um, hedge their holdings of US treasuries. Um, so as the US dollar drops, they buy gold so they can try and keep their balance sheet intact. Um, and as we saw on Friday when, uh, new fed chair was uh, nominated, people thought his background was a hawk and that he might not. Lower interest rates as quickly or as, as much as the market and Donald Trump wanted, therefore gold came down in value. ’cause uh, people predicted if there are less interest rate cuts, there’s gonna be less central bank, um, buying of gold. it seems to have stabilized after the weekend. And [00:13:00] I dunno if that’s because the Fed chair elect has come out and he’s gonna cut rates or the market thinks he’ll cut rates to keep Donald Trump happy and to keep his job But, um, right. Underlying goal itself has really has no value except as manufacturing input into Julian Electronics, which has some value. But, um, uh, you know, that’s, it’s much lower probably than what the price of gold is. Cameron: Yeah. What’s the value of a gold necklace? Well, whatever somebody’s willing to pay for it really. Uh, and the whole Bitcoin thing, like bitcoin’s come off roughly 30% since, uh, since it’s highs. I. But at the time when it was selling for its highs, everyone was saying it was buy and it was gonna go up forever. It was gonna be a million dollars a coin or whatever. So like, why has it come back by 30%? The people that are selling it obviously don’t [00:14:00] believe that, or they wouldn’t be selling it. Uh, I mean, look, it is true that sometimes you are, you are forced to sell things that you do believe is gonna continue to go up in value for a variety of economic reasons. You need the, the cash to pay a bill or to cover something else. You need it to hedge something. Tony Kynaston: Mm-hmm. Cameron: Or, you know, you know, your boss is forcing you to take profits to make a balance sheet look good or to pay a tax bill or whatever it is. There are reasons why a, a purely rational person will sell something even though they think the value might be higher, but. The market should be snapping it up when they’re selling it. If everyone really believes that all of the advocates should be buying it up when it’s being sold and they’re not. So the whole artifice that the story is built on is just a sham. Uh, but, you know, try telling that to the, the pumpers, ah, you know, I genuinely believe [00:15:00] that they, they sell it, let the price go down. Then they do another pump cycle. Buy it again at a lower price, pump it up, let all the mums and dads get caught up. Then they trick them into selling it, and then they buy it cheaper and re rinse and recycle. Tony Kynaston: And now it’s being done at, at an industrial scale because Wall Street are allowed to, uh, issue ETFs that hold bitcoins. And I suspect that’s what has happened, that there was a tremendous amount of buying of bitcoins when those ETFs were set up about a year ago when they became to do so legally. And now that buying is dried up and Bitcoin prices dropped. And you’re right, there might be some more ETFs set up to soak up what’s, you know, the up Bitcoin at the price and we’ll go through that same cycle again. But that’s all. There’s, it could may as well be called paperclip. Really that’s all people are doing. Look, there, there are some people who use it as a money exchange. So if you know you’re visiting Venezuela at the moment, Bitcoin [00:16:00] might be the best way to transfer money and out of the country. I, I would think that’s a limited use for Bitcoin. I, I actually thought that would be the best use of Bitcoin going forward, but it’s just too damn unstable to be able to, to use it as a currency exchange. Maybe when stable coins become more prolific, you can use it to disintermediate exchange. Um, there’ll always be some friction in that market, but perhaps less with Bitcoin. And the only other use is being on the black market to, for criminals to trade or to buy drugs or worse. Um, so I, I Cameron: Autumn Tony Kynaston: any other use for it except pump and dump. Cameron: Gussy favor with presidents of large economies. Uh, the president of the United States is suing the United States government for $10 billion. Tony, Tony Kynaston: You’ve muted yourself. Sorry. Cameron: no, I didn’t mute myself. My computer muted me so much for my attempt in a reboot. Tony Kynaston: You shouldn’t talk So Cameron: Yeah, Tony Kynaston: about the US government? Cameron: [00:17:00] CIA is muting my microphone. Tony Kynaston: Mm-hmm. Cameron: Well, let’s get into talking Dispar disparagingly about the Colombian government then just for a change. Um. Tony Kynaston: Well, well, I, I’d like to go on the record saying I love the Colombian government. I don’t, I don’t want to, don’t wanna end up like the last scene in Scarface, so I’ll, um, I’ll let you talk about them. Cameron: The current Colombian government, uh, is okay, it’s previous Colombian governments that might have been the issue. Well, listen, we’re gonna talk about ec eco Petrol high on our buy list this week. Not as high as I thought they were initially, because they had to redo the numbers to account for the fact that they were report in Colombian peso. Um, but once I redid some of particularly the earnings per share numbers, which changed our internal values, uh, intrinsic valuations, um, score came down a little bit, but it still would’ve been top 10, um, in our bio list. So I, I’m using it anyway, [00:18:00] but just to let people know if they are looking at the numbers in Wikipedia that you have to, uh, adjust for the Colombian peso. I think the Colombian peso is currently worth 0.0, 0, 0, 0 0 2 US dollars. Something like that. Tony Kynaston: Right. Cameron: it out. Yeah. So, um, interesting company. This basically goes back to the early 20th century when, uh, the President of Columbia, Gus, no, not Gustavo Petra, he’s the current guy, or Raphael Reyes issued something called the DeMar Res Concession. He was a general, nearly went to war with the United States over Panama, decided at the last minute, probably not a good idea, to go to war [00:19:00] with the United States over Panama. So they pulled back, this is before he became president. He became president. Tony Kynaston: a, he was a president, was he? Cameron: Well, they were gonna go to war over Panama. Panama was part of Columbia. Panama was claiming their independence and Columbia was gonna fight for it. Then they realized that the United States was gonna probably enter on the side of Panama, and they decided, Hmm, maybe not then. Okay. So he did a deal with the United States instead, he came up with something called the Demares Concession, which basically allowed an American subsidiary of Standard Oil Company called the Tropical Oil Company. Pretty sure I used to, Tony Kynaston: a Cameron: I used to use that to get a suntan in the eighties. Yeah. Smelled like pineapple or No coconut. Coconut oil. Yeah. Yeah. Don’t think it was coconut oil, but it smelled like [00:20:00] coconut oil. Uh, yeah. He issued them the DeMars concession in the early 20th century. Uh, he gets a mention. By the way, Raphael Reyes in Gabrielle Garcia Marquez’s, 1985 novel Love in the Time of cholera. You ever read that? Tony Kynaston: No, I’ve read a hundred years of Soli shoe, but not the other one. Cameron: Did you like that one? Tony Kynaston: I did. Yeah, that’s fine. Cameron: I loved it. Loved it. Yeah. Uh, loved love in the time of cholera too. Terrific. Um, what does he, what do they call that? It’s like, um, his style. Magical realism. Yeah, it’s great. First time you read it, you’re like, what the hell is going on? Yeah. No really good stuff. Uh, good friend of Fidel Castros, Gabriel Garcia Marquez. Tony Kynaston: another magical realist Cameron: Well, he used to send [00:21:00] his manuscript drafts to Castro, who would correct them and send them back to him. Castro was running a country. Tony Kynaston: I was gonna say he had enough time to do, to read the, Cameron: Yeah, Tony Kynaston: It wasn’t sure. It wasn’t outsourced Cameron: I’m pretty sure. Tony Kynaston: chat, Cameron: he would, Tony Kynaston: the script for me. The corrections. Cameron: uh, yeah, he would, he would mark it up and send it back to him. Uh, astonishing. Anyway, so that concession ended in 1951 and they sort of nationalized the oil and this company has been around ever since. And, um, it’s been. You know, a difficult time in Columbia, let’s say the last 75 years politically, economically [00:22:00] hasn’t all been smooth sailing. But this company is basically the national oil company of Columbia, and they’ve got a few challenges at the moment. Um, the current administration under President Gustavo Petro, who’s been the president since 2022, he became the first left wing president in the recent history of Columbia. Anyway, former Gorilla Fighter age of 17, he was a gorilla fighter. He’s clamping down on the oil industry, which is, uh, having an effect on eco petrol’s share price and, and the consideration of his future. But they’ve, they’re making some investments in other areas that might get them out of oil just in time. Tony Kynaston: Hang on. Cameron: So Tony Kynaston: own still still own a fair bit of eco petrol? Cameron: yeah, they do, they own 88 and a [00:23:00] half percent of it. Fair bit, but it was floated, uh, in 2007 on the Colombian Exchange and then later on the New York Stock Exchange. So, you know, bit of both. Bit of both. Best of both worlds. Yeah. But it’s really cheap and um, some of that has to do with the fact that Gustavo Petro, I keep thinking gustavo free becoming the President of Columbia. That would’ve been a good spinoff for, for breaking Bad if they hadn’t have blown him up at the end. Um, I. He is an outspoken critic of fossil fuels. One of his campaign. Tony Kynaston: percent of an oil company. Cameron: Yeah. So, Tony Kynaston: Sorry. You just mark it. Knock at your worst asset, don’t you? Yeah. Cameron: he’s a believer. [00:24:00] Tony, you are the last person Tony Kynaston: or Cameron: in transitioning away from oil. The green future. Sustainable. Tony Kynaston: in the world. Cameron: Wow. You’re in a Tony Kynaston: future. Yeah. But we have to transition. Could take a while. This is like a, it was that Kiwi comic to come on the, uh, seven 30 news. Uh, Fred Cameron: John John Clark. Tony Kynaston: Yeah. Yeah. Yeah. We’re, look, I run an oil company, but we’re transitioning. We’re very eco-friendly. Cameron: Yeah. Well, you know, they’re eco-friendly. It’s in the name Tony. Tony Kynaston: Yeah. Cameron: Yeah. Like Tony Kynaston: So is that, is that the change that, what’s his name? Pedro Garcia has made to Cameron: Gustavo Petro. Tony Kynaston: Gusta. Cameron: It’s like Elon Musk tweeted the other day that, you know, the Nazis were socialists ’cause it’s in the [00:25:00] name, the National Socialist Party. You know, they were must have been socialists. Tony Kynaston: Mm Cameron: Any who, they were like, this is the guy that we’re letting determine the future of humanity with his AI and his robots and his rockets. Really? Tony Kynaston: mm Cameron: That’s his, uh, that’s his, uh, logical bloody frame of train of thought. Any who? Tony Kynaston: he’s a big troll. Cameron: Yes. He’s a big troll. Gustavo Petra, on the other hand. Is forcing eco petrol to liquidate their oil business into a clean, green Tony Kynaston: Really. Cameron: machine. Well, yes. Slowly though, Tony, slowly, slowly, Tony Kynaston: Yeah. It’s a period of transition. Ooh. Cameron: we will get into the transition in a minute. Um, they, they’ve had a number [00:26:00] of, um, scandals as you would possibly imagine being an oil company in Columbia. Um, did you read about the Ika scandal? The Tony Kynaston: I Cameron: heist? Tony Kynaston: No. Cameron: this is a, you love this one. Um, 2007 Eco Petrol launched a modernization project for the Nia Refinery known as Ika. To double its capacity. They got a contractor in that provided them with a lump sum, turnkey quote. Uh, contractor takes all the risk. It was gonna cost, I think, 3.8 billion US dollars. Uh, three years into it. The board switched it to a cost reimbursable model And the contractor, Chicago Bridge and Iron basically ended up with a [00:27:00] blank check to, to. Take as long as you want and cost as much as you want. And we’ll foot the bill, um, based out of Texas, despite the fact that it’s called Chicago Bridge in High, I think originally out of Chicago. Tony Kynaston: there. Cameron: Yes. Yes. Well done. Congratulations. Um, yeah, so it, it, it changed and instead of costing 3.3 billion, it cost over $8 billion for this project and represented roughly 5% of Columbia’s national budget at the time. Tony Kynaston: Oh dear. Cameron: Um, and what made it a sensation weren’t just the overruns, but the type of spending that the comptroller general uncovered. [00:28:00] There was about $16 million spent on prostitution services and social escorts for executives and contractors often build as labor relations. Tony Kynaston: $16 million. Cameron: Gotta keep, gotta keep the executives happy, Tony. Tony Kynaston: how many? How many hookers are there in Columbia? $16 million. Cameron: And what do they charge? You know, you imagine what your average Colombian hooker charges and then figure out how much of that you get for $16 million. Tony Kynaston: Originally they had a fixed price contract, but they moved to, uh, cost. plus Cameron: Oh, cost plus hookers, uh, bills were found for luxury spa treatments, high-end alcoholic beverages, and no-show jobs where people were paid to do nothing while the project sat idle. People who have [00:29:00] watched the Sopranos know how Tony Kynaston: of as well. Cameron: knows how that works. Yeah. So, um, multiple former eco petrol CEOs and directors were indicted for unfair administration and falsifying public documents, and an international arbitration tribunal in New York ruled in June of 2023 that CB and I was grossly negligent and ordered them to pay ref a car over a billion dollars. USD. Tony Kynaston: Is that Cameron: So well, well, CB and I’S parent company McDermott filed for bankruptcy. So Tony Kynaston: Yeah. Cameron: yeah, that’s, they’re not seeing that money any time soon. So, um, when we did A-M-T-D-I-D Tony, we talked about the concept of a spider net. Um, [00:30:00] these guys were a bit of a spider net eco petrol. They’re becoming a spider net. Yeah, spider net. It’s working so well for A MTD. So let me break down where these guys are getting their money from and where they’re transitioning to. Despite your unfounded cynicism. They still got the oil Tony Kynaston: my cynicism has been a finely honed weapon in my arsenal over many years. Cameron: weapon in your what? Tony Kynaston: Arsenal. Cameron: Oh, arsenal. Former Shell Senior executive. Yeah. No one to talk. Tony Kynaston: the oil industry. They’ve been transitioning for a long time. Cameron: Uh, so the most of their money’s still coming from oil. They still produce 750,000 barrels of oil a day. Bowed, uh, still have the rubles and the kaon fields, [00:31:00] but they’ve got another little asset called cite, C-E-N-I-T, cite, which is the toll road of moving any oil around Columbia. Basically, it’s a wholly owned subsidiary that owns the pipelines of oil in Columbia. If you drill oil in Columbia, you basically have to pay eco petrol to move it. They’ve got a monopoly. And the great thing about this is it doesn’t really care what the oil price is. Um, they still get their margin, so it’s way more stable than your typical oil driller. Basically, you have three branches of the Andes Mountains dense jungles, limited roads. Moving oil by truck is prohibitively expensive and dangerous, so the only way to get it around is through the pipelines and they own all the [00:32:00] pipelines. So that’s, uh, a good big money earner for them. Tony Kynaston: monopoly, Cameron: Yes. Good. Uh, a moat, we don’t use the monopoly word in value investing, Tony, we just call it a moat. It’s much more for the other M word. It’s shorter. Sounds better. It’s a moat. Tony Kynaston: a motor oil, Cameron: Yes. Tony Kynaston: on fire if when the vandals get close. Cameron: And under Colombian law, oil transport is considered a public service. So is legally required to provide open access to its pipelines to any producer as long as they pay the money. So you pay the money, he gets to dance in our pipelines. Um, the checkmate though is at the ports, the, the pipelines end at maritime terminals. And [00:33:00] Eco Petrol slash Suneet owns the majority of the storage and loading facilities. So. Even if you were to build your own pipeline, you’d still have to pay eco petrol to store the oil and pump it into a tanker to get to the other end. So they’ve got all of that stitched up. And then the pivot, the transition in 2021, they bought 51.4% of ion, uh, the national grid of Latin America, ISA high voltage transmission lines in Columbia, Brazil, Chile, and Peru. So they’re using dirty oil money to buy electricity monopoly. Basically, it’s the lifeboat for when the oil runs out. They’re gonna control the power grid of Latin America Tony Kynaston: how is the power generated in Latin [00:34:00] America? Cameron: rainbows and, and, uh, thoughts and prayers. Tony. Tony Kynaston: Right. So they could be transiting from oil to coal or, or gas. Cameron: Wind. Lots of wind. Tony Kynaston: right? Cameron: And, um, Aztec, uh, shamans. Tony Kynaston: Pyramids. It’s pyramid pout. Cameron: Shaman’s, again, a tap into, um, shamanic, uh, energy. Lemme tell you a story. So my son Taylor, uh, was back from LA this week for a couple of days, and he told me, he said he, he said, look, there’s this girl that reached out to him that wanted to catch up with him. He caught up with her and, um, they’re having a coffee and she’s an entrepreneur. She owns a, she’s buying a magazine, Hollywood Reporter in Australia. Tony Kynaston: okay. Cameron: and, [00:35:00] uh, she’s an Aussie, but based in LA I think, no, this was in Sydney. You caught up with her in Sydney actually. And, um. She’s doing all this stuff. And then he said, wow, you know, she’s only same age as him, mid twenties. And he’s going, you’ve accomplished so much. How? And she goes, well, when I go see my charman, uh, we do all of these, uh, mushroom trips and I get to speak to my, um, higher evolved, uh, self, and it tells me what I have to do, and then I just go and do it. So I just go, I have meetings with my shaman and I do my, have this trip and, uh, do acid or mushrooms or whatever it is. And then, you know, I find out what I have to do for the next year and I come back and I do it. And then I, and I said, was she messing with you? He goes, no, no. Totally straight face. Totally straight face. Tony Kynaston: attract high quality people. Cameron: [00:36:00] And he is like, well, obviously works. I, maybe I need to go meet with her shaman. She’s doing quite. So, um, they bought, so this is the bit that I don’t understand. Eco Petrol bought this from the Colombian government. So essentially the government owned oil company bought this stake from itself, Tony Kynaston: Like suing, is it like the president suing the IRS? Cameron: the moving money from the left pocket to the right pocket. Tony Kynaston: Mm-hmm. Cameron: Um, but whatever, Tony Kynaston: Yep. Cameron: for investors in ec it means that they now have an asset that, uh, could mean that they have a future beyond oil. Tony Kynaston: So they have Cameron: So. Tony Kynaston: monopoly and they have the electrical grid monopoly. Cameron: High voltage [00:37:00] transmission Monopoly. Yeah. Yeah. Tony Kynaston: All right. Cameron: Which makes it, Tony Kynaston: two more houses and I can put up a hotel. Cameron: it’s a bit like that. Yeah. May fuck lane, they just bought, I don’t know if I ever told you about this, where I play Monopoly with Fox. If he doesn’t get to buy Mayfair and Park Lane, he quits. He goes, that’s it. I’m outta the game. Like, because that’s his whole strategy. He won’t buy anything until he gets Park Lane and Mayfair. He buys them. Then he just keeps doubling down, doubling down, doubling down, and putting hotels on. If I buy them, he is like, ah, I quit. He just, he, Tony Kynaston: a bad strategy. Cameron: yeah, it, it, it’s worked for him many times, but if he can’t control the real estate, he just doesn’t wanna play. That’s it. I’m outta the game. Um, so anyway, bottom line is they’ve bought these things. It’s sort of a strategic pivot for them and. So despite the fact that they’ve got a bit of a turgid history and, uh, the president [00:38:00] of the country seems to be forcing them to get out of oil, getting the oil business out of oil, they’re, they’re sort of spending serious amount of money to transition into this new thing. And they still have the pipelines for when, while the oil is still running. They recently, Cho Cho, they recently cho, changed auditors from Ernst and Young to Deloitte, unlike A MTD, uh, that we talked about, not a strip mall accountant. Um, and there’s also something called the FEPC, which is worth, uh, understanding The Colombian government subsidizes gasoline for its citizens. They don’t often pay eco petrol cash for this. They get paid in receivables or delayed transfers. So Eco Petrol is essentially lending the government money to buy its [00:39:00] own product. Um, so there’s some complicated stuff with the financials that makes it hard to, it’s hard to track, Tony Kynaston: That does go on in the oil industry. From my experience, you, you can get what’s called post David checks, so you deliver, you’re basically delivering on credit and then getting paid afterwards. Cameron: right? So you’re basically buying a, a bit of a spider net of a company. Here. You’ve got the oil production, you’ve got the pipeline monopoly, you’ve got the electric grid, and you’ve also got a 9% yield. Basically. You got the Golden Goose here, which is in the wolf’s den. Um, I, I, if it delivers on some of this stuff, it could be a great deal, but right now it’s getting, well, it, the share price has shut up again recently, but it been getting punished [00:40:00] by the market for the last couple of years. One of the reasons for this is they got a $1.3 billion tax bill, 5.3 trillion Colombian pesos. Tony Kynaston: We got a 1.3 billion tax bill that Cameron: Yeah. Tony Kynaston: a huge, they made a huge profit. Cameron: Well, it’s for unpaid VAT and penalties related to fuel imports between 2022 and 2024. Eco petrol is contesting it, but it could be a big chunk of money that walks out the door. Could threatened, could threaten their 2026 dividend. Tony Kynaston: I think if they have to pay it, they should sue the IRS in Columbia. Cameron: Well, the president should sue because his government owns 88 point whatever percent of it. Um. [00:41:00] And their 2026 annual investment plan, which came out December last year, said they’re planning on spending between six and seven US billion dollars on hydrocarbons. They’re planning to drill 380 to 430 development wells. Now, Petro, uh, has, which is a great name for a petrochemical company owning president in the first place, isn’t it? Gustav Petro. The Petro King Tony Kynaston: It’s a giveaway. Yeah. Cameron: he hates oil. Tony Kynaston: Yeah. Cameron: he’s banned any further minds development of, well, no development, I think of regions, but they can apparently sink wells into regions they already have permits for. Tony Kynaston: Okay. Cameron: So. Tony Kynaston: And they’re spending $7 billion doing that, even though the president doesn’t want them to do it. Cameron: Well, you know, he hates oil. Tony, I dunno [00:42:00] how many times I have to tell you this. He’s transitioning, Tony, it’s, I can’t be, Tony Kynaston: he owns Cameron: I can’t be clearer than that. Tony Kynaston: $7 billion on drilling for oil. It’s like, it’s, Cameron: Look. Uh, he’s halted oil. Tony Kynaston: I do. Cameron: He’s, he’s halted all new oil and gas exploration contracts, but they can still mine existing contracts. You see how this works, Tony? It’s not very complicated. Tony, Tony Kynaston: So loophole you can drive a oil truck through Cameron: five to $7 billion oil truck through anyway. Um, so it’s a green administration, but they still need, still need the oil revenue. So these, these guys seem to be confident enough that they’re gonna be able to keep drilling new wells, uh, under their existing contracts. They’re also facing a massive national natural gas shortage, Tony Kynaston: [00:43:00] you. Cameron: estimating a massive deficit of 300 billion BTU per day by 2026. Um, not really sure what that. Is caused by, but um, they’ve got big natural gas problems. Apparently they’ve got a lot of boardroom changes going on. Several directors resigned in late 2025, citing disagreements with the government’s direction. So they’re being replaced by yes men for the Petro administration. Um, whether or not that is a good or a bad thing for the company remains to be seen today. The day we’re recording this. February 3rd, president Petro is visiting the White House to meet President Trump Tony Kynaston: I Cameron: to Tony Kynaston: I think I read a, an article about it Cameron: [00:44:00] write. Tony Kynaston: in the Cameron: Um, so I’m not sure if they’re discussing President Trump becoming the president of Columbia and what that means for the future of eco petrol. Tony Kynaston: Well, according to the Wall Street Journal, they’re talking about drugs uh, Columbia hasn’t done enough to stop the drug trade. And the President Petros going to the White House to point out that the, they’ve on record, uh, what do you call ’em? Not the laboratory closures and seizures and shutdowns. And the seizures of drugs is at an all time high. And Trump’s arguing it’s not. But after the meeting, Trump was, before the meeting, Trump was calling him a lefty. And after the meeting he was saying, well, I’m met him in person now he’s making sense. So we’ll see what happens. Cameron: Wonder how many Trump coins Petro had to buy on his way in. Tony Kynaston: Yeah. Cameron: Yeah. So we’ll see what happens. I mean, obviously the relationship with the United States [00:45:00] is, uh. Uh, possibly a good or a bad thing, depending on how you, uh, how these things play out. Not really sure what’s going on in terms of Venezuela and their oil. I saw there was some announcements this week by the new president of Venezuela that they’re enabling more foreign investment in the Venezuelan oil industry. Tony Kynaston: I mean, that’s the thing, isn’t it? I mean, if Venezuela ramps up and what happens to the Colombian oil industry if it’s trying to get out of oil and turn green, it’s, um, yeah. I, I suspect at some stage, the people of Columbia will say, look at all the money that Venezuela’s making out of oil, and we can’t keep warm. What’s going on? Cameron: Yeah. I don’t know, Tony. It’s, uh, beyond my pay grade, pay grade to figure out the implications of all of this stuff, but, um, Tony Kynaston: And nor does it matter to QAV in terms of investing. Cameron: well, it doesn’t really like, yeah. Tony Kynaston: I was gonna say, I did [00:46:00] notice just in the numbers, just in looking at the figures that company, revenue, profit and earnings per share have all decreased since 2022. Um, PE is its highest in the last three years, and there’s a negative earnings per share forecast. So a lot of reasons why the shares have declined over the last three years, just from a, a purely financial point of view. Cameron: But that said scores very well, um, for us on QAV, even when I rejigged the numbers for the Colombian peso. Yeah. Um, so the Rejigged QAV score is 0.27. It was 0.30, I think it did have a hundred percent quality rating on QAV until, uh, before I readjusted the IV numbers. Then it came down to 75%. Still pretty good. Um. Let me see. It scored, uh, stock edia wise. It scored for quality rank. It scored for stock [00:47:00] rank. It scored for F score. Um, it scores for price being less than book plus 30. It’s got a three point uptrend. Obviously book value growth is positive. Yield is higher than bank debt. As I said before, maybe when my mic was muted, the year percent. Tony Kynaston: Yep. Cameron: Uh, so with my rejigged numbers, it had nine outta 12, 75% as I said. So it scored, yeah, really well. Um, actually the, the original QOV score was 0.36, so it came down to a 0.27, but, um, and a huge average daily trade too. Average daily trade is, um, I don’t know, something like Tony Kynaston: Ben Cameron: hundred million. No, I don’t think so. My. Tony Kynaston: sorry. By the way, I was gonna ask you what, um, what, uh, oil graph are you using for the commodity check for these companies? [00:48:00] Because we use Brent Crude for the Australian companies, but this should be WTI, west Texas Intermediary, is where the you, where the American companies sell. Cameron: Oh, I haven’t been checking a separate one. Have you checked it? Tony Kynaston: I haven’t checked it. No, it’s um, but there are two, probably there’s more than two around the world, but they’re the two main ones Cameron: All right, well, Tony Kynaston: of oil and the differences in different markets. Cameron: I’ve got the WTI in front of me. Let me have a look. Ah, they won’t let me do that. I am a member, god dammit. Tony Kynaston: While you’re looking up that, the other thing I noticed in Wikipedia was that this company qualified for O Shaughnessy’s filter on value investing. So for listeners out there, O’Shaughnessy is one of our bibles. It’s um, what works on Wall Street, and he has a in there on a filter that he uses for value investing in this company meets the criteria in that filter [00:49:00] according to Edia. Cameron: I had that in my notes as well, Tony, although, no, that’s okay. Although I noted that his strategy is massively underperforming. The s and p have you? Yeah. If you click, Tony Kynaston: looked it up. Yeah. Lemme just find it again. Cameron: if you click through on Wikipedia to James O’Shaughnessys Cornerstone value Tony Kynaston: Mm-hmm. Cameron: over the last, it seems to have done about 137%, um, versus the s and p up 259%. Tony Kynaston: And let me just check that Um, I’ve got, when I click through it, uh, 95%. Since inception for him, 40% in Australia and 95.98 in the us. Cameron: Yeah. Versus [00:50:00] 250% over the same timeframe for the s and p. Tony Kynaston: I’m not seeing the s and p. Sorry. Okay. That’s interesting. Cameron: Hmm. Yeah. It’s 90, 93% for the US going back to July, 2014 Tony Kynaston: Mm-hmm. Cameron: the chart that I’ve got. Tony Kynaston: Yeah. Cameron: So, yeah. Um, so surprising when I saw that Tony Kynaston: Where are you getting the US numbers from? Sorry. In that graph? Cameron: it’s in the chart, um, I’ve got a, the comparison. When I click through, it shows me his United States performance versus the s and p 500 performance. You don’t see that in the Tony Kynaston: I’ve Cameron: chart? Tony Kynaston: I don’t, I don’t. Okay. So what I’ve got is I’ve got, uh, those three things. I’ve got, Australasia has done 34.82% over that time period, s and p ASX, all ordinary at 61.8 and the United States at [00:51:00] 82.6. Cameron: Hmm Tony Kynaston: see an s and p number. Cameron: hmm. Tony Kynaston: I’ll take your word for it, but that’s what I’m saying. Yep. Cameron: Yeah. Well, maybe we should get O’Shaughnessy on. He can explain it to us. Tony Kynaston: Yeah. Cameron: Um, I’m trying to look up, um, Tony Kynaston: Was Texas, Cameron: yeah. In Wikipedia, because this other one won’t let me do it. They don’t have it in stock. Pedia. They’ve only got Brent and stocked. Oh no. Crude oil. WTI. There we go. Five year monthly. Ooh. Tony Kynaston: I’ve just called up in Stock Doctor. I’ve got one called, um, Stock Doctor has crude oil, WTI caution us FOB and that is, um, looks like a cell to me. Just yeah, it’s just gone through probably in about October last year. Cameron: Brent Chart opened in Wikipedia now and it looks like a [00:52:00] cell two again. Tony Kynaston: you see the trading economics chart? Lemme see if I can get to it. Cameron: I’ve just opened up the, um, trading view chart and yeah, oil has turned down. Tony Kynaston: hmm. Cameron: I, wow. That has happened since I checked it on the weekend. Tony Kynaston: Yeah. Right. Cameron: So not a cell, but it’s definitely a Josephine. Tony Kynaston: Mm-hmm. Cameron: I wonder what happened to oil in the last day. I wish I hadn’t bought this now, but, uh. I might have to sell it again. There you go. Oil has turned around and gone from being a buy to a Josephine in a very, in a two day period. Tony Kynaston: So the headlines are saying the oil price has slid as Donald Trump talks is fears of US Strike and Iran. So it sounds like, um, the oil price was up because it looked like the US was going to [00:53:00] turn off Iranian oil supply. Cameron: They’ve already turned off Aranian Oil Supply. It’s under sanctions. No one can buy Aranian Oil. They’ve been under sanctions for 45 years. Anyway, what do I know? Tony Kynaston: obvious. Yeah. And sanctions don’t often work. Cameron: Hmm. Well there you go. Um, so before you buy, have a look at the oil price and uh, maybe hold off if the oil price is in decline again. Tony Kynaston: Or Cameron: It was only a buy for a week. Tony Kynaston: if you’re seeking some green, uh, energy exposure, have a look at EC Cameron: Yeah. Well maybe that’s, maybe we shouldn’t judge them on the oil price. Tony Kynaston: by bp. They, uh, they turn themselves green bike. Painting themselves green. Painting their brand green. Cameron: The logo’s green. Yeah. You know that they’re green. Yeah. I. Tony Kynaston: But, um, I actually, I [00:54:00] recently heard BP of reversing that stance that they’ve been taking. They come out and saying, said they’re listening their investments in green technology and energy Now Cameron: Right, because Tony Kynaston: Donald Trump was elected Cameron: Yeah. Tony Kynaston: and it’s drill, Cameron: Oh dear. Tony Kynaston: drill, baby drill. Cameron: Yeah. All right. Well that was sort of a, a downer for this episode. Um, Tony Kynaston: interesting story though. Cameron: interesting business in the middle of a transition. Um, we’ll see. Tony Kynaston: involvement. Cameron: Yeah. Prostitutes Tony Kynaston: involvement, Cameron: say Castro involvement. Tony Kynaston: prostitutes on time and cost. Cameron: Yeah. Cost reimbursement model for prostitutes. All right. Well. That’s QAV America for this week. Thank you [00:55:00] tk. Tony Kynaston: thanks Cam. It was very enjoyable. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial [00:56:00] product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). [00:57:00] No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Feb 6, 2026

57m
28

CHRD: The Williston Whale – QAV AMERICA 37

In this episode of QAV America, Cameron and Tony navigate the extremes of global weather and market volatility. After discussing the impact of recent geopolitical “deals” on their US portfolios, they dive into a success story from the Bakken formation: **Chord Energy (CHRD)**. The conversation explores the “Shale 2.0” era, detailing how modern horizontal drilling and leaner capital structures have transformed former bankruptcy stories into cash-generating powerhouses. Tony provides a technical breakdown of Chord’s recent $11 billion acquisition of Enerplus and their shareholder-friendly policy of returning free cash flow through buybacks and dividends. — ### Episode Timestamps * **[00:01:45]** – Market Update: Trump’s “Art of the Deal” tariffs and impact on the US portfolio. * **[00:02:45]** – Portfolio Performance: Comparing the Main US portfolio (up 92% since inception) to the new Light portfolio. * **[00:03:55]** – Recent Trades: Selling **AMCX** (AMC Networks) and **GTN** (Gray Television); holding **VLRS** (Controladora Vuela Compañía de Aviación). * **[00:05:00]** – Deep Dive Intro: The “Williston Whale” and the history of North Dakota oil.   Transcription   Cameron: [00:00:00] Welcome back to QAV America, Tony, episode 37. It is 27th of January, 2026 in Australia. It’s, uh, 1935 in the United States. Uh, Tony Kynaston: Well, and also very cold. Apparently, I, my condolences to anybody has been affected by the freak cold snap over there where it’s not usually happening. Cameron: My regular co-host in my history shows Ray Harris, who’s in Virginia, sent me a photo out of his window earlier today. There’s a lot of snow outside the front of his house. Tony Kynaston: we’re sweltering Cameron: Very cold. Tony Kynaston: like Cameron: Yes. Tony Kynaston: fifth day of Cameron: Mm, Tony Kynaston: degrees Celsius. Cameron: warmest place on the planet. Apparently Australia is right now Tony Kynaston: What’s, Cameron: place in the planet. Tony Kynaston: Celsius and American terms. So there’d be 110 maybe. Cameron: Oh yeah. Bloody, [00:01:00] bloody hot, Tony. Bloody hot. Well, uh, look, before I get into my deep dive, my little walk down Wall Street today, Tony. Um, we had the Sell America trade going on last week when Donald Trump threatened to throw more tariffs on Europe, but we just made a deal. They said, I don’t care. He said, deal Shme. I’m the art of the deal. I just break the deal and throw more things in. But then he tared on that as he often does when they agreed to let him invade Greenland or whatever the hell he’s gonna do today. So the, the market had a bit of a conniption for a few days, did affect our US portfolio. Um, let me just bring that up so I can tell you. Well look, our portfolio, our, our main US portfolio that I’ve been running for a couple of years is doing great. Um, the new one that I started, the light [00:02:00] portfolio that doesn’t have its legs under it yet, and a lot of the stocks that I’m buying were very close to their sell lines anyway. They just etched above them. Um, became a buy. I’ve had to sell a couple, but, um. Oh, it looks like our US one has gone back a little bit too. Anyway, for the last 30 days, our US dummy portfolio main one is up 15% versus the s and p 500, up 0.29% in the last 30 days. So it’s still all right, uh, VV versus that. Tony Kynaston: of Cameron: Um, Tony Kynaston: in a month. Cameron: since inception. Tony Kynaston: Yeah. Cameron: Yeah. Since inception, which is, uh, September, 2023, our portfolio is up 92% versus the s and p up 56. So not quite double market, uh, but doing, doing pretty good like in the last 30 days, no last three months, [00:03:00] it’s up 21% versus the s and p up 2.3. So it’s particularly since the beginning of the year, it’s done quite well. The light portfolio though that I only started a month or so ago, I think late December, not doing as well. It’s down two and a half percent since I started it versus the s and p up 1%, and I have had to sell a couple of things recently. I sold. A MCX this week. A MC networks breached their three point trend line. And also a MTD idea that we talked about recently. Uh, no, hold on. I haven’t sold those. Um, they, they are a cell, but I’m holding onto them just because I’m being bloody minded about it. Uh. I told you last week, I’m giving, I’m giving all of these stocks a month to settle in before I sell ’em, because they’re so close to their sell lines. When I buy ’em, they go up a buck, they go down a buck, you know. But I did sell GTN Media last week, um, which I’d held onto for about a [00:04:00] month. And A MCX I’d held for about a month. So I was like, well, that’s it. Your grace period is over. Um, but VLRS. That I added last week is up a couple of points, which is, that’s good. And I’ve also added the stock that I’m gonna talk about today, which is ticket code, CHRD, cord Energy, AKA, the Williston Whale, a Symphony of Shale is the title of this episode that. Oh, Google Gemini came up with that for me. I said, come up with a clever, come up with a clever title. That’s what it came up with. The Williston whale, A symphony of shale. Now, I dunno a lot about, we’ve talked about shale from time to time on our podcast, particularly when we’re talking about crude oil and the markets and pricing. But I, I’m not sure that we’ve done a deep dive on a shale oil company before. Uh, and what I’ve learned in doing [00:05:00] this is. A lot of developments in shale oil technology, largely driven by this company in the last couple of years. So it’s a whole new era of shale oil and fracking that changes the, the dynamics in the economics of shale oil. In theory, we’ll see that plays out, but that’s the theory. So the Williston whale, uh, Williston is a city. In North Dakota, Tony, um, everything I know about North Dakota, I know from watching Deadwood. Um, uh, and I think Fargo, Tony Kynaston: Minneapolis, isn’t it? Cameron: um, Tony Kynaston: Minnesota, Cameron: uh, Tony Kynaston: Yep. Cameron: I dunno. Yeah. Could be. Sure. That’s all I know. That shows you how much I know. I don’t know anything. It was, uh, Williston was founded in 1887. Named [00:06:00] after Daniel Willis James, a merchant and capitalist by his friend, railroad Magnate James J. Hill. So it’s Willis Town. Tony Kynaston: financing. Then they should name a Cameron: No it wasn’t. Who’s the number one? Tony Kynaston: Yeah. Cameron: Well, we’ll name a town after then ’cause they’re up 300% in our US portfolio. Wasn’t named after what you’re talking about. Willis, either or Bruce Willis. So they, they were my first two guesses. It is the birthplace of Phil Jackson. 11 time NBA championship head coach of the Chicago Bulls. I think also the Lakers he went to after the Bulls, if I remember the Michael Jordan documentary, um, we often talk about Don’t bench Michael Jordan. And Phil Jackson never did bench Michael Jordan and that’s why he won a lot of NBA championships. So crude oil is, um, a buy on, uh, our. Uh, buy list this week for new listeners to [00:07:00] QAV. Uh, one of the things that we track each week is where certain commodities are, because particularly in Australia, a lot of the stocks in our buy list are mining stocks. And Tony has learnt over the years he’s been investing that if the underlying commodity of a stock becomes a buy or a sell based on its trend line. Stocks that are predicated on that or, or that commodity, whatever it is, their share price will tend to follow. There’ll be a lag, but tends to follow. So, um, if something beca, if a commodity becomes a buy, we then are able to buy the share price of it too, becomes a buy the, the, the stock. And if a. Stock with an underlying commodity and that commodity becomes a sell, we will often sell it. Um, crude and LNG have both been sell for us for quite a, quite a while. They both became buyers again this week. Whether or not that has anything to do with Venezuela, um, dunno, but[00:08:00] your theory that Donald Trump’s going to put, you know, tow Greenland down to Venezuela and join them together. Tony Kynaston: It’s a great Cameron: So he can go skiing now. He’s the president of Venezuela. He can go skiing in Greenland. Tony Kynaston: And surfing in Venezuela. Cameron: Who knows? Tony Kynaston: Yeah, Cameron: Got the best of both worlds. Uh, speaking of midnight oil, so you stand, imagine this, Tony, you’re standing in the middle. Uh oh. Midnight oil. We were just talking about Australian rock band. Midnight oil, not shale oil. I dunno which oil, midnight oil is, but uh, it’s black like midnight. The drummer of, uh, 1970s Australian. Well, they’ve been around since the seventies. Been on all the, the founding member and drummer Rob Hurst passed away this week. It’s very sad if you’re an Australian Rock fan and if you’re not, uh, if you dunno, midnight all you’re an American, jump on Spotify or Apple Music and have a listen to some of the greatest hits of Midnight Oil. You probably [00:09:00] know a couple of ’em because I think they got quite a bit of, uh, traction in the US over in the nineties and two thousands. Tony Kynaston: us talking about a shale oil company, I don’t think. Cameron: No, they were environmentally greeny, uh, com, uh, rock band, very political. So imagine this, you’re standing in the middle of a frozen North Dakota field beneath your feet. A drill bit has gone down. Then, oh, look at my broken knuckle. See that finger? I can’t. If you’re not on video, you’re missing this. The visual, my broken, my broken knuckle finger. This cannot go. I can’t straighten it out. The bit is doing a 90 degree turn and traveling four miles horizontally through. Tony Kynaston: field. Yeah, Cameron: Yeah, yeah, yeah, yeah. Saddam Hussein would’ve loved this. It’s, it’s going all the way to Q eight, Tony Kynaston: oil beneath the, the [00:10:00] school and they had all these meetings about what to do with it and everyone thought they were gonna be rich until Monty Birds brought in the slant drilling company, went underground and Cameron: right? Tony Kynaston: Yeah. Cameron: Yeah. I think that’s what Saddam Hussein accused Q eight of doing back that led to Gulf War I. So it’s, uh, cracking through rock harder than a sidewalk the company doing. It was left for dead in 2020, but today is the undisputed heavyweight champion of the backend. Um. When I first read that, I thought the backend was either a mythological underwater monster from a Lovecraft book, or was a bad guy from like a Mortal ko. I think like the big boss you have to fight in Mortal Kombat is the Backen, but the backend formation is a massive 200,000 square mile subterranean geological unit spanning North [00:11:00] Dakota, Montana, and Canada. Which is known for harboring vast reserves of unconventional oil and natural gas, and that’s what these guys are tapping into. They’re the Frankenstein of the backend though, because they were built out of the dead bodies of other oil companies, fracking companies. Tony Kynaston: That’s a great image. Cameron: And fracking companies themselves are, you know, mining dead animals. So this is a company built on the dead companies that were built on the dead animals of the, uh, whatever period the back and oil reserves come from. So it’s ancestors were two companies called Oasis Petroleum. And Whiting Petroleum. They were two rivals that were doing fracking in the Williston Basin. During the shale boom of the 2000 and tens, they fought [00:12:00] over the North Dakota dirt and the oil underneath it then came 2020 COVID hit, and I had forgotten this, but the oil price didn’t just drop. It went negative at one point, it was negative $37 a barrel. At one point you had to. Pay people to take your Tony Kynaston: you were paying Cameron: oil. Tony Kynaston: at one point, weren’t you? ’cause you couldn’t sell it. Yeah, Cameron: That’s right. It was, it was a disaster. So both of these companies went bankrupt, but the way that they went bankrupt. Well, yeah, but the kind of Chapter 11 bankruptcy that they took was not good for the shareholders. Tony Kynaston: Never is. Cameron: ended up with? Well, yes, but they ended up with not nothing, [00:13:00] nothing but almost nothing. The best, like, yeah, it was pretty much nothing. Tony Kynaston: oil Cameron: Um Tony Kynaston: I thought they were sitting on the oil reserve under the school, but. Cameron: Oh yeah. So, um, CORD hasn’t just stopped with those two. It’s, it’s a bit of a predator. They also, in 2024, bought a company called N Plus, which is a massive Canadian based, uh, fracking company and an $11 billion deal. So they now control 1.3 million net acres, which is an area larger than the state of Delaware. And have become basically the dominant force in fracking in North Dakota. But let’s get into this history a little bit because I, I assume that the reason it’s cheap, uh, in our buy list this week is because institutional investors don’t wanna touch it after [00:14:00] what happened to it, um, five or six years ago. So. Shale 1.0 2010s. Uh, these two companies, oing and Whiting, oh, sorry. Oasis and Whiting were the poster children. They had spent billions drill in North Dakota, but they had borrowed those billions of dollars. So between them, they were carrying over $5 Billion in debt. COVID hit share, price crashed and it was a big disaster. So. Uh, they went belly up and it wasn’t just COVID that hit as well. OPEC plus Saudi Arabia and Russia saw that as a great opportunity to kill these American companies. So there was an all out price along at the same time, Tony Kynaston: Yep. Cameron: and they were specifically targeting high cost producers, US shale producers, flooded the market with cheap oil. [00:15:00] And that sort of killed these guys. So, But both of these companies used what’s called a prepackaged. Chapter 11. I’m, I think of it as a bit like a prenup. when they went into chapter 11, the deal was the company made a deal with the banks and the bond holders. That was a total transfer of power over to them, and they forgave billions of dollars in debt in control for a hundred percent of the new company’s stock. That totally erased all of the Wall Street pension funds and index funds equity in these companies. There was no recovery. There was no 10 cents in the dollar. It was just. Immediately gone, uh, canceled, declared worthless. Thanks for coming. Have a nice day. If you owned a thousand shares on Friday, you woke up on Monday with [00:16:00] dust. That was it. It was done. There were lottery ticket warrants, so to avoid of legal warfare, apparently old shareholders were given warrants, long-term options. But the strike price was set at for Oasis, $94 57. That was so high. It felt at the time, and in Tony Kynaston: Yep. Cameron: the share price for Court energy today is $95 and 53, so it is only now. Uh, back to where it was. I mean, so it did get higher than this. By the looks of it, 2024, it was up as high as, uh, 160 bucks. Uh, 185 bucks actually. but they basically, at the time it looked like that was a joke, but that was what they were left with. They were offered these, uh, warrants. So sort [00:17:00] of the background story with these guys. Um. And the oil price has been down, as we know for the last year, their share price has gone down with it. I assume that that’s a large part of why the share price has collapsed since, uh, the $185 days. They’re also a pure play. I guess that’s one of the challenges with these guys. So they’ve got a dirty history, oil’s been down. They’re not like, um, a Chevron where they’ve got oil fields all over the place doing different things. It’s, it’s basically North Dakota. If North Dakota goes bad, um, then you get hit with problems, laws, pipeline freezes. I don’t know any sort of these sorts of issues can have. But the guy that runs the company, a guy called Danny Brown, who’s the CEO, he’s a mechanical engineer by trade. He runs the company like a semiconductor fab. Um, and as I[00:18:00] new Tony Kynaston: It’s like a what? Cameron: A semiconductor fab. He runs a, like an engineer, like he’s not a, he’s not a kind of guy. Oh, okay. clean, brutal operation by the sounds of it. they’ve been the key proponents in this, what’s called the four mile lateral. So they’re the world leader horizontal drilling. There used to be two miles was the best you could They can now do four Tony Kynaston: Wow. Cameron: It’s fairly new, I think, the last couple of years, and it’s a pretty big deal. Basically, as I said at the beginning, you, you drill a vertical hole, you hit the oil, used to just do that and stop, then you go down, you stop, you turn and you keep going you can, I like almost double your output with no extra [00:19:00] Once apparently, all of them, Tony Kynaston: Right. Cameron: of the cost is the initial drill down Once you drill down everything, you get out of that. layer then is Tony Kynaston: I imagine there’s also, get to pick, you can drill down in Soft Rock, which would be much easier than curling through Hard Rock. ’cause the other option is to move the rig to a different location and go straight down again. Yeah. I. Cameron: So it’s about 70 football fields, um, is how far they can go horizontally. apparently the rock layer that you are going through is about the size of a house, so it’s not huge. Once you get it, you wanna suck it dry like a Vampire like blade Blade. Half Vampire and he doesn’t like to drink blood. He, he, he has a, a serum that he takes that stops him from having the hunger. Sorry. I’ve been watching Blade Films [00:20:00] listeners, if you’re wondering why I’m going on about Blade and going back to the Old Blade films, it’s, they’re pretty awesome. First one. Awesome. So they break even. Uh, now we’ve talked about shale on the show over the years, and we’ve talked about how shale oil companies only make money when the if it Tony Kynaston: Correct. Yep. Cameron: screwed because they’re high, cost producers. That’s Tony Kynaston: kind of always viewed as a sponge because, um, of the oil industry, because it’s self-fulfilling. Once, once they start to, they can produce when the price is high and what’s the cure for high prices? More, more volume. So they, they flood the market, which drives the price down and they have to shut up again. So yeah, they’re the, they’re the, they’re the kind of top of the cycle producers. Yeah, Oh, okay. They’re the peak, peak Well, PCO means something different, but yeah, big price. Yeah. Cameron: doesn’t really work, does it? Yeah. Tony Kynaston: Yeah. Cameron: [00:21:00] So apparently that’s no longer true with these guys, So they can make money even if the oil drops a barrel. Tony Kynaston: No, that’s good. Cameron: They, and they’re making a of cash off of what they’re operating, um, with no debt because they offloaded all their debt. So they got rid of all their debt. Few years ago. It was a great deal. a, it’s a Donald Trump kind of deal. I just go bankrupt, get rid of all my debt, keep running. He’d love this company, I’m sure. So shale, so I, you know, I was having a conversation with Gemini about this and I was like, I thought shale companies, you know, could only make money when the price was high. And they go, well, that’s the shale 1.0 argument. That was true 10 years ago, no longer true. That’s an out of date argument. It so, um, combination of not just the four mile laterals, but also massive consolidation. The best in class operators [00:22:00] like Cord low breakevens, even in the low or the fifties. Tony Kynaston: Okay. Cameron: it says Saudi Arabia can pump oil for $10 a barrel, but they need $80 to fund their national budget, social programs, all of that kind of stuff. Cord doesn’t have to fund a country, it just has to fund a balance sheet it can at lower prices than OPEC can. I reckon. So. And I guess, uh, Putin needs to fund a war machine. So these guys, you know, it, it, used to have this idea that when the price dropped shall, oil companies needed to stop. Apparently that’s no longer true. What they probably won’t do wells Tony Kynaston: Right. Cameron: drops, but wells that they’ve already got they can keep running and Tony Kynaston: Yep. Cameron: generating cash. It’s once it’s drilled, once it’s fracked, they can keep. it dry Tony Kynaston: Mm-hmm. Cameron: um, it’s the, [00:23:00] apparently the cost is as low as like $15 a barrel to keep pulling it out. So it’s not that expensive than Saudi oil They don’t shut down old wells, they just stop drilling new ones. So. Apparently this is the secret weapon, is that it’s modular. If Exxon is building a $10 billion offshore platform in Guiana, they’re committed for 30 years. If the oil price crashes tomorrow, they still have to finish that $10 billion project. Cords, businesses modular. They spend their money in relatively small increments, $10 million, like one well at a time. the market gets ugly, they just stop the next increment. But they can keep. You know, sucking oil outta what they’ve got. They’re not expensive and they’re adaptable to the price if they keep their costs down and they run a lean, mean sort of an operation. The other part of the, the shale oil myth that [00:24:00] I drilled down on is this idea that they pretty quickly. Tony Kynaston: Yep. Cameron: That it loses about 60 to 70% of its production in the first I’d always heard. So you have to keep moving around. You have to keep drilling. Um. Apparently the counter argument to that is they get most of their money back in the first 12 to 18 months. They’re not waiting 20 years to see a return on this. yeah, it costs ’em $10 million to drill, but they get it all back, most of it back in the first year, making profit, Tony Kynaston: Right. Cameron: get after that. So it’s a, it’s a sort of a, I don’t know, it’s like a. What, what do you call those stores Tony Kynaston: Yeah. Cameron: Do Tony Kynaston: stores. Cameron: store and sell mobile phones. You know, pop up quickly, Mm-hmm. and then they can get out. So. bankruptcies didn’t happen because the model failed. It happened because the capital [00:25:00] structure failed, and it was a bit of a black swan, um, event too. But now the new court in 2026 has almost zero debt, low break even, and is returning cash to shareholders. So. I’ll run through the numbers now. So you see what I’m talking about. Um, share prices I said is about 95 bucks. Market cap is about 5.4 billion USD there EPS at the moment is about. $9 16. Their forecast EPS out a year is $9 52. The yield at the moment is 5.44. PE is running about 10.4. Operating cash flow is about [00:26:00] 2.2 billion at the moment, according to stock Pedia. Pretty large volume. Average volume is about, uh, 747 million daily trade, so pretty big. Um, Petrovsky F score is about a six. Pretty good. The quality rank is only a 64 stock ranks only a 64 in stock edia, so it doesn’t really our bubbles there or the quality rank’s good. We’ll score anything over a 60, but the key thing of course, that we look at is price to operating cash flow The price to operating cash flow is 2.47, not as low as some of the companies we’ve seen recently, but, uh, pretty low. Um, and it’s generating a, a ton of cash. Um, it’s when I went through the checklist, it scored for quality rank. As I said, it’s a 64. We’ll qua, we’ll score anything over a 60, didn’t score. for stock rank, did score for F score. The price [00:27:00] isn’t lower than our IV number one. Our IV number one is, uh, $47, but it is lower than our IV number. Two, which is $98 80. less than that, but that’s good enough. Price is lower than book. The book price is, uh, where’s the book? Price to book? I’ve got at, uh, uh, 0.67. Where’s the book? Price Equity per share is, uh, $141 98. So it scored for price lower than book obviously. Also, scores for price lower than book plus 30 does have a new three point upturn. over PE is not greater than 1.5 though. PE is not lower than, the yield bank is not higher than, uh, so the yield is not [00:28:00] higher than the mortgage rate forecast I IV not greater than double the share price, but it’s scored for 11 out of $14, quality score of 79% and a QAV score of 0.32. So, um. There you go. That’s the shale oil Tony Kynaston: I saw a couple of things too in their announcements, which I liked. Um, so they’ve been doing a big share buyback and their policy apparently is to use free cash flow either for buybacks or dividends or both. Um, they’ve been returning all surplus free cash flow to shareholders, which I like. Uh. Bought back a heck of a lot. They bought back 200, 216 $0.5 million last year of shares. So they’re really, um, helping [00:29:00] shareholders out there. Cameron: they’re trying to, they’re trying to make good. you remember us? Tony Kynaston: yeah, Cameron: you. Well, look, now we’re good Tony Kynaston: yeah. So they’re, they’re doing all that, um, dividends, high, big buyback. So. Helping the sh the put the floor under the share price. Uh. They’re still active. Despite all that, they’re still active in the m and a space. As you said, they, they bought NA plus last year and that was a huge expansion, um, for them in the Williston basis. They, they expect to, they expected to get $150 million of annual cost and efficiency synergies when they. Propose that, uh, acquisition and now that they’ve got the company and they’re operating, both of them, they’re now forecasting to get $200 million annually in, um, operation Synergy. So that’s pretty good. Uh, they’re. Operating cash flow close, uh, jumped sharply after the, uh, [00:30:00] closing of that deal on pl. Uh, so they reported a 61% year over year increase in operating cash flow for quarter 1 20 25 as a result of the integration. So they’re throwing off a lot more cash than they were. They’re either putting it to, to use to expand via m and a or they’re giving it back to shareholders. So that’s, that’s pretty good. Um. What else did I see about them? I like them. Their, their latest, um, latest numbers were great. Q3 2025. Uh, net income was 130 million, which is 2 26 per share. Um, actually, sorry, it was down. So they went, they came down this year from, uh, 2, 2 26 from 3 59. Um. They reported a net loss of 40 million this quarter, but that was a book loss. So primarily due to $539 million. Uh, million dollars, sorry. Non-cash goodwill impairment charge [00:31:00] recorded because of the n plus acquisition. Um, so, uh. Profit was down, but because of the, um, the, the, uh, non-cash items, uh, and they’re still not really reflecting the, um, the n plus acquisitions in their results yet. They expect to see them, uh, in the next quarter coming through. So that’s a good thing too. I did wanna highlight that there is, uh, some risk. We’ve spoken about a lot of risk already in terms of the, the oil price and what could happen, but they’re also, uh, almost entirely reli reliant on shipping their oil through the Dakota Access Pipeline, DAPL, which is a major crude oil pipeline running from the back backend fields to the three forks. Oil fields in North Dakota, um, and then onto Illinois spanning over 1100 miles. And, uh. The upside of that is, of course, it’s very direct and efficient, uh, for, for transporting crude oil, but it does come [00:32:00] with risks. Um, environmental risks, operational risks, uh, political risks. Uh, oil. Oil pipelines have long been contentious, particularly in North America. Oftentimes from getting Canada’s oil, uh, down to us refineries and ports. Um, this particular pipeline still does have ongoing legal challenges coming mainly from the Standing Rock Sioux Tribe on environmental grounds. So, um, they claim that the DAPL violates violates treaties in sovereignty and, uh. Depending on how those legal challenges go, could result in issues either from paying the Sioux, uh, red Rock, standing Rock, Sioux Tribe royalties or more royalties, but also could also, um, mean rerouting or, or dramatic changes to the pipeline. So there are, there are some risks because of the pipeline. Um. I think I would rate those as fairly low to [00:33:00] moderate. There’s always the risk of a pipeline to the bursts or that it leaks or something like that. So there’s a, there’s a, a threat of environmental disaster. Um. If it’s a large scale environmental disaster, that becomes quite major. But, um, the, these pipelines tend to be pretty robust and, and well maintained. So the prob, the probability of that happening is low. It’s more likely, I think that one of the legal challenges causes them a financial impact. So just wanted to call that one out as well. Um, I wouldn’t be surprised if, uh, this company has. Other contingent or has contingency plans in place if something happens to the pipeline, um, either through road or rail transport as a backup at least, if not through other pipelines that it could potentially use. Um, so yeah, so, but all in all, it’s, it’s a strikingly good company throwing off lots of cash. Um, as you say that e economics of the industry change, they can [00:34:00] make money at low prices. Um, they, they. You wouldn’t say control the backend field, but certainly are the biggest player in the backend field, which has gotta come with some benefits, I would’ve thought. Um, oftentimes the biggest player is the first person you turn to if you’re trying to sell. Uh, so that’s gotta give ’em some advantages, um, uh, and, and economies of scale. The n plus acquisition is proving even better than they first thought. Um, so yeah, I, I like what I see with this company and the policy of giving back free cash flow to shareholders in terms of dividends and share buybacks is, has gotta be good too. Cameron: This, friendly, Tony Kynaston: Now court is, it was a, it was Oasis and Whiting. They were crap. They were terrible. Yeah. Cameron: yeah, Yeah. Tony Kynaston: Yeah. Yeah. Cameron: Who never heard of them? All right, So, that was our, uh, thank you Tony. that’s a deep dive for the week. Uh, I did add them to the QAV light portfolio yesterday. Sent an email out to our QAV L members. [00:35:00] So, uh, it is up 0.4% since then. So that’s good. in the right direction. Tony Kynaston: Yeah. Uh, and as we said on, as we said on the other show, the Australian show that, um, it’s often, many times when I started portfolios, they’ve underperformed until you get 15 to 20 stocks until they’ve had time to sort themselves out. So you can pull the weeds and let the flowers bloom. It can take a year or so to establish a portfolio. I think. Cameron: Yeah, and we know the over long term. You know, you end up with, uh. Good companies that, the rest of the market, Tony Kynaston: yeah. Cameron: Well, that’s it for QAV America this week. out of the heat, Yes. go and some, Tony Kynaston: drag some to the us. Look and warm up. Cameron: tonight? Uh, not in. Tony Kynaston: It’s gonna be [00:36:00] 39 down here in the now’s time, so no, I don’t think so. No. And I’ve played three times over the weekend, so   Tony Kynaston: I’ll give the bother rest Cameron: I’m gonna go do three hours of in a tin shed with no air conditioning. there is a bit of air conditioning, but it doesn’t work very Lots of Right. Okay. always I come to sweat. That’s Tony Kynaston: Yeah, Cameron: here. I come so you know, Tony Kynaston: Yeah. Cameron: It Tony Kynaston: Good luck. You got like people in a all sweating Yeah. Cameron: you Is that why the, the Tony Kynaston: coach you wear have the big open sleeves? Cameron: that’s right. Tony Kynaston: Yeah. Cameron: smell the Tony Kynaston: get rid of the odor. Cameron: Yeah. Oh, right. Yeah. Into somebody’s nostrils. What was the, uh, spinal Tap album? Sniff the glove. Yeah. Tony Kynaston: Smelled the garlic, I think it was. Yeah. Cameron: we often do that [00:37:00] ’cause we wear, you know, pads and gloves and that kinda stuff, and they smell. We just like stick it in somebody’s face and go smell the glove. Alright. Thank you. tk. Thank you everyone. Happy? Happy Nissy. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own [00:38:00] objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number [00:39:00] zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jan 30, 2026

39m
27

AMTD: The Murky SpiderNet – QAV AMERICA 36

In this episode of QAV America, Cameron and Tony navigate the complex intersections of the 2026 US economy, where the AI boom is currently offsetting the drag of ongoing tariffs. The duo explores the shifting AI landscape, notably Apple’s decision to build the next Siri on Google Gemini rather than homegrown technology, leaving significant questions about the future of OpenAI. The heart of the show is a “Pulled Pork” deep dive into **AMTD Idea Group (AMTD)**, a company with a fascinating Australian origin story involving the Commonwealth Bank. Despite trading at an unbelievable discount to book value (P/B 0.04), AMTD remains a polarizing prospect due to its controversial leadership under Calvin Choi, a bizarre “Spider Net” ecosystem, and a recent shift from Big Four auditors to a small regional firm in Singapore. — ### Episode Timestamps * **[00:00:00]** – **The State of the US Economy**: How the AI boom is currently acting as a buffer against tariff-induced drags. * **[00:03:00]** – **AI Shakeups (#AAPL, #GOOGL, #MSFT)**: Apple pivots to Google Gemini for Siri, raising red flags for OpenAI’s longevity. * **[00:06:00]** – **Tanker Tycoons (#TEN)**: Discussion on the “Venezuela trade” and why shipping companies are currently “making out like bandits”. * **[00:08:00]** – **Portfolio Performance (#WLFC, #GASS, #KT, #KE)**: Reviewing the US portfolio’s 23.5% gain over the last 90 days. * **[00:10:00]** – **Deep Dive: AMTD Idea Group (#AMTD)**: Introduction to the “luxury suitcase at a thrift shop” investment case. * **[00:12:00]** – **The Australian Connection**: AMTD’s 2003 origins with Commonwealth Bank and CK Hutchinson. * **[00:15:00]** – **Calvin Choi and the “Spider Net”**: Exploring the visionary/controversial leadership and the self-reinforcing ecosystem. * **[00:19:00]** – **Regulatory Red Flags**: Details on Calvin Choi’s SFC ban and hidden beneficial interests. * **[00:23:00]** – **The HKD Meme Stock Ghost (#HKD)**: Recapping the 2022 explosion where AMTD Digital briefly became the 14th largest company in the world. * **[00:31:00]** – **The Paris Pivot and *L’Officiel***: AMTD’s move to France and its acquisition of the legendary fashion “Bible”. * **[00:34:00]** – **Auditor Alarms**: Why the company moved from Deloitte to a small Singaporean strip-mall auditor. * **[00:36:00]** – **The Numbers vs. The Trust**: A P/E of 2.11 and buying $1 of assets for 4 cents—if you believe the books. * **[00:51:00]** – **Final Verdict**: Trusting the QAV process vs. “holding your nose” on a controversial stock. Transcription   [00:00:00] Cameron: Yeah, I know. I keep noticing that and trying to pull my camera form. Welcome to QAV America, episode 36, Tony. Um, we just come out of our Australian show. One of the things that we did talk about though on that was article I saw in the New York Times this week about the state of the US economy. Uh, I think we’ve talked recently how the Trump tariffs don’t seem to have had the negative impact on the economy over the last year that we thought it might. But according to the New York Times. Uh, in the economists that they’re talking to, uh, the US economy is doing well despite the tariffs, um, not because of the tariffs. Um, they’re basically saying the AI boom is what’s keeping the economy going in the us and it’s offsetting the drag from the tariffs. [00:01:00] It’s quoting Gida Goana for Harvard Economist and former first deputy managing director of the International Monetary Fund said the AI boomers basically offset the drag from the tariffs, but manufacturing is struggling, particularly small manufacturers are struggling. The job market is anemic. Um, tax deductions aren’t helping manufacturing is just not getting, uh, the wind under its sails that some people thought the tariffs might bring. But as we talked about in the last show, I mean, trying to bring manufacturing back to a country that’s been offshoring it for 40 years was never gonna be a, a short term or easy process, you know, may pay off. And we talked in the last show also about, you know, how difficult it is for businesses to make long-term commitments to major investments, to rebuild manufacturing capability when they don’t really know how long the tariffs are gonna be in place for, you know, if there’s, if, [00:02:00] if the midterms go ahead. And there’s a lot of talk in the mainstream media at the moment in the US about how the midterms may not go ahead because President Trump seems to be suggesting it from time to time. We don’t really need to have the midterms. And then his press secretary will come out and say, he’s only joking. Tony Kynaston: The prison of the Venezuela. I, I thought Yes. Right. Cameron: He is also that yes, he’s and the, and the, uh, new Nobel Prize winner Tony Kynaston: it. Cameron: or recipient, maybe not winner, recipient. Tony Kynaston: was a market for used Nobel Prizes, but good to know. Cameron: Uh, I believe he’s also, uh, gonna win the Oscar for best actor this year. Best director, uh, cinematographer. Um, Nobel Prize in chemistry, physics, biology. It’s like Pokemon. Gotta collect them all. So the US economy is [00:03:00] trickling along, but um, you know, very much driven by investment in ai, AI data centers. Uh, the people that have made a lot of money out of investments in the mag seven are putting some of that back into the economy spending on goods and services. But then a lot of talk about that being a bubble. I dunno if you saw this, if we talked about it last week, I can’t remember, but there was an announcement in the last week that Apple. Uh, gonna base the next version of Siri, not on homegrown technology and not on open AI’s technology, which seemed to be the direction they were moving on, but they’re gonna build it on Google Gemini, Tony Kynaston: competitor. Cameron: which puts a big question. Well, Google, they’ve, they’ve got like a weird relationship with Google. Google’s paid them billions of dollars a year for many, many years to have Google search featured prominently on the iPhone, even though they are the competitor with Android. But now they’re gonna, the, the next version of series is gonna be built on Gemini. Now it puts open AI’s [00:04:00] future, uh, with a big question mark over it. Uh, I, I assume that their lifeline was going to be being the default on iPhones. They’re not gonna be the default on Android phones now. They’re not gonna be the default AI on Apple phones either. So there’s a big question mark about how long they can continue to operate, um, how much money they can cont Sam can continue to raise. And if they. If they fall over, that could have a massive impact on the Mag seven AI bubble, Tony Kynaston: there’ll be a Cameron: or maybe not, who knows? Tony Kynaston: to put OpenAI on it. Cameron: Yeah. Well, Microsoft might end up buying open ai, Microsoft, or Meta would be the obvious two to end up buying. Maybe Nvidia will buy open AI and just bundle that into the NVIDIA software stack. Tony Kynaston: will stay with us over the weekend and he was, retired recently and planning a big caravan trip around Australia, which is. For our US listeners [00:05:00] is one of the goals of a lot of Australians to, to, to do when they retire. Cameron: Yeah. Tony Kynaston: Um, Cameron: Hmm. Tony Kynaston: and he has, he has all these, uh, bookings and destinations and timings in a spreadsheet. And, um, I forget now what question he was Googling and it came back based on your spreadsheet about the type of carava you own. I suggest this and like he’s going, how, how are you reading my spreadsheets? And we worked it out. And he’s got, uh, Microsoft copilot in his, um, Excel subscription. it’s going through his spreadsheets. Cameron: Right. Mm-hmm. Yeah, which is what I want. I wanted to know everything about me so it can give me better stuff. Google. Uh, so OpenAI also announced this week they’re gonna start rolling out ads in the free version of chat GPT in coming weeks. So this is, that’ll be interesting. Well, anyway, moving right along to my deep dive of the week, [00:06:00] Tony, this is a, this is a challenging one. It is at the top of my buy list this week, and I was so not confident about it that I didn’t add it to the portfolio this week. I’m like, yeah, I’m talking to Tony before I add this one, but, uh, it’s a crazy story, which I hadn’t heard of before, but I’ve spent way too much time reading about this company. And its travails, Tony Kynaston: that, did you get the link to the story I had on shipping companies? I sent it as Cameron: no. Tony Kynaston: So just a quick, just a quick one. Cameron: Oh Tony Kynaston: an Cameron: yeah. Tony Kynaston: I read, in the Wall Street Journal saying that, uh, the headline is tanker tycoons in the, all Brokers cashing in on the Venezuela trade. Uh, so I dunno if these are now. But there was, um, so the article mentions all traders Vitol, V-I-T-O-L, and tr giura, uh, diving back [00:07:00] into Venezuela after Maduro’s ster. And it does mention some of the other companies as well, like, uh, tk, I think you’ve, um, a pulled pork on TK or mentioned TK Anyway, I won’t read the article, but uh, people can Google it. But, um, yeah, so we’ve long had tankers and tanker companies on the US Blist, they are making out like bandits going into Venezuela and shifting oil to the US at the moment. Cameron: Ah, interesting. Um, I don’t, I’ve got, I, I still own a couple in our check in our bo uh, sorry, our US portfolio, um, TEN, Sarcos Energy Navigation. They’ve just had a huge jump. Let me see. Gas. Yeah, they’re up. So maybe that’s why our portfolio is actually doing really well. Um, I mentioned this last week, but like in the last, [00:08:00] um, well this month, last month, uh, the last 30 days, our US portfolio is up over 16% versus the s and p up about 1.5%. Tony Kynaston: of Donald Trump to be Cameron: Uh. Tony Kynaston: doesn’t it? Cameron: Yeah, in the last 90 days, our US portfolio is up 23.5% versus the s and p up 4%. Tony Kynaston: a tanker companies then. Cameron: So, well, Willis Lease Finance Company, which we talked about last week, is, uh, leasing, um, commercial aircraft and aircraft engines is booming back up again. It’s had a good, um, a good, uh, month or so after declining for most of last year from, its, it was up 300% at one point and then it declined back to, uh, up 200%. But it’s had, uh, a good couple of months if I look at all of our charts. [00:09:00] Yeah, a lot of, let’s see, last, uh. Last month and over. International is down a bit. Euroes is actually down a bit. Another shipping company. Uh, regional management’s down quite a bit. Uh, but stealth gas is booming. KT is up. Career electric Power is up. Yeah, it’s a, it’s a mixed bag, but, uh, the ones that are up, uh, really like, uh, Willis Lease Finance in the last month has gone from 135 to 185. So, you know, it’s, uh, had a, a really good 30 days. For some reason, I’m, I have no idea why, but Tony Kynaston: TK Cameron: complaining. Tony Kynaston: the portfolio still. Oh, okay. Cameron: I don’t, I, I think I did at one point and I had to sell it. Um. While I’m here, QAV Light Portfolio, which is about a month old, is not doing well, surprisingly, [00:10:00] it has not had a good month. It’s down, uh, about 2% since I bought it versus the s and p up one and a half percent. So, so the stocks that we’ve been adding lately have not had a good start. A MCX is down 15%. GTN is down. 12 VLRS is down six, and Zfa is down 1% we talked about last week, but you know, it’s early days, so I’m not really worried a great deal about that. The market generally is, the US market has not had a good month for a whole variety of reasons. So unless you’re in Mag seven land, so, um, yeah. It’s just tracking along. But this company that I have to speak about today is, uh, what a corker. So it is called A MTD, the [00:11:00] A-M-T-D-I Idea Group. And, uh, wow. It is, it has a background. That is kind of crazy. So you ever heard of these guys before Tony? Tony Kynaston: some Googling after you told me you’re Cameron: Me either. Tony Kynaston: them and Yeah, I agree. Wow. Cameron: Wow. Um, at first glance, it’s a luxury suitcase at a thrift shop. Tony Kynaston: Mm-hmm. Cameron: go, wow, this is cheap. And it’s got so many beautiful aspects to it. Imagine buying a dollar’s worth of Ritz Carlton hotels, fashion magazines, Asian banking connections for about 4 cents. But the catch is the guy selling it to you straight out of a Scorsese film, and the auditor signing off on it is based out of a strip mall in Singapore. [00:12:00] There are a lot of, a lot of, uh, question marks over this, uh, company. Um, not to say it’s not a, a good investment, not to say that there’s anything untoward about the company at all, but, um, I did have to, I did have to, um, hold off on this before I spoke to you because it was, uh, quite concerning in, in many ways. So the origin story actually is. Based in Australia. Did you, did you come across that and when you looked at it, company was born in 2003 when the Commonwealth Bank of Australia was one of the founders of this business with Lee K’s, CK Hutchinson, Hong Kong billionaire. His company [00:13:00] owns the majority of like Hutchinson Telecom around Asia and TPG in Australia, which used to be Vodafone. Hutchinson Plus has businesses in retail ports. Energy, Alipay Hong Kong is a joint venture between Alibaba and uh, Hutchinson. Lee Kushing himself is still kicking around. He’s 96 years old, 38th richest person in the world. But. His stake in this business has been reduced down to about 4%. And the Commonwealth Bank got out, uh, I think after the global financial crisis. Uh, Commonwealth Bank exited some of their more spurious Asian venture capitally type investments and decided to concentrate on actually running a bank back home. But this started off 22 years ago as an Australian style wealth manager for Hong Kong’s emerging middle class. [00:14:00] Let’s put together a fund and go and buy big assets that, you know, you wouldn’t be able to get into, uh, necessarily as an individual investor. And we’ll go and buy these very, very we’ll buy hotels and ports and shopping centers and things like that. The A-M-T-A-M-T-D originally stood for ad minus times divide the four basic operations of mathematics. Seriously. It was supposedly based on fundamentals, no nonsense, finance, mathematics, et cetera, et cetera. Um, fast forward to about 2015 when the story takes a hard turn, a guy called Calvin Choy basically took over the operation. This is the guy that, um, should be in a Scorsese film. Uh, he was the former managing director of UBS in Hong [00:15:00] Kong, I think. And, uh, yeah, he, he sort of exited and brought together Morgan Stanley’s private equity arm and a few other big banks, and basically engineered a bit of an investment slash takeover of A MTD with himself as the guy running operations. And he wanted to turn it into a something different, what he calls a spider net. Which I gotta love, honestly, when if, if you have somebody saying that, yeah, this is a spider net. It’s a spider net. I kinda love the, just the, the visionary aspect of reminds me of the.com days when I was working at Microsoft and I’d have entrepreneurs that had come in and they’d say, let me show you what we’re doing. And they’d get a, a pen on a whiteboard and there’d be lots of lines and things going round. And, ’cause they wanted [00:16:00] Microsoft to invest in it. And I’d spend an hour listen ’em and go, I have no idea what the hell you’re talking about. We’re pass. It’s a pass. Honestly, if you can’t explain it to me in about a minute. I’m par. It’s way too complicated if it takes you an hour on a whiteboard to explain it. This is one of these things. But after, uh, Choi got Morgan and Stanley involved, he left UBS and he took over this thing, uh, two entities. One called LR Capital and one called CM International, which was a subsidiary of China Minh Investment Group acquired a 71 stake in the operation. Now this sort of converted A MTD from more of a conservative wealth management Commonwealth Bank sort of thing for US listeners. Commonwealth Bank is one of Australia’s oldest banks used to be run by the government, hence its name got privatized in the nineties. I guess now it’s publicly [00:17:00] listed. But, um, you know, it’s been around for a very long time and has a reputation or had a reputation of being pretty conservative. Uh, bank in Australia. Tony Kynaston: it’s a retail bank too, Cameron: Um, Tony Kynaston: Yeah. Uh, Cameron: yes. Tony Kynaston: a savings and loan in the us. Cameron: Yeah, so it, it went, it sort of got reinvented by Calvin Choi into an aggressive capital markets player, C-M-I-I-G. The China Minche Investment Group at the time was a high-flying investment conglomerate in mainland China. Often compared to a private sovereign wealth fund. Got themselves into some trouble a little bit later on with a mountain of debt and fraud allegations, and it’s sort of, it’s still around, I think, but it’s being restructured. And Calvin Choi was, as I said, former UUBS banker was installed as [00:18:00] the architect of this new A MTD was gonna diversify them away from basically, you know, a conservative insurance brokering into investment banking, asset management, and a FinTech player with lots of different assets and lots of different things. Now this guy is, uh, extremely controversial. A sells himself as a great visionary, um, but he’s also got himself into a whole bunch of legal problems in Hong Kong. Uh. Which he’s, which has made his reputation in Asia, uh, fairly binary, uh, um, I’m not sure how many people think of him as a visionary and how many people think of him as, uh, a conman. But he said he wanted to build a, a century old enterprise utilizing the spider net ecosystem, which [00:19:00] he invest, he invented this term basically, as I understand, it’s when a network of clients, investing companies and partners all do business with one another, theoretically, creating a self-reinforcing loop of value. Actually, it doesn’t sound that much different from the Mag seven, right? Nvidia, we’ll give you money open ai, as long as you come and buy all of our stuff and et cetera. Maybe he, maybe he is a genius. Maybe he’s a very stable genius. He described A MTD as a super connector between the capital markets of the east and west to creating a digital ecosystem that would rival the established banking giants. Meanwhile, the Hong Kong Securities and Futures Commission, the FFC, found that while he was a banker at UBS Choi failed to disclose material conflicts of interest regarding transactions involving LR Capital Financial Holdings and China Minh, [00:20:00] and also a company called Zinta Energy revealed that when he was acting as UBS advisor to clients, he Simon simultaneously held a hidden beneficial interest in the counterparties IE LR capital. So he was basically advising. On one side and owning the companies that were taking an interest in these or having a stake in the con, uh, companies that were having an interest in this. So the whole, um, acquisition of A MTD via LR Capital that UBS played a role in when he was at UBS. He also had an interest in some of these businesses. Anyway, basically he was banned by the SFC from the industry for two years, September, 2023 to September, 2025. So he managed to serve that out. I think he had to step down as chairman of A MTD while [00:21:00] all this was going on. It prohibited him from acting as a director or taking part in the management of N-E-S-F-C Licensed Corporation in Hong Kong. He appealed, but his appeal was rejected and the ban was upheld. So, you know, buffet and Munger, you were talking about them just last week as saying, you know, you find people that you can trust and you invest in them. I’m not sure this guy really hits that benchmark. Um, on the surface of things, and I’m not passing judgment on Mr. Choi at all. I’m just saying that on the surface it seems like he’s a bit of a controversial character that said he did restructure A MTD and they’ve made a whole bunch of investments, which we’ll talk about soon, but, Tony Kynaston: with the positive side of his story. It’s, um, uh, Cameron: hmm. Tony Kynaston: of balance out the, the narrative a little bit. [00:22:00] looks like, from what I saw, he was one of the first, I think he was an audit partner at PWC, one of the big accounting firms, and he was one of the first to go into Hong Kong after it was handed back to China. And he became very, very well versed with the ins and outs of Chinese banking. I think that’s what led him to say, Hey, I can do a lot of deals here and benefit from my knowledge and, and bring access to these companies, which haven’t been part of the global stage for a long time. So I think that’s, I think that’s the. That’s the plus side that people saw in him what he was trying to do. And then, um, yeah, negative side is that there, there were, um, accusations of being on both sides of deals. So he was advising on the purchase of something he had share ownership in, for example. So, uh, yeah, as you say, controversially viewed. Cameron: And that’s not even the interesting part of the story. [00:23:00] That’s not even the crazy part. Um, so the crazy part is what happened in 2022. So he spun off a division that was called A MTD Digital. It was a FinTech digital division that was also floated on the New York Stock Exchange. So the ticker for A MTD on the New York Stock Exchanges, A MTD, and that’s the company that we’re talking about. He floated off a MT Digital, which had the ticker HKD 85, 80 6% of it Yeah. Was owned by a MTD group and then it went nuts. So [00:24:00] it. It floated. And, uh, so I think at IPO, July 15th, 2022 at $7 80, and then the share price immediately went up by like 30000% in a couple of weeks Tony Kynaston: A MTD GameStop. Cameron: at one point. Well see, this is the thing, 18 days after the IPO, it hit $2,555 per share from $7 80. Um, that briefly gave it a market cap of over $310 billion, making it the 14th largest company in the world, larger than Bank of America, larger than Coca-Cola, larger than Shell and Costco combined. The punchline was, its reported revenues were about $25 million. [00:25:00] So at its peak, it was trading at over 16,000 times sales on around about 350,000 shares traded in a day. Now that’s the digital, the HKD business, A-M-T-D-I idea. The parent company kind of got swept up in that. Its share price surged 300% in the same week. It was the highest traded stock on August 2nd. Uh, Tony Kynaston: Hmm. Cameron: exactly. Now, while this happened, no one knows. Tony Kynaston: to say that HKD, the ticker code might be involved. Yep. Cameron: I, I read four theories. One is that people confused it with the Hong Kong dollar, which sounds too stupid to be true, but Hey, Tony Kynaston: didn’t the As, didn’t the ASX who looks after the Cameron: this. Tony Kynaston: market, confused two [00:26:00] companies with similar names? Mm-hmm. Cameron: They did. Yeah. Now, one of the early theories was this. This was all happening during the GameStop A MC Wall Street bets, uh, kind of shenanigans. One of the theories was that they were involved. They either Wall Street bets mods came out and said, had nothing to do with them. They absolutely denied any sort of organized campaign. There was no evidence that retail investors coordinated the pump like there was for GameStop and a MC. There are also theories that there was some IPO underwriting shenanigans. Several Asian companies had similar abnormal trading. Underwriters were accepting partial payment and warrants rather than cash, creating incentive schemes to art artificially pump the stock post IPO. But again, no evidence, uh, no lawsuits brought against anybody here. So I’m not [00:27:00] making any allegations. Just saying, this is one of the theories that I heard. The fourth was that short sellers, um, openly call it suspicious. They said that there was some sketchy stuff going on. They were questioning how regulators allowed this to happen, that there was some sort of sophisticated manipulation going on behind the scenes. Tony Kynaston: short sellers are like horse Cameron: But Tony Kynaston: When they lose, they just reach for the playbook and say the same things every time and blame everyone else. Yeah. Cameron: yeah, Tony Kynaston: Hmm. Cameron: blame everyone else. Yeah, but here’s the thing, um, there was no investigation that I could find out about, um, despite what seems like obvious market manipulation, Tony Kynaston: maybe Cameron: sf, the SEC. Tony Kynaston: Hmm. Cameron: Well, something was going on, but there was no regulatory investigation launched. No statement from the company, nothing. SEC Chair Gary [00:28:00] Gensler even lauded the Sarbanes Oxley Act on the same day that HKD hit its peak. Uh, you know, investors had GameStop halted, but HKD just ran wild. The Hong Kong SFC did take action, but against peripheral issues. Uh, as I said before, other stuff, he got his two year ban, but it was about the UBS stuff, not about this share price thing. So, um, Tony Kynaston: sorry, I, Cameron: were also it, hmm. Tony Kynaston: it was a free float liquid in the issue because, uh, the parent company owned 85% of the stock and going back many, many years before. Better regulation in Australia. A reasonably well. A method of people who had lots of money to make more money was to buy of the shares in the company, float it, trade off a small portion of it, then it [00:29:00] would take almost nothing to ratchet up the share price, just a little bit of buying, to inflate their value. And then for whatever purpose they could sell out or they could borrow against the valuation or whatever, they made a lot of money. So it could also be a, uh, a small float thing as well that, you know, if there’s lot of water trying to go through a thin funnel funnel, that creates pressure on the price. So, Cameron: So, you know, you, you have your shares, it’s $7 80. You sell them at $2,000. Tony Kynaston: Correct. Cameron: Happy days. Uh, anyway, the stock crashed. Uh, by mid-August 2022. It had fallen 90% from its peak, but then HKD surged 300% in the single day in September 14th, 2022, without any news to justify it. And then in January 5th, 2003, share shop from below $10 to nearly $30 and one trading [00:30:00] day before falling back again. So each time, no explanation, no catalyst, no investigation, just the share price going nuts, and then falling back to where it was. So, you know, again, this is HKD I’m talking about this happened, not a MTD, different ticker, but same company, basically. Same management. Calvin Cho’s running these things and. There’s this reputational scar issue, I think that’s still haunting both shares today. Um, and again, no investigation into why any of this happened. So nobody knows what’s going on. Everyone’s, I guess, too busy making money out of the mag seven to worry about it. Tony Kynaston: I’m only speculating here, but those two seconds sort of false starts, I wonder if that was an attempt to restart, to prime the pump, so, so [00:31:00] to speak, to get momentum going for a, a larger run, which, which someone could have solved into, who knows, could have been a fat Cameron: Yeah, Tony Kynaston: they were buying Hong Kong dollars too. Cameron: could’ve, yeah. Yeah. So anyway, as I wanna point out, that’s HKD, not a MTD, but again. Tony Kynaston: The Cameron: The Venn diagram has a lot of overlap. Spider net. Yeah. Yeah. And there’s other stuff as well. So, um, they did the Paris Pivot in 2023. So, um, August, 2023, they announced the migration of their headquarters from Hong Kong to Paris. Tony Kynaston: Why not? Cameron: Financial Brain is still in Hong Kong. Hmm. Tony Kynaston: Yeah. Yeah. Cameron: Why not? Why not move to Paris? Yeah. Well the reason for it is they bought, uh, a magazine that’s sort of the basis of the fashion empire as I understand it. And France Tony Kynaston: Oh, Cameron: fic, Tony Kynaston: meant they bought Cameron: [00:32:00] uh, Tony Kynaston: from a Newand. Cameron: one magazine Tony Kynaston: I Cameron: and we’re like, this Paris Place looks great. We should move to Paris. Yeah. Fic, um, it’s actually got a much longer French name, but we’ll stick with that. Founded in Paris in 1921. It’s the official publication of Parisian Couture. Uh, for a century it’s been the bible of fashion and high society. Famously, apparently launched the careers of Christian Dior, Pierre Alain Eve son, uh, not just a magazine. It’s like, uh, you know, the basis of global luxury culture and. Revenues have been going backwards. Circulation have been going backwards as you can imagine, magazines have been struggling for quite a long time now. These guys picked it up. Came in as a white knight in uh, 2022 to acquire a hundred percent of the brand from the [00:33:00] family and a company called GEM and sort of mixed their business from a pure finance firm into more of a spider net conglomerate mixing investment banking with high-end media. And is now involved in a number of legal cases involving that. The, uh, companies, the, the family and uh, one of the other companies that was involved in all of this is, uh, well, CMIG are, um, suing him. So, Cho has been accused by CMIG of financial fraud relating to the original buy-in to A MTD, claiming some projects actually made money, but he didn’t give us the profits and some had losses, but we dunno whether he truly invested or misappropriated the money. And more recently, the Jou family, the [00:34:00] previous owners of FIC have launched legal proceedings against A MTD for trademark infringement, tax fraud, and misuse of corporate assets. They’re claiming they didn’t receive full payment for the, uh, transaction. So. The stock price surge, the UBS, uh, SFC banning now legal claims and it’s all very murky. You, you try and figure out the financials for this thing, not to mention the audit situation. So they’ve changed auditors every couple of years. Um, 2014 to 2020. Ernst and Young was AMD’s independent auditor. Then they were replaced by Deloitte from 2021 to April, 2024. Then they were replaced in April, 2024 by a company called Audit Alliance, [00:35:00] not one of the big four. Now this is a, you know, a big multi-billion dollar company on the New York Stock Exchange. You go and have a look at Audit Alliance’s website and. It looks rinky dink. Um, it’s a, like a, as I said earlier, based out of a strip mall somewhere in Singapore. Um, it does not look like a very high profile auditor. Why you would officially, their official rationale is they have an auditor rotation policy for international best practices. Uh, but why you would rotate from a big four firm, two big four firms to a small regional player is hard to fully understand. It looks a little bit suspicious and dodgy. Not casting aspersions just saying doesn’t sit well with me. So anyway, [00:36:00] um, they get a clean audit. I went and read their audit to make sure there was nothing. Dodgy looking in the Audit. Audit Alliance gave him a clean bill of health. So as far as I know, it’s all above board, but I’d be much more comfortable if it was coming from a big firm. But so that’s all of the nasty, dirty size, scary side of it. On our checklist, it looks insanely cheap, but what’s really going on is a little bit hard to pick up. According to the financials they’re currently generating, they report in USD, by the way, these days, they’re currently reporting $90.6 million in operating cash flow, and the entire market cap is about 70 US million dollars for the company. So you’re effectively paying 77 cents for every dollar of cash [00:37:00] flow that the company’s generating. Price to earnings is 2.11 price to book is 0.04. You’re basically buying a dollar of assets for 4 cents. The um, book value per share is $23 52. The current price is about a dollar, $2 and 2 cents. Tony Kynaston: the, um, I’m a little bit confused. Are we talking about A-M-T-D-I-D-E-A? Is that the company you’re, yes, that’s what I thought Cameron: Yes. Tony Kynaston: So Cameron: Yeah. Tony Kynaston: I Cameron: Hmm. Tony Kynaston: operating cash flow was about 5 million bucks in the last 12 months. I’m just gonna go on stock edia and have a Cameron: Well, it’s not what it says in my spreadsheet. Tony Kynaston: So I just thought I’d pull you up there and have a look. Cameron: Says 90.5 [00:38:00] TTM. Tony Kynaston: uh, Cameron: Just bringing up Wikipedia as well, Tony Kynaston: to be honest, I got my number from chat GPT, so, uh, it could be different kind of Cameron: Tony. So, geez, Tony. Um. Tony Kynaston: 34 per share is what I’m seeing in, that’s that’s per share though, down 50%, 48.9%. Cameron: Actually 2024. It has 5 million cash from operating activities, 5.16 down from 40 the year before, but 2025 TTM, according to my spreadsheet, says 90. Tony Kynaston: you then, because ChatGPT, Cameron: in, well, I can’t see that. Tony Kynaston: well just chat. Cameron: Sorry. Yeah. Tony Kynaston: wrong or out of date. Cameron: Well, [00:39:00] 5 million was right for 2024 financial year, but it’s, it’s, um, claiming that their last financials were very strong. So if you look at, um, the latest news, I’m on Fin Viz now. Um, here we go. This is a December 30th, 2025. A MTD idea Group achieved 150% increase in revenue, total net income surged 63.7% of US, 68.8 million. Total assets amounted to us, 2.193 billion. Um, so yeah, they’re claiming they had a really good month. Yeah. But, uh, here we go. The company’s revenue for six months ended increased from 36 million in the first [00:40:00] half of 2024 to 89 million in the first half of 2025. The increment was primarily attributable to hotel operations, hospitality and VIP services. Income rose from 7.9 million to 12.7 million, representing a 60.3% growth. Dividend and gain related to disposed financial assets at fair value through profit or loss changed from 8.7 million to 8.6 million. Net fair value changes on financial assets at fair value through profitable loss rose from 7.2 million to 56.2 million. The, yeah, hold on. I’m not finished. The increase was mainly attributable to the unrealized gain on the company’s investment portfolio in the first half, in 2025. So I’ve got this in my notes, um, Tony Kynaston: the investment Cameron: on. Tony Kynaston: more sense to me because, um, it’s certainly been the case that, uh, [00:41:00] if like it was saying, uh, we have a property portfolio or a commercial property portfolio that was worth a lot more this year than last year, that would be a red flag. ’cause you, Cameron: Yeah. Tony Kynaston: people do that and it’s, um, property just doesn’t move that quickly. Cameron: Yeah. But what that increase is in and where it came from is not Tony Kynaston: Right. So we don’t, whether Cameron: to me. Tony Kynaston: portfolio, we don’t know if it’s stocks or whether it’s or property or, or what. Cameron: Yeah, look, um, it’s, it’s hard to unpick and I think that’s one of, one of the problems with the spider net is. Tony Kynaston: You get sticky fingers and you can’t get out. Cameron: Like if I, if I keep reading down this profit, this, uh, sorry. This financial statement, it says, um, the company recorded a profit of 68.8 [00:42:00] million in the six months into June 30th, 2025. A growth of 63.7%, mainly resulting from the additional contribution recognized from the company’s hospitality businesses, and the gain on its investment portfolio. Subsequent events, TGE, which is one of the businesses they’ve bought, has successfully executed the sale and purchase agreement for the acquisition of a hundred percent interest in the Hilton Garden in New York City, Tribeca with the payment of ve revocable deposit in December, 2025, and the goal of closing the acquisition of this hotel within the next two months. So whether or not that factors into it, I don’t know. They also ended into sale and purchase agreement to purchase an 80% stake in the upper view regalia hotel in Kuala Lumpur. They’ve also agreed to buy a 50% stake in the Ritz Colton Hotel in Perth, Australia with a total value of $280 million. Um, they also, um, have a special pur [00:43:00] purpose acquisition company, which is, uh, doing a successful public offering of 15 million units at $10 a unit. So that, and, and they’re TGE successfully completed a secondary listing on the London Stock Exchange in December 20, uh, 2025. Tony Kynaston: Yeah. Cameron: look, there’s a lot of moving, a lot of moving parts in this, and you know how much of it is. Something you’d want to invest in and how much of it is, you know, look at all my circles and lines, connecting them on a whiteboard. And that’s, you know, for, for new listeners to QAV, we don’t claim to be experts on anything apart from your system of scoring companies based on their fundamentals. And you, you know, a lot more about certain sectors ’cause you’ve worked in senior executive positions in retail and energy. I know nothing about anything you said maybe [00:44:00] kung fu and history. Um, but so I’m not gonna spend, I already spent a couple of hours reading up on this business. I’m not gonna spend a week, uh, studying the intricacies of the financials. It’s not like a buffet or a manga that’s not. What we do, we tend not to look at anything really. I just see it on my buy list and go all, I do a quick check on it, make sure that they’re not in a well-known criminal organization. But apart from that, I’m gonna go, yeah, it’s at the top of the list. The more I read about businesses like this, the more I’m like, oh my God, really? But, you know, it’s hard to tell. Like, they seem to be making money. They, they’re definitely scoring very well on the buy list, but whether or not it’s, uh, smoke and mirrors, I don’t know. But, um, my basic summary was gonna be this, um. There’s a trust problem, I think. Why is it so cheap? Okay. Basically the [00:45:00] market is screaming. We don’t trust you. I think between Calvin Cho’s regulatory history and the SFC band, the unexplained meme stock explosion of HKD, the corporate structure so complex that it makes Enron look straightforward. Uh, um, a small Singapore strip mall auditor with a very questionable looking website, outstanding lawsuits from former business partners, and it’s fairly small. I think it’s, uh, the average daily trade is about 253,000 us. So big funds, even if they would touch, it can’t, it’s too small. Um, it’s too small even for you to invest in, you know, it wouldn’t even meet your benchmark, which is a lot bigger than that. So the number, it, it’s all very murky. It’s very complicated. It’s, uh, this guy is either one of the greatest geniuses ever to be working in investment [00:46:00] banking in Asia, or, you know, this is Enron, 2.0 waiting to fall over. Right? Uh, yeah, Tony Kynaston: Yeah. I Cameron: true. Tony Kynaston: me, to me it looks like a Cameron: So. Tony Kynaston: um, financier has tried to exploit their contacts and their knowledge of Chinese banking, to make money. And it’s become a big spy. The web of individual deals where he is connected money to assets, and now it makes the whole thing a spider web, very, a conglomerate, very hard to, to pick apart and say, you know, is it a hotel company? Is it a magazine company? What are the assets worth? Et cetera, et cetera. Cameron: Yeah. Is it a masterclass in the optics of value? Hey, look, we own all of these really flashy assets, which [00:47:00] may be mediocre assets in the case of the fashion magazine as one example, and circular cash flows that are too hard for anyone to track and follow, or is the guy a genius? Um, look, I, I was around enough in the.com days, as I said before, to. Come to the conclusion decades ago that if I can’t understand it in five minutes, then it’s probably not something I wanna get involved in. But the flip side to that is, do I wanna think I’m smarter than the buy list? Um, and Tony Kynaston: Yeah, Cameron: very, very cheap. Tony Kynaston: rewarded for the risk, Cameron: Yeah, maybe. I mean, so look, the bottom line is, if I look at the scorecard, the checklist scorecard, the price is lower than our IV number one. Uh, a lot lower prices. A dollar, uh, two IV number one is $2 48, so it’s trading in less than half the intrinsic value. It’s a lot less than book. As I said before, the book price is $23 52, [00:48:00] so it’s at a 90%, 96% discount to net asset value. But how much of those assets, uh, we own a luxury fashion magazine in Paris, I can’t say, versus hotels and what hasn’t closed and et cetera, et cetera. Um, price to operating cash flow is insane. As I said before, 0.77 I think is one of the lowest I’ve ever seen. Book value growth is actually positive 29% CAGR over the last few years. So at least in that metric, if you can believe those numbers, it looks good. Um, on the negative side, from a stock edia perspective, it didn’t get a score for quality rank or for stock rank, or for F score. Um, so, you know, Tony Kynaston: are you reading the buy list chart on this one? Because I’ve got it as a cell. Yeah, Cameron: wireless Tony Kynaston: ator. Cameron: chart. Tony Kynaston: Huh? Cameron: Oh, I’m glad you asked. So, yeah, the [00:49:00] bread later, because I knew, I, because, um, you know, I don’t use the bread later when I’m doing this. I use my script and my script looks at Yahoo Finance, not at Google Finance, which the bread later is based on even the bread Later, though. The bread later for new listeners is a charting tool that one of our Australian listeners built for us a few years ago that builds a sentiment chart based on five year end monthly prices. And we write, buy, bylines and sell lines. You can see the H one and the H two. The H one is $43 20. The H two is $41 88. But that is, um, less than 8%, um, of the H one. So, uh, even if you were doing it with those numbers, you should be using May 21 as the H one, and then you’d have a much lower H two just a few months ago. I think [00:50:00] that it would go through. That said, when I checked the Yahoo Finance numbers, they had very different numbers. Well, actually not very different, but they didn’t have even may as a peak. They’ve got March close at $43, 20 April, close at $42, may close at 41 88, June close at 36. So they had March as the H one and then it just goes all the way down Tony Kynaston: um, the bread Cameron: to, uh, today Tony Kynaston: account. Cameron: it should, but it didn’t for some reason on this. So I dunno why. So anyway, um, yeah, when I did the, when I manually did the chart in Wikipedia, um, which actually looks very similar to the ator numbers, but I took the March 21 as the H one and then I drew it through, I think it’s, you know, I don’t know, September or something, [00:51:00] um, 2025 as the H two. Um, so yeah, pass that on for me. But anyway, bottom line is, Tony, what do you think? Tony Kynaston: do I think? Uh, it’s a tough one, isn’t it? I Cameron: Do we, do we double, do we second guess the buy list or do we just trust the buy list? Tony Kynaston: I’m a little bit concerned about sentiment here ’cause I’m looking at the bread later, but I accept that the bread later may have got the code, the numbers or the H one, H two wrong, but I can’t explain that. Um. Otherwise our numbers stack up. I mean, there’s been plenty of times on my investing life that I haven’t liked the company I’ve been, that’s number one on the buy list, you know, held my nose and bought it. Um, we’re not betting the house on it. It’s one part of our portfolio. And if it becomes a sell, it becomes a sell. [00:52:00] So that’s how I have, that’s how I approach Cameron: Yeah, Tony Kynaston: to do any sort of to analysis to this company would take days and days to try and pick apart its assets, put a value on them, Cameron: exactly. Tony Kynaston: its cash flows, that kind of thing. So, while I, while I agree with you, it’s very Cameron: Yeah. Tony Kynaston: Um, a little bit suspicious, uh, Cameron: Yeah, Tony Kynaston: but the numbers and the numbers. Cameron: well I remember when I did a pulled pork on Zep, the Chinese smartwatch company. I had similar misgivings because it kinda looked a little bit, sort of sneaky and you said, nah, I like it. And it’s up 700% since then. So Tony Kynaston: think, I think zips are on a different street compared to this one. Yeah. Cameron: it is. Um, but uh, you know, it was still a little bit hard to, [00:53:00] hard to see whether or not it was dodgy without knowing more about the smartwatch Tony Kynaston: the thing Cameron: factor. Tony Kynaston: dod use to me, apart from all like this, this, this person is clearly entrepreneurial and, and those kinds of people always attract lawsuits and detractors and run ins with regulators, et cetera, et cetera. the most in, well, the Cameron: yeah, Tony Kynaston: say worrying. The most interesting thing for me is the fact that they’ve gone from using Big four accounting firms to an unknown Um, and I don’t Cameron: yeah. Tony Kynaston: the firm they’re using. I, I just dunno enough about them. Cameron: This barrage is that, uh, the French way of saying disparage, right? Tony Kynaston: don’t, I, I can’t comment on the firm they’re using, I dunno enough about them, but they seem very small. Um, for a large global international firm that’s now operating at least in two countries, if not Cameron: Yeah. Tony Kynaston: Um, it’s strange than not using a Big four accounting firm. And given that his background’s in auditing, [00:54:00] um, you, you, you know, you wonder if he has enough knowledge of, of auditing to know that he shouldn’t be using a big four for, um, I’m extrapolating here, Cameron: Well, I am sure he does. Tony Kynaston: I, I, I’m Cameron: Yeah. Tony Kynaston: that, uh, all he’s doing is trying to save on fees, on audit fees by going with a small company. Hmm. Cameron: Could be. Yeah, could be. Right. Um, but have you been to their website? Did you ever look at it? Tony Kynaston: announced that Cameron: audit firm? Tony Kynaston: million of fees in the last year. Cameron: Yeah. Singapore’s largest USA listed co audit firm is their claim to fame. Um, Tony Kynaston: Yeah. And Cameron: yeah, who we are Tony Kynaston: in that market and very dynamic in that market. Who knows? Cameron: could be, but uh, yeah, it looks, it looks kind of dodgy Tony Kynaston: if it looks [00:55:00] dodgy. Cameron: anyway. Tony Kynaston: they’ve gone from using a Big Four firm to a small local firm look great. Yeah. firm that they’re using, I’ve got no idea if it’s dodgy or not. Um, I’m not gonna say, but Cameron: Yeah. Tony Kynaston: that they’ve been using Big Four firms until recently, uh, is a, is a bit of a red flag for me. Cameron: Yeah. Um, for some reason, I was just gonna cover off on our, uh, pulled pork, uh, track record so far, mostly doing well. Um, we’ve, up until this week, we’ve done 32 stocks, 25 of them, uh, in positive territory. Seven are a negative. Uh, but MODG Topgolf isn’t coming up for some reason. And, uh, they’ve changed their ticker to Cali. They’ve gone What was MOGG stood for? It was like modern [00:56:00] golf. They’ve changed their ticker. Just so there you go. The, you going back to Callie. Do you know that? You wouldn’t know that. Tony Kynaston: Mm Cameron: Going back to Callie, Ella, you know an Ella. What? Tony Kynaston: early Cameron: Who are you and what have you? Tony Kynaston: after that. Ooh. Al Cool J in the early Cameron: Hell Have you ever told me you like rap? Tony Kynaston: Beastie Boys. Cameron: The Beastie Boys. Tony Kynaston: Boys. I Cameron: You like the Beastie Boys? Yeah. Okay. Okay. Going back to colleague. So yeah, they are going back to Cali. I’ll have to change that in my spreadsheet. Alright, well, um, should I add ’em to the QAV light? Tony, we’re gonna take a punt. Tony Kynaston: Yeah. Cameron: Yeah. Well that’s the question. So the question, I’m going through all of this going, listen, am I, am I an expert on the intricacies of this? No. The market obviously thinks this guy’s, [00:57:00] something’s, something dodgy is going on, but, you know, we don’t trust what the market thinks, the sentiment, it passes the sentiment, even though there’s some, the chart doesn’t look great. It does pass our sentiment. It is up a little bit and, um, it’s, uh, Tony Kynaston: mean, like Cameron: gets a good score. Tony Kynaston: else that we, um, that we, Cameron: Thank you. Tony Kynaston: as you said before, like, I dunno, anything about mining or coal miners and, um, Cameron: Yeah. Tony Kynaston: you know, even big banks or whatever else we have on our bi so watch companies on the US Pilot, Cameron: Yeah, Tony Kynaston: I know nothing about. So yeah, we, we trust the process and then but more importantly, we have cell. Cameron: We trust the process. Tony Kynaston: difference with us is we have cell processes and if we need to, we get out and cut our losses, Cameron: Well, speaking of which, you know, a couple of the stocks that I have added to QAV Light, um, I should probably, uh, have broken their cell lines, but [00:58:00] I haven’t sold them because it’s only a couple of weeks in and it was sort of Christmas, new Year, and I’ve, I’m giving them a little bit of leeway. I’m like, nah, give them an, huh. Well, look, my rule normally is to give them a month, you know, if I buy them and they immediately do become a three point sell within like a week or two, I’m like, well, you know, if I, if they were close to the three point sell line when I bought them and it fluctuates a bit and they go down, I’m like, yeah, I give them a month to sort of Tony Kynaston: You’re Cameron: settle in. Yeah. Yeah. Well, you said the guidelines not rules, Tony, but Yeah, I think I’m gonna have to sell, I think, um, A MCX or GTN or one of those is about to hit its month. I think the 22nd is the month gets to the 22nd and it’s still a three point cent line. I’m gonna dump it [00:59:00] and replace it with something else, but, um, okay. Well, they have it. That is my pulled pork for this week. Never a dull day when we’re doing these American stocks. I tell you. Uh, like we don’t have any companies that you do pulled porks on in Australia that are anywhere near as interesting as these American businesses. Right. Colorful. Yeah. Tony Kynaston: Colorful. Colorful. Used to be a, a Cameron: All right. Have a good week. Tony Kynaston: market. Lexington, if someone was colorful. Yeah. Cameron: Yeah. Tony Kynaston: Daily. Cameron: Well, I think it. Oh yeah, I think it still is. Cult probably bad, but who knows? We’ll find out. Um, good luck with your, um, electrical problems, uh, which listeners won’t know anything about, but we talked about it off air. Hope you get that resolved. Get some sleep. You’re leaving anyway for a week. Aren’t you going to play some golf in Tasmania? Tony Kynaston: Oh, I Cameron: didn’t talk about that on the Australian show. We should have talked about that in after hours. Yeah. Tony Kynaston: All right. Have a good week. Cameron: All right, well [01:00:00] you have a good week. Thanks tk. Bye. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note [01:01:00] that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in [01:02:00] any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jan 23, 2026

1h 02m
26

Flying at Bus Prices: Volaris (VLRS) – QAV AMERICA 35

Episode overview In this episode, Cameron and Tony range from bushfires in Australia to political pressure on the US Federal Reserve, before digging into portfolio performance and a detailed QAV-style teardown of Mexican ultra-low-cost airline Volaris (VLRS). They unpack why airlines keep showing up on the QAV America buy list, how VLRS built a Ryanair-style model aimed at converting long-haul bus travellers into flyers, and why the Pratt & Whitney GTF engine recall temporarily derailed the business. The discussion balances strong operating cash flow and a seasoned low-cost airline playbook against razor-thin margins, fuel price sensitivity, and the ever-present risks of airline investing. ⸻ Timestamps & topics 00:00 – Bushfires and resilience Victoria bushfires, large-scale horse evacuations, and the limits of government preparedness. 02:30 – US market tension: Powell vs Trump Political pressure on the Fed, central bank independence, and why markets care. 06:30 – Portfolio performance update QAV America portfolio vs S&P 500. 09:30 – Stock deep dive: Volaris (VLRS) 31:00 – Other recent picks and portfolio reflections Quick updates on recent selections and sector clustering across airlines, shipping, and power. Transcription [00:00:00] Cameron: Welcome back to QAV America, Tony. This is episode 35. We’re recording this on the 13th of January, 2026. Uh, how are you, Tony? Tony Kynaston: Good, good, good. As I said, um, in the Australian show, we’ve had a lot of bush fires Victoria, which is unfortunate. And some of those I guess, have indirectly affected me because I have, um. Brood mares and race horses in various farms, and had to be evacuated overnight quickly, which is logistically very difficult to move. I think in total like about 500 horses. Um, between various farms and it’s been amazing the way that everyone’s pitched in. And there’s just been convoys of horse floats taking horses and putting them on other farms. In one case, I think the sale yard in the near tele marine airport in Melbourne’s taken 150 and there’s housing them. So [00:01:00] it’s, it’s the worst part of nature and the best part of humanity, as someone said to see all this happen. Cameron: Although I’d like to see humanity stop the fires from happening in the first place, I think that would be a better, Tony Kynaston: Yeah. Cameron: you know? Hmm. Tony Kynaston: Well, I think they’ll Cameron: Hmm. Tony Kynaston: bushfires. It’s whether they’re uncontrolled is the issue. Cameron: Hmm. Yeah, as we were talking about on the last show, like, you know, we’ve known for a long time that things are getting hotter and that we’re gonna have more fires and what are we doing to not, or prevent them if we can, and if we can’t, you know, sort of minimize the impact and the damage and the destruction of them better than we are currently doing because. You know, they still seem to be hugely tragic events. So I was just reading about the LA Fires, which happened a year ago. The other day, I think it was the 12 month anniversary of that. They were talking about how many hundreds of thousands of people are still displaced in LA after all of that [00:02:00] happened. Um. Tony Kynaston: Yeah. Um, you’re right. I dunno about America, but in Australia it still seems to be a lot of finger pointing between councils and government departments and people who think we should be going back to First Nations and looking at what they do to manage bushfires, et cetera, et cetera. they Cameron: Hmm Tony Kynaston: occur. So Cameron: Hmm. Tony Kynaston: they’re not effective. Cameron: Well, speaking of effective solutions, um. Jerome Powell, apparently not very effective in rebuilding or renovating whatever he is doing to the Federal Reserves offices. And the Department of Justice has decided to open a criminal inquiry into Jerome Powell. Uh, we talked about this on the last show, what the implications of this might be. Yeah. My understanding is like the big issue of this is the perceived. Political nature of the investigation. [00:03:00] Obviously President Trump has been very critical of Jerome Powell, who of course is a Trump appointee originally, but in this administration, uh, second administration of Trump has been very critical of Powell. Powell has not been cutting interest rates as quickly or as often as President Trump would like, and there is this concern that if the. Perceived independence of the Federal Reserve as lessened that it could have implications for the market. Am I understanding that correctly? Tony Kynaston: Yes it is. Uh, well, yes, you are understanding it correctly. Um, and look, it’s. It is been a long time since we haven’t seen an independent reserve bank or fed chair or, um, the European equivalents to those, uh, in various countries. So it’s hard to say whether Trump’s right or the chairs of the Fed is right in terms of interest rates and what they should be set at. But generally he’s [00:04:00] accepted that if, um, if you have interest rates set by the government, they will. Because they’re beholden to the electoral cycle, manipulate them to suit themselves rather than necessarily the long-term benefit of the economy. Um, which kind of begs the question that why isn’t the whole country run by technocrats if they do a better job of running the economy than, um, elected officials? But anyway, that’s a different story. but, you know, well, I’d like to explore further, but, um, yeah, it’s, uh, it’s, it’s an interesting situation. Um. We see this in Australia from time to time and is often, uh, reported after the fact when, when things get announced, when. There’s enough time between the event and, and when it’s reported that, uh, the treasurer or the Prime Minister, they rang up and abused the head of the reserve bank for not doing the right thing that they Cameron: Not gonna do. Tony Kynaston: rates. so there’s always some kind of pressure going on between elected officials and the independent board. but the independent boards generally given [00:05:00] enough power to resist. It doesn’t mean they’re infallible. We saw a problem in Australia with interest rates. Um, when the RBA head here said there wouldn’t be interest rate rise for a couple of years, and then a few months later started to rise, interest raise interest rates, and that caused problems to people who’d acted on, his verbal, they predictions and took out mortgages, et cetera. So, um, they don’t always get it right. Uh, so it’s, it’s. Generally, I think the, the RBA or, or the Fed should be independent. I think that’s the, um, the best, uh, framework for, for setting interest rates to affect the economy. But I’m not saying they’re infallible. I’m not saying crops wrong. Um, you know, as, as we discussed before, we, I thought tariffs would lead to inflation and they haven’t yet. Whether they do or not, I’m not sure, but, um, you know, maybe, maybe the president’s right, interest rates should be cut. [00:06:00] It could just be a timing issue. I wouldn’t be surprised if the US does cut interest rates at some stage in 2026. Um, so maybe he gets his wish anyway, if he just let, leave things alone. But, um, that’s not his style, is it really? Cameron: Certainly now I’m pretty sure interest rates will be cut by someone. Hmm. Tony Kynaston: Yeah. Yeah, By the current guy or the next guy. Mm-hmm. Cameron: Well, that’s the big story in terms of the US market this week. Um, in terms of, uh, other stuff going on, you know, the, the whole, uh. Market’s been, um, still bubbling along over their little bit of an equity wobble, but um, I think things are still just chugging along, uh, in the US And I was saying to you just earlier, our portfolio has really been going quite strong over there recently.[00:07:00] Um. For the last 90 days, our dummy portfolio is up 16% versus 6% for the s and p 500. Uh, since inception, our portfolio is now up 77% versus 57%. For the benchmark. So a couple of weeks ago we were sort of running neck and neck, but we’ve, um, just really rocketed back up again. It’s been an interesting period. If I look at the last one year, uh, some of the stocks that have done really well for us are in Nova International. Year ago they were trading around about 98 bucks. They’re now trading up around 160. Tony Kynaston: Oh. Cameron: Uh, so it’s been a big year for them. Euroes, one of the shipping companies that we’ve held for quite some time, ESEA is their ticket. They were trading around 26 bucks. They are currently trading around [00:08:00] 55. They were up over 60, uh, late last year. They’ve come back a bit. So, um, yeah, there’s been some, some other good ones. Um, UBS Ag, they were trading around about 31 bucks a year ago. They’re up at nearly 48 bucks today. Um, this, I’m just looking at the charts here. There’s just lots of, lots of good stories right across our portfolio. One of the best ones though, in uh, last year, we haven’t held ’em for this long though, is career electric power that we, uh, talked about on the show a few months ago. Um, they were trading around about six bucks a year ago. They’re now up around 18 bucks, but, uh, yeah. Tony Kynaston: What’s caused Cameron: Hmm. Well, you remember we had this whole story about, uh, their inability to raise rates that were held back by the governments, and then all of a [00:09:00] sudden some of those, uh, holding the, that hold was taken off and they were able to adjust it and the, the numbers turned around. Anyway, the company that I’m gonna talk about this week, Tony, um, is another airline. You know, we’ve talked about a few sort of airline related businesses over the last. A couple of months. Um, about a month ago I talked about Air Cap a ER, uh, which is sort of a, an Irish company that owns and leases our commercial aircraft. Back in October, I talked about American Airlines. Tony Kynaston: Mm-hmm. Cameron: Today it’s ticket code VLRS. Out of Mexico. Uh, better known as ris. Tony Kynaston: I wondered how long it would take one [00:10:00] of us to sing that. Cameron: Yeah, not long. Apparently the name is a Port Mano of Re and Polaris. I dunno whether Polaris North Star Bit comes into it, but there you go. So they’re an, this is an interesting company. They are a low cost, an ultra low cost airline out of Mexico. Launched in, well, according to their website, uh, ultra low cost airline with flights throughout Mexico, the US Costa Rica, Guatemala, and El Salvador. Valis offers low cost airline tickets to develop the market, offering customers high quality service in a wide range of. Products we launched in 2003 when the Discovery Americas won, and Columbia Equity Partners investment funds joined forces with TACA airlines to create a new ultra low cost Mexican airline that would offer the opportunity to fly to a greater number of [00:11:00] Mexicans. And, uh. Basically they do what every ultra low cost airline. I think we mentioned when we did the a ER show that the guy behind a ER launched one of, uh, what’s the Irish one? Is it Ryanair? Yeah. He launched Ryanair. Tony Kynaston: Mm-hmm. Cameron: And the guy behind this is sort of the grandfather of ultra low-cost carriers, but basically they, for people who dunno what a low-cost carrier is, you know, they just sell really, really cheap seats and charge for everything else. We have them in Australia these days. Yeah, if you want take bags, you have to pay extra seat choice food. You know, oxygen debris that comes extra. Uh. Tony Kynaston: Landing. Cameron: Yeah. Yeah. Oh, you wanna land? Oh, Tony Kynaston: We’ll just Cameron: oh, you say you wanna survive? Tony Kynaston: here. Cameron: Yeah, yeah, yeah, yeah, yeah, yeah. Tony Kynaston: Uh. Cameron: [00:12:00] Um, the core customer for valis are apparently migrant workers, families, domestic travelers, cross border flyers between Mexico and the us. Uh, it’s uh, obviously. Running on fairly low margins, so they need to stay full. They need to turn around fast, they need to squeeze their costs relentlessly, and these guys don’t try and provide great customer service. These, this is like, it’s cheap. That’s basically what you get, and it’s basically the Ryan Air for Latin America. Now, the guy, one of the co-founders of this is a guy called Bill Frankie. Never heard of him before, or Bill Frank. It’s got an E on the end of it. And he’s got a private equity firm called Indigo Partners. I looked him up. He’s a billionaire, American airline investors. He’s called the grandfather of ultra low cost carriers or ccs as they’re apparently known. He’s the money in the brains behind the [00:13:00] unfortunately named Whiz Air, um, which is actually Chrissy’s nickname for me is the Wiz. Tony Kynaston: would, would you like to get the marketing contract for? Was there? Cameron: Wiz Air. Yeah. Chrissy, when I had long hair for a couple of years, Chrissy called me the Whiz because I looked like a wizard. But now I’ve got short hair again. I say, you can’t call me the Wiz anymore. She goes, yeah, no, it’s just, you’re stuck with that now forever. So, Hey Whiz. Yeah. Wiz Air, um, they’re a Hungarian ultra low cost airline, uh, group head headquartered in Budapest. He also, uh, started Frontier in the USA and Spirit Airlines and basically Indigo do this over and over. So they’ve got a, a basic playbook for your low cost airline. And the playbook is this. You buy Airbus planes in bulk to get massive discounts. You jam. [00:14:00] As many seats into them as possible. You take out everything else in the plane and you charge a fair so low. It basically kills the competition in this space. So this isn’t some, like these, these Valis folks aren’t some one-off operation. This is run by the Indigo machine. These, these people have been doing it for a long time. They’re very, very good at it. They’ve got low cost airline, DNA, they seem to know what they’re doing. The CEO, who, uh, is one of the co-founders on. When they asked him how he planned to steal market share from Aro Mexico, he famously replied that Aro Mexico wasn’t his competitor. Do you want to guess who he thought his competitor [00:15:00] was? Nope. Tony Kynaston: Oh, well. Um, so who are the ccs in America? Uh, Southwest. Um, Cameron: Buses. Tony Kynaston: okay. I give up. Who? Yeah. Right. Okay. Cameron: I’m not competing with other airlines. Yeah. Tunnels. I’m competing with tunnels. Yeah. Tony Kynaston: uh, Cameron: Uh, yeah. In Mexico, roughly 3 billion trips are taken by long haul Luxury bus every year. Tony Kynaston: right. Cameron: And so his business model, or Polaris’s business model was basically to convert bus passengers into airline passengers by saying instead of taking 10 hours, you can get there in an hour and making it. Cost competitive with a bus trip. Plane. Uh, Avion. Apologize for my bad Spanish there, but it basically apparently means plane at the price of a bus was their [00:16:00] business model. Tony Kynaston: Yep. Cameron: Which is pretty smart. Um, today, roughly 43% of Valis routes don’t compete with another airline. They only compete with a bus line. So they’ve got sort of a monopoly on these route. Um, and it’s, yeah, going after the, the, the bus businesses. Tony Kynaston: So you buy Lar, buy RIS and Short Greyhound. That’s the trade. Cameron: Yes, yes. They introduced things called V Club and the zero fare. Zero fare was basically you got a seat and nothing else. You couldn’t even take a carryon on you. You were allowed, uh, a small personal item. No, no carry on, no checked bag, nothing. Tony Kynaston: people walk Cameron: And. Tony Kynaston: looking really big? ’cause they had all their clothes for their holidays all at the same time. Cameron: Yeah, I’ve, I’ve, I’ve been with, I’ve been with, uh, [00:17:00] yeah, one of my kids who’s done that before, like, you know, when he is back, I think it was Hunter, or when his, uh, luggage was too heavy. His carry-on just starts, you know, wearing everything. He can stuffing it down this jacket or whatever. Um, these Faires apparently was lost as 10 or $20 USD, the zero fair. Um, I went on their web website though, and looked for airfares to try and figure out how cheap they really are. Mexico City to Austin, and I was booking it a month out, so mid-February was about 184 USD plus a $66 airport fee. Uh, to LA from Mexico City. It was $113 plus the airport fee. So I couldn’t figure out how to book a zero fair. I even jumped into their little AI chatbot thing and said, how do, how do I book a zero fare? I was like. I can’t help you with that. So I don’t know if that’s still a thing or not, or it was a thing that they launched with, but they’re cheap. It’s a, it’s a, still, it’s a budget [00:18:00] airline. Maybe some of these other towns that aren’t as big as Austin or la uh, are cheaper because they fly to a bunch of different places that are sort of random cities all over those regions. I mentioned before. Um, so it, they’ve had problems though. So airlines as we know are, are cyclical pain machines. COVID nearly killed demand for airlines. Obviously for a while. Fuel prices spike and, and crush margins. The USD versus the Mexican peso makes life difficult for these guys. And the big problem, uh, in recent times has been the Pratt and Whitney. Issue that we have mentioned on previous episodes briefly. Um, prat and Whitney or PNW? The P-N-W-G-T-F Oh, if I was them, I’d call it the GTFO, but the GTF engine [00:19:00] recall geared Turbo fan, they’re used on the Airbus A three 20 Neo aircraft. We’re found to have powdered metal contamination in critical engine components. The result was accelerated wear and a requirement for mandatory inspections in early removals. Engines have to come off wings. It was a big deal. Now these guys, uh, were heavily impacted by this because they, you know, they’re all a buses, so they had to ground roughly. 30% of their fleet and it hit them really, really hard. But not really bad management, just unfortunate engines. I believe Pratney, Pratt and Whitney are paying them, um, sort of, uh, what do you call it? Tony Kynaston: Compensation. Cameron: That’s the word. Yeah. [00:20:00] Compensation for all of this. Uh, but it’s caused disrupted schedules, higher maintenance costs, lower fleet utilization, and really hit their numbers pretty hard. So, uh, they, their numbers have. If you look at it on Edia, I’m just gonna bring up their chart right now. You know, they’ve had a rough couple of years, but again, I think it’s, it’s mostly related to this, um. Uh, situation. So they made a loss last year. They’ve had, they’ve had a couple of loss years over the last four or five years. COVID obviously 2020 was a bad one. 2022 was another bad one. And this year they’re expected to make a loss. 2025 estimate is a loss of 85 mil. And then. Back to profit in 2026. Not a huge net profit, though. They’re looking at 4 million, [00:21:00] um, as opposed to 126 million in 2024, but their revenue has gone from 1.8 billion in 2019. The estimate for 2026 is three. Point four, 1 billion. So that’s a lot of growth. Uh, operating margins have been all over the place, as you might expect with a business like this. Not really paying a dividend. They, they’re sitting on quite a bit of cash, but, uh, they’ve also got a ton of debt. Their debt’s up around $3 billion. Um. But, you know, airlines live and die by their cash. They’re, they can carry debt. They’re buying a lot of airplanes. Obviously that’s part of the business model. I’m not too worried about that. Um. It really comes down to how well they know how to run a business. And I, uh, run this ultra low cost airline business. And, um, I think these Indigo [00:22:00] guys seem to know what they’re doing. They’ve been doing it a long time. They just got hit badly with this GTF issue over the last, uh, year or so, but they’re generating a lot of cash from our perspective. Um. Prices around about $9 45 market caps, a little over a billion dollars. Average daily trade is roughly 5 million. They’re liquid enough. I think for institutions. They’re not a micro cap play. Um, but they’ve got a negative EPS for the year forecast. EPS for one year is also negative, so it’s probably scaring off some institutions I think at the moment. This is not a near term turnaround though. On earnings. This is, um. You know you’re gonna be waiting a year or two before this really turns around. But the [00:23:00] share price has been recovering. The share price was as low as $3 68 going back April last year. It’s already recovered to $9 52. So the market’s been readjusting this over the last nine months already. I think it already sees that these guys are gonna get back on a solid footing. In the next, uh, maybe two years. It’s not gonna happen quickly, but it’s also not gonna take, you know, five years assuming that they get through this. And there’s no other hits that, uh, come out of nowhere. Uh, if I run through the numbers from a QAV perspective. Look at our scoring. Average daily trade, I said is about 5 million. Big one for us is the price to operate in cash flow, which is 1.36. It’s insanely cheap. From our perspective. Quality rank on stock, [00:24:00] EDIA is only a 45, so I can’t score them for that. The stock rank though is above 90, so we scored ’em for that. Their REF score is a four. We only scored if it’s above or equal to four and a half and above, so we couldn’t score it for that. They report in pesos, uh, or MXN and uh, I had to adjust some of our metrics to accommodate for that, but it didn’t really change the scoring for their IV one or IV two. Didn’t score ’em for IV one or IV two or price, uh, equal to or price less than book or price less than book and plus 30, couldn’t score him for any of that. They don’t have a new three point upturn. PE is not less than the yield because they don’t have a yield. Um, basically at the end of the scoring, I gave them a six out of 11, which is only a 55% quality score for us. But the prop calf really was quite strong, so they [00:25:00] ended up with a QAV score of 0.4, which is pretty high for us. Um, but you know, I, I kinda look, I like the look of this one, Tony. I think it’s a good business. So you sound surprised Tony Kynaston: uh, yeah. Um, Cameron: you don’t like it. Tony Kynaston: oh no, it’s not that. It’s just the air, just, uh, investing in airlines is, can be, can be risky. Um, as Cameron: Yeah. Tony Kynaston: points out, but, but this Cameron: Yeah. Tony Kynaston: this is certainly fitting all our numbers. Anyway, couple of things I picked up on when I had a look at them. Um, I mean the, the benchmark is Ryanair and. I mean, I think there’s two metrics which are always important for airlines. One is called tram and one is called chasm. So is total revenue per available seat mile and chasm is cost per available seat mile. They’re just KPIs, which roll up a few things and then express ’em in a ratio. [00:26:00] uh, these, the, those metrics are pretty good. For Valis, um, but still not at best practice. So Ryanair, for example, which tends to be best practice, their chasm, their cost per available seat mil is down around 4 cents. Uh, VALIS is currently just below 8 cents. So nearly twice the cost per seat flowing as, um, Ryan there, but they’re still making a margin of 8 cents because their revenue, um, is 8.65 cents per available seat mile. So just eking out a small margin there. Um, but certainly has work to do on costs. Uh, a lot of that comes down to how good they are at filling seats, and they’re currently yielding So out of all the seats flowing or all the planes flowing, they’re 84% full, which is pretty good for an airline. Um, I didn’t get the numbers for Ryan error on that one, but benchmarked against some other ccs. That’s not a bad number. [00:27:00] Um. Um, but if you look at the, your price, it’s, it’s pretty much at its low point for a long time, it’s back at 60 bucks a barrel. that turns around, then that will hurt their costs. and the other thing which I felt I found interesting in looking at their numbers was that more than half of their revenue comes from what’s called ancillary, ancillary revenue. So baggage fees and seat selections and food. Et cetera. So that’s a, that’s, yeah, Cameron: landing. Tony Kynaston: the majority of their, their income, which I find interesting as well. So, um, uh, a lot to like about them as you say, but they, to me, they’re kind of on a bit of a knife edge as well, that, that cost the margin isn’t very high. It’s, it’s very low. Cameron: And how much of that is related to the Pratt and Whitney kerfuffle and increased costs? Yeah. Tony Kynaston: and the Cameron: Hmm. Tony Kynaston: had been negative there for a while, so that could have been because of that. I Cameron: Hmm. Tony Kynaston: think the [00:28:00] share prices doubled on the back of the fact that they’re coming outta that and they’re back to profitable margin and they’re back to making a profit, um, fairly soon. So, uh, yeah. Um, look, I, I. As you say, experienced operator, successful around the world, but, but just thin margins, um, in this business. And, uh, it Cameron: Mm. Tony Kynaston: to the, to affect it in terms of the oil price or something else happening, like COVID or whatever. So, um, certainly by, at the moment, but perhaps not a long-term hold, Cameron: Donald Trump arresting the President of Mexico and taking over Mexico. And running Mexico. I mean, that could be good for him. Tony Kynaston: could be. It be, well, yeah, they could start operating into Venezuela. I think I told you last week, I read that Michael Palen book about Venezuela, and there was Cameron: Yeah. Tony Kynaston: airlines in the world allowed to fly into Venezuela and he had to fly through Turkey or something to get there. So, yeah, if that changes, that could be a, a bit of a bounty for the airline industry as well. [00:29:00] Hmm. Cameron: Yeah, well, I like, for me the high level stuff was, um, they are run by this Indigo group who seemed to have a long track record and know what they’re doing and, uh, they’ve had a bit of a bad run because of the Pratt and Whitney engine thing. But, um, still very low price to operating cash flow and, uh, seems to be a reasonably well run business as far as I can tell. So anyway, Tony Kynaston: Yeah. Cameron: it was very, wasn’t at the top of our buy list or my buy list this week, but the one that was at the top became a Josephine after I ran the buy list. And it was a bit scary too, as a company called T Tech, um, Tony Kynaston: They Cameron: uh, ac No, they do call centers Tony Kynaston: okay. Cameron: and um, Tony Kynaston: They’ll be outta business Cameron: they’re. Well, that’s part of the story with TEI started to do a, um, a [00:30:00] deep dive on them, uh, until I rechecked them yesterday and they’d just become a Josephine. But yeah, they’re trying to say, oh, we’re gonna, we’re gonna be the AI trans, we, yeah, we’re gonna do all the AI stuff. It’s gonna be, you know, you know, we’re gonna a, we’re gonna be the AI call center solution. They’ve been around a long time. But, uh, it’s a hard, it’s a hard sell. You know, that they’re gonna make, manage that transition. Actually career, uh, once I took them out, career Electric Power is still at the top of my buy list this week, and, but we’ve already done them. So VLRS was number two Tony Kynaston: no. Cameron: on the buy list. Tony Kynaston: And look, you know, Cameron: Hmm. Tony Kynaston: as you know, we don’t tend to focus on the analysis. It’s the numbers and they’re stacking up quite well for this company. Cameron: Yeah. So, there you go. AKA ris. Yeah. I have added them to our QAV light, uh, America Light [00:31:00] buy list, which I gotta be honest, hasn’t had a good couple of weeks. Uh, GTN is now down 15% since I added it. And A MCX has down 13% since last couple of weeks. Um. Tony Kynaston: at the Golden Globes or the Emmys or anything. Cameron: Yeah, they haven’t been successful in creating. Tony Kynaston: Series 10. Didn’t pull off any Emmys. Cameron: Yeah. Yeah. Um, but zip A from last week is up two and a half percent since last week. So it’s holding, its end up. The other guys need to lift it, lift their game. Tony Kynaston: And as we know from the Australian light portfolios, they can take some time to get established and then outperform. It doesn’t just happen straight away, so it’s early days. Cameron: Yeah, and I’m giving, and it’s been the, the US market’s been a little bit rocky over the last couple of weeks, so I’m not too worried about it. But if I look at the, [00:32:00] um, other pulled porks that I’ve done over the last year. Um, there’s been, you know, some great performance still from some of these top golf you’ll be happy to know is up 34% since we talked about it. That was only early November, so Tony Kynaston: Send them a Cameron: I wish I’d been able to add that. Tony Kynaston: Fantastic. Cameron: highlight? Well, Zep is, uh, still up 800% since we talked about it. The Chinese smartwatch manufacturer and, uh. Tony Kynaston: What about what you’re talking Cameron: Chemics. Well, they’re actually in our portfolio and, uh, yeah, they’re still going strong. They are still up. I think, let’s see, 251% since we bought them. Um, doing great. Tony Kynaston: Hmm. Cameron: So they’ve, they’ve had a big, um, they’ve had a good sort of couple of months [00:33:00] too. They were down, they’d fallen down to 120. As of the end of November, they’re back up to 166. So. We had lost a bit of ground with them over this year. They’d, after being up 300%, they’d slipped down and pulled their portfolio down as they went, but they’re recovering, so that’s good. Tony Kynaston: Good. Cameron: I saw some news from them. Uh, this week they’re looking at selling off some sustainable fuel division that they have, which is apparently, uh, giving them a little bit of a bump. People are happy about that by the. Tony Kynaston: Right. Cameron: But lots of it also an an aircraft business. Um, a lessor and servicer of commercial aircraft and aircraft engines. So, you know, we often talk about how it’s funny that certain sectors turn up in our buy lists at certain times and shipping and airlines and television and power generator and finance companies have been big in [00:34:00] our North American show over the last year. Dunno why, but there you have it. Tony Kynaston: Yeah. And we never do. We just turn around and say, huh? That’s, that’s, that’s what we’ve been focused on lately. Cameron: That’s weird. Tony Kynaston: Ooh. Yeah. Cameron: Alright. That’s the show for this week. Thank you tk. Tony Kynaston: cam. Thanks for that. Cameron: And if anyone, uh, has any requests for next week’s show, anything you’d like us to focus on, uh, shoot me an email cr at QAV america.com and I will try and make you happy. Tony Kynaston: Thanks, cam. See you next week. Cameron: Have a good week. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are [00:35:00] not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very [00:36:00] open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jan 16, 2026

36m
25

Picking Through the Wreckage of XPLR Infrastructure (XIFR) – QAV AMERICA 34

In the first QAV America episode of 2026, Cameron and Tony reset the framework for the year ahead. With geopolitical shocks rattling oil markets, bullish Wall Street forecasts predicting another US equity rally, and political noise everywhere, the hosts reiterate the core QAV philosophy: ignore predictions, stick to the rules, and let disciplined process do the work. The episode’s deep dive focuses on XPLR Infrastructure (XIFR), a former income darling left for dead after cutting its dividend. Cameron unpacks the wreckage, tracing XIFR’s origins as a NextEra Energy yieldco, the collapse of its “cheap capital forever” model when interest rates rose, and why the market may now be pricing the stock as if its long-dated contracted cash flows don’t exist. The discussion weighs political risk, debt complexity, asset quality, and valuation extremes, before explaining why XIFR sits at the top of the current US QAV buy list and is being added to the live QAV Light portfolio. ⸻ Timestamps & Topics (QAV episode) 00:00 – 03:00Geopolitics, crude oil volatility, and why QAV tracks commodities as signals rather than predictions. 03:00 – 06:30Wall Street forecasts for a 2026 rally. Why QAV ignores predictions and doubles down on rules-based discipline. 06:30 – 09:00“Year of sticking to the rules.” Behavioural discipline as the real edge in investing. 09:00 – 11:00Introducing the deep dive stock: XPLR Infrastructure (XIFR) and why it tops the US buy list. 11:00 – 16:30XIFR’s origin story as a NextEra Energy yieldco. The “infinite money glitch” and how cheap capital powered growth. 42:30 – 45:00Portfolio update, recent performance versus the S&P 500, and adding XIFR to the QAV Light portfolio. Transcription   Cameron: [00:00:00] Welcome back to QAV, American Edition. Tony, episode 34. Happy New Year. Our first episode of 2026. How are you? Tony Kynaston: I’m good. recuperative week between Christmas and New Year reading Cameron: We’ve just. Tony Kynaston: golf. Cameron: That’s lovely. I was on the beach. Nice to be back in the office though. A lot going on in the world. Obviously we’ll get into my deep dive of the week soon, but before we do that, obviously lot happening, uh, in the world. In the last few days, the president of the United States sent some guys into kidnap, the president of Venezuela and his wife. Uh. The most interesting part of that, or important part of that from our perspective, is what it means for the price of crude oil and what it does to the markets in general. We just talked about this on our [00:01:00] Australian show in some detail, but essentially to recap. No one really knows what this means for the price of crude oil. It could go up, it could go down, uh, it could do nothing could go sideways. But one of the things that I said on our last show is we do track for people that are new listeners. We do track, uh, about a dozen or so commodities. Because a lot of the stocks, particularly in our Australian portfolio, are commodity stocks that we pay attention to, and we like to know where the commodities are because that informs our buy and sell decisions for, uh, mining companies or companies involved in commodities in one way or the other. And crude oil has not been a buy for us for some time, but as I pointed out in our last show, it is getting close to the byline for us. I think the buy price for us for crude oil is about $65 a barrel, and it’s ran about 61 [00:02:00] 62 this morning, so, and moving up. So it could become a buy in the next week or two. We’ll just keep an eye and see where it goes. If it becomes a buy, it means there’s a lot of. Stocks and our buy lists, both in Australia and the US become buyers again. Um, but we just play it day by day. Keep an eye on it. Tony Kynaston: new listeners, um, if something, if a company is a minor or a, an oil producer or refiner or whatever, we use the underlying commodity as a buy and sell guide for us, because it doesn’t always have a one-to-one correlation. But I found over the years that the trends have a pretty correlation between the, where the underlying commodity goes and where the fortunes of the company, which exploit that underlying commodity go. Cameron: it’s a bit of a lagging indicator. Tony Kynaston: Yeah. Cameron: So yeah, the price. If the price for oil starts to go up, then oil stocks will probably go up a little bit later, though we can catch it a little bit early and vice versa. If the commodity starts to [00:03:00] drop, usually the share price will drop over time as well. Uh, the other story that we talked about is every Wall Street analyst surveyed by Bloomberg now predicts another stock rally in 2026 in the US markets. Again, from our perspective, that’s interesting, but we don’t really care one way or the other. If you know, we, we play the market as it happens. If it goes up, great. If it doesn’t, that’s okay for us too. We just stick to our rules. Nothing changes. I said in my newsletter this week, you know, at Kung fu Chrissy and I are saying 2026 is the year of the kicks. ’cause we’re focusing on our kicks this year, improving our kicks. I was trying to come up with a similar motto for QAV. 2026 is the year of the, and I just got back to sticking to our rules and doing what we normally do. It’s, it’s kind of boring. Tony Kynaston: if you like, if that helps. Cameron: I said QAV 2026 is the year of [00:04:00] sticking to the rules. No tricks just to make a room with six. No tricks. No tricks. We’ve got no tricks. Just our trick is discipline. Yeah, that’s the trick, right? Disciplined investing rules-based investing. That, and, and it is actually a, it is the ultimate trick because as we know, most investors, amateur and professional, really, really struggle to have discipline. It’s probably the biggest. And you know, buffet has said this, Munger said this. Ben Graham said this. Peter Lynch has said this. Uh, who wrote the, uh, what works on Wall Street? uh, mgl. Oh, Shaughnessy. Tony Kynaston: yeah. Cameron: It was one of the big things he called out in that book from his experience is that even the professionals, if their system stops working, they jump horse midstream and try and get on the new horse, and he’s like, no, you just. You [00:05:00] have your, you have your framework and you just do it day in, day out, month in, month out, year in, year out. Don’t change horses midstream. And you know, that’s what we do and, and it works. Tony Kynaston: aren’t we? Cameron: I am gonna send you that Dana Carvey chop and broccoli thing as soon as I get off the show. Chop a. Tony Kynaston: Well, is the year of no predicts. How about that? Cameron: Oh, that nearly works. No predicts. Hmm. Well, we don’t predict, and I think it was a, Tony Kynaston: they wouldn’t be working for Wall Street Banks. Cameron: that’s right. And, uh, I think it was Peter Lynch, his quote, uh, people who live by the crystal ball end up eating shattered glass or something to that effect. So it is a great quote. I like it. We don’t predict, we just [00:06:00] listen to the numbers and play things, uh, day by day. Tony Kynaston: will work Cameron: Yes rules. That tell us when to buy, what to buy, when to buy it, and then when to sell it and ignore everything else in between. Just follow the rules. Well, for new listeners, what I do on the show each week, uh, is take our buy list and take a stock off that buy list and talk about it. We do a deep dive or what we call a pulled pork. Dunno why we call it. I think Tony said years ago, I’m gonna pull apart this stock and I said it was like a pulled pork and it’s just stuck. But, uh, what I have been doing for the last year or so is just finding interesting companies to talk about. But what I’m doing more recently, ’cause we started the QAV Light Portfolios, which is like a demonstration portfolio where I add a stock every week and then people can [00:07:00] watch how we trade those. They can follow along or they can just use it as a. Proof point later on, we have complete transparency. So you see what we bought it, why we bought it, what happened to it when we sold it, why all of that kind of stuff. Uh, I add a stock each week and the one that I am gonna add this week is the one that’s at the top of our US buy list this week. It’s a company called, it’s a long. Tony Kynaston: it? Cameron: Yeah, well, it’s called XPLR infrastructure, but the ticket code is XIFR, so I’m calling it zr, but it’s Tony Kynaston: the letter X. Cameron: yes. Um, and like every week it’s an interesting story. For stocks to turn up on our buy list, uh, particularly to be at the top of our buy list. They’ve gotta be going through a bit of a traumatic period.[00:08:00] You know, for people that are new, we’re the kind of value investors that look for companies that are typically. Been around a while, uh, relatively stable in terms of their underlying business. They’re generating cash, but for whatever reason, we can pick ’em up at a discount to their valuation. They’re on sale. What was that quote you had from somebody in our last show? I. Tony Kynaston: something like the stock market is the only thing that goes on sale and everyone runs away. Cameron: Yeah, yeah. But not us. We’re looking for stuff that’s on sale and, you know, uh, if our system, if our checklist picks it up and says, you know what? This is worth paying attention to, then we pay attention to it. So this company. Tony Kynaston: on. Not, but not every list is going through a traumatic event. There’s plenty of stocks on the Australian buy list that are doing well, but they’re just unloved or unlooked looked and Cameron: But that’s it. Why are they unloved? Why are, [00:09:00] why are they not, uh, trading at a reasonable valuation? There’s gotta be a reason for it. Tony Kynaston: pork I did on the Australian show, which was a iron ore mining company, which was integrated and it was starting to take off, but, uh, why was it unloved? analysts just didn’t value the road haulage side of the business as much as the iron all side. So does that make them going through a traumatic period? No. They’re topsy. We often see Cameron: Yeah. Tony Kynaston: stocks on the buy list as well, which is just mispriced. Cameron: Good point, good point. Well, the one I’m gonna talk about today is going through a traumatic period. So particularly the ones that I cover on this show usually are going through all sorts of trauma, but that makes it a fun story. So this is a bit of a crime scene investigation. Um, XIFR committed, the ultimate sin. They cut their dividend, particularly, they had a lot of income investors and now it’s [00:10:00] living in purgatory. Bit of a halfway house trying to get its life back together. And I’m gonna tell that story and, and we’ll see if the assets are worth more than it’s terrible reputation. So this is a really interesting company. Tony Kynaston: Is that the, Cameron: Yeah. Tony Kynaston: the, the narrative, Cameron: What’s that from? Tony Kynaston: the Cameron: Yeah, but I thought it was from a, I thought it was, yeah. Whose routine it was? You sleep with? One goat? I can’t remember who did the joke. Anyway. Um, so the backstory is, um, XIFR is a bit of a grab bag, sort of a greatest hits album of renewable energy. They don’t actually build the assets, they just own the royalties for them. Sort of a landlord model. Now, uh, they own a whole bunch of renewable energy assets across the us. Lots of, uh, [00:11:00] big propellers, lots of solar, and they. Generate enough to, well, they own enough to generate 10.1 gigawatts of power assets across 31 states. Now, not knowing much about that, I asked, uh, Google Gemini how to get some perspective around that. It said, well, back to the future, the DeLorean needed 1.21 gigawatts to travel back through time. So. XIFR produces enough power to launch eight DeLorean back to 1955 simultaneously. I thought it was good because my first question after I asked it was gonna be, how much did the DeLorean require? And it, it knew me well enough to just lead with that. But to put it in more perspective, it’s enough to power roughly three to 7 million homes. Um, more perspective. A standard nuclear reactor usually has a capacity [00:12:00] of about one gigawatts. The Hoover Dam has a capacity of roughly two gigawatts. So these guys. Produce five Hoover dams, but. Their business model is interesting. We have covered a couple of electricity companies, uh, on the show over the last few months in the us. These guys aren’t gambling on daily electricity prices. They’re essentially commercial landlords. They signed 15 to 20 year leases. They’re called PPAs Power Purchase Agreements with utilities. And as long as the wind blows and the sun keeps shining and the tenant stays solvent. The rent check clears. So 10 to 20 year guaranteed income for these things. Tony Kynaston: So do Cameron: a bad business model Tony Kynaston: the contract? it works? Cameron: kind of. So I, I’ll get into the, the background of it, [00:13:00] uh, in a minute. There’s sort of a long story with how this got to be built. Uh, basically they don’t build it, but their parent company builds it and then they have the rights to basically run and operate it and sell the electricity. Tony Kynaston: asset is in ones. and the management rights from another company. Cameron: that’s it. Exactly. Tony Kynaston: trades on a low trade on a large PE multiple. Cameron: That’s right. That. So the portfolio mix, if you flew over their assets, you’d mostly see giant white turbines. About 80% of what they do is wind. Uh, 18% is solar and the rest is batteries. Two to 3% are batteries, which is a nice to have at the moment, but. But might be the future. Interestingly, we, we took Fox and a friend, my son Fox. Fox and Friends, not the show. We didn’t take the Fox show. My son, whose name is Fox, named after Fox Mulder, not Fox News. I [00:14:00] hasted to point out, um, and a friend of his to a local swimming pool in New Market yesterday. And I noticed three huge Tesla batteries, um, at the pool. I was like, oh, that’s interesting. Dunno what they’re doing with it, but Tony Kynaston: I don’t fall into Cameron: Generat something. They’re a long way away from the water. But yeah, I was like, oh, look at that. Um. So the origin story is it’s this company started off as something called Next Era Energy Partners, NEP, which was the Golden Child Yield Co of a company called Next Era. ERA, um, which is also listed. The ticket code is NEE. They’re the largest electric utility in the world by market cap, roughly 160 to $170 billion market cap. [00:15:00] And they, they launched this venture called NEP Next Era Energy Partners. A while ago, the pitch was basically we buy assets, we pay you a fat, fat dividend, stock goes up, repeat, uh, and next era energy goes back to 1925. Started life as a company called the Florida Power and Light, uh, organization, which then became FPL Group in 1984. It’s gone on massive acquisition sprees and you know, basically built itself into this behemoth of electricity generation. But building things is expensive and messy. You have to take on construction risk, deal with permits, spend billions up front, so they spun off any P, which is now XIFR yield code to be the perfect home for those assets. Once they were finished. Logic being the parent does the hard work of building the wind farms and the solar farms, and once it’s running and generating cash, they sell it [00:16:00] to the child. The child’s only job is to buy it and then collect the rent and pay out fat dividends to investors. And that worked very well for quite a long time until it didn’t. And when it didn’t, uh, they made some changes and investors were not too happy with that. So because it was backed by next era investors treated it like royalty. This, you know, was a spinoff of a very large, very successful, deep pocketed businesses, and NEP was able to get access to incredibly. Cheap capital. It had a high stock price. Low bond yields the parent, the parent had a massive pipeline of projects. The child company didn’t have to hunt for deals. The parents just dropped them in its lap. When it finished building these things, it was growth on a platter. [00:17:00] Uh, and then they had this thing that. It was the, basically the infinite money glitch. So the child company would in would issue expensive stock because investors loved it. Paying fat dividends, guaranteed income, guaranteed cash flow to the moon. The child used the money to buy wind farms from the parent. The parent takes the cash and builds more wind farms. Rinse and repeat, right? The infinite money glitch. Tony Kynaston: times have we seen this story, though? At least I’ve seen it in, in Australia, where, know, the bankers get a hold of it, usually with a lot of debt. I’m not sure what the situation is with this one. and it works. For a while and then you know, something happens and it all collapses. Like a house of cards. Cameron: And what do you always say about growth companies? the thing you’ve been telling me for years? Yeah, it looks great until. But you, you normally have a Yeah, but which is always [00:18:00] watch. Watch what happens when interest rates go up, is what you’ve said to me every time. And that’s what happened to these guys too. So the model only works if the child company has access to cheap capital. When interest rates spiked, the cost of their borrowing exploded and suddenly yield Co n ep. Um, every time I say NEPI, I think of, um, the New economic program because I’m a communist. Um, that was when Lenin was run, when Lenin was still alive running Russia in the early 1920s. He came up with the NEP when their initial attempts at collective socialism. Failed. He said, okay, maybe we need to a little bit of wiggle room here. And he came up with the NEP, the New Economic program, which allowed a little bit more private ownership, which Stalin shut down years later. But anyway, I. Yeah, yeah. You haven’t studied your Russian revolution. [00:19:00] Um, but that’s, every time I say it, that’s what comes to mind. Anyway, different np. So, uh, when interest rates spiked, cost of borrowing went up. Suddenly they couldn’t afford to buy the parents’ assets anymore. The infinite money glitch turned out to be a fine amount. Money glitch, it kind of broke, and the parent company effectively said, if you can’t buy our assets, you’re useless to us. The, the flow of deals stopped. The dividend was cut. And the golden child basically became an orphan. Um, fun fact in 2025, next era, the parent company was actually one of the donors who funded the Weis White House’s, east Wing demolition and building of the new ballroom. So, you know where they sit in the scale of things. So. Yeah, they are. So there’s this red wedding that happened, uh, January, 2025. Interest rates basically murdered the whole business model. Um, and they did the unthinkable. They suspended the distribution, [00:20:00] uh, of dividends indefinitely. So. The trauma here is people bought this stock exclusively for the income. A lot of funds, income funds bought it. When they cut the payout, they basically broke the social contract. The income funds sold out. Retirees panic, and the stock price crashed. So when you look at the chart, you can see this. It’s, uh, it has not been a fun year for these guys at all. Um, let me bring up my, I just got to bring up my stock Edia chart here Tony Kynaston: isn’t it? Cameron: has been, yeah. Oh yeah. So if you look at it, uh, you go back, uh, may of last year. Um, it was trading around 34, 35 bucks. Um, it had already come [00:21:00] back to the beginning of this year, uh, sorry, the beginning of last year. About a year ago. It was trading about 15, 16, and then it plummeted in January of 2025 down to about 10 bucks, which is pretty much where it’s remained ever since. 10, 10 50, something like that. Where, which is where it is at the moment? 10 52. Tony Kynaston: $86 back in Cameron: go, if you go way back a few years ago. Yeah. Yeah. Wow. So, yes. Um, not a good time for the share price. Not a good time for investors. And they are, you know, understandably, uh, bailing on it over the last year in particular, but. Tony Kynaston: that there was a class action that, uh, cessation of dividends and the changes weren’t communicated well with the shareholders or they weren’t given a chance to, um, have a say in it. Cameron: [00:22:00] Actions in America. Nah, that doesn’t seem, that doesn’t seem likely. Tony don’t think. That kind of thing. It’s not a very litigious society over there. I don’t think that, I don’t think that would ever happen. Tony Kynaston: Of lawyers. Cameron: Yeah. Tony Kynaston: Hmm. Cameron: So, um, they renamed the company from NEP. Uh, people kept saying, what’s this got to do with Lenin and the Soviet Russia? And they were like, they got sick of telling that story. Yeah. Everyone, everyone knows their NEP uh, socialists were big investors in this. They kept getting confused, so they renamed it to XPLR infrastructure ’cause that’s not confusing. Uh, XIFR. They basically put the ticker in the witness protection program and told investors, ah, it’s all changed now. We changed the name. It’s all different, different game. Um, but they also said we’re keeping the cash to fix the balance sheet. So it’s, it’s basically an orphaned stock. Um, [00:23:00] growth. Investors don’t want it. It’s a utility Income. Investors can’t own it. It’s got no yield. The only. People left interested in it are value vultures like us picking through the wreckage, looking for cash that we can get cheap, and it is a very boring cash engine. The stock chart looks like a heart attack, but the assets are boringly reliable. The wind’s still blowing, the sun is still shining. They have 15 to 20 year contracts that people are still paying for. Um, it’s a great business model, honestly. Uh, whilst they still have the contracts. Even though they’re sort of independent, the portfolio was built by next era. These aren’t hobby farms run by a guy with a wrench. They’re institutional grade assets with high uptime. Some of the contracts run out to 2051, so that’s long duration cash flow. Even [00:24:00] if a recession hits this year, um, that money is locked in. I mean, I mean, theoretically I guess contracts can be broken and electricity companies can go outta business, et cetera, et cetera. But you know, we’ve covered this in other shows recently when we were talking about the guys in California. I mean, states need electricity companies to stay in business. So there’s all sorts of tricks that get pulled to make cheap financing available to retailers, power retailers, right? Can’t afford to have people with electricity. Not yet. Anyway, so the market looks at ZR and sees a debt zombie. I think they’re terrified that the cash flow is just gonna get eaten by interest payments and refinancing costs and some of that fear. May be valid. They’ve historically used financing structures that would make your head hurt. All sorts of, um, big short type convertible equity portfolios, et cetera, et cetera. That I don’t [00:25:00] understand. I don’t think the market understands. I think that was the point of the big short, right? No one really understands how these things work. These convertible structures, they’re all designed deliberately to be confusing. The market hates homework, but when you combine. Complex debt structures with management that just burned everybody. You get, uh, a massive discount, but uh, the management is doing stuff with the money, which I’ll get to in a second. But the other big question I had is, what about the Trump factor? So this is renewable energy, right? We know Donald Trump doesn’t like wind turbines. They kill all the birds. He loves oil. He just, um, just kidnapped a president of another country because it’s all about the oil. He says, I’m not sure that’s true. Yeah, drill, baby. Drill. Yes. Tony Kynaston: whether sentiment involved here because of the change in approach [00:26:00] or the perception of wind farms has gone down. Okay. Cameron: I think there may be some of that, but the bottom line is these 15 to 20 year contracts don’t care about Donald Trump’s view of wind farms. Right. They’re, they’re locked in, so unless he just, Tony Kynaston: sorry. Sorry Cameron: Hmm. Tony Kynaston: who before were to by alternative energy generators because they had investors who wanted them and those investors have shown their true colors and gone back to oil companies or whatever? Cameron: Be some of that. I think one of the bigger things though, is the worry that Trump may shred the Biden Administration’s Inflation Reduction Act. Because that’s playing a big role in funding renewables. I don’t understand the ins and outs of it, but I know that that’s part of the, the sort of headline noise that may be affecting these guys, but. You [00:27:00] know, if you were looking at this purely from a Trump trade perspective, there is gonna be a market knee-jerk reaction to a Trump presidency. I, I heard about a term that I’d never come across before. Buy drillers, sell spillers. You ever heard that? I had to drill down into it. So drillers is self obvious. Um, self-explanatory. Spillers, apparently renewables in market lingo are called spillers because they effectively spill cash on the ground whenever the grid is congested. When you, when you can’t stuff any more renewable electricity into the grid, it’s just wasting it, um, when you can’t stick it in a battery. So yeah, they’re called spillers. So buy drillers, sell spillers is sort of the mantra over there at the moment, but you know, for whatever reason, they’re still generating cash despite. All of that. I [00:28:00] mean, the counter narrative to the Trump trade buy driller, sell spiller stuff is many analysts apparently believe that a full repeal of the IRA is unlikely because republican districts are huge beneficiaries of those renewable instruments. It’s harder to kill a subsidy if it’s gonna kill jobs in red states. So then again, I don’t really. Take Trump as the most rational of human beings. So whether or not he cares about that sort of stuff, who knows? But you have to figure it plays into his decision making at some level. But these, these contracts that they’ve got, uh, legally binding, whatever Trump thinks. Is, you know, it’s not gonna be easy to make these 15 to 20 year contracts disappear, so it’s got a near zero immediate impact on existing revenues. The rent checks will keep clearing for the foreseeable future. [00:29:00] On top of that. As we’ve talked about on other shows where we’ve talked about electricity generation in the last couple of months, data centers, AI and electrification are driving massive demand for power. Utilities need more electrons, not fewer. They can’t afford to turn off the 10 gigawatts that they’re getting from ZR just because of either political rec rhetoric because these guys, um, cut their dividends. So the contracts. Remain and these guys keep generating cash. There’s another thing that happened recently. They did end up somehow owning a massive gas pipeline called the central Pen line. I think it was an LNG CAS pipeline. There was something to do with, um, ESG concerns with some investment funds. Uh, for some reason the LNG was seen to be not ESG friendly. They recently sold [00:30:00] that, uh, H two 2025 for like, uh, a shit ton of money. I think it was like a billion dollars or something. They sold it for which they used to pay off some debt. So. Um, you know, they’re doing stuff to improve their financial position, getting rid of some of these assets, using the cash to pay down stuff. Basically. I think the Trump presidency might be a valuation headwind, but it’s not a revenue headwind. The market is sort of pricing it as a renewable Armageddon, but the contracts mostly protect against it. The risk is strictly on the future growth math tax credits for Repowering, but not the current cash flow. So the garage sale, um, with Central Pen Line is helping to make a ton of cash, but you have to remember that what Yield Co was designed to do, it’s a machine that [00:31:00] basically eats contracted cash flow and supposedly spits out dividends. Um, and now it’s not spitting out the dividends anymore. It’s using that money to fix its financial position. So that sucks if you’re an income investor or an income fund, but for us, a company that’s using its cash to get rid of its debt, that’s, that’s good. That’s all goodness. From our perspective, Ron. Tony Kynaston: of metrics are for this company, when it was paying a dividend, what the yield was. But you know, if it was yielding 5% and it was a hundred percent geared, and I dunno what the ratios are, then in 20 years or less, it’s paid off all its debt. Um, so Yeah. quite possibly a better use of how it operates and paying off yield or paying off dividends to customers. Cameron: It’s actually hard to figure out what their dividend [00:32:00] yield was before they changed. Yeah, my understanding. So if you look inia, it’s just got blanks and I think that has something to do with the ticket code change. As best I could understand it, it sort of confuses the Wikipedia numbers, um, for some reason. Um, but if you look at their financials, I’ll get into the QAV numbers in a minute, but if you look at the financials and stock edia, there’s a few things that jumped out at me. If you look, um. At the average shares down under balance sheet 2019, they had about 59 million shares. Today they have about 94 million shares, so in five years they’ve diluted shareholders by about 60%. They have to, they had to keep printing new shares to buy new assets. When the stock price crashed and they couldn’t print shares anymore, the machine broke. [00:33:00] So, yeah, so now they’ve got 94 million shares out there, which people probably didn’t care for a long time, but now it doesn’t look too friendly. Tony Kynaston: in Cameron: Uh, Tony Kynaston: too, they were paying off about three 60 a share dividends before they cut them. Cameron: yeah. Tony Kynaston: Um, Cameron: At its peak. Tony Kynaston: well, it was, Cameron: If you go back five years ago, it was like a dollar 97, and then it got up to $3 60 and now it goes to nothing next year. Tony Kynaston: uh, again, analysts, but if you take that two or $3 a share, uh, on its current share price of 10 bucks, it should pay off its debt in a couple of years. Really? Cameron: Yeah, well, yeah, so the net debt’s about 5 billion, 5.1 billion at the moment. Some other numbers that jumped out at me looking at this. Um, if you look at their cash [00:34:00] flow versus their CapEx, operating cash flow is about $8 92 per share. The CapEx, which I figure is just money going out to do stuff, build stuff, is about $7 85 per share. So. If they stopped spending that on CapEx, which I don’t think they, I mean, I, I thought that they weren’t the guys that built stuff that Next Gen built it and they just bought it off them, but I guess they have to repair it. Would that come under CapEx maintenance? Yeah. So how much of that they can save? In their new business model, I don’t really know. Instead of having like a dollar free cash flow, they might be able to, um, save a lot of money there, which can go to paying off the debt. But there’s um, a lot going out to CapEx, which I don’t really deeply [00:35:00] understand where or, or how they would pull that back. But there seems to be a lot of leeway in there. If you look at the, um, the back to the yield line, sort of saying the TTM yield is 9%, but then the forecast is zero. I think that’s kind of a ghost yield left over from the last couple of quarters. I think they were, um, you know, sort of pulled it back in stages. Uh, if you look at the balance sheet and the book, value per share, uh. $33 book value per share. $33, 33.6 book value per share. Um, and it share price is 10 bucks. Yeah. So I assume the book value is the assets that they own, the, the steel and the [00:36:00] ground. So like it’s, that’s crazy to me. You could buy it for a third of its book value. I mean, somebody’s gotta see the va see the value in that, right. Tony Kynaston: haven’t done the analysis whether the assets are as much the physical, uh. Uh, pylons and solar panels and wind farms or whether it’s some kind of monetary value assigned to the contracts. So, um, but either way, they still both have value. And you buying it for much less than what It’s on the book app. Cameron: A third. It’s insane. So that’s why it pops up in a buy list. Um, so the market caps are around about 955 million. So it’s, you know, big enough for most of our investors, but probably small for big fund. Um. It’s price for distress. The PE is about 2.6 [00:37:00] times. Um, price to operate in cash flow is 1.14. So longtime listeners know that we look for stuff that’s less than seven. 1.14 means you buy a share and it basically pays you back in a little over a year in terms of operating cash flow. So if we use our old, um, cafe analogy, if I could buy a cafe and it would pay me back by buy price in a year and a couple of months, it’s pretty hard to say no to that. Particularly if it has 15 to 20 year contracts guaranteeing it’s cashflow, right. Tony Kynaston: we have to unpack it a lot more. I haven’t done the analysis on this that you have, but know what, what are the, if it’s a use the coffee shop analogy, what are the CapEx requirements? What are the, know, where are the risks? What’s the debt that you’re inheriting? All that kind of thing. with that kind of operating cash flow, there’s [00:38:00] a lot of cash to solve all the problems Cameron: Yeah. And look, you know, and, and again for new listeners, we, we don’t do. Deep micro analysis on our stocks. That’s not my objective. Um, with my pulled porks, uh, I’m like, okay, this is at the top of our buy list. Wonder why. What’s going on? What does it do? Why is it cheap? That’s really, uh, uh, what I wanna know. Um, I don’t know the ins and outs of this company’s business. I don’t care to, but I know that. It’s generating quite a lot of cash and it has guaranteed incomes for 15 to 20 years, and we can get it really, really cheap. So. Well, let me sum this up. Um, the red flags, to be honest, it’s messy. It’s very messy. Um, there could be all sorts of things in the financing structure that could come back and bite you. Management kind of needs to navigate this very well. They could screw it up in a number of different ways, but that’s [00:39:00] always true. Part of our job is trying to find companies that are well managed. And I’m sure the US is not that much different to Australia. We know that very few publicly listed companies are very well managed. A lot of them just, uh, a dog’s breakfast. And so we try and pick the ones where the management seems to know what they’re doing. And if we get it wrong, then we can sell it later on. But finding the ones that seem to know what they’re doing and look, these guys were in a tough situation. I mean, um. Um, I guess on one hand you could say interest rates were always gonna go up eventually. So having a business model built around the idea of permanent low interest rates was bad. But we had one of Australia’s, uh, leading media comment, financial media commentators on our show five years ago, basically saying, this time it’s different, Tony, cheap money forever, the money will flow. Interest rates are always gonna be cheap. He didn’t say that literally, but that was the animation. [00:40:00] Uh. Tony Kynaston: I think that’s our biggest red flag. Cameron: Yes. Um, let me, uh, run through the numbers just to wrap it up. Um, QAV score of 0.69, which is very high for us. It, it doesn’t score on any of the. Wikipedia metrics, quality rank, stock rank F score, couldn’t score it for any of those. Uh, the price was less than both our IV number one and our IV number two. It’s also less than book price. And of course, book plus 30 doesn’t have a new three point upturn, but the book value growth is positive. Um. And, well, this is a tricky one. Is PE less than the yield? Um, yes, but we know it doesn’t have a yield moving forwards. But looking at the numbers where they were, it did [00:41:00] score for that. The forecast IV is greater than twice the current share price. Pr/OpCaf is less than seven, as I said. So in our scoring, uh, it got an 11 out of 14, which is a quality score of 79% stock. Edia gives it a quality score of 30%, but ours is, uh, scoring differently, obviously. And as I said, a QAV score of 0.69. So that is zfa. Um, on the top of our buy list, I am gonna add it to our live portfolio this week and we’ll see how it does. Tony Kynaston: one last thing to add is that the sentiment seems to be bottoming out if not turning, if you look at the stock price. So, Cameron: yeah, Tony Kynaston: yeah, it’s, it’s its, um, byline. It’s above its sell line, it’s been slowly increasing off a base. Now, um, the trend could easily break and we’ll have to sell it, but I’m guessing it’s found the bottom. [00:42:00] At the. Cameron: Well, from your lips to Trump’s ears, uh, Tony, um. Uh, we’ll see what happens. I’ll just wrap up by looking at our US portfolio. It’s been a good month for our US portfolio. It’s up about 5% in the last 30 days versus the s and p 500, up 0.46%. Um, but for the last one year we’re still down. We’re negative 13% for the last one year. But as I say, every year, that’s be every show. That’s because we had a absolute ridiculous year the previous year where we were up like a hundred percent for the year. So it’s come back a bit for since inception, which is since September, 2023. Our US portfolio is up 68% versus the s and p [00:43:00] 500, up 55%, so we are doing quite a bit better. Not double market yet that we would like to see, but as I said, it was triple market going back a year ago. Came back a bit over the last year with interest rates and different things going on, but some of our stocks have continuing to do very well. WLFC is up 200%. ENVA is up 172. ESEA is up 93 BLX is up 80, et cetera, et cetera. Career electric power that we added a while back a few weeks ago is up 6% since we added it, by the way. So that was a nice call. Um, the stocks that I’ve added to the light portfolio over the last couple of weeks are both down a couple of points. A MCX is down 3%. GTN is down 3%, but you know, it’s early days with that. So I’m not really fussed at all. And I will add zip A, [00:44:00] uh, and we’ll see how it goes. So that’s that tk. Tony Kynaston: Was he the in Picnic and hanging rock? Was his name, er remember the theme from Picnic and Hanging Rock the soundtrack Cameron: No, I don’t remember. Tony Kynaston: playing a Cameron: think it’s as if as an instrument, Tony Kynaston: Yeah, Cameron: hop or something. Tony Kynaston: I Every Cameron: Picnic and hanging rock. Tony Kynaston: picturing it. Cameron: I have, I haven’t seen that since I was a kid. Yeah. Um, alright, well that’s the, that’s, that’s the show for this week. Thank you tk. Thank you to our listeners and, uh, we’ll be back next week with another American stock to take a look at. Do your own research though. Tony Kynaston: Thanks Ken. Cameron: Thanks tk. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V [00:45:00] Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general [00:46:00] advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jan 9, 2026

46m
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The Walking Dead Investment: AMC Networks – QAV AMERICA #33

Episode Overview In the final QAV America episode of 2025, Cameron and Tony reflect on a turbulent but revealing year for markets, value investing, and the QAV system. The conversation opens with a recap of US market conditions and the launch of QAV Light US, designed to give American listeners a live, transparent way to learn the QAV process through real weekly trades. Cameron then reviews the long-term performance of the US dummy portfolio, highlighting strong multi-year outperformance despite a difficult 2025 relative to the S&P 500. The episode’s deep dive focuses on AMC Networks (AMCX)—a former prestige-TV powerhouse now trading at distressed valuations. The discussion traces AMC’s origins in the Dolan family’s cable empire, its golden era producing Mad Men, Breaking Bad, and The Walking Dead, and the brutal impact of cord-cutting on its business model. Cameron and Tony unpack why AMC is bleeding on earnings but still generating real cash, why the market hates it, and why it nonetheless tops the QAV buy list. The episode closes with a broader discussion of cycles in investing, the importance of selling discipline, Tony’s emerging “Growth over PE” insight from Australian markets, and why patience with a rules-based system matters more than short-term performance. ⸻ ⏱️ Timestamps & Topics (QAV Episode) 00:00 – 02:30End-of-year reflections, weather whiplash, and why Australians don’t understand US winters. 02:30 – 05:30US market update, no Santa rally, and the launch of QAV Light US as a learning portfolio. 05:30 – 09:30US dummy portfolio performance review vs S&P 500. 09:30 – 14:30Why QAV is not “buy and hold forever” and why selling matters as much as buying. 14:30 – 19:00Tony’s emerging insight: Growth over PE as a potential performance driver. 19:00 – 26:00Global equity market wrap: US, Europe, Japan, Hong Kong, and market cycles. 26:00 – 29:30Introduction to this week’s QAV Light addition: AMC Networks (AMCX). 1:07:00 – EndQAV philosophy, cycles, patience, and closing thoughts for the year. Transcription   Cameron: Welcome to QAV America, Tony, the last QAV America of the Year. This is episode 33, 33. Uh, it’s, we’re recording this on December 30th, 2025. It’s hot where we are cold, where our listeners probably are. My boys were just in New York for Christmas with their mom. Got to see snow for the first time. Tony Kynaston: really? Cameron: I said to them, what did you think? They were like, yeah, it was fun for about an hour. And then we were like, God, this is terrible. Imagine living in this. I said, yeah, imagine having to deal with that three months of the year. It’s crazy, but they’re back in LA now. Tony Kynaston: fair, I never, like, I’ve been to New York a number of times and I never thought it handled snow. Well, you know, the colder cities where snow’s a regular [00:01:00] occurrence are set up for it, but New York’s kind of, maybe it’ll snow this year. Maybe not. So we’re not gonna bother about for it too much. Cameron: Well, it just had, I think its biggest dump in four years, the night before the boys left, so they were stuck on the tarmac for two and a half hours waiting to get out and all that kinda stuff. Uh, well, I don’t know. I’ve been to Utah in winter and it’s built around snow that time of year, but, and you know, I’m sure they’ve got a handle on it, but it’s still a nightmare having to shovel your driveway every day and defrost your car before you can go anywhere crazy. I always said to people, you know, there are places you can live where you don’t have to do this for three months of every year. You know, you can just move to a warmer climate, Tony Kynaston: Well Cameron: but I don’t. Tony Kynaston: do I play ice hockey and go ice skating and all my skiing Cameron: Go visit you go visit, you go visit a place for a week and then get out. Yeah. Okay. Tony Kynaston: exists [00:02:00] in the US and Mexico Cameron: Yeah, yeah, yeah, yeah. Tony Kynaston: what’s west coast Arizona Cameron: yes. I love Arizona. I want to get back to Arizona. It’s very hot, but, uh, so pretty, such a pretty place. So many pretty places in there. All the ro cactuses and all the red. what? Oh yeah. I don’t care about golf courses. Cactuses. I like, uh, Tony don’t have much news-wise to talk about. Um, in the US their market hasn’t had a Santa rally this week. Um, it’s been pretty quiet. There’s a just, things are still bubbling along over there, uncertainty about labor numbers, et cetera, et cetera. But the economy, generally speaking seems to be trundling along despite tariffs and all of the unknowns. But I did wanna mention [00:03:00] to you that in the last week, I finally launched our US light portfolio. So for listeners in the us, uh, what we’ve been doing in Australia for the last few years is we, we have our regular portfolio, a dummy portfolio that’s our stable portfolio that we built over the last six years. But not a lot of trading happens in it. It’s fairly well established. We don’t tend to sell much. And that’s, uh, good. But for people that just are discovering our show and are trying to figure out how to invest in the QAV style, it doesn’t give them anything to play with. So I launched a thing a few years ago called QAV Light in Australia where we. Have a much bigger portfolio of stocks that we trade in, and it means that I’m always sort of trading something every week and new listeners, as they’re learning the system can trade along with [00:04:00] us. We’re buying and selling things o on and off of our buy list, and people can sort of learn the system by following our trades in QAV light trading along with us if they want, or just watching our trades and getting a handle for how it works and you know, then. Because everything is transparent. They can look back at it six months or 12 months or two years later and see what our performance was like. And we have full transparency of what we bought, when we bought it, what we paid for it, when we sold it, why we sold it, the whole deal. And it’s a lot more fluid than our major portfolio is because it’s stabilized. Same thing’s happened with the us. I’ve been running the US portfolio for two years now. It’s pretty stable. We haven’t had to do a lot of trading. I have to sell something once every couple of months, but really it just sits there and ticks along, which is great. But again, for new American listeners, it doesn’t give them anything really to play along with. So I’ve started the first QAV Light [00:05:00] portfolio. It’s something you get to see if you have a subscription, you have to have a QAV light subscription in the US and you get to see the weekly trade. So every week. I will buy something off of our American buy list and add it to our light portfolio and then track that. And if any of the stocks that we hold on those portfolios trip up, one of our selling, uh, triggers, I will replace it with something else on our buy list. And people in the US can follow along. Again, they can copy our trades if they want, or they can just watch our trades and, you know, go back and have a look at it, uh, historically and see how the system works with real data and a real transaction. Um, transparency. So I launched that last week. I’ve added two stocks to it so far. Um, the first one was Gray Media, GTNI added last week, which has been on the top of the buy list for a long [00:06:00] time. Interestingly, it’s a television company that we’ve talked about. I did a deep dive on it. Um, a couple of months ago, and the one that I added today or yesterday is another TV business, and it’s the company that I’m gonna do my deep dive on today, which is a MC Networks or A MCX. So, um, that is interesting, and I, and I added it because it was the top of the buy list this week. GTN was the top of the buy list last week. A MCX is the top of the buy list this week and both TV businesses, which is interesting. And A MCX is, we’ll see when I do the deep dive on it is it’s not a healthy look at business, to be honest. Tony Kynaston: Yeah Cameron: You know, I’ve done some pulled porks over the last couple of months. I’m like, these businesses are making cash handover fist and they’re under value. This looks great. A MCX is not one of those. It’s bleeding, but it was at the top of our buy list, [00:07:00] so. There’s value in there somewhere. So we’ll see as we drill down into it. But it’s got a good story too. It’s got a long story, um, not as long as some of the businesses, but it goes back decades and has, uh, some involvement with, uh, Hugh Hefner, uh, which is always fun. So anyway, that’s, uh, we’ll get into that in a second. Um, before we do that, I thought I’d just do a quick overview, seeing as it’s the end of the calendar year, which is the end of the financial year too in the US looking at our major portfolio over there, what we call the US dummy portfolio. Again, it’s been running since I think September, 2023. Since then, uh, it is up 65.5% a little over two years. So roughly, you know, 30 odd [00:08:00] percent a year on average. Uh, that doesn’t include dividends. And the s and p 500, which we use as the benchmark, is up 55% over the same period of time, which is terrific performance. But as of today, we are doing quite a bit better than the benchmark over that period of time. Year to date, however, has not been great for us. The, our portfolio is down 11.7%. This calendar year versus the s and p up 17.4%, so has not been a good year for our portfolio. Generally speaking, we had a lot of gains in its first year and then has given up some of those this year. But, um, still overall doing very well to give people an idea, uh, of the stocks that we hold in that portfolio and what kind of performance we’ve had over the two odd [00:09:00] years we’ve been involved. Uh, uh, sorry, we’ve been running it. Um, the number one performer is Willis Lee Finance Company WLFC, uh, up 186%. And the second one is Innova International. ENVA is up 173% Euro, CS ESEA is up 102 and it goes down from there. But, uh, they’re some of the big hitters in the portfolio over the last couple years. None of the stocks that we hold, I should. Point out a mag seven stocks. Um, they’re all QAV stocks Companies that, in most cases have been around a long time are generating a lot of cash, but, uh, available to be boarded a discount to what we think their valuation should be. We buy ’em, we hold ’em, and, uh, generally speaking, they then tend to do relatively [00:10:00] well. Tony Kynaston: Yeah I think going back to the QAV Light service that you spoke about of the important things that QAV Light gives listeners who follow it and certainly it’s been the feedback to me from our Australian QAV light listeners is that only are we telling them every week what to buy but we’re telling them what to sell and when to sell it that’s a fairly unusual thing for investment service And it’s a thing which a lot of our listeners value the most is that we we’d like to be buy and hold forever investors and sometimes we are but that’s a pretty rare thing And if you look at the history of uh all indexes Australia or the US or whatever um the stocks that are there now weren’t the stocks that were there 20 50 a hundred years ago So um when to sell is just as important as knowing when to buy which is part of the QAV Light Service and a part of managing the dummy portfolio Cameron: Yeah. And you know, I think a lot of value investors in [00:11:00] particular, um, screw up their face when they hear that we don’t buy and hold forever, because that is part of the mindset that you hear about in value investing. But my understanding of it, having been studying, um. At your feet for the last six or so seven years, is that sometimes stocks go down and don’t come back up for years, and they may come back. Uh, but your money could be working for you in the interim, so you would rather sell it on the way down, reinvest that capital into something that’s gonna go up and have your money working for you rather than bloody mindedly sticking to your original thesis and saying, screw the world. I’m right. You are wrong. I’m gonna, I’m gonna prove it even if I don’t get any returns on my portfolio for 10 years. Tony Kynaston: where the buy and hold mantra came from [00:12:00] but it was certainly one that Warren Buffet espoused so perhaps he was the reason for it And he famously talks about the bus pass which has 10 free 10 rides on it And you stamp a a ride each time you buy a stock and therefore you should only buy 10 stocks and that should do you for a lifetime but of course sold plenty of stocks along the way and in and out of airlines in particular and all companies and all Cameron: Yeah. Tony Kynaston: things And in fact it was um I think it was the most recent episode of the acquired podcast on Coca-Cola they said at some stage during their analysis that um Warren bought it back when he did and it was a great investment then and he’s held it ever since But that investment is now doing worse than holding an index um ETF for the s and p 500 um even the great Warren gets it wrong buying holding and like I know he would argue he hasn’t had to pay capital gains taxes along the way and brokerage and stuff But my experience is that [00:13:00] those things are counteract by putting your money to work as best it can at every stage of your career and not just sitting and forgetting Cameron: The way that I, I, I’ve passed it in my head over the years is buy and hold is actually a good mindset to have. Like we are buying things with the intention. We’re not day traders. We’re, we’re not trying to trade in and out and we are buying things thinking this is a good business, it’s performing well. We can get it at a discount and we are going to sit on it and hold it as long as we possibly can. And there are stocks in our portfolios that we’ve held for years and they’ve continued to do really, really well. We just talked about some of them on the Australian show that we’ve held for, you know, a year or two and they’ve done a hundred, 200%. But there are other, but there are reasons when we will sell a stock, you know, we, we will, we’ll buy it with the intention of holding it as long as we possibly can. That’s in our [00:14:00] mindset. But if it shit the bed, we will sell it and put our, put our money somewhere else. Right. So it’s not binary. Yeah. Tony Kynaston: I mean Cameron: The guideline, not a rule. Tony Kynaston: He he um you know he studied the the feed of Benjamin Graham and Benjamin Graham taught cigar by investing So he was looking for a cigar that was um still had one puff left in it that he could pick up off the side of the street and Cameron: Hmm. Tony Kynaston: take that one puff and then discard So he wasn’t really a buy and hold forever type investor either He was trying to get one last gasp here Cameron: Yeah. Uh, now on our Australian show, Tony, you spent quite a lot of time talking about an analysis that you’ve done recently. We, we’ve had a really good year in the Australian market. Our portfolios, uh, right across the board, particularly in the last six months in Australia, have done really, really well up 30, 35%. And you were doing some analysis, uh, on [00:15:00] some of the commonalities between the stocks that have done the best in the last year on the Australian market, and it led you to half an insight that you’re continuing to explore regarding growth over pe. Do you wanna just recap that, uh, maybe in a condensed form for our American audience? Tony Kynaston: So uh I owned my portfolio’s done well this year and being year end I’ve gone back to review it looked at the stocks which have performed the best and from what I could tell the looking at things backwards So going back to the start of the year and looking at the buy list um at the start of the year and those stocks were on it and then looking for commonalities They all had a high growth over PE score And that’s the the old Peter Lynch rule he calls it the PEG ratio Um I actually have turned it upside down um for some reason I can’t recall why Uh [00:16:00] but anyway um We look for a stock which scores over one uh 1.5 when you put uh forecast earnings per share growth over its PE ratio so it’s growing faster than PE ratio And and that should mean that you’ll get your payback faster And if you can buy it cheaper than the growth rate then that’s a good deal is basically all it is Um so I we score it Um that’s certainly part of our checklist and it was getting a score gets a negative one if it’s a negative forecast Earnings per share gets a positive one if it beats the hurdle the stocks which did really well for me which were all um triple digit returns high growth over PE scores of like eight or nine times Um forecast growth over Cameron: They did have at the beginning of the year. Yeah. Tony Kynaston: stocks now have much lower growth over PE scores because they’ve grown a lot during the year Cameron: Hmm. Tony Kynaston: equal and perhaps their outlooks aren’t as good now as they were at the start of the year [00:17:00] So um I I did some analysis on that and uh looked at um the stocks on the buy list I think from memory the numbers were something like if you bought all the stocks on the buy list an equal weight and you got 18 return buy and hold for the year and that doesn’t apply All our sale methodology along the way It was Um I just wanted a quick and dirty look at performance Um but if you bought if you ranked them by growth over pe then you got more like uh 45 Um and uh if you took the highest ones um only you were getting over 50 or 60 So there’s something in growth over PE and I’ll do some more research on that and see if we can adjust our score to give it more weighting our methodology Um I’m a little bit mindful of the fact that this could have just been a year where that particular metric did well in Australia we’ve had a couple of interest rate cuts and sometimes gross stocks do better when interest rates are coming down [00:18:00] Because you know people see that companies pay less for their debt or they have more spare cash to invest so they invest in more speculative type stocks Um I also compared a full list of uh stocks um that have positive operating cash flow which is our first filter there’s a couple of hundred stocks there and their growth over PE rankings compared to the results I was getting And they were they were very good They were even better Um but in the top 20 stocks ranked by growth over PE for all stocks uh there were still I think four QAV stocks on the top 20 list and they performed even better still So I think that we are value investors and we’re looking to pay not overpay for growth has an impact on our returns So gonna do some more analysis on other years where there’s been interest rate rises and other thing that’s going on Like at the moment some of the stocks on mining stocks and we know that gold’s having a terrific Which affects um Australian stocks or gold mining [00:19:00] stocks So um there’s a few things to unpack there but at the moment I’m thinking about using the score from the growth over PE as a raw score input into the QAV score for a company So factoring the growth side of things as well as the value side of things Cameron: We can also take the US bios over the last couple of years and, um, run it over that as well, the analysis and see how that plays out. Tony Kynaston: that’d be useful because Cameron: Very interesting. Tony Kynaston: A MCX buy list and it’s got a negative forecast growth so uh Cameron: Yeah. Tony Kynaston: count against it if we change the methodology Yeah Cameron: Yeah. Well, um, let me see. What else have I got on my notes? Nothing. Uh, well we did also talk in the last show, Australian show about global equity markets this year, how they’ve done well. Um, Europe’s stocks 600 is up 16.6. The s and p [00:20:00] 500 is up 17.3. The, uh, UK FSE 100 is up 21 and a half, but Hong Kong is up nearly 29% and Japan is up nearly 35% this year. We talked a little bit about some of the reasons why Hong Kong and Japan might might’ve been doing well, but it’s bottom line is it’s been a bonkers year. For equity markets around the world. It’s one of those years where honestly, it’s a little bit hard to get it wrong as an investor if you have a system and you know what you’re doing. Um, I do see some people on some of the investing subreddits and forums talking about how they’ve had terrible years and our portfolio in the US as I said before, has actually gone down this year. It hasn’t had a great year, all toll, but we haven’t done a lot of trading in that portfolio this year either. It’s just been coming off highs from last year. I think a lot of them just had, like, WLFC went up 300% last year and [00:21:00] then it’s given up some of those, uh, returns, which makes it artificially look like a bad year. But it’s not really, Tony Kynaston: had the Cameron: it’s weird. Tony Kynaston: dummy portfolio started six years ago I think it did like 400 in the first year and then it sold off on the second and stabilized the double market going forward after that Cameron: Yeah, it was during COVID, it just exploded during COVID and then it sort of gave up some returns Tony Kynaston: the reverse Cameron: and, and I’ve learned Tony Kynaston: too where they underperformed at the start and now they’re outperforming So um it just Cameron: ’cause we started them Tony Kynaston: it just reinforces in Cameron: bad times. Tony Kynaston: when you start an important indicator of how you perform but over the long term it doesn’t really matter And but you’ve gotta stick it out for Cameron: Yes, Tony Kynaston: I started a portfolio it hasn’t done well I’m gonna quit it I did well last year Cameron: yes. Tony Kynaston: quit It’s Cameron: Well, you can, but a lot of people do. Tony Kynaston: That’s right That’s Cameron: Yeah. And one, one of the [00:22:00] things that I’ve, one of the things that I’ve become convinced of in the six or seven years we’ve been doing this is just realizing that there are cycles in the market and that the QAV system. Performs really, really well during some phases of the cycle and then performs poorly in other phases of the cycle for a whole bunch of reasons, and then performs okay in the other phases of the cycle. But over like a five to 10 year period, you get enough periods where it really outperforms. Like, you know, in Australia we’ve done, in the last six months, our portfolio has done, you know, I think the lip portfolio has done 35% versus 4% for the index in the last six months. So it’s massively outperformed for six months. And that might continue. It might not, we dunno, but we, we get so much wind in the sails of the portfolio in that period, then we can afford a few years of average performance. It’ll come back down to double market. [00:23:00] Then we’ll get another couple of, another six months, year of massive outperformance and you know, it just goes in cycles, right. Tony Kynaston: unfortunately I I can’t spot what causes the down years and I can’t spot what’s caused the Cameron: Yeah. Tony Kynaston: six months for a cider So it’s it’s really hard know It’s like sitting at a blackjack table and trying to guess what the next hand is You just don’t know But you look back over Cameron: Yeah. Tony Kynaston: a dozen hands and you go gee that was a good run And and you just don’t know Dunno why Cameron: And, but you know, double market is long term. Double market is great performance and we know that the system has done that for you for over 30 years, and I’ve seen it do it in the last six or seven years in Australia. And so it’s just, yeah. I don’t, I don’t think too much about it. I just know that if I just follow the rules, follow the system over the long term, it all works out. And, and as I always explain to people, I did it with [00:24:00] Scott on our show last week, is at the end of the day, the basic thesis of QAV is we’re looking for companies that are performing well and then we buy their shares where we can get ’em at a discount to the valuation. And we assume that they’ll probably rerate the market will rerate them at some point through either, you know, somebody getting on board or an acquisition or people waking up that, oh, this company’s actually cheap. We should buy it. Something will happen and it’ll, what do you call it? Regress to the mean. Yeah. And Tony Kynaston: that’s certainly the Cameron: won’t happen every time, but it happens more often than not. I. Tony Kynaston: that’s um that’s a good summary I I’d just like to add that it’s also the system’s kind of been put together by inverting what doesn’t work So we focus on quality metrics So we try and get rid of the bad apples We focus on cash flow so we try and get rid of the duds on um uh you know valuation so we don’t overpay [00:25:00] All those kinds of things that can trip you up It’s it’s like like being a supermarket operator selling fresh fruit You have very stringent controls on the fruit and veg You offer it to the public and that means you’ve always got a good offering So it’s that’s how I look at it We’re a filtering of it’s like if the index is all the apples and you take out the bad apples then you should be getting twice the index Cameron: Yeah, it’s, uh, it’s, I mean, it, it, it’s just a simple premise that’s hard to argue with, right? So it just works. Um, it’s not. Mystical. It’s not magical, it’s just, it looks like it at the beginning, but it’s really just common sense in a spreadsheet Tony Kynaston: as you say if Cameron: that’s not that common. Tony Kynaston: aren’t your thing and you don’t have the time to do your own downloads and analysis and things and QAV light might be for you as well where you can just trade Cameron: That’s, yeah, that was one of the reasons, yeah, we created it. ’cause some people said, I don’t have time to do it too hard. Just tell me what to do. [00:26:00] Um, well, speaking of that, I’m gonna talk about, uh, this company that does not look good, but is at the top of my buy list this week. So, yeah, well it could be, or maybe. Maybe it’s not. Maybe there’s, there’s hidden things going on in there that Tony Kynaston: Maybe Cameron: we don’t, is not obvious. But look, so it’s, as I said earlier on, it’s a MC networks, A MCX. Not to be confused with a MC entertainment, the cinema chain and meme, stock circus over the last few years to the moon, et cetera, et cetera, in uh, wall Street Bets. This is a different company. This is the company that you probably associate with Breaking Bad Mad Men, better Call Saul or The Walking Dead. Three really great shows and a terrible show as far as I’m concerned. Tony Kynaston: Well Cameron: On my Tony Kynaston: I’d score a little bit more harshly than [00:27:00] that but anyway Cameron: more harshly, what Walking Dead or those other shows you didn’t like those other shows. Tony Kynaston: mad Cameron: Ah, Tony Kynaston: But Cameron: dude. Tony Kynaston: get past the first few shows I Cameron: Oh, Tony Kynaston: all was Cameron: loved Mad Men. A loved Breaking Bad Loved Better Call Saul Walking Dead. I watched the first season and it was like, yeah, it’s going nowhere. Love the comic book of Walking Dead, but not the, uh, thing. Hey, my camera’s going blurry. Um, but my boys love The Walking Dead. Well, they’ve, they’ve been loyal to it for nearly their entire lives. I think they started watching The Walking Dead when they’re 11. They’re now 25. They still clinging to it. It’s a bit like they’re X-Files. Tony Kynaston: Right Cameron: You know, I, I watched the X-Files go downhill over years, but kept watching just through bloody mindedness. Um, anyway, so the interesting thing about A MCX is they had all of, whether you you liked those shows or not, these were huge shows [00:28:00] in popular culture, but. They’re not producing them anymore. And as I said, uh, to you off air before, like one of the interesting things is that Vince Gilligan, who made Breaking Bad and Better Call Saul, his latest show Pluribus, is on Apple tv. It’s not on a MC. And so their heyday seems to be well and truly behind them, but they’ve got an interesting business model which will, um, go over and there may be some upside left in them yet. So they’re, they’re basically making money by owning and distributing TV brands and shows. And basically they’re, they’re trying to, they can’t compete with Netflix or Apple tv, so they’re trying to take more of a niche approach to culty shows. And the audiences around in cult around cult shows, I think is where their focus is. [00:29:00] And doesn’t seem to be working for them really at the moment. But, uh, they might be able to pull a rabbit out of a hat or they might just get acquired something or they could just go outta business. We’ll see what happens. Their website says Our mission is to be the premier destination for passionate and engaged fan communities around the world with entertainment that stands out, drives popular culture and fuels our growth. We create and curate celebrated series and films across distinct brands and make them available to audiences everywhere. So that sounds good. Uh, can you execute on that? I mean, that’s what you did do. Um, my camera’s going blurry. Again, that’s what you did do once upon a time. Whether or not you still do that remains to be seen, but it’s a nice vision. So they have, um, their own channels, their own streaming [00:30:00] subscriptions, and then they license the right to distribute their shows on other platforms. The old engine is linear TV pay. TV operators would pay a MC fee to include channels like A-M-C-B-B-C, America, IFC, Sundance tv. We TV in bundles. I was saying to you off air that I, I don’t really understand cable TV because I never had cable in Australia. Cable, um, was late to Australia. We did have it eventually, but it wasn’t a big thing like it was in the us it was, we had a couple of cable channels here, but I never really, I, I think I wasn’t watching TV at that point. More just videos Tony Kynaston: Um Foxtel has a large penetration Cameron: Yeah. Tony Kynaston: households There was a couple of competitors I think Optus is still around There was a third one which died It was a satellite cable TV offering I still have Foxtel I still watch it [00:31:00] as my um main source of sport anyway but um yeah I Cameron: That’s what I’ve always thought of, Foxtel as sport, not, I didn’t have to get Foxtel to watch Breaking Bad or to watch Mad Men or something like that. It was mostly Tony Kynaston: h well no HBO was on Foxtel I think until recently You couldn’t get HBO in Australia unless you had a Foxtel account Cameron: right. Well, I used to, yeah. Yeah. I, I never watched HBO except on DVDI guess that’s where I would get all my HBO shows, the Wire and sopranos and, ah. Yeah, I, I don’t remember. Anyway, I’ve never had cable, so I don’t understand it. And the cable cutting thing, but that’s, that’s a big thing that I had to read up on. That’s affecting a MC. But before we get into that, um, oh, they also have, uh, ACORN tv, British and Mysteries Shutter, which is a horror network, A-L-L-B-L-K, which is black led [00:32:00] content, all black and an anime lane called High Dive. Tony Kynaston: And all of those are now bundled Cameron: uh. Tony Kynaston: or uh Disney or some of the other streaming services as extra subscription packages Cameron: Extras. Yeah. So they license that out to the other streaming services. And I gotta say, I dunno if I’ve said this to you, but it, I’ve been saying this to my boys, I’m really, really annoyed by the way that streaming TV has played out. Like I have one music streaming subscription with Spotify and I can listen to every song, every album more or less. I mean, there’s some stuff missing, but 99% of anything I ever wanna listen to. Going back to Robert Johnson and classical music and jazz, and you know, right through to modern stuff is on there. I don’t need to have 10 different bloody music streaming services to listen to all the albums that I want. The fact that I have [00:33:00] to have. You know, there’s half the stuff that I wanna watch. I hear Tarantino talk about a film, and I go to try and watch it. No, it’s not available. I go to try and watch some old TV series from the seventies. Nuts. It’s not available. Like, the fragmentation of TV and film on streaming pisses me off. Like, I’m like so angry at all of these guys for making it so bloody difficult. Tony Kynaston: You know talking about cutting cables basically the people who cut cables are paying the same as their old cable subscription to subscribe to Netflix and Amazon and Disney and all of them They’re all about when you add them all up It’s about the same Cameron: If you, Tony Kynaston: a cable TV Cameron: if you subscribe to all of them, like, I refuse to subscribe to all of them. I was like, no, no, I’m just gonna pick one. I’ll watch what’s on that. If there’s something not on that, then I can live without it, you know? I, I just refuse to play that game. It’s insane. Anyway, Tony Kynaston: we get and they’re turning Cameron: that said, Tony Kynaston: episodes by when they drop and all that kind of stuff So it’s [00:34:00] it’s what we used to get for free on free to wear TV we had to pay for on cable and now we have to pay for on Cameron: And you get ads sometimes. Now, HBO, they give you ads that annoys me. You pay for it and get ads. Tony Kynaston: that Cameron: I’ll stop. Tony Kynaston: skeptical about the future of AI than you are cause I think there’s a commercial overlay which people aren’t getting the imperative to make a buck is gonna screw it Cameron: Oh, everyone knows that that’s gonna happen. We’re just hoping that there’ll be ways around it. But yeah, you could be very well. Right? It’s, it’s what has happened and you know, Sam Altman’s already talking about them putting ads in it and you know, it’s already, everyone knows it’s gonna happen to some degree. Any who? Let’s go back to A MCX. So the business is began as something called Rainbow Media inside the Dolan family’s Cable Vision Empire. The Dolans. You ever heard of the Dolans? Tony Kynaston: dos wouldn’t be Mickey would it Cameron: From the Monkeys? [00:35:00] No, that’d be great if it was. No, I don’t think so. They’re New York cable royalty. So, um, Charles Dolan was the founder of this um, outfit. He and his wife, I believe, when they were very young in their twenties, early twenties, were focusing on packaging, marketing and distribution of sports and industrial films, which they produced in Cleveland and then sold to television stations, which syndicated the material. He had a company called Tele News, which he sold in exchange for a job. And then when he was 26 years old, he moved to New York City and founded Tele Guide, Inc. A service that provided information to hotels. And then he created a company called Sterling Manhattan Cable, [00:36:00] which was the first company to wire buildings to have cable television access in its early years. Um, they forged, uh, first of its kind agreements to bring New York professional sports teams, cultural programming and movies into the homes of New York City cable viewers. So cutting edge of cable. And then he sold Sterling Cable’s Manhattan operations to Time Inc. And renamed his Long Island business Cable Vision Systems. In the early 1970s, Charles Dolan founded Home Box Office, the first premium programming service in the cable television industry, which he sold to Time Life. His business model was start things and sell ’em to time, basically Sell ’em, grow ’em, sell ’em to time. Then, yes. [00:37:00] Then he organized Cable Vision Systems Corporation on Long Island. He only died. A year ago, December 28th, 2024, at the age of 98. So he was pretty much the pioneer of Cable tv. This guy, he was the real deal. Um, so back in 1980 when he had this company called Rainbow Media, it was a joint venture between Cable Vision, Comcast, Cox Communications, and Daniels and Associates. They said, if you wanna be part of our joint venture, your company needs to start with the letter C. But they made an exception if it was the letter D for Daniel and Associates. They had a hybrid service which launched in December 8th, 1980, which broadcast nightly on satellite times, subleased from the National Christian Network and consisted of feature cultural events from what is now Bravo on Sunday and Monday nights and [00:38:00] adult oriented B movie network called escapade for the rest of the week. Tony Kynaston: Sorry that was on the Christian satellite was it Cameron: yeah, like Christians don’t mind turning a blind eye if there’s money involved. Tony. Yeah. Yeah. Let’s talk about indulgences during the crusades. Hey, you want to go and rape and pillage? Not a problem. Just, uh, give me three gold coins and you get entry to heaven, guaranteed. Guaranteed by the Pope. Um, so they had four cable companies involved. So they grew quickly, they had lots of subscribers. By July, 1981, they expanded their offerings to seven nights a week. In August of 91, Playboy Enterprises became half owner of Escapade, which introduced a new programming block to the channel in early 1982. And by the end of 1982, it relaunched as the Playboy channel Tony Kynaston: Still on the Christian [00:39:00] satellite Cameron: porn. The Christian satellite. Yeah. Uh, porn at the forefront. Wow. It’s a lot of money in Jesus, Tony. Lot of money in Jesus. Um. By early 1983, it had 400,000 subscribers who pay between $6 and $9 a month, put it in fifth place behind mainly movie cable channels such as HBO and Showtime Penthouse also had a cable channel in those early days separately. But yeah, it was the big days of Playboy and Penthouse. ’cause what else are you gonna pay for to watch at night? Um, a MC Networks was spun out on its, uh, as its own listed company in 2011, but has remained a controlled company. The Dolan family keeps voting control via super voting shares. Rupert Murdoch style. And I think that’s one of the reasons why the, the market [00:40:00] doesn’t really love A MCX is because of the Dolan family’s control over it. Um, you know, they, it’s. Well, it’s hard to, to win a vote too if you’re, you know, trying to get the company to do something. If a family doesn’t want something to happen, you can’t vote them into wanting to sell it. Governance risk is a real part of the A MCX story, especially when the industry is shrinking. Capital allocation choices matter. Um, other shareholders wanted to do this, that, or the other, but the Dolan family calls the shots at the end of the day. Tony Kynaston: be good or bad I mean of hate Rupert Murdoch has been very successful So oftentimes the I’m Cameron: Yeah. Tony Kynaston: was you know not only a pioneer in the cable industry but you were inside out and would make the best strategic decisions Cameron: And his kids run the business now. So whether or not they are as smart as he was, remains to be seen as successful. But we, you know, we love skin in the game [00:41:00] and we don’t yet score it on our US buy list. I haven’t got around to doing that. But, um, you know, when, when you have families that have a lot of, in, you know, personal investment in a business like this, usually they’re gonna make selfish decisions to increase the value of their shareholding. So we, we put a lot of stock in that, but we’ll see. Tony Kynaston: Just as an aside Cameron: So, Tony Kynaston: your code to look for Class A class B shares in the US as a way of founder led companies Cameron: no, I don’t think so. I mean, not if I want to get ITpedia, if I start looking at other sources, I might be able to do that and collate it all together. I. Um, so obviously the crisis for this business has been cord cutting of cable. Every household that cancels cable is one less household paying AMC’s rent through the bundle. And so they responded to that with two big moves. First, they [00:42:00] doubled down on targeted streaming rather than general streaming. Second, they leaned harder into content licensing. So, as you said before, a lot of a MC shows are on bigger platforms to generate cash and to act like marketing for a MC plus. So you watch season one on Netflix, and then if you wanna see the rest of the seasons, you have to go sign up to a MC plus to get the, the full content stream. So they basically use Netflix as a, as a billboard basically to drive audiences to a MC plus. Um. I’ve got a lot of background here on cable that I thought would be interesting, but you’re like, nah, I’m the only person who doesn’t understand how cable works, so I’ll skip all of that. Um, uh, Tony Kynaston: look you haven’t missed much There Cameron: but Tony Kynaston: channels on Rogers in Toronto when we lived there and not many were worth watching And there was I don’t know how many there are [00:43:00] on the Australian cable version here a hundred maybe Um I watched probably two or three Yeah Cameron: you know, my mom has freeto Air tv. We dont have Freeto Air TV in our home in Brisbane. I’m visiting my mom, by the way, for American listeners over Christmas. And um, so I flicked it on the other night, uh, started scrolling through the free to wear TV channels. It was reality tv, reality tv, reality tv, reality tv. I’m like, seriously? It. That’s all it is now. It’s just reality shows, wall to wall reality shows, and somebody must be watching them. I mean, I have less than zero interest in watching any reality show, but that’s pretty much all it was. It was shocking. Really shocking to me. Anyway, I guess they’re making a buck off it somehow. Um, but getting back to the 200 channels, she said apparently, so my, my deep research into what killed cable [00:44:00] was, um, most people realized they didn’t watch 90% of the channels, but were still paying for them, and the bills were going up. So when streaming came along in the 2000 and tens, Netflix started the streaming revolution. People realized I could pay one app, one price, cancel any time, no bundle. And people started getting rid of their cable subscriptions, which had a big impact on businesses like a MC that were just getting paid money by cable companies. Uh, whether or not people watch their TV shows, they were getting. Guaranteed money coming in every year, which they could then invest in TV shows. But that destroy, you know, the, the cord cutting basically killed their old business model. Lose, uh, lost its affiliate fee that they were giving, getting lost it immediately and lost it forever. So it took a big chunk out of their revenues [00:45:00] and their business model moving forwards. So they’ve had to pivot and, you know, judging by the numbers, they’re, uh, struggling and they didn’t lose talent so much as they lost the economic environment that allowed them to subsidize risk. Obviously, when you’re making TV shows, uh. These days, huge budgets, particularly post like Game of Thrones and shows like that. You’ve gotta compete, you’ve gotta be willing to sink a ton of money into these shows and it will be interesting to me. So to see how AI does change that in the next five years, will you be able to make a show that looks like a big budget show for a lot less money if you are using AI to do all of the special effects rather than teams of humans using CGI and spending a year to do it? If you have. [00:46:00] AI actors instead of Hollywood stars, will they be able to make high quality shows a lot cheaper? There’s an interesting show on YouTube that I watched, uh, last night. It’s a Star Wars show that’s all made with ai. There was this episode last night of Luke Skywalker, a young Luke Skywalker going to meet Daf Bain, um, and talking about how he was gonna build his start a Jedi Academy. And Daf Bain was telling him about all the problems that the Jedi had and why the, the, uh, s system of only two a master and a student was superior to the Jedi and all this kinda stuff. And it wasn’t perfect. Um, the. Lip synchronization of the dialogue was a little bit flawed, but it looked like a YA young Mark Hamill, and it was pretty, pretty bloody good. And I was like, and it was far more [00:47:00] interesting to me and entertaining than anything that Disney or Lucas film have put out in the Tony Kynaston: Yeah Cameron: So I was like, well give this another year, two years. And I mean, apart from the lawsuits, um, I think there’ll be, it’ll be interesting when fans can make better Star Wars content than Lucasfilm or Disney can for a fraction of the price, you know? Tony Kynaston: Oh models Cameron: Um. Tony Kynaston: I mean I imagine in in that sort of world probably takes the best fan base correct Content and Puts a billion dollars behind making it into a big budget movie you know blows it up into a really high production valued series or whatever Does the Game of Thrones treatment to it Cameron: Or just says, you know, yeah, we’ll license the Star Wars characters to you. Go make your own thing. And you know, if it’s a hit, if you make money out of it, you pay us 10% of, you know, gross. I don’t know. We’ll just license it out. Tony Kynaston: Star [00:48:00] Wars like logo Put it together yourself Cameron: License the ip. Yeah. Yeah. Anyway, um, so the problem with these these guys have is that they just don’t have the money coming in to invest in the shows. If you don’t have the shows, you don’t have the audience. The, the, the world that existed when a MC was making these hit shows no longer exists, and they. Tony Kynaston: too I mean we talked about Cameron: Largely, Tony Kynaston: that book on the TV industry difficult Men where talks about the creators of Mad Men not being able to sell the idea any of the big players in the industry And then turning to a MC who you know based on my experience in Toronto was showing Movie of the Week type stuff 24 hours a day very cheap budget Cameron: yeah. Tony Kynaston: And they said yeah we’ll take a risk and put all this money behind Mad Men And they pivoted to that took off for Cameron: Yeah. I mean, [00:49:00] HBOI think started with Sopranos and um, Fox was doing X-Files and you had Twin Peaks going back a little bit further, but yeah, really mad Men Breaking bad, the Walking Dead. These were massive, massive investments and bets that they made that paid off, Tony Kynaston: a MC Cameron: but. Tony Kynaston: I mean you know I watched a MC as one of the channels you’d flick through in Toronto and it was um it was you know wall to wall walking dead am uh breaking bad And then it would be you know Charlie got married and all these you know wholesome little low budget that they ran continuously in the and the nighttime after Walking Dead had finished Mm-hmm Cameron: so now they’ve. Sort of stopped being the hot new AUR network and became the, become the franchise recycler. Um, lots of [00:50:00] Walking Dead Universe spinoffs, smart adaptations with built in audiences. Their big hit show at the moment apparently is an interview with the Vampire Series based on the Anne Rice novels, which, uh, I enjoyed when I was in my teens. Uh, read a couple of those. Still part of me wants to be in Immortal Vampire, like Lestat. Um, just live for a thousand years. I think that would be cool, eh, the Killing and the Drinking of the Blood thing, you know, not a huge fan of that. But if I have to do it to be immortal, you know, I’m willing to pay that price as long as, uh, Chrissy gets to be immortal with me, that’s the main thing. Um, Tony Kynaston: a Cameron: um, Tony Kynaston: type vampire gets to be sort of grunge rock and roll character and living in the shadows Killing like once a month Cameron: really. Tilda Swinton was a vampire. Tony Kynaston: What’s the what’s a great movie with uh who else was in it Gary Oldman maybe They played these really cool vampires who um you [00:51:00] know lived in the yeah I forget now what the name of it is but it was a great movie Cameron: he was Vampire and Dracula, wasn’t he? In co Coppola’s Dracula, yeah. Yeah. Tony Kynaston: up while you’re talking I’ll try and work it out Cameron: Okay. So now they’re doing targeted streaming and licensing and you know, it’s, they look, from what I understand, I don’t watch any of their shows really anymore. They do have some. Shows that could be big hits, but um, they actually haven’t converted yet, so they’re still working on these niche things. Um, not the mega franchises. It’s more niche, uh, properties, franchise recycling. They still have good shows, but not really define the era shows like they had 10, 15, 20 years ago. They report two big segments, domestic and international. Domestic is the heavy lifter. [00:52:00] International is smaller but still meaningful. In FY 2024, they reported 2.421 billion net revenues overall and in filings, they break their revenues down by type subscription bundle fees, plus streaming subs was the biggest slice. Then advertising, then content licensing slash other. And they’ve been sort of widening the targeted portfolio side of things. They bought a company called Centi, which included anime, distributor, centi, filmworks, and the high dive streaming service. This was in early 2022. So they’re trying to, you know, drill down into that anime segment. I can, I can kinda see what they’re going for with this niche approach. Uh, it kind makes sense ’cause they really can’t compete with Netflix and Disney and Apple and. Well, I guess HBO Max uh, fits in there as well. The guys with the really, really deep [00:53:00] pockets. Who’s Larry Ellison buying? I mean, what is Paramount is Plus, right? They have Paramount Plus. I think they’re trying to buy Disney, no, H-B-O-H-B-O-I think they’re trying to buy to, uh, anyway. Um. The last quarterly financials were pretty bad. Um, Q3 revenue declined 6% year on year, but still beat analyst expectations. Their adjusted EPS for Q3 missed analyst estimates. I’m using Q3 numbers ’cause they, the Q4 numbers won’t be out for a little while, obviously. Um, adjusted operating income for Q3 also beat analyst expectations. They did highlight growth in streaming revenue and strategic partnerships. They expect their full year free cash flow to come in around 250 million streaming revenue to become the largest domestic revenue source. This year. Streaming revenue increased 14% due to price hikes and [00:54:00] strategic partnerships. Affiliate revenue decline though fell 13% due to subscriber declines and lower contractual rates. And also there was a drop in their. Content licensing revenues of 27% says due to timing and del uh, availability of deliveries. So not a, not a happy picture, year on year with their finances. The old cash. Machine of TV is still throwing off real money, though the market narrative says cable is dead, but cash flows don’t die in a straight line. They’re shrinking, but they’re still harvesting affiliate fees and ads while they’re cutting costs. So operating cash flow, TTM I’ve got at 314 and a half million free cash flow at 269.5 million. Even though the EPS looks pretty ugly, the business isn’t CapEx heavy, which means they’re not pouring billions of dollars [00:55:00] into factories or new shows. They’re really focusing on cutting costs content and marketing, and that money is still coming in. I mean, it looks a little bit like a zombie on the income statement, but it’s still coughing up quite a lot of cash without a lot of outgoings to, you know, bring in that licensing and advertising revenue. Tony Kynaston: me a bit of a back catalog for a like a David Bow or someone like that that that Wall Street will Cameron: Yeah. Tony Kynaston: up and say we can sell this continuously and therefore it has an MPV value to us So if you took Walking Dead and Breaking Bad and Better Call SA and Mad Men they will have a value which Wall Street can calculate based on often they’re watched going forward Cameron: Yeah, and you know the, this niche focus that they’ve got on horror, British mystery anime, they’re talking about super serving a small group rather than pleasing everyone going very, very niche. [00:56:00] Kind of makes sense to me. On, on their subscriber disclosure, they reported 10.4 million streaming subscribers in Q2, 2025, and they’ve been emphasizing their streaming revenue is growing even while their linear ad revenue is falling. So the company is still alive, but streaming isn’t big enough yet to fully replace the old cable revenues. But it is big enough to be a lifeboat and. You know, they have the option to own the customer relationship directly. Instead of being a tenant inside of someone else’s bundle like they used to be in the cable days. They can potentially monetize it in different ways. You know, again, it comes down to good execution, but it gives them something to work on. But it’s cheap because the market thinks it’s a, a melting ice cube. Basically with debt strapped to its back, it’s price, like its entire cash flow is about to collapse. [00:57:00] Uh, and the reason it’s on our buy list is the price to operate in cash flow is 1.36, and the price to book is 0.405. So it’s real distress vibe, multiple pricing there, which. I can understand it from uh, a big investor perspective. And by the way, one of the things is they’re not really big enough. I think they’re market caps like 500 million, so they’re not really big enough for a lot of really big funds to get involved in and play with, but big enough for most individual investors. The market though, is looking at the cord cutting that’s happening, weaker advertising, streaming that never reaches attractive margins because it’s too small. And the governance issues that I mentioned before with the Dolan family controlling the structure that can block a sale or prioritize control over value. So there’s a lot of [00:58:00] things that I think are keeping the bigger investors out of the game with this, but. You know, none of those really bother me. The business is generating cash and it’s cheap. Um, for the time being, I’m, I’m happy to play with, uh, I don’t, I don’t care about the Dolan family’s control. Like, uh, again, I trust that their instincts will be to make as much Mabb money as they can for as long as they can out of it. So their interests may align with our interests. In terms of the catalysts, um, nothing really magical. More mechanical, um, the free cash flow delivery. Continuing it while they clean up their balance sheet. They also have Netflix licensing, uh, coming in. They can generate cash and can act as a billboard for AMC. Plus, as I said before, there’s also the potential that they could get bundled up and sold off to somebody else. Right. I think that’s probably in their future. Maybe [00:59:00] Larry Ellison and his son will buy it and turn it into. Um, you know, another marketing arm for maga, who knows? Um, Tony Kynaston: I Cameron: of the Larry Ellison s MAGA Israel network. Tony Kynaston: Dead network I was I was uh putting the two together Cameron: Wow. Yeah. Yeah. That’s be the type of title of the episode. You just nailed it. The Walking Dead Investment. They are the Walking Dead. Yeah, it seems that way. Tony Kynaston: you’re right I think Cameron: Uh, share prices. Tony Kynaston: to interrupt I think you’re Cameron: Mm. Tony Kynaston: a Cameron: You all. Tony Kynaston: out of all the things you’ve said I think the thing which strikes me is that and I dunno if it’s on their books at the right value cause I haven’t looked at their books but um there’s those four franchises have a value and I suspect they’re being undervalued on their books Um and now I suspect that they’ll be attractive to someone to come along and say Hey that’s I can pick up these four franchises for a song one times cash flow and I [01:00:00] can bolt it into Amazon Disney MGM whoever Um and it’ll be it’ll repay itself 10 times over over the next decades as people watch these things endlessly Cameron: Those shows are, in my opinion, totally re watchable. I mean, I’ve watched Rewatched Mad Men three or four times, breaking Bad a couple of times, but of course all I haven’t rewatched yet, but I will. But the great, like for me, those shows are like Sopranos or The Wire, um, or Deadwood, or Succession, which I’m rewatching now. I like if I’m doing something in the background, if I’m working or I’m making dinner or cleaning the kitchen, I’ll just put one of those shows on in the background. ’cause I know them so well. I know the characters, I know the storylines. It’s Comfort Food Television for me, right? It’s like. Yeah, I mean, uh, I’ll, I can pick a random episode and it, to me, it’s like putting on a random Alice Cooper album or a Beatles album. It’s like, you know, it’s, [01:01:00] I know it so well. It’s just background music that I can laugh at the characters and the dialogue. Oh, remember this episode. This is a great episode. You know, whatever. It’s, um, so Share Prices ran about $9 80, market caps, 426 million. So, as I said before, sub 500 million market cap means fewer institutions can really own it comfortably, which might increase the mispricing potential. What it means for the business is the market is basically saying we don’t trust your future, but for us, the smaller investors, if the cash flow proves durable, um, it could be rerated by somebody at some point. For some reason, we don’t really know, but that’s not my job to predict their future. Um, Tony Kynaston: pretty clear I I mean a market cap of $500 million would you pay $500 million for those four franchises you [01:02:00] were a Cameron: yeah, Tony Kynaston: you Cameron: yeah. Tony Kynaston: you paid Cameron: Totally. Yeah. Yeah, probably, yeah. Yeah. Tony Kynaston: the kids out to lunch all the all the time saying Hey you know yeah it’s good to own the a MC network as a company but we’ll pay you three times for those four franchises and you can exit gracefully You know why wouldn’t you take 1.5 billion or $2 billion or more for for what you’ve got Cameron: yeah, I mean look, everybody of a certain age has probably seen those shows except you, but um, there are generations that haven’t. I mean my kids that are 25 have seen Breaking Bad and Better Call Saul. They’ve never watched Mad Men and they’ve seen Walking Dead. So they love three of the four series and they’ll watch madman one day when they’re old enough. Fox will watch them all. He’s only 11, but he’ll watch them all. I dunno how many Alex has seen. She’s probably seen some of them, if not all of them. I imagine she watch those shows. Do you know. Tony Kynaston: Sean does but um but not just that cam but if you are an Apple or an Amazon [01:03:00] you’ve bought four strong ips So you just you don’t you can keep showing those ones there You cash cow but you keep making them too just like Disney did with Star Wars And they might be inferior Cameron: I don’t think he can, Tony Kynaston: you Cameron: I don’t think he can make more Breaking Bad Episodes or more Mad Men episodes. Tony Kynaston: Sun Son of Walter White Yeah Yeah Cameron: He had a son. Yeah, I’d, I’d watch that show. Yeah. Yeah. Or the, the Jesse Pinkman show. I’d watched the Jesse Pinkman Tony Kynaston: can’t Cameron: too. Tony Kynaston: but it’s probably executives in a MC who already have the scripts for the next 10 years the spinoffs and they get sold Cameron: And again, AI man, like yeah. Come along at AI in a few years and go say to Vince Gilligan, Hey, we wanna do a spinoff of Breaking Bad and it’s gonna be all AI driven and it’s gonna cost, you know, a million dollars and we can do a series that’ll bring in 10 million in revenue. Do you wanna be, do you wanna cut? Anyway, back to the numbers. Um, as you [01:04:00] said before, their forecast, EPS is not great. It’s negative. Um, so is their basic EEPS, including extraordinary is negative. So they’re not predicting a great earnings season coming up. Uh, basically That’s shouldn’t be surprising. It’s, it’s not gonna be a, um, great earnings. That doesn’t mean it’s not generating cash flow. It just means that it’s gonna be paying down debt. It’s gonna be losing money in different ways. In, in, in the accounting books. Tony Kynaston: That’s one of the things I didn’t like about this company cam was the accounting So You’ve outlined all the numbers and they generally are in decline until you get to a couple of pages in the accounting statements which say we want to go off pissed here and use non GAAP cause they think they apply Cameron: Non gaap. Yep. Tony Kynaston: Um and then suddenly they make a profit um a [01:05:00] bigger profit I think they I think they make a profit now anyway it’s just in decline and they add back things like amortization and they add back all the non-cash items and they add back um uh payment expenses and all that all the things that Charlie and Warren have cried foul on for years And that that was a big Cameron: Right. Tony Kynaston: me Uh when they start Cameron: Mm Tony Kynaston: of things to make them look good let’s stick to gap And I mean they don’t look bad on the gap They’re in decline but it’s not like they’re in decline by 50 a year They’re in decline by a Single digits which Cameron: mm. Tony Kynaston: plenty of cash to fix that and they’ll eventually find a a base and probably go upwards again Um and their share prices started doing that cause as you say they beat the analyst numbers this quarter But when I got to the bottom of the accounting statements and they said Hey don’t listen to the gap numbers Listen to these I’m like Hmm no thanks Cameron: Well, we don’t score companies based on whether or not they stick to gap accounting. Maybe we should, we might have to add that into our US [01:06:00] checklist. Tony Kynaston: the gap accounting to Cameron: Um, Tony Kynaston: cares But it it just that was a a I thought that was a bit of a stain on their management um approach to business Cameron: right. Well, uh, some other numbers that, uh, do look good though. Um, the stock Wikipedia quality rank is 80, the stock rank is 97, and the Petrovsky F score is a six. So these are all pretty solid health scores, um, that we pay attention to. So. Look, it looks bad on some metrics, but according to those, it’s a good quality company that is got a good financial trend and it can be bought quite cheaply, as I said before, with that price to operating cash flow and the price to book metrics. Tony Kynaston: quality assets and I think it was also doing a buyback which um will help its share price So there’s a lot like a lot of these things there’s some things to [01:07:00] dislike and there’s a lot to like Cameron: Yeah. So anyway, it was at the top of the buy list. I added it to our light portfolio because of that this week. And, uh, we’ll see how it goes. Tony. It had a QAV score by the way of 0.57 when I added up all the numbers, which is pretty high, pretty high for us. So that is, uh, a long episode for us. And that was a MCX. Tony Kynaston: That’s Cameron: Another television, Tony Kynaston: analysis Cameron: two television businesses. Tony Kynaston: Which is not surprising for a value investing podcast I mean it’s a cigar by the industry isn’t it It’s this could be the Berkshire Hathaway of of uh the 21st century The Cameron: Yeah. Who would’ve thought, Tony Kynaston: I Cameron: would’ve thought the television businesses would’ve been the cigar box stocks? Tony Kynaston: And you know looking back Cameron: Well, it’s been through a lot. Tony Kynaston: years they were [01:08:00] the kings of the universe the network executors weren’t they Cameron: Yeah. And I mean, you go back to a MC and the madman Breaking Bad Better Call Saul Days. If you said you’re gonna be a bargain stock bargain, basement stock in, uh, five years, 10 years, uh, who would’ve thought? Anyway, there you go. That’s, uh, the show for this week and my camera’s blurry again. It does not like this room, but, uh, there you go. Maybe it’s had too much to drink like me over this week. Thank you, Tony. Tony Kynaston: That was Cameron: Happy New Year and uh, I’ll talk to you in the new year. What are you doing for New Year’s? I didn’t ask you before. Tony Kynaston: nothing We no longer live in Sydney so we can’t watch the fireworks from our balcony which is a bit of a shame But um we’ll go back to what Jenny and I normally do which is to be in bed by about sunset which is about nine 30 Cameron: Are they still doing fireworks or Bondi? Shut it all down. I thought they have like lots of things are being shut down because of security concerns this year. Tony Kynaston: [01:09:00] Okay Well lost Cameron: That’s what I heard. Hmm. Right. Well Tony Kynaston: year. Cameron: person’s New Year’s. I’m gonna go to Bundaberg Fireworks probably, which will be lame, but, uh, yeah, small country town fireworks. Just a couple of guys with lighters holding ’em up in the sky, going, woo. Set a couple of cows on fire. Maybe a sugarcane field. Set a sugarcane field on fire. That’d be fun. All right. Thank you, tk. Have a good one. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without [01:10:00] taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to [01:11:00] buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Previous Pulled Porks Here’s the performance of the “pulled porks” (eg deep dives) we’ve done on the show in the past. 

Jan 1, 2026

1h 11m
23

Ziff Davis: The Internet’s Invisible Toll Booth – QAV America #32

Episode Overview In this episode of QAV America, Cameron and Tony open with reflections on the tragic Bondi attack and Australia’s long-standing gun laws before turning to the week’s U.S. stock market action. They discuss recent market jitters, AI-driven volatility in tech stocks, and the ongoing rotation into “value” names. Cameron then delivers a deep dive on Ziff Davis (ZD) — a little-known but highly profitable owner of the internet’s comparison-shopping and review infrastructure. The conversation explores ZD’s long history, its reinvention after the dot-com crash, its heavy reliance on SEO and affiliate monetisation, and the existential question hanging over the business: will AI replace human-driven product reviews? Rather than forecasting the future, the episode frames ZD through the QAV lens — cash flow, valuation, optionality, and downside protection — and examines why a business that looks structurally threatened may still offer attractive value today. ⸻ Timestamps & Topics 00:00 – Australia, violence, and contextReflections on the Bondi tragedy, Australia’s gun laws, and why mass shootings remain rare compared with the U.S. 01:40 – U.S. market news: jittery but selectiveU.S. indices drift lower as investors wait on jobs and inflation data; discussion of “value” rotations and why index definitions of value differ from QAV’s approach. 02:40 – AI stocks wobbleAI-linked stocks pull back sharply, with Broadcom (AVGO) highlighted as suffering its worst three-day decline since 2020. 03:30 – Commodities and energy signalsBasic materials outperform; copper strength linked to data centres and electrification; weakness in oil and LNG despite geopolitical tensions. 04:30 – QAV America portfolio performanceShort-term underperformance versus the S&P 500, but strong long-term outperformance since portfolio inception in September 2023. 05:00 – Winners, laggards, and watchlist highlightsReview of top portfolio performers and notable stocks previously covered but not purchased. 07:30 – Deep dive : Ziff Davis (ZD)Introduction to Ziff Davis (ZD) and its role as the hidden infrastructure behind tech reviews, VPN comparisons, speed tests, and product rankings. Transcription   [00:00:00] Cameron: Welcome to QAV America. Tony, episode 32. What do you know? Tk? Tony Kynaston: Well, it’s reached the shores of America and America’s new outlets, but it’s been an unfortunate. Well, worse than unfortunate time in Australia. So, um, a lot of, uh, reflection going on in Australia over the terrible things at Bondi Beach. I had lived in Sydney where I was living, uh, we would’ve been pretty close to it. Cameron: Yeah, very shocking. Um, I think it’s maybe the third mass shooting we’ve had in. Nearly 30 years. Tony Kynaston: Mm-hmm. Cameron: Does that sound about right? Tony Kynaston: Yeah. I can only think of poor Arthur and this one being that bad as being a couple of. know, sort of murder, suicide things, farms or whatever along the way. But this is the first, Cameron: Yeah. Tony Kynaston: uh, with, you know, weapons that shouldn’t have been licensed, I don’t think in the first place to people. Cameron: In public, Tony Kynaston: Mm-hmm. Cameron: you know, civilians, uh, all of that kind of stuff. The first one [00:01:00] like that, since 1996. That we’ve had every 30 years. So yes, very shocking, very sad, very tragic, very complicated. Very complex. Uh, but, um, yeah, it’s something that we’re, we’re used to reading about in the front cover of the New York Times, but not, uh, about Australia. So anyway, moving right along. Um. Let’s talk about stock market news in the United States over the last week, Tony. And then I will do a deep dive on Ziff Davis. ZD is the ticker Tony Kynaston: Would that be Cameron: as IZD. Yeah, ZD you’re right. And as I mentioned, there’s an Isaac Asimov, uh, leak to this, which you will enjoy ’cause they’re both big fans of Asimov. Tony Kynaston: Mm. Cameron: Well, the market’s been a little bit wobbly in the US again. Uh, finished the week with modest [00:02:00] losses s and p 500. The Dow and the NASDAQ are all trending. Lower traders over there are waiting for key economic reports on job and inflation. Um, stocks saw pressure as investors are moving into. Value area, Tony? Value. Tony Kynaston: Oh, we can, got someone to sell to. Cameron: Yeah. Although quite often what we’ve seen over the years is when they talk about value, it’s not the same way that we talk about value. Tony Kynaston: not. Cameron: Our definition of value is a little bit more specific. I think Tony Kynaston: Yeah. Cameron: the AI. Tony Kynaston: the indices normally talk about value as being the lowest deciles of the PE ratio range, but as we know, PD ratios aren’t a great guide to the value of a company Cameron: yeah. Tony Kynaston: mm. Cameron: We’re looking, we’re looking at their ability to outperform, uh, as businesses and getting a bit of discount. [00:03:00] What else? AI and tech sectors, uh, sort of jittery as a result of some of this stuff. Some AI linked names like Broadcom have had some big declines. It had its worst three day drop since 2020 was some of the AI investment narratives, uh, facing some scrutiny. Basic materials and financials have outperformed. Uh, in our Australian show, we were just talking a lot about copper. And, uh, you did a deep dive on one of the Australian copper miners. There is resources, obviously there’s, uh, gold is still doing well from a commodities perspective. Uh, prude oil and LNG are not doing well, and we aren’t really sure why. But movements around Russia, Ukraine, and Venezuela might have something to do with it. And we also we’re talking about the fact that all of the. Urgency around building data centers and the energy requirements for data centers. Uh, playing a big role in driving copper prices up. [00:04:00] Um, what else have I got? That’s basically it for the us I think, uh, general overall market news, it’s a bit jittery over there at the moment, but our, before our portfolio has had a good 30 days. Relative to the s and p 500, it’s up 3.2% in the last 30 days. Our portfolio in the us, that is versus 1.22% for the s and p 500, but year to date, we haven’t had a good year. Still, I think we’re down about 10, 11% versus the s and p up 14%. But, uh. All time. If I go back, since the beginning of our portfolio in the us, September, 2023, we’re up 64% versus the s and p 500, up 53% over that period of time. So we’re doing okay over that two plus [00:05:00] years. Um, big performers in our portfolio, uh. See, I’ll stack rank and by game still, Willis Lease Finance Company up 186% in Nova International, up 169% Euro Cs up 99% BLX. The Foreign Trade Bank of Latin America is up 84%. RM Regional Management is up 70%. UBS is up 38. Gas, stealth gas is up 37, 30 8%. Sarcos Energy Navigation. TEN is their ticket. They’re up 32%. KT is up 23%. Your initials in reverse. Jackson Financial is up. 17. Renaissance Air Holdings is up four, and our most recent acquisition career Electric Power is up one and a half percent since we added it a few weeks ago. And then I like to talk [00:06:00] about the companies that we’ve talked about but haven’t actually bought because our portfolio is full. Uh, it’s been some great performance, uh, from these companies. Obviously the top one Zep, the Chinese watch company, uh, is up 850% since we talked about ’em in July. Uh, ChemX is up 106% since we covered ’em back in March. Lot of around 40% Canadian imperial banks, up 46, uh, ORX corporations up 40. Precision Drilling is up 43 IHS is up 37. Sasol is up 26. Ford is up 26. People told me on Reddit that Ford was a dud, shouldn’t, shouldn’t even be looking it for, it’s up 26% since May. American Airlines is up 11% since we talked about ’em. Topgolf is up nine air cap that we talked about. The end of November is up [00:07:00] 8% since then. So all in all, uh, we’ve talked about 29 companies on the show since March 22 of them are up, seven are not the win ratio of 76% so far with those. So. They’re doing okay. The system is working as we would expect it to in the us Tony. So today I am going to talk about a little company called Ziff Davis. As I said, um, you know, you’d be familiar with Ziff Davis, I’m sure. I know you’re not necessarily a big tech head, but you, you’ve heard of Ziff Davis, I’m sure zd. Tony Kynaston: You’d lose that bet. I hadn’t heard of ’em until I started researching them today. Cameron: Really? Oh, okay. Well, you haven’t been in the tech industry like I have for the last 30 odd years. Tony Kynaston: no. Cameron: you are, Tony Kynaston: But wasn’t there once, but not, not for a long time.[00:08:00] Cameron: yeah. So if you, if, if you are trying to Google the best tech product, uh, best VPN because you care about your privacy, you’re probably gonna end up on a Z Davis. Um, which cameras should I buy? Ziff Davis. Which phone? Which anti forest package. If you’re ending up on a website, you’re probably ending up on one of the many, many properties owned by Ziff Davis. Tony Kynaston: I Cameron: They make about half a, yeah, I mean, I am your Ziff Davis. Yeah. What should I get then? I’ll ask Ziff Davis and then I’ll come back to you and tell him. Um, Tony Kynaston: so Cameron: a half a bill. Tony Kynaston: that Cameron: Hmm. Tony Kynaston: you are not your surplus to the chain. Now I can just, uh, yeah, speed things up. Cameron: Yeah, but then you, that would, that would require you going online and looking something up. So how old are you now? Tony Kynaston: That’s Cameron: 60. What? Yeah. Yeah. So people are over 60. Dunno how to dunno how to [00:09:00] internet like us young kids. 55. You miss the cut. Uh, they make about half a billion dollars a year by. Basically being the people that tell you what to buy. Uh, particularly with tech stuff. It’s not all tech, but particularly tech. But they’ve got an interesting story and, uh, uh, uh, an interesting, maybe somewhat challenging future. Ai, uh, may kill off businesses like this. Uh, and I think that’s one of the reasons why the share price for ZD is where it is at the moment. And it’s funny, if you look at where their share price has gone since the AI came around it, there’s not been a great story. They were up around about 130 bucks at the end of 2021. They’re now trading about 36 bucks. So it’s been a rough few years. Tony Kynaston: you reckon that’s a R related camp?[00:10:00] Cameron: I think some of it is. Yeah, Tony Kynaston: Because Cameron: I think. Tony Kynaston: of it may be, but um. The, don’t forget, they’re also publishing a lot of magazines and, uh, online magazines and businesses associated with those. And they were, they would’ve been at their peak during COVID, I would’ve thought. And now they, the share price has come off since then. Cameron: Yeah, there’s probably some of that. You’re right. Um, and you know, there’s a lot of competition for online advertising and, uh, a lot of money’s moving away from. Banner ads and that kinda stuff into influencer marketing and that kinda stuff. So there’s always constant competition for ad dollars. And these guys were one of the first companies to figure out SEO advertising driven. Well, they borrowed it from the porn industry. The porn industry invented online advertising, of course, but these guys went broke and then figured it out pretty quickly. [00:11:00] They basically own the Internet’s comparison shopping infrastructure brands like cnet, Mashable, IGN, which is mostly gaming related stuff. If you’re looking for a game review or a walkthrough for a game like No Man Sky or something, whatever the latest game is, you go to I, you’ll end up an IGN speed test. Tony Kynaston: haven’t heard of him. Cameron: Yeah. Tony Kynaston: Yeah. Cameron: S speed. I don’t think they published any golf magazines, Tony. Yeah, something like that. Jigsaws and golf. If they had magazines about jigsaws and golf, you’d know all about. Tony Kynaston: And crosswords. Cameron: Speed test. Have you ever used speed test to check your internet speed? Tony Kynaston: because occasionally when we try and do this podcast, you go check you internet speed Cameron: It’s been a while. Ever since you got, uh, Elon’s satellite dish here, that’s gone away. Uh, they, they own all these guys. They own all of these brands. Um, and when you click a buy now link on one of their [00:12:00] websites, they get a cut. They also get advertising revenue straight into your eyeballs, but. Uh, the way that they’ve built their business is, a lot of it is kind of evergreen. You write, once you do a review of all of the different routers or all of the different microphones for podcasting or whatever it is, and it’s good for, it’s not like news, which goes outta date quickly. This stuff is good until the next iteration of those things come out. So it’s good for six months, 12 months. And they monetize the crap out of this stuff. Operating cash flow is about 374 million against a market cap of 1.4 billion, so like a 3.8 times multiple. Um, it’s, uh, generating a lot of cash. The founding story is interesting, so it goes back to 1927 in Chicago. Tony Kynaston: before the internet camp? Cameron: Um, well. Some people would say that Tony, although I would argue that [00:13:00] pigeons were the original internet. So the pigeon net is what we called it back in the day. Yeah. They were publishing hobbyist magazines for, uh, amateur radio tinkerers is where they started. And then in the PC era, they had PC magazine, computer shopper, popular photography, lots of titles like that. But then they nearly died in the early two thousands after the.com crash. They were drowning in debt. They bought a lot of stuff in the late nineties. Ad revenue disappeared when. Steve Baer decided to crash the internet. Allegedly. It’s a story that I believe assets were sold off for scraps, uh, but the brand survived and it was reinvented around being a purely online play. But the founding guys, William Bernard Ziff Senior, and Bernard George Davis, [00:14:00] started at 1927. Davis died in the early fif, no sorry, Ziff Senior died in the early fifties, uh, I think, and then his son took over the, his share of the business and Davis sold his share of Z’s son in 1957. Davis then went on to buy Alfred Hitchcock’s Mystery Magazine in 1975 and analog science fiction. In fact, in 1980. And in 1977 he launched Asimov’s Science Fiction. And I read a bit about that ‘ cause it has nothing to do with this story, but I wanted to know about it. So as AOV. Went into the company to pitch, um, a story that he had written for their analog science fiction magazine, I think. And they had, they, they floated this idea of launching a science fiction magazine with his name attached to it, [00:15:00] and he didn’t wanna do it because there were other, there was a couple of science fiction magazines and he was friendly with the owners of them and he didn’t wanna damage their business, but. Davis and the owners of the other magazines convinced him that his brand on a science fiction magazine would be good for the whole industry. It would be a rising tide carries all ships kind of thing. So he agreed to do it as long as he didn’t have to do anything. I don’t wanna have anything to do with it except I’ll write a, an article or an editorial or something like that once a, a month or whatever it was. So, yeah. And that’s how it came to be. Tony Kynaston: wasn’t that our conversation starting up QAV? Cameron: Pretty much, yeah, I don’t want anything to do with it. Use my name. Um, uh, getting back to Ziff, senior Major Zionist, who got himself into trouble with the British government in 1938. He wrote a book called The Rape of Palestine, where he was [00:16:00] criticizing British. Policy in, uh, Palestine when it was, uh, the, a protectorate of the British after World War I, the British Foreign Office declared the book violent and offensive and put him on a watch list. So, uh, interesting character. But anyway, it was his son, Ziff Jr. Bill Ziff Jr. Who redirected the company towards enthusiast magazines and trade publications. He bought Car and Driver Popular Electronics, P PC Magazine, world Aviation Directory and Computer Shopper. But then, as I said, it kind of, uh, crashed in the early two thousands after the.com crash. They had to reinvent the business over the next 10 years and uh, some private equity owners came in, rebuilt it around online only SEO driven digital content, evergreen revenues, affiliate commerce. They realize that [00:17:00] people don’t trust ads, but they do trust best of lists, even though those best off lists. It’s just a big ad, but if you call it a best of list, you know, people will believe it if they think it’s a genuine, independent review and they don’t realize that it’s just how much money’s changed. Hands behind the scenes that determines who’s at the top of the list. Tony Kynaston: Isn’t the internet just a series of loose, like the Cameron: Yeah, Tony Kynaston: real estate, car selling, they’re just loose because Cameron: lists. Tony Kynaston: Used to buy Cameron: Lists of lists. Tony Kynaston: the internet. Cameron: And Google was just a list of lists, telling where all the lists were. Tony Kynaston: yeah. Cameron: remember back in the days when the lists were all manually compiled too, and you had to submit your website to Yahoo and then they would add you to the list of blogs about Seinfeld or whatever it was. Um, but these guys have become really good scavengers as well. Give you an example of this. [00:18:00] In 2008, CBS bought CNET for $1.8 billion in 2020. They sold it to Red Ventures for $500 million, and then Ziff Davis picked it up a few years later for a hundred million dollars. So that’s kind of been their playbook is buying faded digital. Empires for pennies. Then they strip out the costs, plug them into the monetization engine, and just harvest the cash that’s left. They don’t chase Pulitzers. They chase Google rankings and purchase intent. Basically very, very focused, and they’ve done reasonably well out of it. But I think there’s a big chance AI is gonna kill this business today. People don’t trust AI to, uh, tell ’em what to buy. Um, I [00:19:00] do, but most people don’t. Um, I will ask AI for, I’ll, I’ll ask GPT for an its opinion on something, and then I’ll run it through Gemini and Grok and Claude and say, fact, check this for me and tell me what you think. But I think most people aren’t doing that yet. They may ask AI for some tips, but then they’ll end up on a Ziff Davis website to read reviews. And, you know, that’s still the, the purchasing mechanism for them is going to these review sites. Most people still run a trust loop. You know, it goes from AI to a review site. Tony Kynaston: Yep. Cameron: That may change in the future if AI becomes trusted enough and then becomes the purchasing agent. And obviously the AI companies are trying to figure out how to make money. There’s been talk recently that they’re all planning on putting advertising into the AI AI platform. And as Cory Doctorow o refers to it, the in acidification [00:20:00] of, uh, AI will happen. But it that may or may not. Happen. And even if it does, there may be an opportunity for companies like Ziff Davis to get licensing revenue because at the end of the day, the AI is gonna refer to these human written reviews and say, well, based on. The internet that I gobbled up here were the best rated products. Um, it’s not testing the latest mobile phones or the latest microphones itself. It’s gotta rely on human content at some level to do that. Tony Kynaston: There is actually a core case going on between this company and one of the AI about that very fact. Cameron: Yeah. As there are with lots of media companies and publishing companies, et cetera. And, um. They’re probably not gonna win. The publishers aren’t gonna win these court cases, but they may be able to negotiate some sort of a licensing [00:21:00] revenue deal. So they cut their losses so they don’t lose everything, but they get something out of it. Bit like, uh, the media companies in Australia have done with Google over the last however many years, and Facebook, you can link to our stories if you pay us money. Uh, and then they got the government to enforce that. Which again, corporate socialism get the government to force you to pay me money. But this is, um. You know, it, it, where, how this plays out is forecasting and we don’t forecast. Um, I got into arguments with people on Reddit about the valet show that we did last week. People were forecasting the future of iron ore and China and all of this, and that’s gonna fail and this isn’t gonna work. And I’m like, yeah, well, I don’t forecast. I look at the numbers today. And, uh, the [00:22:00] valuation today and ask myself, can I buy it based on its amount of money it’s generating today? Can I get it at a discount? I’m not looking for growth. I’m looking for value. And if, if the thing changes a year from now or six months from now, I’ll sell it. I’ll change my position on it, but you. Tony Kynaston: And of course the forecast. people who argue with you are using it bugged into the share price already, but at some point it, it’s our list as being cheap enough that things have gone too far one way, and then we wait for the pendulum to swing back to what it should be valued at. Taking all the forecasts and the actual things that have happened into account. Cameron: And as, as we see quite often too, um, in some cases it’s not because those businesses that we’ve invested in have a magical recovery. It’s because somebody else comes along and goes, you know what? This is cheap. I’m gonna buy it. And then a bidding war starts and the price goes up, and they’re all trying to figure out what’s the fair value of these assets. And because we’ve bought it less than the [00:23:00] fair value for the assets. The share price goes up and it gets sold, and we, we do well out of it. So we’re not always necessarily planning on a miraculous recovery of a sector. It’s, uh, some, sometimes we’re just buying something until Tony Kynaston: Yeah. and Cameron: dealt with. Tony Kynaston: I Cameron: Yeah, Tony Kynaston: case we said, Hey, the iron ore price is going down, so we track the iron ore prices well, so we wouldn’t necessarily be buying valet at the moment. Cameron: no. Until the iron oil price turns around. If it turns around. Tony Kynaston: Yeah. Cameron: But I did, I did go through some of the potential scenarios for a company like this. Then there’s a few things that you know, you can imagine might happening. Let’s say the AI. Uh, sector does break these businesses to a large extent, uh, which I think will probably happen. That would be, my guess is people will end up in the next few years trusting their AI to make decisions for them, which, [00:24:00] and even if it is using content, it’s gobbled up from Davis. I’m not going to the Zif Davis website. I’m not clicking on their link. I’m not clicking on their thing. I’m going straight to Amazon or straight to. Walmart or whatever the Australian equivalent of that is. Amazon to buy the thing that I want. Tony Kynaston: goes away and I wanna buy a new phone, know, how does AI tell me that this one’s easy to carry in my pocket or is too heavy a long day on my feet carrying this around or whatever it needs, still Cameron: Reads, Tony Kynaston: doesn’t it? Cameron: reads, Amazon reviews would be be my guess. Tony Kynaston: Oh, okay. Cameron: Yeah. Reed’s customer review sites, you know, you were talking about wisdom of crowds on the last show and poly market. You know, there will be. There are, and there will always be. Review sites and they get gamed as well. But they’re probably more trustworthy than a, if Davis best of list because you know, there, there are perhaps [00:25:00] commercial interests, gaming review sites to some degree. We all understand that. But to what degree is debatable? Um. Uh, you know, I I, I could be pretty sure that money is changing hands behind the scenes at some level of a publishing company and the, the vendors of products to make sure that their products are reviewed. Well, it’s, uh, payola, payola from the radio industry 30, 40 years ago, right? That’s the way capitalism works. Tony Kynaston: Zif Davis, but I know when there’s a product review on the AFR, there’s generally an ad that goes with it. Cameron: Yeah, Tony Kynaston: Yeah. Cameron: AFR for Americans is the Australian Financial Review, our version of the Wall Street Journal. So anyway, a couple of the ways this could possibly play out, and again, this is prognostication, which doesn’t factor into my investing thesis, but it’s just we’re talking about it, so we might as well. Drill down into some of these. There’s sort of the sum of the parts breakup, the chop shop model. Um, it’s the most immediate safety net, I guess. Ziff [00:26:00] Davis is really just a holding company, so if the media side, IGN Mashable PC Mag goes to zero, they still own massive profitable software and subscription assets that have nothing to do with Google shirt. A search, sorry. They’ve got ler, which is speed test.net. Uh, telcos pay millions for this data to prove that their networks are fast. So it’s sort of a alternate revenue stream that they have. Um, AI’s probably not gonna kill that off. They could spin it off or sell it to a huge infrastructure giant, like a, a Cisco or some sort of telecom tower, REIT. It’s probably worth. 500 million to a billion given its dominance. It’s that. And fast.com, which I think Netflix owns are the two main ones for speed tests. Uh, and then there’s also something called humble bundle. It’s a game store and charity. Bundler has [00:27:00] direct email list of millions of gamers. It bypasses search entirely, so they could potentially flip that to a gaming giant like Steam or uh, epic Games or one of these guys as a revenue source. So they have diversified outside of advertising, they’ve got a couple of interesting assets. The other one could be the take private. Private equity buyout, which they’ve already done. The current CEO Vivic Sha has already did that. Uh, did that a few years ago. He took it over with a private equity firm the last time they had financial trouble. It’s basically run like a private equity firm already. If the stock price crashes because of AI panic, the cash flow could still be attractive to PE firms who don’t really care about public narratives. They just wanna get access to the 260 odd million in free cash flow that it has. Even if AI takes a lot of, it takes a lot of the advertising revenue, it’s still gonna have revenue coming in from some of [00:28:00] these other assets that I mentioned. Um, so, you know, the, the current. CEOs already taken it private once before, um, could perhaps do it again or somebody else could come in and do it again. Then there’s sort of the data rentier pivot, the NewsCorp model, instead of fighting ai, they become a landlord for it. So they basically say, you know, we will do a licensing deal with AI to keep providing human written reviews and access to the archives. As you said, they’re suing them at the moment. Uh, but they could end up as some sort of a settlement or a licensing deal issued by the courts where it gets paid, I dunno, 5,000 million dollars a year from open AI to keep the doors open and legally train on their content. Um, and then there’s the desperation, merger option, the consolidation, if the industry really does start to [00:29:00] collapse. There will be mid-tier players that will try and merge to cut costs and, uh, do a sort of a big mega roll up roll up. Um, there’s a company called IAC Dash Meredith that owns the other half of the Internet’s, how to Content Better Homes and Gardens, Investopedia the Spruce. The two of them could do some sort of merger combined. Back offices, fire, half the staff, merge sales teams, create a single giant fortress of content that’s too big to ignore for advertisers and could do a licensing deal with the AI platform. So there’s a, a lot of different probabilities even, you know, if the AI thing comes to pass in terms of killing its business model that could, uh, rescue it. But you know, it’s probably not gonna 10 x [00:30:00] um, it’s not gonna, it’s not gonna be a Nvidia, that’s not what we’re looking for. We’re looking for businesses that are generating cash that we can buy at a discount and then have some sort of a moat, which these guys do for at least one more harvest cycle, I think. Tony Kynaston: I mean, I, I couldn’t forecast what will happen in the space. I dunno if anyone can really, all of those scenarios you spoke about are all possible as is. Cameron: Yeah. Tony Kynaston: One where they keep trundling along like they are for a long time too. Cameron: Yeah. And maybe we, the world runs outta copper. We have no more data centers. AI falls in the heat. Who knows? Um, just quickly, I’ll take us through the numbers, Tony. Uh, so average daily trade is about 22 million. So it’s big enough for most investors. A big one for us is of course, price to operating cash flow, which is 3.8 times for these guys, so it’s, uh, quite cheap for us. Stock Edia [00:31:00] quality rank is 98. So we give it a score for that. Uh, its stock rank is very high too. Let me just find that. Um, stock rank is 97, so we score anything over 90. Uh, it’s F score, Petrovsky F score. Looking at its financial trend is a nine out of nine. I think that’s only the second time we’ve seen that since we’ve been doing this show. Do you remember who the other one was? Me either, but Nine outta nine’s pretty good. Um, the price is above our first IV uh, inherent, uh, intrinsic value. I was gonna say internet value, intrinsic value, um, but it’s below our second. Uh, and let me tell you what the intrinsic values are. IV one is $16 and five. It’s currently trading at 36, [00:32:00] but IV two, which is looking at the, the future. Is, uh, $68. So there’s quite a lot of upside between the current price and our IV number two. Uh, what else have I got? Uh, price is less than book price is less than book plus 30 of course as well. It doesn’t have a new three point upturn. Actually it does have a new three point upturn. Yeah, why did my table said it didn’t, does have a new 0.3. It’s very close to its cell line, but it’s just gone above its byline as well. So I dunno. So I should get an extra point for that as well. Yield. The P is not less than the yield. They don’t pay a dividend because they’ve been doing massive share buybacks, Tony Kynaston: Hmm. Cameron: which is something else we like to see. That’s where all their money is going. We don’t score our US checklist for buybacks yet, but we should. And if we did, and I, we will [00:33:00] get around to that. They get another point for that as well. Uh, so. Tony Kynaston: that uh, with all the cash they’re throwing off, they’ve been buying back shares. Buying back a lot of shares in the last five years. But they’re also, I mean, their business model is about acquiring new things, Cameron: Yeah. Tony Kynaston: companies, as you said before, uh, Cameron: Old things. Tony Kynaston: that are on their, you know, being paid. They’re paying pennies in a dollar for, Cameron: Yeah. Tony Kynaston: cash to do that, as well as buy back the stock. So that’s shows you how much cash is being thrown off by this business. Cameron: Yeah. I dunno what they’re gonna be buying in the future, but, uh, we’ll see. Tony Kynaston: Oh cha, GPT, uh, when Cameron: Yeah. A reverse. Yeah. Tony Kynaston: in the Cameron: Well there are, there are plenty of stories going around that GP T’s gonna need. Uh, OpenAI is gonna need a US government out ’cause they’re just Yeah, yeah, yeah. Well that was [00:34:00] just because Gemini came out with a new model, but, um. I look, Google is really crushing it by all accounts, from what I can read between the lines. Tony Kynaston: I’ve gotta say like, you know, not, not to labor a point here, but it was six months ago that people were saying, oh, Google’s dead. You know, AI’s gonna take over from Google. No. are smart enough to, you know, adapt. Cameron: Well, you know, it gets back to the old Clayton Christensen thing, right? Of the innovator’s dilemma. Tony Kynaston: Yep. Cameron: Are, are you willing, and is your culture able to kill off your existing revenue base in order to protect yourself and get on the new thing? You know, the ironic thing with Google, of course, is the whole large language model, um, approach to AI came out of Google’s labs, but then they didn’t do anything with it commercially. They didn’t launch it. As I [00:35:00] assume, because they were scared of what it would mean for their search revenue. Then OpenAI, poached Ilia out of Google, launched chat, EPT, and then Google was like, oh shit, okay, game on. And yeah, now they’re just crushing doing such a great job. Tony Kynaston: every time you do use Gemini, you get an ad. So they’ve, they’ve monetized it as well. Cameron: I don’t get ads when I use Gemini. Where do you get ads when you use Gemini? Tony Kynaston: Oh, I just use Gemini. I just type into the search bar. Tell me about blah, blah, blah. Cameron: Uh, you don’t go to Gemini. You just go to Google? Tony Kynaston: Yeah, but it Cameron: Yeah. Right, Tony Kynaston: here’s the, here’s the answer using Google Gemini. Cameron: right. Tony Kynaston: Hmm. Cameron: Yeah. But they, you know, their search revenue is. You know, gonna take a hit. Um, but whether or not they can replace it with other forms of revenue and you gotta hand it to Google, like obviously they’ve done a pretty good job over the last, uh, 30 years of, uh, staying on the top of [00:36:00] their game. So we will see. Anyway, uh, what else have I got for you? That’s it. Like it, uh, uh, QAV score, quality score is 77% and they should be a little bit higher. Uh, but. The QAV score was 0.20 when I did my buy list yesterday, my US buy list. So, um, I like it. I like it. I can’t add it to the portfolio right this week because we’ve got nothing. We’ve got no money. We’re fully invested. But, um, I kind like this, uh, business. Tony Kynaston: I had a look at their results, their last quarterly, uh, quarter three announcement, and a couple of good things to report from that were, uh, that they started to show some organic growth. Um, so this, I think one of the reasons why the business went down in sh stock price in the last five years is that a lot of it’s been based on their m and a activity, so. They’re, they’re running to stand still. They’re buying things, they’re using capital to buy things, and that’s replacing [00:37:00] things that they’re closing down. Uh, but this has been, uh, they, they reported in their latest quarterly that the, uh, uh, recorded Goodwill impairment charges, um, which was 17.58 million for the quarter. And this has ended September 30, compared with $85 million in the prior year. So. That and Goodwill impairment is basically writing down what they’ve acquired in the past because it’s not worth what they paid for it or be, or what they put it on their books as. So, um. a good thing. And it says that they, they’re getting more organic growth out of they’ve acquired. Um, and so I think there was a bit of a tick up in the share price probably why it hammered by on our, um, on our system, uh, some of the analysts like that. Uh, and that’s, it’s gotta be a risk for this company going forward that they just run outta things to buy. And if they don’t get organic growth, then it’s a Cameron: Mm-hmm. Tony Kynaston: a lot of roll-ups that we see in Australia where [00:38:00] someone goes around buying up. Smash repairers and um, eventually they run outta Smash Repairers to buy, but they’ve gotta be good at running. Smash Repairers are the ones that they bought at the right price, otherwise their share price just goes down. So up are always tricky. This is a roll up, um, by any other definition. but this is the first quarter where you’ve seen a lowering of the Goodwill impairments for a while, which is a sign that they are actually getting some organic growth out of what they bought, which is good. Cameron: Hmm. Well, that’s Ziff Davis do your own research. But um, I think it’s sort of a classic Berkshire textile mill sort of a company, you know, maybe a business on its last legs. Yeah. Maybe a business on its last legs, but it might have another five years, 10 years of generating cash and who knows what could happen to it over that [00:39:00] period of time. Tony Kynaston: Yeah, look, it could be on its last legs. I dunno if I necessarily subscribe to that. Certain parts of the business could be on its last legs, like the comparison site nature of it. If that, if that, how it plays out. And I dunno that it will play out that way. But there are underlying assets which will survive, as you say, like, um, the speed test side of things and other direct to Cameron: Mailing lists and Yeah. Tony Kynaston: which, um, are Cameron: Yeah. Tony Kynaston: survive. I saw a good list of, um. Saw a good list of the risks and challenges, when I was doing my search for this. um, they think this, this, the analyst who said, who made this list said that, uh, about 35% of their revenue could be affected by search engine changes, which I guess. of ai. So that’s, uh, a large slab of the business, but certainly not all of it. Um, and I think also bundled up on that wasn’t just ai, it was the fact that SEO changes, that the rules change as to what gets [00:40:00] promoted in, in SEO and that that sort of search algorithm volatility can impact the rankings and the affect this company as well. Um, market saturation and key segments was another one. Um, economic pressures affecting consumer spending if you’re not, you don’t have enough money to buy a phone, and what’s the point of going to a site that recommends which is the best phone to buy? So there are plenty of risks and challenges for this company, not, um, withstanding that AI might impact it, um, they’re pretty diversified. Um, two, you know, there’re at pains to say there are two big slabs to the business. One is the, web advertising business, but one is also the, um, the subscription business, which is a, a large part of their revenue as well. So I also think they’ve had an near death experience in the past, or a couple of them, that they might be. Prepping for different options now in case it happens again. So they could, they could position them, they could be positioning themselves already for what they see as coming down the track and, [00:41:00] um, might not mean the share price tank doesn’t tank, but it may mean that they live on for longer uh, current predictions may suggest. Cameron: Meanwhile generating a lot of cash, Tony Kynaston: That’s what we like. Cameron: which gives them options. Tony Kynaston: Yeah. Cameron: Alright, well check it out. Zd, this episode was brought to you by the letters Z and. D Tony Ziff Davis. Have a good week. Tk. Tony Kynaston: Thank you. holidays to all the people overseas. I’m gonna take a week off next week. So you’ll be either not doing it yourself or doing it yourself without me. Cameron: Yeah. Tony Kynaston: Okay. Thanks. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This [00:42:00] podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. 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Free Podcast Archives Past Deep Dive Performance Tracker * { margin: 0; padding: 0; box-sizing: border-box; } body { font-family: 'Segoe UI', Tahoma, Geneva, Verdana, sans-serif; background: linear-gradient(135deg, #667eea 0%, #764ba2 100%); padding: 2rem; min-height: 100vh; } .container { max-width: 1400px; margin: 0 auto; background: white; border-radius: 20px; box-shadow: 0 20px 60px rgba(0, 0, 0, 0.3); overflow: hidden; } .header { background: linear-gradient(135deg, #2d3748 0%, #1a202c 100%); color: white; padding: 2rem; text-align: center; } .header h1 { font-size: 2.5rem; margin-bottom: 1rem; } .stats-grid { display: grid; grid-template-columns: repeat(auto-fit, minmax(200px, 1fr)); gap: 1.5rem; padding: 2rem; background: #f7fafc; } .stat-card { background: white; padding: 1.5rem; border-radius: 12px; box-shadow: 0 4px 6px rgba(0, 0, 0, 0.1); text-align: center; transition: transform 0.3s ease; } .stat-card:hover { transform: translateY(-5px); } .stat-label { color: #718096; font-size: 0.9rem; margin-bottom: 0.5rem; text-transform: uppercase; letter-spacing: 0.5px; } .stat-value { font-size: 2rem; font-weight: bold; color: #2d3748; } .stat-value.positive { color: #48bb78; } .stat-value.negative { color: #f56565; } .table-container { padding: 2rem; overflow-x: auto; } table { width: 100%; border-collapse: collapse; background: white; } thead { background: linear-gradient(135deg, #4299e1 0%, #667eea 100%); color: white; } th { padding: 1rem; text-align: left; font-weight: 600; text-transform: uppercase; font-size: 0.85rem; letter-spacing: 0.5px; } tbody tr { border-bottom: 1px solid #e2e8f0; transition: background-color 0.2s ease; } tbody tr:hover { background-color: #f7fafc; } td { padding: 1rem; color: #2d3748; } .code { font-weight: bold; color: #4299e1; font-size: 1.1rem; } .company-name { font-size: 0.85rem; color: #718096; } .profit { font-weight: bold; padding: 0.25rem 0.75rem; border-radius: 6px; display: inline-block; } .profit.positive { color: #22543d; background-color: #c6f6d5; } .profit.negative { color: #742a2a; background-color: #fed7d7; } .profit.neutral { color: #2d3748; background-color: #e2e8f0; } .price { font-weight: 600; } @media (max-width: 768px) { .header h1 { font-size: 1.8rem; } .stats-grid { grid-template-columns: 1fr; } table { font-size: 0.85rem; } th, td { padding: 0.5rem; } } 📈 Deep Dive Performance Tracker Here's how our the stocks we've talked about on the show have performced since we covered them. Average Return +44% Total Positions 29 Winning Positions 22 Losing Positions 7 Win Ratio 76% Symbol Company Entry Date Entry Price Current Price P/L ZIM ZIM Integrated Shipping Services Ltd 13/3/2025 $17.97 $19.26 +7% CX Cemex S.A.B. de C.V. 28/3/2025 $5.66 $11.66 +106% DAC Danaos Corporation 2/5/2025 $82.47 $92.19 +12% CM Canadian Imperial Bank of Commerce 8/5/2025 $63.76 $92.88 +46% ENIC Enel Chile SA 14/5/2025 $3.97 $3.92 -1% F Ford Motor Company 21/5/2025 $10.80 $13.47 +25% IHS IHS Holding Limited 30/5/2025 $5.38 $7.34 +36% JXN Jackson Financial Inc. 11/6/2025 $83.00 $107.69 +30% IX Orix Corporation 19/6/2025 $21.00 $28.84 +37% PDS Precision Drilling Corporation 27/6/2025 $47.78 $69.76 +46% PKX POSCO Holdings Inc. 1/7/2025 $48.49 $51.01 +5% ZEPP Zepp Health Corporation 11/7/2025 $2.98 $27.76 +832% SSL Sasol Limited 17/7/2025 $4.99 $6.18 +24% BHC Bausch Health Companies Inc. 22/7/2025 $6.32 $6.87 +9% SENEA Seneca Foods Corporation 30/7/2025 $102.12 $112.75 +10% GTN Gray Media, Inc 7/8/2025 $4.42 $5.10 +15% TITN Titan Machinery Inc. 14/8/2025 $18.98 $15.92 -16% KE Kimball Electronics, Inc. 26/8/2025 $28.65 $28.52 0% SUZ Suzano Inc. 1/9/2025 $9.73 $9.47 -3% MEOH Methanex Corporation 15/9/2025 $39.81 $39.15 -2% CYH Community Health Systems, Inc. 3/10/2025 $3.01 $3.26 +8% CALM Cal-Maine Foods, Inc. 23/10/2025 $94.56 $85.70 -9% AXL American Axle & Manufacturing Holdings, Inc. 9/10/2025 $6.16 $6.63 +8% AAL American Airlines Group Inc. 20/10/2025 $13.78 $15.78 +15% MODG Topgolf Callaway Brands Corp. 12/11/2025 $10.60 $12.20 +15% PCG PG&E Corporation 24/11/2025 $15.67 $15.73 0% KEP Korea Electric Power Corporation 29/11/2025 $16.74 $16.91 +1% AER AerCap Holdings NV 29/11/2025 $131.82 $144.78 +10% VALE Vale SA 11/12/2025 $12.90 $12.72 -1% 

Dec 21, 2025

43m
22

Vale – The World’s Largest Iron Ore Producer – QAV America #31

Overview In this episode, Cam and Tony dig into the strange, noisy twilight zone of the current US market: rate-cut expectations, mega-cap fatigue, and a broadening rally that’s finally throwing some love toward the small and mid-caps that QAV thrives on. They walk through the performance of the US portfolio, poke at the rotation narrative, and then Cam takes everyone deep into the iron-ore jungles of Brazil with a pulled-pork deep dive on Vale — “the FMG of Brazil”, complete with dam failures, lawsuits, ESG fallout, and fat cashflows. Along the way they contrast Brazil vs Australia, FMG vs Vale, talk iron ore cycles, passive-investing distortions, and the macro-agnostic stubbornness that keeps QAV on the rails. It’s part markets, part commodity history lesson, and part true-crime mining documentary. — Timestamps & Topics 00:00 • Fed rate-cut probabilities and why QAV ignores macro04:00 • US portfolio performance vs S&P 500 06:00 • Small-cap underperformance creates QAV pickings 07:30 • Passive funds distorting large-cap flows 08:00 • US portfolio winners rundown14:00 • SEC leadership change and weakening shareholder power • (none)16:00 • Pulled pork intro: Vale (VALE), “the FMG of Brazil” • VALE, FMG Transcription   Cameron: Welcome back to QAV America Tony, episode 31. Big News in America. Tony the Fed is meeting rate cut widely Expected markets are pricing in a 90% chance that the Fed will cut rates by 25 basis points today. Tomorrow, we’ll see what happens. It’s driven a big rally across equities in the us. A Santa Claus year end rally, they’re saying, but we were just, we were just talking on our Australian show about our. Reserve bank that’s meeting today, that’s, uh, gonna decide what they’re doing about interest rates and it doesn’t really matter. A great deal to us can have an impact on the broader economy, but from a QAV perspective, we play the cards as they’re dealt. Interest rates go up, interest rates go down, doesn’t really affect our system. One jot does it. Tony Kynaston: No. I mean, it may cause us a bit of work if we have [00:01:00] to buy and sell something, but no, we don’t. Rely on macro themes at all, nor can I explain them most times and even more remotely can I predict them, so I don’t, don’t even try. Cameron: On the Australian show, I was just reading out results from some of our Australian listeners, uh, following our system. One guy was saying his portfolio’s up 90% this year. Another was saying it’s up 50, 55% this year. Great results across the board. Uh, and it’s a good year, uh, in the Australian market as well as in the US market. Our portfolios are doing well. But as we were talking about, it’s just the system just tells us what to do, uh, tells us what to buy, when to buy, what to sell, when to sell. And what I’ve learned to do in the years we’ve been doing the show is just follow the system. It removes all of the emotion from it, and it also means I don’t really need to follow what’s happening. [00:02:00] Macro economics or in the market, generally speaking. ’cause the system factors all of that in. It works in ups, boom cycles, it works in bear cycles, it works if interest rates are high, it works if interest rates are low. It really just tells us what to do and I, you know, I don’t really need to do much at all. As I was saying on the Australian show, if one of my alerts goes off and says I need to sell something, I sell it. I replace it and then I go back to what I was doing before and just ignore the noise, which is a great way to invest. Tony Kynaston: It’s the only way to invest, I think. And I, I just wanna add one more thing to that, and that is that, um, because of that, the, the, I guess the number one thing you can have as a trait to be an investor is persistence. It’s just if you know your system’s gonna work on all kinds of. Ups and downs in market situations, and it has for me over [00:03:00] decades. then rely on it. Don’t start second guessing it. Don’t start oh, it’s been a really good year because like, I’ve had a good year on the share market this year. And, and straight away my brain goes, oh, maybe it’s time to sell. What can we have two good years in a row? What about three? Can we have three good years in which it’s like, it’s like. They just fools errands trying to work out what’s gonna come Cameron: Yeah. Tony Kynaston: So you have a system and you stick to it, and if the market does turn down, you stick to it because you’ll ride it through and then you’ll catch it, at reasonably or low point and it’s way back up again. Cameron: Yeah. Well, speaking of portfolios, so looking at our US portfolio in stock, EDIA, it’s up around about 3% this month versus the s and p 500, up about 1.75%. Um. All time. Our portfolio is up around about [00:04:00] 58%, which all time for this US portfolio is from September, 2023. So just over a couple of years versus the s and p 500, up 54%. So we’re doing a little bit better then the market over that time and. It’s, there’s an interesting story I saw in Morningstar, Tony about rotation away from mega caps in the US towards value, small cap and core stocks. Um, this is dated 4th of December in Morningstar article says. As of November 28th, 2025, the US equity market was trading at a 3% discount to a composite of our fair value estimates. Of the over 700 stocks we cover the trade on US exchanges. Later on in the article, he says, small cap stocks outperformed in [00:05:00] November as the Morningstar US small cap index rose 2.48% comparatively Morningstar’s, US mid cap index rose 0.64%, and the US large cap index declined 0.05%. Small cap stocks remain the most undervalued trading at a 50. 15% discount to fair value compared with large cap and mid cap trading at 3% and 2% discounts respectively. But obviously the big, the, you know, we’ve talked on earlier episodes that, like the Mag seven has been like 70% of the markets growth for performance this year. So the fact that it’s coming off a bit, uh, doesn’t really discount the impact that it’s had on the market over the course of the year. But when I look at our buy list. Our US buy list each week. There’s still just plenty of opportunity at the small and mid-cap market space, which just seems to be getting ignored by the [00:06:00] general market for some reason. I dunno why we’re, we’re seeing so much, uh, opportunity of stocks that are coming up, showing up as undervalued, but you know, it’s a good time for us. Tony Kynaston: well, I think, you know, that it’s, it’s been a tale of two markets, perhaps three markets really in Australia and in the us. Mag seven have driven the growth. And, and I guess if you can cast that net a little wider into things like, um, data centers and power supplies to data centers, that kind of thing, have all been dragged up, in the, um, in the AI revolution. But. That if you exclude that from the market, it’s been reasonably flat or certainly it hasn’t been growing as quickly as all that. But what we also found in Australia, and I guess it’s the same in the us, is that with a lot of passive investing done these days, and even with big, even if it’s not passive investing, it’s if it’s big active fund managers because of their size, they still are buying into big [00:07:00] caps and um. That’s kind of opened the space a bit in the smaller cap market for, uh, stock pickers to come in and pick the eyes out of it and do really well because, um, you’re not, know, the, it’s, small caps go through cycles. They outperforming underperform, they’ve been underperforming recently. So, um, as people sort of, wake up to the fact that there’s not as much passive investment in the small cap universe, it, um, it’s, it’s doing better. Cameron: Yeah, well, like, uh, just running through some of the stocks in our portfolio, some of the best performers over the last couple of years. Willis Lease Finance, we talked about them again on the show last week. They do, uh. Plane engine leasing, I think, uh, they’re up 168% since we bought them in Nova International, ENVA. Uh, they’re a online financial services company. They’re up 120. [00:08:00] 7% Euro CS Limited, ESEA. They’re in the shipping business, dry bulk and container carrier stuff. They’re up 120% BLX, the Foreign Trade Bank of Latin America. Is what it says on the label. They’re up 82% since we bought them. Regional management, RM diversified consumer finance company, they’re up 57%. Sarcos Energy Navigation, TEN. They’re a Greek based. Crude oil shipping company, they’re up 40% since we bought them. The list goes on. So, you know, these are companies I’d certainly never heard of before we started doing the show. I I, I would gather most Americans and most American investors have never heard of these companies. They’re not well known Brad names. They’re your classic sort of, as we often say, classic Berkshire type companies. They’re just boring businesses that have [00:09:00] got. A line of business they’ve been in for decades. They’ve got good customer relationships, supplier relationships, they generate cash, and because they’re boring, we’re able to get ’em when they’re at a discount to their valuation, and then we just ride it out. Tony Kynaston: Yep. Cameron: Uh, regression to the mean, some of the stocks that we’ve talked about on the show, but don’t necessarily own the ones that I’ve done deep dives on over the last year, uh, that have done well. ChemX Corporation CX is the ticket code. Uh, they’re up 94% since I talked about ’em in March of 25. Canadian, Imperial Bank of Commerce, CM is up 40% since I talked about ‘ em in May. Ford Motor Company is up 22%. IHS holding is up 39%. Precision Drilling Corporation. PDS, we talked about them in June. They’re up 42% Zep. Of course, the Chinese smartwatch company is still up [00:10:00] 825% since we talked about him in July. That’s the, uh, outlier. Uh, Sasol is up 22 and, uh, there’s a lot of others that are up nine, 10%. Community health systems is up 10%, the ones that haven’t done as well. Just to be fair, Titan Machinery is down 17% since I talked about ’em in August. Uh, cow Main foods is down 10% since I talked about ’em in October. The world’s most hated energy company. PCG is down 5% since I talked about in November. So it seems like Reddit might’ve been right on that one. Korean electric power that we talked about last week is up 3% since we covered those. But anyway, ORX Corporation, uh, IX is up 32%. Costco’s up 11%, you know, so there’s been a lot of opportunity even with these companies that. You know, we’ve all heard of Ford obviously, but um, I’d certainly never heard of Zep. Now they’re up 825%. So [00:11:00] American Airline Group is up 8% since we talked about of October top golfers up 6% Callaway. So anyway, they’re doing okay. Tony Kynaston: Yeah, they are. And who knows what will happen after interest rates get decided upon morning our It, it could drive another leg up for those kind of companies. the interesting thing is, like you take a, a stock like, uh, ORX, right? It’s been around for a long time. It’s not, uh, not doing anything sort of groundbreaking from memory. It’s a leasing company uh, Japanese based, um, it’s mature. It’s, you know, it’s grown a lot over the years, but as far as I know, isn’t growing hectically. Now again, it’s up 30%, so. The only thing that can explain that to me, and I, I, you know, I’ll go out in a limb with this, is to say that people have just understood it’s undervalued they’re buying into it, you know, for the same reasons that attracted us, that, uh, eventually it’ll regress to the [00:12:00] mean, Cameron: Well, they listen to the podcast. That’s, that’s what explains it, and I talked about it and they figured it out. Big news. Uh, what else is big news in the US today? Ob uh, obviously the whole Netflix Paramount battle over Warner Brothers. Discovery is going on. Netflix sounded like they’d landed the deal, which is gonna give them all of the Warner Brothers films, plus HBO, um, Tony Kynaston: Mm-hmm. Cameron: not CNN though. And, but then Paramount’s come out today and. Tried to do a direct to shareholder thing to get around the board and get the shareholders to back ’em. Um, you know, I, I did see one. Tony Kynaston: So did Cameron: Mm Tony Kynaston: came out and said he wasn’t sure Netflix was in the best interest of uh, or was in the best Cameron: yes. Tony Kynaston: to have such a big player in the streaming market, but Cameron: And. Tony Kynaston: has also had a bit to do with Paramount as well. Cameron: Yeah, yeah. But [00:13:00] Larry Ellison, who’s a very pro MAGA and his son David Ellison, owning everything. That’s fine. So, yeah. But the other thing that’s happened, sort of tying in with this, is there’s a, a shift. In the US Securities and Exchange Commission leadership, there’s a new regime at the SEC aligned with the Trump administration, and that’s apparently moving to weakened shareholder power. This is from Reuters. This, uh, news goes back to, uh, February, that there was, um. A change in the administration there, but the recent news is that they’re pushing through rules or trying to push through rules, which will dilute shareholder influence. And empower corporate boards to just push ahead weaken ESG [00:14:00] governance stuff, uh, put limits on shareholder proposals. So it’s sort of this structural shift away from shareholder capitalism towards more of a managerial capitalism where the boards get to ignore shareholder demands for more corporate accountability or ESG pressures or. Weaken the ability of activist investors to engage with companies and funds to engage with companies. So we’ll see how that plays out. Be interesting to see if Buffet has any views on that before his retirement kicks in. Tony Kynaston: Yeah. Interesting one. I mean, I think that it’s, some of that’s in retaliation to the pendulum, which has swung far. I know at, at some AGMs in Australia, someone can buy, you know, a handful of shares and then get up and espouse why this companies no good for the environment or whatever. And, um, I think a lot of shareholders are sick of it. So I, I don’t [00:15:00] know the laws that you’re talking about, but I that. You know, that kind of, um, taking things towards, yeah. Comment on our financials, but, um, don’t, don’t soapbox your policies that our, um, AGMs might be behind, um, some of that change too. Cameron: Hmm. Well, we’ll see how that plays out, but again, we’ll just play the cards as they’re dealt to us. Well, my, my, uh, deep dive this week. Tony is, uh, a company I’m calling the FMG of Brazil. That’s meaningful to Australians, but probably not to anyone outside of Australia. FMG is a very, very large Australian iron or minor. And this company, valet is the largest producer of iron ore and nickel in the world. They are a very, very large company, been around a long time. They also [00:16:00] produce manganese, Pharaoh alloys, copper, boite, potash, cobalt. They operate. Nine Hydroelectricity plants a large network of railroads, ships, and ports. They arguably have been the largest producer of iron ore since 1974. Although Rio Tinto might argue that Rio Tinto and Vallejo often quoted as the world’s largest iron ore producer, depending on the specific year and whether or not you count shipments versus production. But as I said, they’ve had this title since 1974. And uh, I was just wondering, Tony, do you wanna take a guess at what some of the top 10 US pop chart hits of 1974 were? Tony Kynaston: um, that’s back in the disco era, so, um, maybe, uh, Donna Summer, I’m gonna say. Cameron: No, no. Donna Summer, um, and in fact the top 10 didn’t have a lot of disco. It’s kind of slightly [00:17:00] predis. I think 74. The number one song was The Way We Were by Barbara Streisand. Probably the least disco song Tony Kynaston: true. Cameron: to chart. Uh, Terry Jacks Seasons in The Sun was number two. Uh, love’s Theme by love. Unlimited orchestra could have been the beginnings of disco. It sort of has a bit of that going on. Bit lower tempo than disco, but it’s got a bit of the groove going on. Dancing machine by the Jackson five grand funk railroads version of the locomotion Australians know from it was Kylie Minogue’s first big hit. Um, Benny in the Jets by Elton John was number nine. Again, not very disco, but not a bad track. Anyway, [00:18:00] enough of that. So valet is basically Brazil’s iron ore and base metals machine. Digs up iron ore, turns it into pellets, and higher grade products for steel makers, sells copper and nickel into the energy transition story. And from 2000 to 2006, they invested more than $1.3 billion on the acquisition of over 361 locomotives and around 14,000 freight cars for iron ore transportation and some for regular cargo. So that’s basically what they do. They pull stuff outta the ground and they sell it. Uh, we are very familiar with those sorts of businesses in Australia. A large percentage of our portfolio at most stages involves companies that dig things outta the ground, uh, depending on where the commodity cycle’s at. And iron ore is actually in a by state for us at the moment. It hasn’t been for the [00:19:00] last couple of years, but has been recently. So that means we can look at companies like this. This company started life in 1942 as a state owned company called Rio Doce, created by the Brazilian government to monetize the Doce River Valley’s iron ore, and helping industrialize the company privatized in 1997. And since then, it has morphed into a global mining giant. But it has some dark stories. Tony, you know I love a good Tony Kynaston: no, Cameron: tragedy. Tony Kynaston: make a cup of Cameron: Yeah. Tony Kynaston: I, uh, I dunno the valet story that well, but I know BHP and Rio both had those kinds of pass as well. Cameron: Well, BHP is part of this one, so there you go. Tony Kynaston: Yeah, Cameron: And in fact, a couple [00:20:00] of weeks ago, yeah, well, I’ll get it. So it’s had two. Dam disasters in the last decade. Tony Kynaston: because Cameron: the first one, Tony Kynaston: what they call a tailings dam that you can run the, uh, off offshoots or the off cuts through. Yeah. Cameron: why don’t you explain what a tailings dam is to the listeners? Tony? Tony Kynaston: all I know. Camp nor mine involves a damn. Cameron: Uh, alright, Ray, um, I, I had. I had to look this up. Basically, just the sludge from the mine gets built up upstream and then you keep adding to it and adding to it and adding to it. And it’s not very stable is the bottom line. It, it can look stable, but it’s not. And in fact, they’ve now been pretty much outlawed all around the world, largely as a result of what happened to these two dams. The first one was in. [00:21:00] 2015, the so Marco joint venture Damn failure at a place called Mariana sent a sludge wave down the Doche River killed 19 people, created billions and billions of dollars of damage, killed all sorts of animal tr fish and plant life, and destroyed property and BHP bulletin. Good Australian company, well, Australian, British would, depending on how you slice it, was a 50% owner of Sammarco, so they got embroiled in the uh, court cases that came after this. And in fact, just a couple of weeks ago, 14th of November, 2025, the high court in England ruled that the BHP group was liable for the disaster, citing negligence, technical warnings, and a lack of essential studies. Which permitted the height of the dam to increase beyond safe [00:22:00] levels. There’s been massive lawsuits, uh, from the Brazilian government and from shareholders. ’cause the share price, I think for valet dropped like 50% when this thing happened. Um, there were big plus actions, criminal lawsuits against executives and former executives, uh, for allowing this to happen. BHP of course, um, as a good corporate citizen is appealing the high court’s ruling and denying all involvement, uh, in it. Then four years later, after the 2015 disaster, another damn failed at a place called Bino, which killed 270 people, and most of them were employees of the company. Three locomotives and 132 wagons were buried and four railway workers were missing. Tony Kynaston: [00:23:00] Hmm. Cameron: So again, lots of fines, chargers, management style, shakeups class actions, uh, and share price collapse. Tony Kynaston: But no reinforcing of the dams. Cameron: Well. Tony Kynaston: The, the first one, you know, shouldn’t have happened, but did the second one after you know about the first one is, is, you know, much worse I think. Cameron: Yeah, one once in a lifetime thing Tony could never happen again. Bit like climate change disasters that we have in Australia could never happen again. Um, if you look at, uh, the share price, I have to go back a bit further than that. Share price in 2008 for this company was trading at about $41. Uh, it had already been declining. 2015, it was down to $5 70, dropped down to $2 98 after the [00:24:00] first disaster, climbed back up, uh, to $12. Then the second disaster happened, dropped down to $7 66. Since then, it’s been on a bit of a ride. Got up to $22 in 2021. And it’s back down to about $13 now. But you know, they’ve done a little bit of work on fixing this. As I said before, after these happened, pretty much the entire world banned these tailings dam solutions and everyone’s had to figure out better solutions. I think they’ve been doing that. The bottom line from our perspective, look, disasters are terrible. And um, you know, it’s one of those things that I think the market looks at companies like this and sees, um. Uh, red alerts, red lights flashing because it’s had [00:25:00] two disasters in living memory. But from our perspective, it generates a lot of cash when it doesn’t have a disaster and it’s, uh, you know, a pretty profitable business. If we look at, uh, where it’s at today, still mostly iron ore about it, it reports in real Brazilian rial if you look on stock edia, but if you do the translation into USD, I think it’s revenue in 2024 was about. 31.4 billion. Then, uh, sorry, that was coming from, uh, just the iron side of the business. The energy transition metals, the copper and nickel nickel business added about 6.6 US billion, which is about 70% of the revenue. So, uh, that’s pretty much what they’re doing. Chasing higher grade, higher margin, iron autos, and trying to lift their output. At [00:26:00] s Decarbonization, they’re targeting 33% lower operational emissions by 2030 and net zero by 2050 with a hundred percent renewables already reached in Brazil. They’ve got a lot of, uh, legal cases going through that could, uh, affect them. By the way, I did some comparison between them and FMG just for the Australian listeners if they’re interested. Uh, valet reported iron ore output in 2024 was about 328 million tongs. By contrast, FMG shipped 192 to 194 million. Tons. So makes valet roughly 1.7 times larger in annual output by tonnage than FMG. So they’re the global heavyweight, but FM G’S major, but clearly second tier if you stack ’em head to head. Uh, in terms of country rankings, Australia and Brazil are the two top global iron ore [00:27:00] powerhouses, China, India, and Russia come after them. Brazil’s iron ore reserves remain among the world’s largest. Australia is up there, particularly the Pilbara region, but it’s really between Brazil and Australia as the two global iron ore behemoths. Tony Kynaston: was something developing in Africa too, which is interesting. Um, Cameron: Oh yeah. Tony Kynaston: yeah, I think it’s in Guinea. We were talking about a, um, Perseus mining in Australian gold miner operating in Guinea, but there’s a big, uh, I think it’s on ore coming in a place called SE Mandu. In, uh, Guinea and Africa, um, which is supposed to also be of a world class type nature and what they can mine and export. Cameron: Right. Well that might add some interest to it, and obviously a lot. Tony Kynaston: other thing too, sorry Ken for interrupting is, is, uh, companies like BHP are actively. Trying to get more into copper than iron ore these days. [00:28:00] So saying there’s not a future for steel around the world, there obviously is, but um, the, the big wave in iron ore mining and exporting was when China was doing Double digit growth in the nineties and early two thousands, um, and using steel handover fist, and that’s, that’s come off the boil. It’s still quite strong. China’s economy’s growing at five or 6%, which is nothing to be sneezed at. But you look at companies like Fortescue, as you mentioned it, its value went from like less than a dollar to 20 odd dollars in share price. and Rio haven’t done as well. Um. BHP, you know, had a lot of false steps with acquisitions along the way, and it looks like valet hasn’t done as well either during that. So the golden year of iron ore mining and ex exporting. So it’ll be interesting to see they go going forward if iron ore is, um, still [00:29:00] important, but not as strong in terms of its demand, um, going forward. Cameron: It’s interesting. I haven’t done this, but if I, um, compare the charts. So, as I said, if I look at valets 10 year chart, uh, it’s 10 year looks all right. Share price 10 years ago was about three bucks. Now it’s about 12, 13, so about four times. If I look at FM G’S 10 year chart, 2015, it was trading at the end of the year around $2. And it’s currently about $22. Tony Kynaston: Hmm. Cameron: So it’s done far better in terms of its, uh, share price growth over that period anyway, but it sort of grew from a small operation into a pretty big operation at that time around Tony Kynaston: Yeah, and it also FMG, Cameron: from a lower [00:30:00] base. Tony Kynaston: uh, has made a, a, a niche for itself in selling lower grade iron ore into China. So when, Cameron: Yeah. Tony Kynaston: you know, there was so much demand for iron ore that the China was happy to buy a lower grade, uh, FMG capitalized on that, whereas, Cameron: on that. Tony Kynaston: I’d be surprised, valley’s probably still in that market, but it, it probably also sells a lot better grade of iron ore as Well, Cameron: Yeah. And of course China that was getting to my next point is the biggest market for them, as it is for Australian iron ore miners. Brazil in total exported about 37 million tons of iron ore in a recent monthly snapshot, and China imported about 24.26 million tons of that. So by far the largest single market for Brazilian ore exports. And you know, I know that China’s trying to, um, sever its [00:31:00] global trade as much as possible from exposure. I’m not sure if they’re gonna be able to, yes, it’s, IM, well, yes, it’s imports, not its exports. Love keep, keep the exports, just get rid of the imports. So, um, yeah, we’ll see, uh, if that has a big impact, I guess, on iron ore in the coming years. They might just buy less from Australia because I, I’m not sure what their diplomatic relationship is with, uh, Brazil. Um. With Lula. I’m not sure what Lula’s relationship is with China, but I know the Australian relationship is bipolar. Um, from a trade perspective, we love China. Can’t get enough of China. China’s the best from a military perspective. They’re, uh, our greatest foe and our greatest enemy in the greatest threat to our security. So it’s kind of weird. Tony Kynaston: It is Cameron: Very weird. So, uh, free cash engine is still eye and AE for [00:32:00] these guys In 2024, they generated around 1415 US billion dollars of adjusted EBITDA on about 38 US billion of revenue. Recurring free cash flows around 817 US million in Q4. And it’s just like, if you look at the, um, Stock Doctor numbers. It’s, it’s total revenue has jumped a lot since 29. 2019 was a low year, hun. We’re doing real here, not USD 2, 2 20 thou 2019, about 145. Billion real, uh, jumped up to about 293 in 2021 and then came back down to 206 billion in 2024. Estimate for 2025 will be about 207, so it’s about a 7% CAGR over that period. But it. Spiked [00:33:00] sort of just after COVID during that COVID year. That has come down since then, but their operating profit has jumped from 12.8 billion in 2019 to the TTM this year is around about 42 point half billion. It was 55 and a half billion real last year. 2024 and their net profit is tracking around, uh, the estimate for 2025 is about 45 and a 5 billion real. So it’s, uh, making money hand over fist. It’s operating margin. The average is around about 31%. Um, TTM is about 20% this year, but it has been higher, uh, over the years, depending on the price of iron ore, I guess. It’s got a lot of debt, but it’s also sitting on a lot of [00:34:00] cash. 33 billion rial in cash. Net debt is about 66 billion net fixed assets, 339 billion. Rial book value, 218 billion rial. So it’s, it’s huge and it’s making a lot of money. Is the bottom line here. Tony Kynaston: the conversion rate I think is about Five to one between the real and the US dollar something like that So Cameron: Yeah, I do have that in my, yeah, I’m not doing that in my head, but, uh, yeah, I did have to recalculate some numbers. Yeah. When I was doing our, uh, numbers. Um, so what can I tell you about it? Uh, what’s it, what is it doing? Um, it’s phasing out all of those upstream raised tailings dams, as I mentioned, the time the, the, the type that were used in the [00:35:00] disasters. Um. Upstream dams were legally banned in Brazil after the disasters. They’re reporting that all of their upstream raise structures are being decommissioned under their dam elimination program. Um, you would hope that they would be decommissioning them quickly. Um, they now. They now have a formal tailings and dams management system to track this. There’s a global industry standard now on tailings management, the G-I-S-T-M, which has been widely accepted internationally, and they’re apparently, uh. Aligning their practices with that. They’ve got a formal process of hazard identification and risk analysis in place, which means they’re periodically assessing all of the existing tailing structures for structural risk. You would’ve thought [00:36:00] that would’ve been par for the course over the years anyway, but, uh, apparently not. So that’s going on. They’re trying to avoid that, which is a good thing. So hopefully no more massive damn failures for the company. I mean. As I said earlier, they’re still facing lots of class actions and lawsuits that are being dragged out in the courts and you know, they might might end up with lots of fines. I think both them and BHP have agreed to pay billions of dollars in damages and reconstruction and all of that kinda stuff from Brazil. And they’re arguing in the courts that. You know that they’re taking their responsibility seriously and there’s no need for further punishment or further reparations, but we’ll see how that plays out. But damn foes can still occur. These are decades old weaknesses in a lot of these places. [00:37:00] Uh, there’s no guarantee they won’t have another one, and the share price could take another hit. So that, those are sort of the big risks I see with companies like this. You’ve got all of the normal ESG pressures as well of, uh, mining companies and digging stuff outta the ground. It’s that thing that we’ve seen happen in Australia though, where some of the big funds. Won’t buy some of our coal mining companies because of ESG concerns. Uh, but it means that the price looks good to QAV and we, we can pick them up at a, at a discount. I think these guys fit that category. There’s like a whole bunch of nasty looking components on the surface. ESG issues, dam failings, tainted brands, uh, all that kind of stuff. Tony Kynaston: I think, I think in terms of the Australian perspective, that, uh, people who are focused on ESG that, [00:38:00] uh, have something to say about BHP or Rio or Fortescue, it’s around the fact as well that, uh, lot of coal used in converting iron or into steel. And so it’s a Cameron: Yeah. Right. Tony Kynaston: scope three reduction. So, uh, the miners. Uh, do a bit of work, quite a lot of work on reducing their own emissions. Um, for example, in the Australian case, they often, uh, build their own, um, wind or solar power plants to power the mines. Uh, but it’s what the, what the customers are doing with the iron ore, which is of concern to a lot of ESG focused investors, Cameron: The, the trickle on impacts, the secondary impacts of Yeah, people. Tony Kynaston: getting back to your point before about raising issues at e at AGMs, have tried to bring in a regime of Scope three emissions control via the miners, um, which is, know, pretty hard for the miners to do when they’re trying to sell something to this customer to say, well, you can’t use it or sell it to you Cameron: [00:39:00] Yeah. Tony Kynaston: you can’t mix it with coal to make steel. Yeah. Cameron: Yeah. Unless you clean up your act. Tony Kynaston: Yeah. Cameron: So, I mean the, the one line thesis for these guys is they’re a dominant low cost iron ore producer, high grade deposits, fat cash generation. They pay a big dividend, uh, their dividend per share. It’s fluctuated. But, um, you know, it’s, uh. An average of about 30% by the looks of it, it’s been up as high as 14. Uh, this year it’s more like 4.68, but um, it’s quite a good yield, six, 7% yield. Um, downside. Lots of red flags. Uh, Chinese still demand, as we said, could be flaky, Brazilian political, legal environment. Other [00:40:00] potential disasters, um, foreign exchange exposure. You know, they, they report on Brazilian real, but the a DA trades in USD, so you gotta be careful of that. But, um, the punchline is there are dirty. Cyclical cash gusher sitting on world class iron ore question isn’t whether or not it makes money. It’s whether you are brave enough to sit through the politics, the mud, the commodity swings, and, and just let it play out, which is a classic QAV sort of a stock from my perspective. Um, Tony Kynaston: it’s cheap Cameron: you know. Tony Kynaston: It’s a big, it’s a big company. Even though demand might be slowing, it’s still, it’s still enough demand for steel around the world for iron ore companies to keep going for decades. Um. If not forever. There are, there is progress being made in terms of [00:41:00] production of steel. I, I think it’s a, like, uh, it’s probably about 10% these days, but, um, uh, there, there are, uh. You know, better ways of doing it than heating coal and, um, putting it in a blast furnace, putting the iron on a blast furnace to make steel. So slowly taking hold across the, the factories in China and other places. So, yeah, I mean, this is one of the reasons why it’s good to be your, uh, an individual investor because you are worried about ESG concerns, you can do your research and you can screen. On your buy list to not buy these stocks. Or you can say, well, I use steel, um, which we all do. And um, you know, I’m resigned to that fact. And the manufacturing of steel will slowly get cleaner. It hasn’t happened yet, but it will improve and I’m happy to buy a share off somebody else. be selling for ESG concerns and, um, and hold this stock until it rerate back to what we think [00:42:00] is fair value. Cameron: Well, just running through the numbers to finish up. Um, average daily trade is about 412 million. So it’s pretty big. Uh, the price to operating cash flow is 5.59, so getting close to our cutoff of seven, but definitely below it in terms of the stock edia numbers that. Kills, uh, quality rank is 92, so we score it for that. Uh, the stock rank is, um, well, let me check, look over here. The stock rank is 99, so we score it for that. Uh, the F score is a six out of nine, so we score it for that. Its price is not less than our IV number one, [00:43:00] so we can’t score for that, but it is less than our IV number two, I think. Uh, IV number two was about 18 bucks and it’s trading around about just south of 13, $12 81 today. So scored it for that. The price is not less than the book. It’s not less than the book plus 30. So I couldn’t score it for either of those either. Book value growth is positive. Um, so it got a score for that. P is not less than the yield. The yield though, is higher than the bank debt. As I said, it’s got a pretty strong yield. The forecast iv, IV number two is, uh, not higher than. Twice the share price, so I couldn’t score it for that all up. It got a score of 10 out of 14, which is a QAV quality score of 71%. And a QAV score [00:44:00] of 0.13 puts it down on the lower part of our buy list this week. And by the way, if you’re interested in what our buy list looked like this week, um. Well, no, I won’t go through it, but there was like a hundred companies on our buy list again this week in the us Like it’s kind of, uh, it’s just so much opportunity over there at the moment. And as I said, well, I didn’t say it before, but looking at the companies that I’ve done deep dives on over the course of the last year from the us, um, I’ve done 27 of them. 20 of them are in positive territory, seven are in negative territory, so it’s a win lose ratio of about 74% of the companies that we’ve, uh, covered so far this [00:45:00] year, which is pretty good. So that is, uh, my pulled pork for this week. Do your own research. It’s not a recommendation, but definitely worth checking out if you can get over the death toll and the dirty dams and the ESG issues of digging stuff out of the ground and having it smelted, uh, and all of that kind of stuff. It’s a cash generation machine outta Brazil. Tony Kynaston: Very good. Thanks for that. We’ve, we’ve covered a lot of overseas companies that are listed on the US stock market. Um. I mind if, if anyone listening who is listening to this can tell us if, uh, there is an issue with investors buying a DA stock in the us. That seems to me that these companies aren’t as heavily bought as, as some of the other ones that might be listed. I’m, I’m not sure if that’s the case, but it’s a bit of a theme, so I just wondered if that was an issue. Cameron: We did talk [00:46:00] about it on an earlier episode, how it’s a little bit tricky for funds, et cetera, to buy, but I dunno about private investors. Yeah. Hmm. Alright, well that’s it for this week. Thank you, Tony. Have a good week. Tony Kynaston: Bye. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own [00:47:00] objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative [00:48:00] Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Here’s an update on the performance of the other stocks we’ve done as a pulled pork (deep dive) since the start of the show. Average return so far is 44% with a 74% win/loss ratio. 

Dec 11, 2025

48m
21

Leasing the Sky: AER – QAV America #30 (fixed)

Overview In this episode of QAV America, Cameron and Tony take a tour through the strange split-brain mood of the US markets, where weak economic data is somehow bullish because investors are convinced the Fed will cut rates in December. They break down the odd macro setup, check in on the portfolio, and walk through fresh results from star performer **Willis Lease Finance (WLFC)** and a big buyback from **Enova (ENVA)**. From there, Cameron recaps the performance of the 27 US stocks they’ve analysed this year, before diving into a full deep-dive on **AerCap (AER)** — the world’s largest aircraft lessor. The conversation covers why airlines lease instead of own, how aircraft leasing actually works, why Ireland is the global nexus for the industry, the wild origin story of Guinness Peat Aviation, and the massive headache AerCap faced when Russia and Ukraine seized more than 150 of its aircraft in 2022. They wrap with QAV scoring, book-value checks, revenue and profit trends, and a broader conversation about how the leasing model fits into cyclical markets, AI, mobility, and long-term capital allocation. Everything from the Fed to kung-fu neural adaptation shows up along the way. — Timestamps & Topics 00:00 – Market mood & macro split-brain (no tickers) 02:00 – Portfolio news: Willis Lease Finance (WLFC) 03:40 – Enova International (ENVA) buyback 04:30 – Portfolio performance overview 06:00 – Recap of stocks covered this year 08:00 – Deep dive introduction: AerCap (AER) 40:00 – Final wrap & philosophical detour (AI, kung-fu, skills vs computation) Transcription   Cameron: [00:00:00] Welcome back to QAV America, Tony, episode 30. It’s the 2nd of December, 2025. How you doing? Tony Kynaston: Good summer in Australia. I’m Cameron: Summer in Australia? Uh, not in the United States though, and it’s the overall mood in the US markets. Tony, kind of weird, uh, to say the least bit of a split personality over there at the moment. I think on one side, investors seem to be getting increasingly confident that the Fed will cut rates in December. I think the future markets have the odds sitting at roughly 85%. Now, which is high enough that everyone’s basically planning their Christmas shopping around it. But the flip side is that the economic data, backing that up. It isn’t pretty. Um, you know, I know that there was sort of a break in gathering data while the government was shut down for a while. But manufacturing continues to slump. Inflation and [00:01:00] income growth are cooling off broad GDP expectations for next year of drifted down toward the 2% mark. So it’s sort of a bit of a soft landing fantasy mixed with a little fear that maybe things are wobbly over there. The market o. Tony Kynaston: cuts. That’s the looking The things are looking wobbly. We go through the looking glass like 10 years ago, 20 years ago. Those kinds of numbers were out and about. The market would be tanking. it’s doom and gloom. The economy’s busted. The inflation’s coming down and exports are going down. it’s like yippee. The fed’s gonna cut. We can Yeah. or Yeah. But it’s the, it’s the double-edged sword, right. Um. Yeah, the market’s not doing well, so interest rates are gonna get cut, but the market’s not doing the, the economy’s not doing great. Cameron: Hmm. put Tony Kynaston: called, people Cameron: And as we’ve talked about over the last year on this show, we know that most of the [00:02:00] returns in the Dow Jones are coming from six stocks or seven stocks. Um, so it’s very uneven. That said. Yeah, things are doing okay from our portfolio perspective, but, um, the market opened pretty strongly last week, but then by the beginning of this week, it seemed to have cooled off again. Crypto’s having one of its spasms, bond yields have jumped in terms of our portfolio specific stories though, Tony, some good news. Uh, Willis Lease Finance Company, WL. FC, which has been the rockstar in our portfolio, our US portfolio over the last couple of years. Um, it’s up 152% since we added it, but it was up at one point about over 300%. But they came out with their results this week. Uh, revenue came, [00:03:00] this is for the third quarter. Revenue came in at $183 million, which is up 25% year on year. Pre-tax income grew by the same percentage utilization of their engine and aircraft portfolio. So they lease out engines, mostly few aircraft, but mostly engines, uh, was up 86%. They lifted their dividend from 25 cents to 40 cents. They did note that margins of. Tightened a little, but overall, very solid results from them. And how did their shares do as a result? Uh, nothing much happened. Uh, just it went down. Um, so there you go. Great news. Let’s sell, as you know. Tony Kynaston: money. Let’s sell. want some more loss making companies to invest in? Cameron: Yeah. What, but what’s their AI story? That’s what we wanna know. Um, only other stock in our portfolio that had, [00:04:00] yeah, the only other stock in our portfolio that had any news that I could see was in Nova ENVA. They just announced a $400 million buyback, which we like to see. That’s all of the market news that I’ve got though this week, Tony. I’ve got, uh, I thought I’d just do a portfolio update while I’m at it though, uh, I’ll talk about some of the companies that we’ve talked about in recent weeks. So, the dummy portfolio that we run in the us uh, since I started it in late 22, September, no, sorry, 23. September, 2023 is up 53.3%. Uh, no, sorry, up 53.04% versus the s and p 500, up 53.3%, so we’re now returning. Pretty much exactly the same as the s and p 500. We’ve come from doing triple the s and p 500. At the end of last year, we were up 90% versus [00:05:00] 30%. We are back down this year to sort of neck and neck with the s and p. So it’s not been a good year for the stocks in our portfolio. They’ve all. Had fairly average years at least versus the index. But, you know, looking for it, looking at it over the long haul, I’m pretty happy with 53% return over a little over two years. Although if you could just buy an ETF and do the same, um, that’s, you know, be a lot easier to do that in some ways. But I do know that we will get back to our performance if history is any guide over the next couple of years, Tony Kynaston: case in Australia and for me over 30 Yeah. Yep. Cameron: And the, and the case from what we’ve learned from Buffet and Munger and all those guys over the years as well. For the month, uh, our US portfolio is down 3% versus the s and p, which is pretty much neutral for the last 30 days. Uh, of the companies that we’ve covered on the [00:06:00] show over the last six or seven months, there’s been some really great results there. I wish I had owned, uh, all of these stocks. I had the opportunity to put ’em in our portfolio. Remember Topgolf, Callaway we talked about a few weeks ago, we talked, we, we talked about them at the beginning of November’s 12th of November. They’re up 17% since then. There was up 20%. They’re down 4% today. So that was pretty good. I thought you’d like that. Um, community health systems are up 20% since we talked about ’em in October. Uh, lots of other great results in there too. Zep the. Chinese watch company is up 800% since we covered ’em in July. That’s still the highlight. Um, so out of, out of all of the stocks that we’ve covered, which is 27 on the show, I’ve done a deep dive on this year. 21 are up, six are not, six are down. [00:07:00] Um, the average growth out of all of them is about 43%, but it’s a 78% win loss ratio at the moment, so that’s pretty good. Tony Kynaston: kind of randomly too, aren’t you? From the Cameron: They’re on the buy list. But yeah, there’s usually about a hundred stocks on the buy list, and I don’t go from the top of the list as I normally would if I was getting add into portfolio. I select them based on them being a good story to talk about something interesting. And I have another interesting one this week, Tony. Tony Kynaston: uh, Cameron: I think you’ll find it interesting. No, but a company very similarly similar to WLFC, funnily enough, they’re called. Air cap. A-E-R-A-E-R is the ticket code for air cap. Air cap owns and leases out commercial aircraft, passenger jets, cargo planes, aircraft engines in helicopters. They don’t fly them. They rent them long term to airlines and other [00:08:00] operators similar to Willis Lease, but Air capa the. Um, the, the Walmart in this space, they’re the Costco, uh, WLFC are more of a, a family owned, uh, corner store. Uh, these guys are the giant supermarket of aircraft leasing. They will buy jets, lease them for eight to 12 years per contract. They manage a massive fleet. And then they do lease buybacks and sell them and juggle it. Assets. They also do engines, but they’re sort of a side quest for them. Willis Lease is a specialist boutique firm that focuses on engines, air cap, do everything. Um, Tony Kynaston: of way most operate these days, they would rather lease their planes than, than buy. Them outright. Better use of capital to lease. Cameron: don’t. ruin my narrative here. Tony. You’re [00:09:00] jumping ahead. You’re doing, you’re doing what Ray does. Cutting to the cutting. You, you, you’re doing the Reader’s Digest version of my very long story here, but yes, you’re right. Tony Kynaston: don’t wanna do what Ray does. I’m not gonna sit here, eat gummies when, when you. Cameron: Maybe you should. Uh, he apparently thinks it’s the best way to get through an hour with me is just to eat gummies. Um, yeah. Like, and that surprises me ’cause I, I know nothing about. Uh, these businesses, and we’ve talked about a number of companies that lease the shovels and, uh, what do you call it, the picks and shovels. Yeah. Yeah. Uh, I think we talked about, well, we talked about D aos a long time ago. It was one of the first companies that we did a pulled pork on. They lease out container ships. Uh, we talked about IHSA while back. They do the mobile phone towers in Africa, in the Middle East. They just run the [00:10:00] infrastructure and let other people do the customer management and the retail side of it. So it, it seems to be common across a lot of industries these days. I think we also did a, a, a, a mining company. Somebody like Titan, was it not Titan Machinery? Somebody like that. I can’t remember. Precision, precision drilling. Maybe somebody who was leasing out like oil rigs or something like that. Tony Kynaston: self, self-directing oil rigs that could move around. But, um, Cameron: up and, yeah, walk and then sit back down again and drop a, hmm. Tony Kynaston: the it’s been a thing where, I guess with the rise of the focus on return on equity as a metric in companies, um, companies. Just tried to offload assets. You are better off, uh, leasing the supermarket than owning the building. Um, ’cause you Cameron: Mm-hmm. Tony Kynaston: use the, freed up capital to, uh, invest in having, 20 supermarkets that you, you know, it’s for the same cost of owning one, you could lease 20. [00:11:00] So you kind of got economies of scale, but it was also a better return on equity. so you see it in almost every industry. Um, truck trucks. Uh, cars, anyone with a big car fleet will lease them. Cameron: Mm-hmm. Tony Kynaston: these days. Not, not many that I can think of own their own property. Um, some do, but, um. generally, you know, owner, founder, hyper lead, places that can, stand up to Wall Street when they say, Hey, your RR e’s no good, you’re better off leasing. Um, Cameron: Mm-hmm. Tony Kynaston: industries across the board will lease things including the airline industry. Cameron: Hmm. Well, it turns out, uh, as. Mm far, as I could find out with my research, about 50% of all commercial aircraft flying today at least. And that includes the really big players like Emirates or Delta, Qantas, United through to ultra low cost carriers like Ryanair, [00:12:00] which was founded by the same guy who founded the company that AirCap came out of. Uh, interestingly enough, and there’s a good story behind that. Yeah. Well, it’s a great story too. Yeah. Uh, didn’t work out well, but, um, yeah, I think that was, he, he saw an opportunity in both cases. So, uh, why do airlines lease aircraft for people? Like me who don’t really understand this building on the story that you’ve already told. A new single aisle, Airbus A three 20 Neo costs around 110 million US list price. A Boeing 7, 8, 7 Dreamliner costs around 300 million us. So these are massive multi-decade commitments. Most airlines don’t have that kind of balance sheet strength, which surprised me a little bit I thought. Airlines, you know, based on Qantas, make money, hand over fist. Apparently [00:13:00] not the case. Uh, airlines is a very low margin, highly regulated, vulnerable to shocks. We talked about a a l on the show not that long ago, by the way. It’s up 1% since we talked about it, by the way, PGE PG and EPCG that everyone on Reddit hated. It’s up 1% since we talked about it. So that’s doing okay. Career Electric power’s up 3% since last week. Um, so yes, leasing protects airlines from bad years. Airlines are cyclical, as we know. Again, we talked about that on the a a l show, recessions, fuel, price spikes, terrorism, pandemics. The industry just gets hammered repeatedly. It’s par for the course. Getting back to golf analogies, owning billions in aircraft can create a downturn that can kill an airline. So Elise converts that into a predictable monthly rent. For them, at least. Aircraft can be returned at the end of the term or swapped for a more efficient model, or they can up or downsize based on demand. [00:14:00] Most of the time what happens is the airline takes delivery of what’s called a white tail. It’s an unpainted or neutral painted aircraft. They handle the paint and interior work. The airline does, not the, not the lessor, not the air cap, and I looked into this. It only takes a few weeks, all going well for them to do a complete refit and paint job of a plane. You know, the airline will have crews, I guess the companies probably they outsource this too, as well, that do it for them. But they, they’ll repaint it, swap seats or cover seats. Choose the entertainment system, add the branding, change the carpets, change the galley equipment. Uh. But it, it gets delivered, ready to fly, but they just do the fit out and make it look like a Qantas plane or a Delta plane or whatever it is. So leasing helps airlines expand fast. Uh, apparently Airbus and Boeing backlogs today stretch well into the [00:15:00] 2030s, so you can’t get yourself a quick plane, um, unless you’re. The president of the United States and then you just reach out to Cartera, I guess, to get one for you. Um, leasing helps smooth their balance sheets, as you said before, and, uh, you know, when you own a jet, you own it’s fate you’ve gotta deal with. Engine value decay technology, obsolescence, regulatory changes, fuel efficiency standards, geopolitical shocks, one of which we’re gonna talk about in a minute. So, all of these things are handled by the lessors in this case. They deal with all of those sorts of problems. They own the underlying asset and the airline just leases it out. Why Ireland? And this is a part Irish part Netherland story, Netherland story. It’s. Interesting. So Ireland is to aircraft leasing. What Switzerland is to banking, as we know from all the software firms, uh, in Australia, all the big IT [00:16:00] companies that seem to have their headquarters in Ireland, uh, it’s a favorable tax regime. Yeah. Deep financial structuring expertise. Got a treaty network that avoids double taxation and the founder of the company that came before AirCap. Was Irish. It’s originally an Irish company, as you might guess from the name, a ER, AirCap, AirCap, to be sure. To be sure. But Tony Kynaston: is Cameron: yes, Tony Kynaston: Yeah. Yeah. Not to be confused with the other Lingus. Cameron: Uh, this is, uh, but they’re also listed in the Netherlands. Uh, the business is Irish. The legal entity ended up Dutch. For structural tax and regulatory reasons. Turns out the Netherlands is extremely friendly for multinational finance companies, so air cap’s, head offices in Dublin, not in Amsterdam. Yes, you did. So the bottom line is airline lease, uh, airlines lease aircraft [00:17:00] because ownership sucks. It’s heavy, it’s rigid, it’s expensive and deadly. And downturns leasing lets them grow, shrink, modernize, hedge risk and avoid catastrophic balance sheet stress. So the, the. Tony Kynaston: lot Like it’s a, a proportion of the cost. You, you buy one plane, you, you’ve got one plane, you lease, you can lease 10 same Cameron: and you can scale up or shrink relatively quickly. AirCap traces its roots to one of the pioneers of aircraft leasing a company called Guinness, Pete Aviation, GPA. Yes. It was founded in 1975 in Ireland by Tony Ryan. The Irish businessman who later co-founded Ryanair in 1984, so his story is he worked for Air Lingus was a station manager, eventually ended up being the [00:18:00] station manager at JFK Airport in 1968. Returned to Ireland in the early seventies where he moved into aircraft leasing. Apparently Air Lingus had a lot of surplus aircraft flying around during downturns. And so he came up with this idea. He got financial support from Air Lingus and the Guinness Pete Group, and then founded Guinness. Pete Aviation raised $5,000 for his 10% stake and Guinness Pete Group was basically an investment holding company with interests in Europe, Australia, and New Zealand, where it was acquired. In 1990 by Reley Investments means nothing to Americans, but very, very famous corporate Raider, New Zealand corporate Raider, All Ords. Very, very active in Australia. Ron Brey in the eighties [00:19:00] and nineties. Very, very famous New Zealand corporate raid. I think Gordon Gecko. But says fish and chops. Um, you’ve been following what happened to Ron Brearley Tony Later in life. Tony Kynaston: rum Cameron: He was so well f. Tony Kynaston: been Yeah, he was stripped of that. Yes, he was stripped of his knighthood when he was convicted of multiple counts of possessing child abuse material. Had his knighthood removed, served a reduced custodial sentence due to health issues. But in March of this year, he faced new charges, got arrested again in Sydney, and uh, I think that’s still going to the courts. Cameron: He’s quite old now. He is in his late eighties I think. Anyway. GPA grew to become the world’s biggest aircraft. Lesser was based in Shannon Ireland during the 1980s. It became the world’s largest aircraft, lesser expanded its shareholder base to include [00:20:00] Air Canada General Electric, short term credit, bank of Japan companies in the Mitsubishi group. It had financing joint ventures with. Airbus FKA McDonald Douglas At its peak, GPA was worth around 4 billion US dollars. But then they tried to IPO in 1992 just after Gulf War happened and there was a major aviation downturn, and it’s a bit of a. Convoluted story, the the float wasn’t underwritten and for some reason, but international financial institutions basically refused to buy shares. They were unable to raise the capital that they needed, and then the company plunged into crisis with roughly 10 billion US dollars in debt. And it got, uh, reorganized. Went through a series of takeovers and restructurings through the 1990s and two thousands, and then was renamed [00:21:00] air cap and went public in 2006. In 2014, it acquired the International Lease Finance Corporation, ILFC. From A IG, which vaulted it into becoming the largest aircraft, lesser by fleet value. Then in 2021, they pulled off an even bigger takeover. They acquired GE Capital Aviation Services, G-E-C-A-S G’s, aircraft leasing arm for more than 30 billion US dollars in total consideration. That made them the dominant global player in aviation leasing. And today they are massive. They’ve got roughly 1700 aircraft, over 1200 engines, more than 300 helicopters, plus above a bunch of other things, private jets, et cetera, et cetera. Um, and that was all going great until [00:22:00] the Russian invasion of Ukraine in 2022. Caused them a massive headache. They, along with other lessors, had dozens of aircraft physically inside of Russia and Ukraine. When the invasion started, sanctions kicked in in February. The EU gave them basically a month to get all of their aircraft out of Russia. And Russia said, uh, no. And, you know, they couldn’t literally go into Russia, uh, and repossess their aircraft safely unless you wanted to find yourself with, uh, iridium poisoning or whatever it is that happens to people that Russians don’t like. So yeah, they lost and they couldn’t go to Ukraine either because it was in the middle of a war. Um, crews wouldn’t fly them out either because they would probably get shot trying to, trying to leave or [00:23:00] lesser things like losing licenses or worse. So yeah, unless they were willing to storm the airports, they couldn’t get their planes back. Russia then created some fast track laws to transfer, transfer Western leased aircraft. From Bermuda slash Ireland registration to ru, the Russian Aviation Registry, they were re-registered domestically. Russia treated them as Russian assets making repossession difficult. So, uh, the, the lessors, a number of them that lost planes being led by AirCap, which were the lead claimant in this filed insurance claims. For somewhere between 10 to 15 US billion in war risk and confiscation insurance. The insurers mostly Lloyd’s, A IG, Swiss Re and others said Nah, the jets weren’t technically seized, that they [00:24:00] were just not returned. So AirCap and the others sued their insurers. And this went to the courts, and basically the courts found for the lessors. So, uh, judge ruled that the insurance company, the London London’s High Court, June, 2025, London’s high court, ruled that AirCap can recover more than 1 billion US dollars from its insurers in relation to almost 150 jets stuck in Russia since the invasion. They also managed to get money along the way, um, but it hurt them. So at the beginning of the invasion, air cap had around 152 aircraft, valued around two and a half billion in Russia and Ukraine. In May 22, the company reported a net loss of around $2 billion due to the seizure. Uh, wrote off or impaired about 3.16 [00:25:00] billion of assets in relation to the situation, but some recoveries were made and September, 2023 in agreement was reached with alo. Regarding a compensation package for 17 aircraft stranded in Russia, they got about 645 million in exchange for the aircraft that Alo owned. They got some cash settlements in December, 2023 that had been formally leased to S seven and Euro Airlines for about 572 million. And then the high court said they could get another billion from their insurance company, so they were able to recover quite a bit of money, uh, as a result of that. But this seems to have negatively impacted the way the market assesses AirCap. From our perspective though. They’ve got predictable cash generation. They’re sitting on a deep free cash flow engine, leasing revenue from hundreds of aircraft to airlines globally. They’re [00:26:00] generating a ton of cash, and they’ve got this massive scale, which is effectively a moat. They’ve got this huge competitive advantage based on their scale. They own thousands of aircraft, thousands of engines, hundreds and hundreds of helicopters, so they get good deals. They’ve got this niche that they pretty much dominate. But it seems the best I can tell, it seems the markets are treating this as like a cyclical company because we know that airlines are cyclical and airlines are their customers. So therefore this should be cyclical. But I don’t think it is, you know, they, they’re locked into long-term contracts unless the airlines all go broke. And can’t or refuse to pay the leases that they have, AirCap get their money, whether the airline’s flying the planes or isn’t flying the planes. It has long term income agreements, but for whatever reason it’s showing up as really cheap in our, in our buy list. So I’ll run through some of the num. Tony Kynaston: [00:27:00] if, if you can have a war and the assets are seized and you can’t get access to them. Cameron: Sure. But. You know, how many, how many wars have we had where they’ve lost access to their planes? I mean, you know, maybe we’ll have more wars. Maybe the US and China will go to a war maybe, or maybe they’ve got planes in Venezuela. They should be getting their planes out of Venezuela now. Yeah. But you know, that’s fine then the market can predict the future, but we don’t predict the future. So, um, Tony Kynaston: the, uh, the company will be very careful about the worthing of their contracts to countries from now on too. And pricing, I would’ve thought. Cameron: And also the insurance companies have, you know, maybe learn that they can’t get away with saying, no, you didn’t lose it, you just haven’t got it back. Tony Kynaston: Yeah. Cameron: [00:28:00] Uh, let me run through the numbers for it. So the closing price when I checked yesterday was $134. By the way. It’s ha it’s been on a great run. If you look at it, it was. Um, a year ago or two years ago, I was trading around 65 bucks. It’s doubled in the last couple of years, so it’s been on a tear. It was about a hundred bucks, so a bit less, maybe 90 bucks at the beginning of this year. So it’s been up about 30% this year. So, um, as opposed to some of the stocks that I’ve talked about recently that have been in decline, uh, this one is already doing really, really well, but still from our perspective, looks really, really cheap on the fundamentals. Uh, so yeah, share price is about 134 bucks. Um, EPS is $9 62. [00:29:00] Uh, the forecast EPS is $14 79. That’s the EPS for next year. So the forecast is that it’s. Gonna have a very strong year. PE is about 13.83, so not insanely high. Operating cash flow is around about five and a half billion. Free cash flow is negative 163 million. There, you know, a lot of, uh, capital expenditures, purchase maintenance, leasing overheads. They’re investing heavily in fleets and assets, that kind of stuff. The book Value per Share, the latest is about $109. So the share price is 134. The book value is about 109 bucks. So, um, you know, it’s not less than book, but it’s not that much over book. So, um. I run through [00:30:00] some of the major scoring points for us. Uh, let me skim down to my scoring panel. So it is a QAV score of 0.18. Not at the top of the list, like KEP was last week, but it’s still a good QAV score. Average daily trade’s about 200 million. So big enough for most people, the price to operate in cash flow is 4.15. So, you know, very, very reasonable from our perspective. Uh, stock edia wise, quality rank is 63, so we give it a point for that. The stock rank is 89. We only scored if it’s 90, so it didn’t get a score for that, but it was very, very close. It’s F score is eight, which I think. KEP was an eight last week too, so very, very good. Financial health score, PETROVSKY score. So we give it a score for that. The, our IV number one is only $49. Again, the price is 134, so I didn’t score it [00:31:00] for IV one, but IV two is $149, so it’s lower than our IV number two. Got a point for that. Um. The price is less than Book plus 30. It’s not less than book, as I said, but it’s less than Book plus 30. So I’ve got a point for that. It doesn’t have a new point, new three point upturn because it’s been, um, going great guns, as I said, share price wise for the last couple of years. But the book value growth is positive. Let me just take you through their numbers here. Um. Air caps holding nv. Uh, total revenue in 2019 was 4.7 billion. Dropped a little bit in 2020 for obvious reasons. 2021 it was 5.1 20 22, 6 0.7 8, 20 23, 7 0.0 9, 20 24. 7.34. [00:32:00] Trailing 12 months is 7.5. The estimate for 2025 is 8.28 billion, which is also the estimate for next year, but it’s got a, a CAGR from a revenue perspective of about 9.12%. So, you know, doing really well. Profit in 2019 was 2.447 billion. The TTM is $5.39 billion. That’s operating profit net. Profit is uh, TTM at $3.789 billion. So, uh, yeah. Healthy, very healthy company. Got a lot of debt, $42 billion in debt, but that’s what you’d expect. Net fixed assets is $70 billion, which is why it’s, uh, got a positive book value. Uh, back to my notes, uh, my [00:33:00] scoring, uh, PE is not less than the yield. Yield is greater than the bank debt. Uh, the forecast IV is not greater than twice the price. All up, it got nine out of 12, uh, 75% quality score, and as I said, QAV score of 0.18. So, uh, yeah, I like it. I like it a lot, Tony. Very cheap, stable, generating a ton of cash. I dunno why the market doesn’t like it, but that’s the market’s problem, not mine. Tony Kynaston: it looks, looks exactly like a value stock should look. It’s like an infrastructure stock almost. They, they Yeah, raise they buy planes, they lease them out, they take a margin, they raise capital, they buy planes, they lease them out, they take a margin. It’s um, not rocket science, is it really? Cameron: well close though. ’cause it’s airplane sites, which is close to rockets. Um, yeah.[00:34:00] Tony Kynaston: sure it’s more complex on that in terms of, you know what gotta predict what airline demand will be for what type of aircraft in the future, and da, da da. But, uh, I, as you say, they’ve got a horse trade. If someone wants to hand the plane back, can they releaase it, all that kind of stuff. But still a pretty Cameron: Actually, I skipped over that in in my, um. Uh, summary, but they actually have been selling a lot of old planes. Um, I can’t remember, I don’t can’t remember where the numbers are, but Oh, yeah. Here we go. Asset. This is from their Q3 report. They sold 32 assets for one and a half billion. With a record, 332 million gain on the sale, the highest ever quarterly gain. So these assets are older aircraft engines and helicopters that they’re cycling outta their fleet, dumping, aging, or midlife assets, and they then recycle that capital into newer vehicles for the fleet. But um, yeah, so [00:35:00] selling old stuff is something that they’re quite good at too, by the looks of it. Tony Kynaston: I was Cameron: Um. Tony Kynaston: the guy’s name, but there’s a, um. A Facebook profile that pop pops up on my reels every now and then about a guy who’s a pilot total life is just going from one airport to another, picking up new planes and ferrying them across the world to a new, a white tail plane across the world to a location. And then, overnighting there and then jumping on another plane to go to another destination and pick something up and transport it to this incredible lifestyle. And Cameron: if that gets old. Tony Kynaston: Interesting. They often show him like Cameron: Hmm. Tony Kynaston: of a plane Lilo, a blow up Lilo. ’cause there’s no seats or anything in the plane. And that’s, that’s where they eat and sleep and for 80 hours while they fly a, a big dream liner around the world or something. Yeah. It’s Mm. Cameron: Interesting way to spend your life. Uh, [00:36:00] so look, yeah, it looks good. And of course, as I said at the beginning of the show, Willis Lease Finance, which is similar but different, um, has done very well in our portfolio over the last couple of years. So these guys would’ve been good if we’d bought ’em two years ago as well. But, uh, and, and we’re not adding ’em to our portfolio because we’re fully invested, but, um, they’re worth a look. if you’re looking for something. Tony Kynaston: but Fleet Partners and SGI in Australia and the various different, there’s about three listed, three or four listed fleet managements for cars. you know, Yeah. have fleets of and, you know. Big corporations have fleets of vehicles, similar sort of model. They buy the car, they lease the car, give the lessor a chance to buy it out after four years, otherwise they put it up for sale and they recycle the capital. Cameron: Yeah. Tony Kynaston: similar sort Cameron: Yeah. And not a data center in site. Tony Kynaston: although maybe AI can get in there and tell ’em how [00:37:00] to optimize their, their buys and sells and pricing and all that kind of stuff. Cameron: Oh, I’m sure it will. Yeah. I’m sure there’ll be a lot of optimization of businesses like that as a result of ai. Yeah. Tony Kynaston: optimization where they just team. The school kid just jumps in, hops in behind the Yeah, flies the plane where it’s needed to go. Hops out, there was, there was a, there was a great shot in that episode four of Pluribus last week where it was in the hospital at the beginning and there’s like a 12-year-old kid pushing a hospital cart around working in the hospital because it doesn’t matter how old you are, everyone’s a doctor. Cameron: Yeah. Tony Kynaston: and I I, had that thought. I wondered when they were gonna have a kid do surgery on this show. ’cause Cameron: Yeah. Tony Kynaston: Mm. You’re a Cameron: Well, I wonder about that. I mean, you can have the knowledge of somebody that can do surgery, but does that mean you have the eye hand coordination of somebody that does surgery? Tony Kynaston: [00:38:00] our age? Probably a teenager. Cameron: It doesn’t take a lot of, it takes a lot. No, that doesn’t track. Like, you get a 12-year-old that’s never done kung fu and put ’em up against somebody who’s 60, who’s been doing kung fu for 30 years. The 60-year-old is gonna wipe them out because it’s 30 years of, you know, the muscles and the nerves, all of the, the hard wiring in your body. Tony Kynaston: the 60-year-old into the 30-year-old brain or 12-year-old brain. Cameron: Experience is one thing I’m talking about. It’s like your golf swing, right? You can’t, you can’t transfer somebody else’s thoughts about golf because it’s nerves, it’s muscles, it’s You don’t play golf just with your brain. You play it with your body, right? Your body has to have all, that’s not, that’s not. Thought based. When you do a golf swing, it’s, you’re not, it’s not thought, right? It’s, it’s muscle memory. Tony Kynaston: I accept your argument to the, to [00:39:00] the point of you couldn’t ask a 12-year-old to take something out of a high cupboard. You want someone who was fully grown to do it, but, if you said to them, Hey, here are all the memories of someone who takes things out of a high cupboard, they’d reach up just like anybody else would. Cameron: We’re not talking about the higher cupboard. I’m talking about doing something that requires years of. Tony Kynaston: It’s Cameron: nerves. It’s, it’s, it’s okay. No, it’s not just in your brain. It’s, it’s in it, Tony Kynaston: fu kick. Cameron: it’s in, it’s your brain and your nervous system and your muscles all working together Tony Kynaston: Okay. Cameron: like I was. Couple of years ago I was, I was at kung fu and there was a guy there, one of the black belts, been training for 20 years who’s standing on one leg just doing kicks for like 20 minutes, one leg, boom, boom, boom, boom, boom, boom, boom, boom, boom, boom. Not putting the leg down, right? And I said, how do you, how do you do that? And he said, you just stand here and you do it for 10 years. [00:40:00] That’s how you do it, right? And he said, it’s because he said. All of the nerves in the muscles, in your foot, your ankle, your calf, your knee, your quads, your, you know, your hip flexes, your, your back, your spine. Everything needs to be perfectly in sync and in line to be able to maintain the balance and the force and all of that kind of stuff. He said it’s just, it just needs, it takes time. It all needs to. Stitch itself together and figure it all out. Right? And I was like, oh, okay. I, you know, that’s why you can’t speed run, becoming good at kung fu or learning to play violin. You can’t, it’s not like the matrix where you can go, do you know how to fly a helicopter? And you go, yeah. Okay. Because it’s not an instruction set. It’s, it’s a physical, it’s a physi, it’s an instruction set combined with physical motor system, um, training is my argument here. Tony Kynaston: well, I dunno enough about it to counter it, but it seems to [00:41:00] me, if I understand what you’re saying, like if some things will require a certain muscle mass to do, like if you’ve been Cameron: Not muscle. I’m not talking about muscle mass. Tony Kynaston: I would’ve thought all those muscle twitches and responses to be able to stand on one leg and kick forever can still be downloaded. Whether the muscles have been bulked up enough to stand on one leg for long enough. But you Cameron: No. Tony Kynaston: still download and you’ll still, you would still sound on one leg and you would still kick, like you have Yeah, but you wouldn’t be as good at it. bulked up to do it. Cameron: No, not the bulk. I’m not talking about the bulk. I’m saying what, I guess what I’m saying is the information for how to do that well isn’t stored in the brain. Tony Kynaston: Where’s the Cameron: of it is in the, in your nerve, endings in your spine. Oh, yeah. Yeah, yeah, yeah, yeah. We know that you, you, you touch a hot [00:42:00] plate, you pull your finger back. You don’t think I have to pull my finger back. Tony Kynaston: reaction. Cameron: It’s a reaction. What’s a reaction in, Tony Kynaston: there’s no other Cameron: it’s not in your brain. It’s not in your brain, it’s in your spine. It’s, it’s in your nervous system. Your nervous system has that information built into it. It’s not your brain. You don’t have time to think about it. It’s not even subconscious. It doesn’t hit the brain. Tony Kynaston: only available between the ears. Cameron: Okay. I’ll get chat tippit to explain it to you after the show. Okay. I dunno what that was. Dunno how we got into that Anyway. Tony Kynaston: but, uh, yeah, Cameron: Yeah. Tony Kynaston: if they Cameron: Uh, well, not a memory is in a memory. It’s information. I won’t call it, I wouldn’t call it memory. I’d say information is stored in the nervous system Tony Kynaston: Okay. Cameron: about how to respond to certain inputs and outputs. [00:43:00] And with that, uh, Tony Kynaston: I. Cameron: will be back, back next week. Thank you, tk. Tony Kynaston: Okay, thanks. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a [00:44:00] suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited [00:45:00] (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Here’s an update on the performance of the other stocks we’ve done as a pulled pork (deep dive) since the start of the show. Average return so far is 47%. 

Dec 5, 2025

45m
20

KEP: Korea’s Cash-Gushing Nuclear Giant – QAV America #29

Episode Overview This week we dive into Korea Electric Power (KEP), a deep-value, government-linked Korean utility that has quietly swung from crisis-level losses to massive operating cash flow. We explore the company’s unusual history stretching back to a royal electrification project in the 1890s, its modern political entanglement with tariff controls, its nuclear-heavy energy mix, and why the market may be mispricing a regulated monopoly with a price-to-operating-cash-flow ratio of 1.5. We also cover the recent sell of VSAT on a 3PTL rule, the psychology of Reddit outrage at PCG, and the broader role utilities play in an AI-powered future where electricity becomes the new picks and shovels. Timestamps 00:00 – Opening chatter, Reddit outrage. 00:01:15 – VSAT sell rule triggered 00:02:00 – Introducing this week’s pulled pork: KEP 00:22:00 – Portfolio philosophy: buy deep value, sell by rules, ignore Reddit foam 00:23:00 – Final wrap-up and sign-off Transcription   Cameron: Welcome back to QAV America, Tony, episode 29. Uh, how are you? Tony Kynaston: well, thank you. Yep. All Cameron: I tell you what, the folks on Reddit on the value investing sub Reddit did not like my PCG uh, Paul Pork. Last week I did a summary of it for Reddit. Oh, the hate for PCG Tony Kynaston: bet. Cameron: was, so, it was great. They had, Tony Kynaston: did Cameron: mean, there’s so much hate. Tony Kynaston: with Love? Cameron: I did, I called it Leading With Love. Yeah, yeah. Uh, and manslaughter. I, um, Tony Kynaston: What? Oh, so PC G’s part of the hive mind on Pluribus. Now they come Cameron: yeah, it is, Tony Kynaston: love. Cameron: they’re leading with love. Yeah. That should be the tagline for that show. Um, but, uh, yeah, and it was just h hilarious to me how much anger and hate came out, and I was like, Hmm. Tony Kynaston: Well, I’m Cameron: Sounds like a good investment. Tony Kynaston: I. Cameron: Well, but they weren’t talking about the manslaughter. They were just talking [00:01:00] about it being a dog of a company Tony Kynaston: okay. Cameron: and somebody was going on about how they diluted their shareholders when they had to pay for the fires. And I’m like, and why do I care? Like I’m, I’m looking at it post dilution, not, Tony Kynaston: Yeah. Cameron: doesn’t affect me as an investor today, what happened in 2019, or whatever it was. Anyway. I did have to sell something outta the US portfolio. This week I sold Vsat. It was a three point trend line sell, and I replaced it with the company. I’m doing a pulled pork on today. Korean Electric Power, Korea Electric Power, KEP. Kepco. One of the few times I’ve been able to actually do a pulled pork on a stock that is now in our portfolio. Because I actually had to sell something. Don’t tell me what happened to the share price for Vsat today because you just broke the Ex-Girlfriend rule on our Australian show, and uh, I don’t want you to do it again. So, uh. The kept story. I know you’ve got furniture being delivered, so I’m gonna [00:02:00] run through this one quickly today. Uh, another power company. So last week we did PCG. This is another power company, obviously based in Korea. If you hadn’t guessed from the name another regulated monopoly like last week’s show, but this time they’re regulated monopolies in entire country, not just parts of California. Although we know California’s pretty big. And just a heads up, KEP report their financials in Juan, KRW. Bit like posco, the steel slash energy company that we covered a while ago on a, an earlier episode, episode 12, I think I did. Posco. And they’re also a competitor to KEP as it turns out. But we’ll get into this, but when you look at the numbers in stock, EDIA, they’re all in one, so you need to do the conversion. Uh, one USD is about 1,465 KRW, uh, what was that TV show in the eighties? Um, about a radio [00:03:00] station in the us That was it. Not, not, not the Korean one. WKRP, not KRW. Okay. The current share price at the time I’m doing this for KEP is about $16 74. They’re listed on the New York Stock Exchange, so, uh, they’re known in Korea as ion I believe. What they actually do is, well, they’re basically the power grid for South Korea. Um, essentially they transmit, generate, transmit, and distribute electricity to almost every type of customer, from households to Samsung fabs, to shipyards, to farms. The entire market is what they look after the National Grid. They handle virtually a hundred percent of transmission and distribution. They have about six generation subsidiaries across coal, gas, nuclear, wind, solar, you name it. [00:04:00] They produce about 60 to 70% of the electricity. There’s a handful of companies, including Costco, that uh, also generate electricity. Poco. When we did the pulled pork on them, I mentioned as a steel company, but it turns out steel mills are effectively power plants in disguise. Tony Kynaston: Okay. Cameron: making steel requires an immense amount of heat and energy. And when you blast iron ore and furnaces to make steel, you produce byproduct gases, waste gas, which instead of venting the gas, they capture it and burn it in their own onsite power plants to generate electricity. And they became so good at it that they started building standalone power plants and selling electricity back into the grid. And I think they might even be the second largest, uh, generator of electricity now. In Korea after Kepp. But uh, back, back to kep. [00:05:00] They also sell power related services. They run it and maintenance businesses around the grid. They have a whole bucket load of overseas projects, including they own a couple of coal mines in Australia or have interest in one boutique coal that they’ve had for. 15 years and they bought another one by Long Coal Mine. But they own a bunch of stuff all over the world related to energy. But, uh, you know, last week’s show, PCG, we had great. Well, not great. Fascinating stories about manslaughter and, uh, terrorist attacks and all sorts of stuff. Just a good story behind the founding of this company. Uh, not directly related to Kepp, but worth telling anyway. ’cause I’ve found it fascinating. The company started life in 1898 as the sole electric company. It was a [00:06:00] royal project by King Gaji who brought together trams and electric lights into the capitol. He ruled Korea for 43 years, from 1864 to 1907, first as the last King of Joon, and then is the first emperor of the Korean Empire from 1897 until he was forced to abdicate by the Japanese in 1907. And his wife, queen Min, who posthumously honored as the Empress. Was even more powerful than he was apparently at the time of her death. She was this canny political player who was even more powerful than him, apparently, and was roundly hated in Korea by her, by his father, as well as the Japanese that were [00:07:00] ostensibly running the country at the time. And there was a conspiracy against her. One night agents were let into the palace by pro Japanese, Korean guards. Once inside, they beat and threatened the royal family and the occupants of the palace. As they were looking for her two women were killed mistaken for her. Um. Then they eventually located her, and I won’t give you the details, but it wasn’t nice what they did to her. She was assassinated by these Japanese agents and then her corpse was covered in oil and set fire to, so that’s how unpopular she was. She had Aly begun negotiations with the Russian Empire to align Korea with the Russians to play ’em off against the Japanese. Tony Kynaston: high. power prices. Cameron: No, I don’t think there was a lot of [00:08:00] power actually getting out to people at the time. Um. The king was first crowned in 1863 at the age of 12, and as I always say on my Roman Empire shows nothing works out better for a country than making a 12-year-old emperor. You can’t go wrong with that Tony Kynaston: Fox works well at your Cameron: Give, oh my God, nothing. Nothing could ever go wrong, giving complete power to, uh, a child. Never in history. Has that ever been a bad idea? So the Hung Song Electric Company, as it was known. Completed its first power plant in 1899. By the end of that year, they had launched their first streetcar service. They turned on the first electric lights in SO’S Jon, go Street, Jong yo Street, and then they continued to build a public lighting network and. Started offering electrical services to private homes. They even built a movie theater, which could be traveled [00:09:00] to by streetcar that went through downtown Seoul. And apparently it was, uh, a marketing ploy to promote the convenience of trains and attract tram passages over the 20th century. This basically morphed through nationalization and reorganization into Kepco. Modern corporation dates from 1961 and it’s always sort of been a political en enterprise. Really it’s all been about building a modern South Korea. It was run by Americans for decades until they were forced to sell it eventually to, uh, a Japanese company in the early part of the 20th century. But, uh, after World War ii, you know, America obviously was basically running South Korea for a very long time. After, well before the Korean War and during, and then after the Korean War. South Korean dictatorships were basically proxies for [00:10:00] the United States. Probably still are to a large degree, although no one would wanna say that publicly. Um, the Korean government invested a ton into it, even though it. But it floated on the Korean Stock Exchange in 1989 and then on the New York Stock Exchange in 1994. But it, it was like the Korean Development Bank and the National Pension Service. It was seen as one of the founding principles of the modern South Korea. Today the government owns just over 51% of kepco, but it’s a, a lot of what it does is still driven by government policy decisions, not just market forces. So that’s a good and a bad thing. It has a, essentially a monopoly that’s government protected, but also as we’ll see it in recent times, it has been bleeding cash. Largely because of government policies, fuel costs spiked after Russian’s invasion of Ukraine, but the government was [00:11:00] slow to let retail tariffs rise, so they were selling electricity at cost for a couple of years there, racked up huge losses and debts. Which the, uh, market didn’t react very positively to, but that did start to turn. So in 2023, they were allowed to do tariff increases, plus they had a policy swing back in favor of nuclear shorter maintenance outages. New reactors were coming online, and that’s driven a big rebound in profitability. Q3, 2025. They reported an operating profit of about 11 and a half trillion, one and net profit of around 7.3 trillion one for the first nine months. Uh uh can you quickly divide those by one and a half thousand, Tony? Tony Kynaston: sorry. Cameron: Okay. The credit rating with fit is now AA minus and gives it a stable outlook, so. They’ve had [00:12:00] a turnaround, but you know, there’s, there’s some issues there with the government’s level of control over it that I think the share market is, uh, being cautious about. But at the end of the day, their economic engine is pretty simple. They basically just sell a gigantic volume of generated electricity and regulated tariffs as long as they keep their operating costs under control. It should be easy money for a company like this. And, you know, they do generate a lot of cash and the uh, price to cash flow will blow your mind when I get to that in a second. But, like, like a good business, good, good sort of value investing business. It’s boring. Tony Kynaston: Mm, Cameron: It’s just like we did, like the PCG last week. All they’re doing is generating and selling energy. Tony Kynaston: try not to kill people. Cameron: Try not to kill people. Yes. And try not to have, yeah. [00:13:00] They’re leading with love and Korea. They’re going gangam style on Korean energy. It’s the only Korean reference I really know. Tony Kynaston: happy to see, happy to see this on the buy list when, when you said you were talking about it, because of that fact. It’s a, a regulated utility. It’s a great value stock. Cameron: Not just on the buy list, but at the top of the buy list, which is why I added it to our portfolio this week. Yeah, they’ve got a monopoly status, so the, but as I said, good and bad can come with this level of government control that they have. But they’ve got a, a quite a large nuclear fleet, which has some structural advantage versus pure fossil fuels. The government has a 2038 plan, which explicitly increases nuclear share of the mix and slashes coal. And as we know, I mean, I dunno really what South Korea’s doing from an AI perspective and generating electricity for AI data centers, but I’m sure they’re [00:14:00] doing something. I’m sure Samsung has got a major robotics and AI plan. Uh, as long, I know that from looking at what China is doing in robotics and ai, that the car companies like Tesla is in the us, the Chinese car companies are all over robotics and ai. I’m sure the. South Korean car and technology companies aren’t being left behind in that space as well. So these guys will probably have to provide all of the electricity and power to all of the robot and AI farms that’ll get built in South Korea in the next 10 years. Tony Kynaston: Which is the Cameron: Uh, Tony Kynaston: typical sale picks and shovels in a gold brush scenario, isn’t it? Cameron: exactly. Yeah. Who cares which AI company wins? Uh, as long as you are. Yeah, as long as you are providing the electricity for all of them. But the market is still discounting it and, and possibly for good reasons. Uh, investors are looking at recent losses. You know, they could be worried about tariff, [00:15:00] populism, they could be worrying about the W and its weaknesses. They can see climate and transition risk from coal to gas assets. That may need to be retired early, et cetera, et cetera, et cetera. Climate, there are some climate lawsuits against kepco farmers and youth groups are apparently suing them over climate related crop damage and climate related impacts on quality of life and all of that kind of stuff. So it may be a liability wedge moving forwards. Uh, but you know, we don’t try and forecast the future. Our job is to look at the numbers and let me take you through the numbers. Are you sitting down price to operate in cash flow? 1.52. Tony. Tony Kynaston: Fantastic. Cameron: You are paying about one and a half dollars of market cap for every dollar of operating cash flow for a, for a regulated monopoly in South Korea. So I mean, either the market [00:16:00] thinks that this level of cash flow is unsustainable high, or it’s heavily discounting political and transition risk. Tony Kynaston: well, as we spoke about on the Australian show, it could, This company may have some big CapEx requirements coming up too. So the cash may need to be used. It’s building nuclear power plants, almost certainly, but um, at the moment, throwing off lots of cash. Cameron: Yeah, the Petrovsky F score is eight out of nine. Tony Kynaston: Hmm. Cameron: Which is one of the highest, I think, or the highest, equal, highest we’ve ever seen. It’s ticking nearly every financial health improvement box right now. Margins improving leverage, stabilizing cash flow strengthening after a period of pain, so you know, at least the F score. Believes that Kepco is a healthy recovering business, not a zombie utility. Somebody, uh, in Reddit, when I response to the PCG said, utilities [00:17:00] never compound. Tony Kynaston: Utilities never come. What does that mean? They don’t grow. Cameron: I guess you’re not gonna get double bagger out of utilities or something, but like, yeah, whatever dude, Tony Kynaston: Okay. They kind of do, and if you Cameron: somebody said. Somebody said, uh, this is a stock I’m more likely to short than buy. I was like, well, why don’t you do that? And we’ll compare notes in a couple of years. I don’t know. Look, looking at, um, the pulled porks that we, that I’ve done for the US show in the last year, uh, we’ve got about a 60% success rate on them. 40% have gone down since I did the pulled pork. 60% have gone up, Tony Kynaston: Mm-hmm. Cameron: which is, you know. Tony Kynaston: It’s Cameron: The sort of run rate that we look for you, Tony Kynaston: Warren’s Cameron: you know, Tony Kynaston: It’s my long-term average. Yeah. Cameron: not all of them are gonna be winners and I dunno, the PCG will be, I dunno that this will be, but you know, we se we sell the ones that break our cell rules and we hold the ones that continue to [00:18:00] do well. Uh, book value, uh, equity per share when I break it down into US dollars is about $25 11, and book plus 30 would be $32 64. Um, the current share price, as I said, is about $16 74. Tony Kynaston: we can buy it for half a book. That’s Cameron: 1.5 Price to price to operating cash flow and half book, uh, 0.67 times book. So deep value territory? Tony Kynaston: So that I, I, it is wonder, I am wondering whether that means the assets need replacing. Cameron: Yeah. Quite possibly. Yeah. It’s above, well, like our IV one is $4 33, our IV two is $5 eight, so it’s well above those. But, uh, looking at the rest of the [00:19:00] numbers, So it had a QAV score of 0.56, which is why it was at the top of the list. Average daily trade’s about 7.6 million. Pr/OpCaf we’ve talked about. Quality rank is 50 in stock Edia, so it doesn’t score for that. Stock rank is, uh, gets a score. It’s above 90. Uh, I don’t have, I’ll get to it later. F score, as I said, is an eight, so it scores for that. Um, and, uh, what else? Uh, prices not less than IV one, not less than Iiv two does get the book, doesn’t have a new point. Upturn, um, Tony Kynaston: What’s its Cameron: book value growth isn’t positive, not great. Yield’s low. The yield is like, yeah, they’re not paying a huge dividend. I guess they’re. Investing it back into the business. I assume I do have some notes on the yield here. Yield TTM is 0.43%, basically nothing. Tony Kynaston: Wow. Cameron: They have been more generous in the [00:20:00] past, but they’ve just come through these crisis years. So they slashed or suspended dividends to conserve cash and appease regulators who didn’t want them paying large dividends while households were angry about tariffs or something. I guess. So that may come back in the future. We’ll see. Tony Kynaston: Yeah. And by tariffs you mean prices? prices, not tariffs between countries. Cameron: No. Yeah. Uh, you know, the regulated electricity prices that they have there. So all in all, uh, they actually would’ve got a 10 outta 13 once I accommodated for the. Um, difference between the one and the US dollar. They got an 11 when I did it, but I had to adjust it. It’s about an 80% quality score on our scoring and, uh, yeah, a really strong QAV score. So, uh, that is, stock rank is [00:21:00] 95, by the way. Um, that is. Korean electric power and I have added them to our portfolio. So let’s see how they go. Tony Kynaston: good. And you know, as we spoke about in the Australian show, there’s mean these are kind of, um, these utilities, even though they might not compound, um, like a growth stock, they’re, you know, wait until there’s a downturn in the market. And nobody turns their light bulbs off, they still keep needing electricity and this stock will just keep chugging away. So in the long term it is, you know, these businesses are stable and they throw off lots of cash, which can not in this case immediately ’cause they were, have regulatory problems, but eventually will lead to high dividends or buybacks. And so, um, people will benefit from that point of view. Cameron: At the end of the day, I just look at it as a company that’s generating a ton of cash that you can buy for nothing. So it’s a lay down Mabb [00:22:00] air from my perspective. And Tony Kynaston: Agreed. Cameron: if it goes belly up, it goes, like if things go badly for it in the future, we sell it and buy something else like, but based on the numbers that it has today, it’s a no brainer. Tony Kynaston: time, isn’t it? Good time to buy? Cameron: Well for us, but I guarantee you when I post this to Reddit, everyone will be just be, you know, furiously angry at, uh, why it’s such a bad idea and why they should be buying Google. Somebody with the PCG one, somebody said, I think Google is overpriced, but I’d double down on Google before I’d buy this dog. Like, yeah, go for it, son. Tony Kynaston: makes Cameron: Good luck with that. Tony Kynaston: more. Cameron: By the way, Google is like Google’s AI stuff that’s come out with this week is insane. Um, I’ll show you something in a minute. Um, off air before you go, before your furniture turns up. But, uh, yeah. Anyway, uh, that is QAV America for this week, Tony. Tony Kynaston: [00:23:00] cam. That was good. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information [00:24:00] about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited [00:25:00] (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Here’s an update on the performance of the other stocks we’ve done as a pulled pork (deep dive) since the start of the show. Average return so far is 44%. 

Nov 29, 2025

25m
19

PCG – PG&E: Leading With Love – QAV America #28

Episode Overview This episode dives into Pacific Gas & Electric (NYSE: PCG) and its strange mix of monopoly power, criminal convictions, billions in liabilities, climate exposure, and a CEO who says she’s “leading with love.” Cameron takes us through PG&E’s century-old origins, deadly infrastructure failures like the Camp Fire manslaughter convictions, the bizarre history of repeat explosions and corruption, and the unusual financial structure that keeps the company alive despite $58B in debt. Tony questions whether a guaranteed utility should even be privately owned, compares it to safer options like Berkshire Hathaway’s utilities, and wonders why we’d touch a business known for burning down half a state. Despite the horrors, PG&E lands on the QAV buy list due to cheap cashflow valuation, a protected regulated monopoly, and a massive turnaround driven by mandated wildfire-prevention spending and government-backed debt. Timestamps 00:00–02:00 US Portfolio performance update General markets02:00–03:30 MODG rises after last week’s pick MODG (TopGolf Callaway)03:30–04:30 Recent picks performance rundown 05:30–06:30 AU market outperforming “trash” theme Australian context06:30–41:00 Feature Deep Dive: Pacific Gas & Electric PCG41:00–47:00 After-hours: Stalker, House of Guinness, Slow Horses Transcription   Cameron: Welcome back to QAV America. Tony, I would ask how you’re doing, but I know because we just did our Australian podcast and you’re doing great. Let me answer that question for you. Tony Kynaston: I’m doing great. My portfolio is doing great. Everything’s great. Cameron: Everything’s great. Our US portfolio, Tony, I’m just bringing it up on the screen here all time. So it’s been running since, uh, September, 2023 is up 55% versus the benchmark I use the s and p 500, which is up 50%. So we’re doing 10% better than the benchmark, 55% over. A little more than two years. It’s not bad. Pretty happy with that. Tony Kynaston: I agree. Cameron: Pretty good. Tony Kynaston: We normally say it’s up 5% though, so usually you take one away from the other rather than make a percentage of a percentage. Cameron: [00:01:00] Okay. Tony Kynaston: better, but Cameron: But if we’re saying double market, then that’s a hundred percent. Isn’t that? How do you say that? If we’re saying double market. Tony Kynaston: Well, double market’s just double market. Cameron: It is double Tony Kynaston: market. Yeah. Cameron: twice as good. Okay. Um, some of the, uh. Tony Kynaston: raise that with me and said, are we better off saying we do five to 10% better than the market? ’cause in Australia, I guess in the US as well, the long term’s, about 10%. So, um, I said, yes, if the market does 10%, it’s right. But if it’s doing, if it’s up as in the America, America, it’s, um, it’s wrong. Cameron: Yeah. Right. Tony Kynaston: Mm-hmm. Cameron: Some of the, uh, just looking at the last, uh, let’s say the last 30 days in our portfolio, our portfolio is beating the index in the last 30 days. Uh, not by a huge amount, but by, well actually I guess judging by [00:02:00] the way you are rating it, s and p is up 0.13% in the last 30 days. Our portfolio is up 0.61%, so that’s five. Five times better. That’s what I was gonna say. Yeah. Uh, the, Tony Kynaston: I like the core skill of marketing. Okay. It’s great. Cameron: yeah. Uh, unfortunately stocked doesn’t tell me how the individual stocks have performed in a 30 day period. It just gives me it from the get go. But, uh, I did want to just look at our, uh. Performance of some of the other stocks that we’ve, uh, talked about over the, uh, last six months or so. We’ve been doing the show, see how they’re all doing. You’ll be happy to know that the company that we talked about last week, top Golf, Callaway Brands, [00:03:00] M-O-D-G-A-K-A, modern golfers up 3% since we talked about it. Tony Kynaston: fantastic. Cameron: Um, some of the others aren’t. Tony Kynaston: little putt, Cameron: Yeah, that was us. That was all our putt. Yeah, that was, that was all our putt. Yeah. Tony Kynaston: another Cameron: IS Tony Kynaston: that I can get excited about? Do you have a Cameron: uh, no, I’ve got some horrifying, horrible stories to talk about this week, but, uh, it should be fun. I wanna admit, I saw a video the other day yesterday of a golf robot that got a hole in one. Have you seen that? Tony Kynaston: No. Cameron: I thought that’s the next evolution. I know for your 60th birthday, we got you a robot, uh, caddy. Tony Kynaston: Catty. Cameron: Uh, we’re gonna get you a golf robot for your 70th birthday. You don’t have to do anything now. You just go out there, plays golf for you. It’ll be fantastic. You’ll love it. Uh, so American Airlines we talked about a couple of weeks ago, it’s down 10%. Um, American Axle is down 1%. Cal [00:04:00] Main Foods is down seven. Community health is stable. Methodex is down 10. Um, Titan Machinery is down 19. But outside of that, we’ve got quite a few winners. Uh, Chemex is up 77% Canadian. Imperial Bank is up 36. Zep Health Corporation, which somebody on Reddit said was a Chinese fake stock is up 705% since we talked about it. The average of all the companies that we’ve been covering in our deep dive segment since March, their average is a 37% return on them, uh, over the course of that period. So they’re not all winners. There’s, there’s about 30% are actually down now, the rest of winners, but the US market. Interesting and challenging this year. It’s funny, we just did, in our Australian show, we talked about an analyst from Macquarie Bank saying all the companies that are doing well in Australia are the [00:05:00] trash. It’s been a dash for trash, but our portfolio’s going great. Guns in Australia, and they’re all good value stocks generating a lot of cash. Tony Kynaston: Yeah, Cameron: the same sort of stocks that we’ve had in the US not doing as well in the us um, because the market over there, well, not as well as they’re doing here. Yeah. Okay. Yeah. But the Australian portfolio is up about, what’d I say? It’s up 40, 37% this year or something. Tony Kynaston: I think you said? Yeah. Cameron: Oh yeah, no, that was in the last six months. 26% In the last six months. It’s up like 37% this calendar year. It’s crazy. But the company that I’m gonna talk about today, Tony is Pacific Gas and Electric Company. Did you watch the Electric Company in the seventies? Tony Kynaston: Yeah, Cameron: That was a great show, wasn’t it? Tony Kynaston: first went to. Cameron: Before it was like Sesame Street. We’d on here in Australia, we’d have Sesame Street and sometimes the electric company would be on [00:06:00] instead of it or after it. Um, I dunno what happened to that show, but I remember loving it as a kid. Dunno anything about it though. I don’t. Was it a Henson show? Don’t even know. Tony Kynaston: a Henson show. Yeah, Cameron: Was it? It was. Tony Kynaston: I think so. Yeah. Cameron: But this is not that, that, uh, electric company, this is, uh, their ticker code is PCG. They’re, they go by pg and e and, uh, wow. What a story. What a story. Tony Kynaston: Electricity is brought to you by the letters P, g and Cameron: C and g. Yeah. Oh man. This is, uh, one of the oldest and largest utility companies in the United States. They supply electricity and natural gas to roughly 5.2 million households or 16 million people across northern and central California. Their job is basically to keep the lights on and the gas flowing. They operate one of the, Tony Kynaston: can I interrupt there? Cameron: yeah. Tony Kynaston: So it’s one of the largest gas and electric companies that [00:07:00] supplies how many people? 16 million. Cameron: Yeah, that’s it. Tony Kynaston: That’s it. Are there a lot of fragmented utilities in America? Are there Cameron: I guess there must be, and there one, there’s like five or six big ones just in California alone, but the, the area that they cover is quite large and quite complex. It’s like northern and central California. So I don’t think it’s like, it’s not, uh, la it’s like sort of more regional parts of California. Um, they operate one of the most complex and climate exposed power grids in the world. 70,000 square miles of mountains, forests, farmland, and dense urban centers. But what makes them most unusual is they are the only major American power company. That has been criminally convicted of manslaughter, forced [00:08:00] through multiple bankruptcies and publicly blamed for catastrophic wildfires and wow. And that’s just the tip of the iceberg, the scandals that they have been through over the years. It’s, uh, man, you could make a whole Netflix series over these guys. Uh, and I’ll tell you about a couple of them just for the salacious fun of it. In 2018 and 2019 investigations by the California Department of Forestry and Fire Protection, AKA Cal Fire found the company’s infrastructure primarily responsible for causing two separate devastating wildfires in California, including the 2018 campfire. The deadliest wildfire in California history caused 85 fatalities, displaced more than 50,000 people destroyed more than. 18,000 structures and caused an estimated 16 [00:09:00] and a half billion dollars in damage. And because California holds utilities financially responsible for any fires caused by their equipment, even if maintenance was properly done, there was a $30 billion liability. That the company was facing and they declared Chapter 11 bankruptcy in 2019. They made a settlement offer of 13 and a half billion to the wildfire victims, and, uh, they pled guilty to 84 counts of involuntary manslaughter. Tony Kynaston: You were saying before about the US at the heart of the US as lawyers and at the heart of China as engineers, Cameron: Hmm. In China, they would’ve just shrugged and said, get back to it. Tony Kynaston: not Cameron: Build more. No, it’s just build more electricity grid. You gotta break a few [00:10:00] eggs. Um. The campfire was caused by the failure of a single metal hook attached to a pg and e transmission tower on the company’s Caribou Palermo transition line transmission line, which carried power from hydroelectric facilities in the Sierra Nevada to the Bay Area Towers a little under a hundred feet. 30 meters tall was built on a steep incline on a ridge above Highway 70 in the North folk, north Fork, sorry, feather River near the community of Ger. The. Tower had two arms each, each with a hook hanging from a hole in a long piece of metal. The hook held up a string of electrical insulators. The transmission power lines were suspended from these insulators away from the steel tower itself, so as to prevent electricity arcing between them. One of the hooks on the tower about three inches and one inch in diameter. [00:11:00] Had been worn down by rubbing against the metal plate that it hung from, to the point where only a few millimeters of metal remained. Dunno why Wikipedia, where I’m getting this from is switching between inches and millimeters. That’s confusing for Americans, but yeah, however many tens of an inch that is. Um. At 6:15 AM on November 8th, the pg e control center in Vacaville recorded an outage on the company’s transmission line in the Feather River Canyon. The hook had snapped. Under the weight of the power line, an insulator string that it supported, which weighed more than 142 pounds, 64 kilos, no longer held up. The energized power line struck the transmission tower. This created an electric arc between the power line and the tower, which reached temperatures estimated at 5,000 to 10,000 degrees Fahrenheit, which is for the rest of the world. [00:12:00] 2,800 to 5,500 degrees Celsius and melted metal components of the conductor in the tower. The molten metal fell into the brush beneath the tower setting at a light. The fire burned for two weeks and was contained Sunday, November 25th after burning 153,336 acres. Tony Kynaston: Well, I guess you’ve gotta question design of that whole system. If it’s, you know, if it’s from catastrophic failure by a three inch hook, you, you know, might have worked for a long time, but it’s got a weak point, hasn’t it really as Cameron: job needs to be to go check the hooks. Yeah. Tony Kynaston: Well just, well come up with a different solution. Cameron: Well they have, and I’m happy that you suggested that. I’ll talk about it. Um, all good though. The CEO at the time was a lady by the name of Geisha Williams. She left and [00:13:00] was replaced eventually by another woman, and I’ll talk about her a little bit, little, a little bit later on. But I watched an interview with her where she said she is leading with love. That’s her whole philosophy is leading with love. So that’s good. I like that tr try to kill less people. We’re leading with love. We’ve decided that business model. Yeah, we’re changing things. I’m turning it around. Um. Tony Kynaston: called LWL, electricity Cameron: Leading with love. Yeah, that’s nice. Look, you and I are all for women running things. Your wife is a former corporate CEO, senior executive. We’re all about more women in positions of power. Tony Kynaston: Absolutely. Cameron: Hopefully they don’t kill 18,000 people. But you know, same thing probably would’ve happened if a guy was running it. Uh, pg e’s founding [00:14:00] goes back to 1905 when a group of California hydroelectric pioneers merged their operations. They were classic west coast industrialists mining engineers, early power entrepreneurs, dam builders who wanted to electrify San Francisco and the surrounding valleys. Think Chinatown, Jack Nicholson, but instead of orange. Groves, it’s, there was a lot of actually water in that too, wasn’t there? There was like Tony Kynaston: water. Cameron: redistributing the water and, yeah, that’s right. Mm-hmm. Mm-hmm. Tony Kynaston: No. Was it making water? Getting water to the orange farmers or getting it away from it? I can’t remember. Yeah. Cameron: Yeah. Yeah, I think it was property development. They were trying to get it into the areas where they were gonna r Tony Kynaston: You are right. Yeah. Cameron: the land to build big residential areas. The company grew as the gold rush towns and farming belts boomed, [00:15:00] stringing wires across vast distances where no one else bothered. Then it grew into a regulated monopoly. Built nuclear plants survived a major corruption scandal in the 1990s involving illegal back channel lobbying, which I’ll talk about a little bit later on. Uh, the 2010 San Bruno Gas Pipeline explosion killed eight people triggering criminal cases and hundreds of millions of dollars in fines. Um, they have had a story to tell. I, I’ve, Tony Kynaston: I’m Cameron: I think I’ve got, Tony Kynaston: after this cam. I feel very uncomfortable talking about this misfortune of people. Cameron: yes. It’s terrible. And, you know, I’ve done a lot of pulled porks on these American companies with really. Dirty, murky, horrible backstories, but they’re turning up on our buy list partially because of these things. I think they’re like PR nightmares and potentially lots of potential future exposure to more of these sorts of issues as well. I, [00:16:00] I think they’re discounted the CEOs. This, as I said, uh, the current CEO is a woman called Patty Poppy, which is a great name. Poppy is the first. Tony Kynaston: Patty Poppy, leading with love. Cameron: Poppy. Tony Kynaston: That sounds like Cameron: Uh, Tony Kynaston: Christian albums from the sixties. Cameron: well, I was gonna say she sounds like, uh, Tony Kynaston: she plays the Cameron: um. Like an r and b singer from the sixties, you know, Patty Poppy, and, uh, with a, you know, my baby loves me, sort of, uh, you know, r and b hit Poppy is the first female executive to serve as the CEO of one Fortune 500 company and then become the CEO of another Fortune 500 company. She was formerly the president and CEO of CMS Energy. From 2016 to 2020, and then she left to become pg ECEO in 2021. And as I said, she talks about leading with love. And, um, yeah, I, I watched this interview with her. It was very interesting. [00:17:00] Uh, the new chief commercial officer just announced this week is also a woman. Uh, shell, Izzy is the, um, chief Commercial Officer. She’s a clean energy pioneer. She ran a clean energy. Startup and a few other things before this. But she said, uh, well, the company said in her announcement that her job is basically to work with all of the AI data centers in that part of California that are trying to suck up all of the energy and figure out how to supply them without everyone else having to suffer and paying higher prices, et cetera, et cetera. But the campfire from 2018 is just one of the horrors this company’s been through. Um, uh, in. On April 16th, 2013, a team of gunmen opened fire on the Metcalf Transmission substation in Coyote, California. The attack damaged 17 high voltage transformers caused more than $15 million in damage. They also cut fiber optic [00:18:00] telecommunications cable, owned by at and t, pg and e, and at and t offered a $250,000 reward for anyone who had information leading to the arrest of the culprits. But they were never found. It was like some sort of an attack on their infrastructure and. Tony Kynaston: Mayhem? Cameron: Yes. That’s what it sounds like, right? Yeah. Project Mayhem. Uh, his name was, what was his name? His name was, no, no, no. When, when, um, meatloaf gets killed in it. Yeah. They’re like, he had a name. His name was something, I can’t remember what his name was. Um, the, the explosion I mentioned, um, briefly before in 2010 in San Bruno, um, a suburb of San Francisco was damaged when one of their natural gas pipelines that was at least 54 years old, 30 inches in [00:19:00] diameter, located under a street intersection in a residential area exploded. Sending a 28 foot section of pipe Tony Kynaston: Oh. Cameron: weighing 3000 pounds. Flying through the air, the. This is before the love. They weren’t leading with love. They were leading with explosions. Back then, Tony, uh, the blast created a crater at the epicenter and killed eight people, injured nearly five dozen more while destroying about a hundred homes. In 2016, they had the ghost ship Warehouse fire in Fruit Vale Oakland, California. Fire broke out in a former warehouse that had been illegally converted into an artist collective with living spaces known as Ghost Ship. 80 to a hundred people were at an event in the space and 36 were killed. The plaintiffs claim that the fire was caused by an electrical malfunction. in [00:20:00] 2020, pg e settled a civil lawsuit for 32 of the victims out of the 36 who perished in the fire. I could go on lots and lots of juicy, juicy scandals over the years. I mean, it’s like, it’s just one of these businesses. There’s, in Wikipedia, it’s just got page after page after page of horrible, horrible stories. Anyway. Where it is today is has its electricity operations, which is about three quarters of the revenue and the gas operations, which is the rest, and. They’re doing a lot actually to work on avoiding more disasters. They’re pouring enormous amounts of money and they have an enormous amount of debt, but they’re pouring enormous amounts of money into grid hardening. They’re burying thousands of kilometers of power lines expanding automated fire risk monitoring systems, [00:21:00] shifting parts of the network to microgrids and remote shutoffs. So they’re doing a lot of work to try and, you know, de-risk the business, I guess, which is interesting. But, uh, you know, it’s costing tens of billions of dollars to do this. But I guess when you get, have to go into bankruptcy because you owe $30 billion in, uh, damages, uh, then investing to prevent more of those from happening. And of course, as we know, uh. Despite what the Trump administration will tell you, climate climate’s getting hotter, California’s gonna be getting hotter. The the risks for of fires I imagine are increasing in California and uh, it’s gonna be more expensive to ensure things your liability risk is gonna go up. Um, so I’m sure Gavin Newsom and the Californian government, uh. Gonna [00:22:00] make it harder and harder for these companies to, uh, you know, uh, uh, uh, get away with this sort of stuff. Make sure that they’re cracking down on them even further. But they, they’re an interesting business because they have a regulated rate base, uh, uh, uh, unlike Australia, well, at least I don’t think it works that way here. Uh. In the us if you build infrastructure that gets approved by the regulators, you get a guaranteed return on that asset. You’re ex power company. Do we have regulated, well, I know it was Shell, but do you do, do we have, do we have regulated guaranteed returns for Tony Kynaston: No, Cameron: in Australia? Tony Kynaston: no, they, they do Cameron: It’s, Tony Kynaston: to approve price increases and the like, but no, there’s no guaranteed return Cameron: well, you know, as. Tony Kynaston: of anyway. Cameron: America’s a much more socialist country than Australia, Tony, when it comes to these things. Tony Kynaston: Yeah. Cameron: No, this is in the us. I [00:23:00] don’t think this is just California. I think this is across the us. Um, so the bigger the rate base, the bigger the allowed profit pool. This is how all US utilities, US utilities work as far as I’m aware, but their rate base is exploding because of mandated wildfire hardening projects. They’re undertaking massive CapEx to convert all of these lines and push them underground. And a, a case study I came across said that putting them all underground could reduce wildfire ignition risk by up to 98% compared with overhead lines. So it’s a, it’s a big deal. Tony Kynaston: Yep. Still not a hundred though, is it? Cameron: It’s what? Tony Kynaston: It’s still Cameron: Not a hundred? No, it’s still not a hundred percent, no. Yeah. Um, they’re also spending a fortune on improving weather monitoring analytics systems and integrating weather models into operations. So they’re, I think when things are gonna get hot, they’re [00:24:00] turning power off in certain areas to further reduce the risk and. Upsetting people, but they’re like, oh, we gotta turn the grid off here. Or downscale the amount of power that’s a available, but there’s this thing called the California Wildfire Insurance Fund. The CWF that was established in 2019 to cover certain utility caused wildfires participating, investor owned utilities, which include. PG e contribute capital and are eligible for loss reimbursement when a covered wildfire is determined. The fund currently has a design capacity of $21 billion and has been expanded for future years while the wildfire continuation account, so it’s sort of a, a, a. A cushion for pg and e and the other utilities. If there’s a utility ignited fire that causes large losses. They have their own insurance fund, I guess, so it’s. Tony Kynaston: the, the energy companies or contributed by the government [00:25:00] the, the rate post. Cameron: No, as far as I’m aware, it’s the investor owned utilities that contributed capital to it, so they created their own fund, but they do get, they are getting cheap loans from the government to do a lot of the work that they’re doing as well. Which I’ll get into when I get into the debt story in a section in a, in a second. But the interesting thing about them as a business, as I said before, is they kind of have, um, a moat, I guess, on this footprint. No one, no one can compete in this footprint that they’ve got. They, it’s their man. Well, yeah, that’s a good question. Yeah. But their monopoly is legally protected Tony Kynaston: Right. Cameron: now. I, I don’t know about how solar power plays into that. Like if I don’t know what the solar power penetration is in California, I, I know in Australia it’s insanely high now. I read an article a week or so ago, [00:26:00] I think in the financial review here, saying that there was one point last week or last month when. Uh, solar power and wind contributed more energy into the Australian grid than traditional, uh, sources of energy did. Tony Kynaston: Yeah. Which causes all kinds of problems, of course, because you know, you’re trying to make a, make a base load. Power station still work and. guess work profitably and then it’s being flooded by solar. Cameron: Yeah. Tony Kynaston: by solar. Yeah. It’s hard. Cameron: Yeah. Yeah. Hard for the businesses. Yeah. And the people running the grids. Tony Kynaston: Well, I was gonna say people running the grids too, just trying to balance everything out. ’cause you, Cameron: Yeah. Tony Kynaston: like, you can’t just flick a switch in a, in a power station and shut off the turbines. They, they get taken out over a long periods of time and then if they’re needed, quickly, Cameron: Yeah, Tony Kynaston: of time to get them back up to, to speed again. Cameron: yeah. So, um. [00:27:00] Yeah, so it’s legally protected. So they’ve got a, they’ve got a moat there, but, and they’ve also got, uh, uh, I mean, they’ve got a political moat as well. The state needs pg and e. They need them alive. They, they need to be providing power to this part of California. Someone has to run a system across all of these fire prone regions, but it also comes with risks, but they’re trying to de-risk it, as I said. Uh, it, it is quite cheap, and I’ll go through the numbers shortly. How much time have we got? A few more minutes. The boring reality is they’ve had a lot of, uh, really tragic instances, but they’re slowly de-risking themselves. But the market doesn’t really seem to be factoring that in, you know, they’re, the market’s more, I think risk prone when it comes to looking at pg e, they’re sort of mid turnaround. As I said, they’ve got a ton of ton of debt, but, uh, if they could pull this off, they can keep their cash flows [00:28:00] up and stop having. Major disasters that they have to pay for. Then long term, it could be a, a healthier business, let’s say, than it has been in the last 10 years. Although there’s also EV adoption too, which is another thing that, um, my notes pulled up as well. California’s pushing for grid expansion to support EV adoption and renewable energy mandates, which also plays into their business model quite well, you know. So they carry a huge pile of debt. Um, I’ll just open their, uh, page on stock Edia again, so I can have those numbers in front of me. Tony Kynaston: Keep giving Proctor and Gamble when I’d go on encyclopedia and put in pg Cameron: Ah, Tony Kynaston: PCG. Cameron: right. Uh, net total revenue [00:29:00] TDM is 24.7 billion. Operating profit TTM is four and a half billion net profit, 2.7 billion, net debt, 58.9 billion. Tony Kynaston: Oh, Cameron: Yeah, net fixed assets, 123.8 billion. Book value, 30.4 billion, but it’s a ton of debt. Big, big debt. But as I said it, it comes from a variety of, uh, sources and it’s structured in quite an interesting way. It’s not normal corporate leverage. Like you look at that on the surface and you go, well, $59 billion worth of debt. That’s insane. But it’s a Frankenstein mix of high risk bonds and state engineered cheap loans Tony Kynaston: Right. Cameron: designed to keep the utility alive. Tony Kynaston: Mm-hmm. Cameron: They’ve got some traditional corporate debt, which still attracts. High interest rates because investors remember the bankruptcies and [00:30:00] what a factor in another potential billion dollar wildfire. But the cheap stuff sits in what are called recovery bonds that California allows them to issue. They’re not repaid by pg and e, but by automatic surcharges on customer bills. Tony Kynaston: The customer pays, Cameron: The customer pays Tony, Tony Kynaston: so, so it’s a tariff. Cameron: I guess. Yeah, and you know, we know tariffs don’t put up prices. Uh, Donald Trump has assured us of that, so it’s all good. Tony Kynaston: way to do it. Cameron: It’s all good. I guess they’re saying, listen, you want electricity, so you, someone’s gotta pay for us to, you know, run, keep running the business. You want the electricity, you’re not getting it from anywhere else. We’ve got a, we’ve got a mandated guarantee. Tony Kynaston: government just go and Cameron: I, Tony Kynaston: PG out of, uh, when it filed for chapter five for chapter 11? And [00:31:00] then there’s no profit margin and rate pays are Cameron: well. I keep telling you that the Australian government should just buy all of our mining companies and aren’t paying any tax. You tell me we can’t do that. Tony Kynaston: we can do that. Can do it if we like. I think a better solution in terms of the Australian Mining industries is to charge them 1% royalty and what they dig out of the ground and then put that into a future fund. Um, Cameron: do that? Isn’t that how we funded the Future Fund? Tony Kynaston: no, the Future Fund was funded by the sale of Telstra. Cameron: Oh yeah, that’s right. Yeah. Tony Kynaston: And in fact, I think that Telstra was sold off after it was found liable for the Black Friday bush fires. Uh, and had to spend a lot of money going through and fireproofing its network. Similar sort of story. They, um, Cameron: Really Tony Kynaston: dunno if, if you drive through a street, certainly down in Victoria where the bush fires happened, you’ll see all the trees are half cut off. ’cause they have to keep a certain distance away from the, Cameron: right. Tony Kynaston: power lights. Yeah. Cameron: Power [00:32:00] lines. I think Kevin Rudd, our prime minister in the 2000, late two thousands tried to use a mining tax to fund something and Tony Kynaston: well, he, well, Cameron: he. Tony Kynaston: she took over when? Yeah. During her whole kerfuffle. Yeah. Cameron: Yeah, I think he tried to do it, then he got kicked out, then she did it and she got kicked out and he came back and then he got kicked out. And yeah, Tony Kynaston: Yeah. Cameron: any who back to pg and e. So they look wildly leveraged on paper, but, uh, a fairly large slice of that is low risk, low interest, almost like a municipal debt. Um. It’s sort of, there’s some sort of state mandated true ups to guarantee repayment, sort of, it’s basically backed by the state rather than the company, which softens some of the financial risk, even though their operational and political risks, you know, remain high until this whole de-risk of re deification, I guess has happened. Um, quickly just running [00:33:00] through the numbers. Um. Uh, some of the key ones for us is the price to operating cash flow is 4.21, so four years roughly to get back your investment. It’s, uh, you know, relatively short timeframe, but, uh, that is probably the only really good number I have for them. I’ll, I’ll go through all of the numbers, um, so you can see where it stands. Let me open this window up a bit more. It doesn’t score great on our system, but it scores well enough to be on our buy list. The QAV score is 0.12, so it’s fairly low down on our buy list. But again, I picked it this week just because it was a terrific story. I actually, I actually have a, you know, there’s a hundred plus stocks on our buy list every week in the US buy list, and I, what I do now is I just give them all to ChatGPT. I say, pick me. Pick me one of these. That’s gonna be a [00:34:00] good, that’s got a good story to tell and let it do the work. ’cause I used to have to go through them one at a time. ’cause I dunno, most of these companies and it’s like, oh, shipping company, shipping company, shipping company, financial services company, shipping company, financial. And no, I was just give it to GPT and I said, oh yeah, you want a good story, pick this one. And it was not wrong, I gotta say, um, Tony Kynaston: I have to Cameron: so. Tony Kynaston: Australian show. Cameron: Yeah, just pick one for me. Average daily trade is $400 million. Um, now the, the stocked numbers not great quality rank is a 21. We only give it a score if it’s 60 or above, so it didn’t score for that. Stock rank is a 36. We only score for a 90 or above. F score is a four. We only score for 4.5, so it’s sort of little bit less than that. Middle of the road, uh, doesn’t score for our IV number one, our IV number one, our intrinsic value. Number one is a six point is $6 90, sorry. And the share price when I did it was [00:35:00] $16 49. Our intrinsic value. Number two, our future looking intrinsic value is 14.8, so it’s below that. Uh, sorry, it’s above that as well. $16 49. The share price, the book. Price is, uh, $13 70. So the share price is above that and we can’t score for it. But book plus 30 is $17 80, so it did score for book plus 30. Um, it’s got a positive uptrend, but not a new upturn. Um, PE is, um, not less than the yield. Yield is. Not greater than the bank debt. Forecast of IV is not greater than twice the share price. So it got a quality score, a, a QAV quality score of only 50%. And as I said, the QAV score is quite low, 0.12. So look, not the best, most compelling stock that I’ve seen on our buy list, but it does [00:36:00] have, as I said, it’s basically got a guaranteed income stream. Which is unusual and it’s quite cheap in terms of, you know, the price to cash flow anyway. And even the price to book is, it’s, it’s above book. Price is above book, but not by much. It’s like 20% above book, which is relatively reasonable for a company with guaranteed income, guaranteed cash flow anyway. Um, Tony Kynaston: We Cameron: and some, Tony Kynaston: proxy in Australia for, for those kinds of businesses. So it’s. Got of a guaranteed cash flow, paying, throwing off a, you know, certain dividend coupon. Cameron: With huge risks, but then it’s got this, this fund that’s gonna ameliorate some of that. Obviously the state needs it to exist. It’s gone through bankruptcy. Once Tony Kynaston: So the fund’s interesting, Cameron: I. Tony Kynaston: Like you’re spending tens of billions dollars to fireproof your. Network, but you’re also putting into a [00:37:00] fund 10 tens of billion dollars of insurance premium. It’s like, which one’s? Right? It’s like, am I gonna fireproof the network, in which case I don’t need insurance, or I not gonna do as a proper job on the fireproofing and therefore I need insurance? I guess a, an interesting paradox. Cameron: Yeah, but I think the, the, the thing that’s got going for it the most, Tony, is it’s being led with love and, uh, that’s where the premium we, should we have a score for that in Q’S checklist moving forward? Is it led with love? What’s the love score, Tony? Tony Kynaston: Yeah. Cameron: Yeah. Tony Kynaston: Put it in the checklist. You’re right. One point leading with Love Point one of a Cameron: Oh, more than no, more than that. Um, the share price in Tony Kynaston: chu, we give him a a point for Cameron: chutzpah. Yeah. Tony Kynaston: with love. Cameron: To give you some perspective, uh, the share price, uh, in September, 2017 was $70 and it’s now 16. Yeah, so I can [00:38:00] understand. I mean, at 20, uh, uh, in January, 2019, it, it had fallen down to $7 from September, 2017 at 70 January, 2019 at seven. So it didn’t stay down there too long. It recovered up to 23 by April. But, um, yeah, so I like shareholders have been burnt badly by this over the last. Tony Kynaston: Chapter Elevens because they’re unsecured. Unsecured, you know, in the business, people with debt in the business probably have it secured somehow, or at least rate is a higher. Priority in the repayment. So they get something in the dollar, but shareholders don’t Cameron: So what do you think after all that, Tony? Tony Kynaston: I’m glad it’s down the, at the bottom of the buy list side, I wouldn’t have to buy it. I think Cameron: Well, you know, I’m always. Tony Kynaston: numbers stack up on the, on the Cameron: The numbers stack up. Tony Kynaston: They don’t stack Cameron: Yeah. Tony Kynaston: side. Saw it. Cameron: No Tony Kynaston: Hmm. Cameron: they don’t. Yeah. But this is what our buy [00:39:00] list has given us. Uh, one of the things anyway. Tony Kynaston: help and I can’t help comparing it to Berkshire Hathaway, which large investments in electricity companies, energy companies, um, in the Midwest. I think from memory, and I don’t recall them ever burning down half a state and killing people. So, um, yeah, maybe that’s prior management and current Cameron: Warren, Tony Kynaston: pedigree. Cameron: Warren and Charlie led with love. Tony. Tony Kynaston: They were good marketers. I’ll give you that. I never said they’d lead with love. They did say write your own obituary and then live up to it. Cameron: Yeah, Tony Kynaston: And I’m sure it Cameron: well. Tony Kynaston: killing 18,000 people ’cause of a malfunctioning in a hook in a $3 hook. Cameron: Yeah, well, I think the hook was probably worth more than that, but yeah, it was a big hook. Very big hook, heavy hook. All right. Thank you, tk. Uh, that is Tony Kynaston: story again. Cameron: crazy story, right? After hours, [00:40:00] man, I finished stalker. You know, I think I told you about stalker. Tony Kynaston: It’s on my list. Yep. Cameron: We finally finished. It took us like three weeks to finish it. Probably one of the greatest films I’ve ever seen. Got no idea what it’s about. Got no idea what happens in it. Tony Kynaston: Mm-hmm. Cameron: Amazing. Highly recommended, and it’s got the greatest craziest story. After we finished it, I thought, it’s one of those things I’m like, okay, I need to know everything about this now, because it, because the every shot you could print and make a photo and put it up on the wall, like every shot is just beautiful atmospheric. But I found out this director Tchaikovsky shot, the whole film spent like a year shooting it in this part of Estonia, um, where there was like, there were shooting in old [00:41:00] abandoned power factories and stuff that were all falling down and there was toxic chemicals and radiation and stuff. Anyway, uh, when they sent the film to a film lab and got it back, it was all unusable after shooting for a year. Tony Kynaston: Because of the radiation exposure. Cameron: No, because it was a new film stock. It was this Kodak film stock that was popular in the late seventies, blade Runner, star Wars films. Like that was shot on it, but it was dodgy. So they got a dodgy batch of this Kodak film stock, and then the labs in the Soviet Union didn’t know how to process it properly, so it was too dark and too green or something. So he went back to the producers and they decided to do it again, and he fired his camera operator or the, the second producer or something like that. They went and they, and he fired the, his wife, who was the lead actress in it and replaced her with someone else. They went back and they shot it again? No, [00:42:00] the, the DP didn’t like his wife or something. Tony Kynaston: and don’t buy that film anymore. Cameron: Yeah. So they went back, they shot it again. This time he didn’t like it, didn’t like the, the performances in it. So he went back and did it a third time. Shot the movie three times Tony Kynaston: wow. Cameron: and then everybody died because of the toxicity and the radiation poisoning. He died, his wife died. The lead, one of the, one of the stars and there’s only three actors in it, uh, or three main actors died. Um, one of the bunch of the crew got sick and died. Because of the toxicity and the radiation and everything that they were around in these things. Like it’s incredibly crazy. He was like 52 Kosky when he died. I always wondered why he only made like a handful of films is ’cause he died after making this film. Tony Kynaston: Wow. Cameron: Anyway. Highly recommend it. It’s crazy story, an amazing film [00:43:00] like, but it’s like a Lynch film. Just go, go along for the ride. You know? It’s a big, deep philosophical thing on faith and modern modernity and blah, blah, blah, blah, blah. Apparently I watched like three or four YouTube explanations of it afterwards and no one could explain it. Everyone’s like, well, apparently he said something, but he was one of these guys like Lynch, who was like, no, every, everyone asked him to explain. He goes, no, get your own ex meaning out of it. Right? Just watch it shut up, you know? Anyway, so that’s good. What you got. Tony Kynaston: I will. look it up. Well, we’ve, Jenny actually, first of all, Roddy and I watched the House of Guinness on Netflix. I dunno if you’ve seen that yet. And Cameron: The beer, Tony Kynaston: it. And Cameron: the beer company. Tony Kynaston: yeah, yeah, it’s a Cameron: Oh, okay. Tony Kynaston: I think it’s Cameron: Oh, Tony Kynaston: the people who made picky blinders. So it’s in that kind of style. Cameron: right, Tony Kynaston: kinda like succession from the 18 hundreds. Cameron: right. Sponsored by Guinness. They produce it. Tony Kynaston: invo involvement they have, but they, they must be involved somewhere. Cameron: [00:44:00] Right. Tony Kynaston: yeah, it’s really good fun, enjoyed it. uh, and then I watched it with Ruddy when he was down here and Jenny was away and then she came back and I said, you gotta watch this. And we watched it again, with her. So yeah, thoroughly recommend it. Great soundtrack to it. Lots of Irish punk bands in the soundtrack. It’s got that kind of, um, Cameron: 18 hundreds. Punk. Tony Kynaston: guy Richie, feel to it. Uh, Cameron: Right. Tony Kynaston: yeah, modern music and period pieces. Yeah. So that was fun. Uh, we’ve named a horse, Charlie 99, Steve Mabb and I and Ya au, who’s been on the show years ago. Cameron: Oh yeah. Tony Kynaston: I own a horse, race Horse and we finally got Charlie 99 accepted as a name. So Cameron: Nice. Tony Kynaston: fingers, crossed. It actually does well, so we can, it’s always a risk when you name a race horse after someone that it Cameron: Yeah, Tony Kynaston: just runs badly. But anyway, hopefully Cameron: yeah. Tony Kynaston: So that was good fun. Uh, speaking of horses like forest runs tomorrow at Caulfield on Wednesday if anyone gets us some time. [00:45:00] And then lastly, it’s the climb a GM in Sydney on Friday. So if anyone hears this and they’re around at lunchtime, um, I’ll be in the climb head offices at Cameron: Oh, you’re going up for it? Tony Kynaston: Oh Cameron: Wow. Tony Kynaston: I’m. Standing for elect. I’m officially being elected director, so, um, I was appointed Cameron: wow. Tony Kynaston: the next Ag GM and now I’m facing an Cameron: Ah, can I come down and ask you some hard questions, Steve? Main type questions. Tony Kynaston: Or you can save it up till next Tuesday when you ask me questions anyway. Cameron: Can I invite my old girlfriend along? Tony Kynaston: Oh, no, I wouldn’t do that. It’s probably not, not safe for her, I don’t think. Cameron: No, I can get her to feed me the questions so she can have a little, I’ll have a little earpiece in. She can, yeah. Um, well have fun with that. Tony Kynaston: thank you. Cameron: Uh, um, are you watching Pluribus? Tony Kynaston: No. Is there any good? Cameron: Fantastic. Tony Kynaston: really? Cameron: Really? God, yeah. Were you, you a breaking bad bed call Soul fan? I can’t, I can’t [00:46:00] remember. Tony Kynaston: gotten halfway through them. Cameron: Uh, okay. Tony Kynaston: I, Cameron: Well maybe not for you then. Tony Kynaston: I like Cameron: No. Tony Kynaston: they do anyway, I, I go hot and cold on better. Cool. Salt. Cameron: Right. You may not like it then. Um, and the chair company and the studio, and now we’re watching Slow Horses. I got Chrissy to sit down and watch the first episode with me. I’d seen the first episode or two, but got her into it because, uh, I was talking to our Kung Fu Sifu the other day and she said, uh, I said, what are you watching? And she goes, oh, we just finished the last season of Slow Horses. We love slow horses so much. And so Chrissy goes, well, it’s good enough for the seafood then. It’s good enough for me. I Tony Kynaston: We’ve been watching Down Cemetery Road, which is by the same author, Cameron: The new one? Yeah. Tony Kynaston: That’s Cameron: With uh, Emma Thompson Tony Kynaston: Who’s fantastic. Cameron: and Rachel Griffiths. Not Rachel Griffith, who’s the other actress? Um, Rachel something. Tony Kynaston: Yeah. Dunno. Cameron: I know her from. A few other things she’s been in. Yeah. Yeah. that is QAV [00:47:00] America for this week. Have a good one. Tony Kynaston: All right, bye. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that [00:48:00] all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in [00:49:00] any form without the prior consent of Spacecraft Publishing.   Free Podcast Archives Here’s an update on the performance of the other stocks we’ve done as a pulled pork (deep dive) since the start of the show. Average return so far is 40%. 

Nov 23, 2025

49m
18

MODG (Topgolf Callaway Brands) – QAV America #27

Overview In this episode of QAV America, Cameron and Tony dig into the state of the U.S. market, exploring how AI investment is distorting capital flows, weakening job markets, and reshaping traditional sectors. They discuss how “the Great Freeze” in hiring and the surge in data-centre spending are reshaping the economy. Then Cameron serves up a Pulled Pork deep dive on MODG (Topgolf Callaway Brands)—a company blending golf, entertainment, and retail that’s now splitting itself apart to “unlock value.” Tony reflects on golf’s pandemic-era revival, the engineering of the Big Bertha, and why Callaway’s merger with Topgolf sent its share price into the rough. They unpack tariffs, impairments, and the business logic behind spinning off Topgolf, ending with a lively riff on humanoid robots, golf robots, and even robot jockeys. ⸻ Timestamps [00:00 – 02:00] Portfolio update – U.S. fund down ~2.5 % vs S&P neutral; long-term performance still ahead.[02:00 – 04:00] AI-driven GDP growth — Microsoft, Alphabet, Meta pouring US $370 B into data centres.[05:00 – 08:00] Labor market weakness — “The Great Freeze” as firms delay hiring for AI.[09:00 – 11:00] Humanoid robotics — Tesla Optimus, Xpeng Iron, and China’s robot surge.[11:00 – 12:00] Fed policy, tariffs, and inflation risk.[12:00 – 48:00] Pulled Pork: MODG – Topgolf Callaway Brands Transcription   Cameron: Welcome back to QAV America, Tony, episode 27. Tony Kynaston: Wow, that’s gone fast. Cameron: it’s been a couple of weeks since we did a US show. Didn’t have time to do one last week, but, I’ll just start with a bit of a portfolio update, get into some news, and then I’m gonna do a, a special deep dive pulled pork that I prepared just for you. Tony went way down the list to find this one for you. Tony Kynaston: forward to it. Cameron: The portfolio has not had a good 30 days. Our US portfolio, it’s down 6% in the last 30 days versus the s and p 500, which is pretty much neutral in the last 30 days. So it hasn’t been doing great too. Um, hold on. Did I say how long it’s down? That’s, let me see what, no. Down, down two and a half percent, not 6%. Two and a half percent in the last 30 days. Um. So it’s hasn’t been, uh, a great, uh, period for us still tariffs. I think that [00:01:00] just the general US economy is not boating well for our portfolio over there. But that said again, if you look at, uh, since inception, which is. Just a little bit over two years. September 23, we’re tracking at 53% return versus the s and p 551%. So we’re still beating the index over the last couple of years, but, uh, the year to date we’re down 18% versus the s and p 500, up 14%. So it has been a rough calendar year for our portfolio. For all the reasons I mentioned before, but some of the stocks are still, I mean, everything’s doing quite well. I mean, everything’s up, everything’s doing well, just not as well as it was doing. So Tony Kynaston: peak. Cameron: nothing to complain. Yeah, yeah. Like me, um, Tony Kynaston: Best days are ahead of you Can. Cameron: uh, [00:02:00] I keep telling myself that Tony, uh, listen. It been interesting a couple of weeks in the US market. Corporate earnings are surprisingly strong for the third quarter of 2025. Median earnings for the Russell 3000 Index rose about 11% compared to a year ago. Six of the 11 sectors in the s and p 500 reported positive earnings growth up from just two sectors. In the prior quarter. Big tech industrial energy have been leading consumer facing firms, however, showing more signs of strain according to the Financial Times investment in AI and data centers, though, as we know, is the big driver over there. Microsoft Alphabet meta are projecting total capital expenditures in 2025 of around US $370 billion for data center and infrastructure. And I was reading an analysis of this in Wide Magazine. They were [00:03:00] saying they’re funding it all from cash to these companies. ’cause they’re sitting on buffet levels of cash Tony Kynaston: Wow. Cameron: according to one estimate nearly. Tony Kynaston: Aren’t they just passing it? around to each other? He, Cameron: Well, in some cases, yeah, NVIDIA’s just handing it out and getting it back. According to one estimate, nearly all of us GDP growth in H 1 20 25 was accounted for by investment in data centers and software processing tech. Tony Kynaston: Wow. Cameron: Since chat, GPT launched in November 20, 22, 3 years ago, AI related stocks have accounted for 75% of s and p 500 returns and 80% of earnings growth according to JP Morgan. So that’s absolutely insane considering, you know, that’s, uh, half a dozen stocks, um, and open AI isn’t even listed. Tony Kynaston: Yeah. Cameron: Um, but you know, as we say, each [00:04:00] episode, uh, we are finding tons of value opportunities and, uh, there’s, there’s no, there’s no, um, trouble finding good quality companies that are generating cash that you can buy very, very cheap. Looking at, you know, price to operating cashflow, looking at their book price, which includes the one I’m gonna talk about today. Not that there aren’t challenges, but you know, plenty of stuff to buy. Tony Kynaston: Well, as we were just speaking about, if, if a lot of money’s going into the AI sector, the tech sector, there’s not many bids going into you run of the mill industrial company. And that’s, I think, creating value within the rest of the market. in here, in the, in, well more in the us Australia doesn’t really have an AI sector, but um, certainly if the hot sector is, is, uh, is taking inflows away from the general market. So the general market must be undervalued. Cameron: There’s this huge sucking sound Tony Kynaston: [00:05:00] Yeah, Cameron: as all the money gets pulled into this one zone and um, yeah, it means that everything else is cheap. Tony Kynaston: pockets. Cameron: The five pockets. Yeah. Back to the US economy, what is showing cracks is the labor market. And broader participation is weakening. In October one, private sector data tractor reported 9,100 jobs. Lost. Lost, and planned. Planned layoffs surged to 153,000. I just mentioned on our Australian show, I read, um, uh, some quotes from Jerome Powell in the last week or two where he was saying what they are seeing is a lot of companies saying they’re not. Planning on hiring people because they expect AI to be able to do those jobs, particularly people coming outta university. It’s being referred to as the great freeze by some economists over there. There’s a freeze on job hiring. We’re seeing it happening here as well, predominantly in the tech sector, but other, other professions as well. You know, with [00:06:00] these junior level clerical. You know where I got my first job was, you know, bank clerical stuff. I, you know, when I was 17, 18. A lot of those jobs are gonna just be replaced now by AI companies are expecting they will be able to replace them with an AI tool. Tony Kynaston: And that’s an important point you make there, the expectation, because I’ve seen similar parallels to this happen. In the past where it’s almost dere, you’ve gotta say, we are freezing hiring. If you’re not saying we’re freezing hiring, the analysts are on your, you know, like, like, uh, bees to a honey pot. Why? Why aren’t you freezing hiring? Everyone else is freezing hiring. So they freeze hiring and then, you know, a couple of quarters time they start hiring again because it, didn’t really apply to them. So it’ll be interesting to see. I’m not saying that. Companies won’t need as many staff because of, the impacts of ai. Um, but it’s almost becoming clearer to me now that, uh, at [00:07:00] least at this stage, right, I know there’s a lot more to come and a lot more upgrades to, um, to be released. But at this stage, it’s almost like what we’re seeing is an increase in the power of computing that’s brought about by ai. you know, so. We were talking before about, uh, being able to target ads better. It’s, there’s nothing revolutionary in the concept of targeting ads, but if it’s done cheaper and faster, then yeah, people will lose their jobs, in marketing departments or whatever. So I get that. Um. Whether it, it, you know, it’s, it’ll be interesting to watch if it is a great freeze and, and suddenly we have people not going to universities. That’ll be a big impact on society, I think. But, um, let’s just watch the space and see what happens. Cameron: Yeah. Why are you gonna spend well in Australia 2030 grand to get a university degree? In the us hundreds of thousands of dollars to get a university degree if there’s very high chance that there won’t be a job for you at the end of it. So then what do those [00:08:00] people do? What, what do they go and do instead of going to university? Tony Kynaston: Well, Cameron: Um, do they? Tony Kynaston: possibly Cameron: Yep. Tony Kynaston: the US but in Australia there’s definitely been a tr being a trend towards trades and the trend towards working in sectors like the mining industry. Might be different in the us but yeah, there’s, I think it’s quite legitimate now for someone leaving school to say, well, you know, I can go and make as much money if I get a trade and become a qualified plumber, electrician, contractor, build or whatever. Um, as opposed to spending three plus years at university, getting a degree, and then going into an entry level job. So been Cameron: Except. The next three to five years, humanoid robots are gonna hit the market all with superpowered AI brains, and a lot of those jobs aren’t gonna be there either. Elon just got his trillion dollar pay package approved and part of that is. Tony Kynaston: he’s taken that bet that it’s gonna happen. Cameron: Well, part of that is he has [00:09:00] to ship a million optimist robots in the next 10 years. Now a million doesn’t sound like a lot, but I predict that there will be 5,000 humanoid robot companies coming outta China in the next five to 10 years. That will all be shipping a million robots or more. So Tony Kynaston: Well, I also Cameron: yeah. Tony Kynaston: too, if Elon gets a trillion dollars from shipping a million robots, they’re gonna be like R 2D two. They’re gonna have Kenny Baker in the inside actually working the leavers. Cameron: you see there was a video doing rounds in the last few days. There was a Chinese car manufacturer called X Pen, I think, that demoed their new humanoid robot called Iron, IRON. And it it, it had. Breasts and a booty. And it was walking on the stage like a model, like a supermodel on a walkway, and people didn’t believe it didn’t have a human in it, so they actually cut it open on live on stage, and showed you that [00:10:00] there was no human in there just to prove they weren’t pulling an E on. Um, yeah. But, um, so. The top Fed officials, John Williams, who’s the head of the New York Fed warned this week that rising inequality and affordability crisis for lower middle income households pose a real risk to the economy. He flagged the balancing act, the Federal Reserve faces between inflation jobs and growth. It’s a crazy situation over there at the moment. Some things are booming, some people are doing very well, but generally speaking, a lot of people are struggling and now of course their food stamps have been cut off their air with the, uh, budget shutdown. Flights are being canceled. All sorts of problems over there. The stock markets starting to look a bit fatigued. The Nasdaq had its worst week this week since April. Tariffs remain a factor. According to Bank of America global research tariffs might be adding 30 to 50 basis points to core inflation via higher consumer costs, and could [00:11:00] continue to put upward pressure on inflation. And the Fed signaled that rate cuts are not a done deal at the next meeting, some Fed members are reluctant giving inflation remains above target and data as patchy thanks to the government shutdown affecting many metrics. Uh, they’re not exactly sure what the numbers look like moving boards, so Tony Kynaston: And they, and they complain about China’s stats. Cameron: yes, yes. So look, it’s, it’s a mixed bag over in the us, um, and. As you know, I’m gonna, the company I’m gonna talk about today, the one I handpicked for you, uh, suffering a little bit as a result of the uncertainty, particularly with tariffs in the us. This company is the, the Ticketer is MODG. The company is currently called, but not for much longer. Topgolf Callaway Brands Corp. You want to guess how they get MODG out [00:12:00] of Top Golf Callaway Brands. Tony Kynaston: I, can’t put it together. Cameron: It stands for Modern Golf Tony, MODG, modern Golf, but they will not be top Golf Callaway for much longer, as we will see. I picked this for you, Tony, because Tony’s a mad golfer and he’d much rather be playing golf right now than talking to me, and I think as soon as we get off of this, he’s gonna go play golf. Is that right? Tony Kynaston: No, we’re gonna go and watch a horse run that I own at Cameron: Oh, Tony Kynaston: Which Cameron: it’s race season. That’s right. Then you’ll go play golf, Tony Kynaston: yesterday Cameron: right? Tony Kynaston: do live on a golf course. Cameron: Tony lives on a golf course and, uh, yes, that’s his, uh, favorite pastime. So. Uh, according to Top Golf Callaway’s website, Tony, you like this. 545 million rounds of golf in the US were played in 2024. It’s a new high for annual rounds. 28% are on course [00:13:00] golfers, uh, sorry, 28% of on course golfers are women. Another record high for 2024. Over 3 million beginners have taken up the OnCourse game. In each of the past five years, so golf is booming, Tony Kynaston: It came through COVID very strongly, at least in Australia, because uh, people were allowed to go out into golf courses for exercise during COVID and they couldn’t do, you know, contact sports or soccer or whatever else they were playing normally, but Cameron: Kung fu. Tony Kynaston: golf. Kung fu. Yeah. uh, it boomed went through a p before, prior to COVID golf was on its knees and, and. Golf courses and clubs were either shutting or merging or being Cameron: Really. Wow. Tony Kynaston: development, for housing, that kind of thing. Yeah. Cameron: Mm-hmm. Tony Kynaston: of all of the above. And, uh, then COVID just revitalized it. And I guess it’s also, um, part of the work from home trend. Like I remember even after COVID, I’d be out playing on the golf course and the I’d be paired with someone who’d be on their phone saying, yeah, yeah, boss. Yeah, I’ll look into [00:14:00] it. And so they’re pretending to be at the office, but they’re really on the golf course as well. Cameron: Nice. Uh, what else have I got here? Stats, why? Yes. Trends of golf are emerging in fashion, lifestyles, travel, art, music, and more. According to their website, two thirds of today’s OnCourse beginners have some kind of off-course experience, which leads us into the top golf conversation. So. Just what, what do they do for people like me who don’t know anything about golf really, except it’s a ball and a stick and looks really, really boring. Um, if you don’t, if you can’t get your nose broken, I don’t see the point. But anyway, um, top golf. Uh, they own Topgolf and I have been to a couple of Topgolf uh, venues. Been to the one down at the Gold Coast once or twice. And then the last time I was in Arizona or a few years ago, uh, uh, Chrissy’s brother-in-law, his family owned a [00:15:00] real estate development company and there’s a top golf on some of their land. So he has like VIP access to a top golf in Phoenix. Um, one of the suburbs of Phoenix. So we went there and played and it was a lot of fun. We had a great time. And uh, the top tracer stuff, which is also part of Topgolf, Callaway is part of that. So they have Topgolf. So for people who don’t anything about golf, it’s like a high end fancy restaurant bar slash driving range. Is that a fair description of it? Tony Kynaston: gamified it so the balls have little RFIDs in them that could be tracked and that you hit targets that light up and get points, and it all relays back to a screen to show you what your score is. Yeah. Cameron: And it’s fun for people who know nothing about golf. You can go and you can have a great time, great night out. They’ll bring food to you. Beer and uh, yeah, Tony Kynaston: Yeah. And then Cameron: you know. Tony Kynaston: people fall off the top, Cameron: Yeah, Tony Kynaston: into the Cameron: people [00:16:00] standing on top platforms, swinging metal sticks and hitting hard balls with beers. What could possibly go wrong with that? And the top tracer stuff is the ball tracing element of that. So you, you have a little screen and it shows you how far your ball went and how fast it went and all that kind of stuff. So it’s good. Tony Kynaston: top trace of technology has certainly revolutionized professional golf because, you know, golfers will have a track man beside them on the range. Pro professional golfers will have a track man beside them on the range and they’ll be working on dialing in the exact distances for each club and, you know, um, compression speeds and all that kind of stuff. So it’s really taken golf’s physics to a new level. Cameron: And I understand the top tracer stuff came from tv, golf. They would have like overlays and, and they went, went this and they went, oh, that’s, we should. Tony Kynaston: Well, Cameron: Do that. Tony Kynaston: watch golf on TV and you’d say you’d see the guy swing and the camera would pan to the sky and then come down and try and find the Cameron: Yeah, Tony Kynaston: And that was how they’d Cameron: yeah, [00:17:00] yeah. Yeah. I, I’d never be able to see anything. It was just, it’s gone. It’s my problem with playing golf in real life. I can’t see anything anyway, and then they have the Callaway golf equipment clubs, balls, putters, and active lifestyle apparel gear. Travis Matthew, OGIO, and until recently, Jack Wolf skin. But as we’ll see, they sold that off just recently. So the venues of the crowd pleasers the sticks and shirts. Keep the golf nerds happy. It was founded, and this is a great story. Uh, do you know the story of Callaway Golf? Uh, you’re gonna, you’re gonna love this. It’s a great story. So founded by a golf called Eli Callaway, Jr. He was the president of the textiles division of a company called Burlington Industries. They were a huge American fabric maker, Berkshire Hathaway esque. Um, founded in 1923, went outta [00:18:00] business, got sold off in 2003, um, but he retired in 1973 and. Um, bought a vineyard in California, had, I think he bought, ended up by owning several vineyards that he, he sort of ran those for 10 years and he was an avid golfer. No, but he was an avid golfer because, fun fact, his cousin was a guy called Bobby Jones. Tony Kynaston: Famous golfer. Cameron: Creator of the US Masters Tournament and co-founder of Augusta National, and apparently he offered Callaway a free membership of Augusta National, and he and Callaway turned it down Tony Kynaston: Big Cameron: because they’re only open. For like six months of the year or something. And he said he’d be spending the rest of, he’d be spending that entire time with friends, ringing him [00:19:00] up, begging him to get him a game. And he was like, yeah, I don’t wanna, I don’t wanna buy into that. But he learned to play golf by watching Bobby Jones, who was like an, uh, an amateur champion, I believe, and he made a series of films about how to play golf and Callaway learned how to play golf by watching his cousin’s films. Tony Kynaston: Yeah. Cameron: Anyway, so he was an avid golfer and he was playing golf, and he was in a pro shop one day, picked up a wedge, started swinging it, liked it, and went to visit the guys that made it there. It was a company called Hickory Stick. You ever heard of a Hickory stick? Tony Kynaston: that’s how golf clubs used to be made. Back in the days when that first started, they had hickory shafts, which is timber. Cameron: Well, these, these guys put a steel rod through the hickory shaft and so he went and want, and just, you know, did a buffet was like, oh, that’s cool. I’ll go talk to these guys and see what they’re doing. And then at some point [00:20:00] after that, 1982, they were running low on money and he sold his vineyards and bought half of their company. It was renamed a Callaway Hickory stick, USA. And then in 1983 became the company’s president. They moved the headquarters to Carlsbad, California where he could be found selling clubs out of his Cadillac. And then in 1984, he bought the rest of the company for another $400,000 and it changed its name in 1988 to Callaway. Tony Kynaston: So he was Callaway selling clubs out of a Cadillac in Carlsbad, California. Cameron: Yes, somebody should write a song about that, but yeah, I thought you’d love it. ’cause I mean, he. He retired, just started running vineyards and then sold that and bought a golf company. Like what a dream. Dream life, Ryan, Tony Kynaston: I, Cameron: and he was in his sixties when he did it too. Like he sold everything and then sunk it all into this golf stick company. Tony Kynaston: you, you might [00:21:00] cover it in your story, and Callaway was known for its wedges at the start, and then they were known for the first metal drivers, the big ERs. So he’s very much into the technology of golf. Cameron: So in 1986, he hired a Q Designer, Richard Helmer as a consultant, golf queue designer, Tony Kynaston: Golf Cameron: guess. Tony Kynaston: No. You mean a billion queue, Cameron: Yeah, sorry. Billion Q, the other stick sport. A billion Q. Yes. Billion Q Designer. Richard Helmstetter Helmstetter was named Chief Club Designer and introduced computer controlled manufacturing machines. And then along with a guy called Glen Schmidt, who was the company’s master tool maker, they developed the original big Bertha Steel clubhead. Tony Kynaston: Yeah. Cameron: Arnold Palmer once said that the Big Bertha was one of the most important things that ever happened in the game. The whole idea was to give average golfers an opportunity to [00:22:00] enjoy the game a little more. Uh. Tony Kynaston: And if you like to the non-golfers out there, um, and I’ve played golf prior to big Birthers coming in and after big Birthers coming in. Uh, and certainly I hadn’t heard of Callaway prior to that. we used to play with persimmon wooden drivers, so they were made of wood they would have, I guess it was a plastic, plastic key type insert in the face and screws. And so if you hit a good drive, it was said to be hit out of the screws because you, you sort of sweet, your sweet spot on. The persson driver and persimmon drivers, are they probably, they were about the size of a a seven wood. If for, for golfers out there listening, so they’re much smaller than what drivers are today, and they had a very small, sweet spot on them, which was a plastic insert screwed into the face of a wooden driver. And, uh, you know, sometimes you’d play a shot and the wooden, the plastic insert would go flying and sometimes their head would come off and they were very hard to hit long and straight, and they were to failure as well. [00:23:00] And then one day you’d be on the course and the guy standing next to you would have this. Huge thing. Um, and there is a, the rules of golf tell you how big driver can be, and Callaway kind of pushed the rules. ’cause the way they, they tested, or the way the rules are worded are, I think it’s 460 ccs of water can be displaced by the head of a driver. So you dunk the head of a driver in the water and see how much the, so you know, up until then. Yeah, driver was small. It would f it would get dunked in the water, would pass it easily. then Callaway said, well, what if I displace the water by having a big hollow Um, and so, you know, they probably four, four times the size of the old drivers, still obeyed the rules, but, and displaced the 466 ccs or whatever the number is. But they did it by being big and hollow. And then they kind of said, well, how do I make a big hollow golf club that doesn’t. Doesn’t break and works properly. And they came up with the metal. And so you’d be [00:24:00] standing on a, on a, a tee and the guy beside you would have this, you know, I don’t know how you describe it, like a boot on the end of his club. And the ball would go for miles and it’d be so easy to hit ’cause you had a huge sweet spot. ’cause the thing was big. It had a much bigger sweet spot on the front of the, the club. And they just took over From then on everything was metal and, and large. Cameron: So yes. In 1996, the company hired Roger Cleveland as chief Club Designer, and then in 2002, launched the Callaway Golf forged wedges constructed from carbon steel with modified U grooved faces. In 1996, they announced the development of new golf ball under the leadership of a guy called. Chuck Yash, the former head of Tailormade Golf. Callaway Golf Company engineers recruited from DuPont and Boeing used aerodynamic computer programs first used by Boeing in General Electric to evaluate more than 300 dimple [00:25:00] patterns and more than 1000 variations of ball cause boundary layers and cover materials to create the new rule 35 ball. They settled on only two versions of the Rule 35 ball, choosing to develop a complete performance ball rather than separate balls developed for spin control, distance and durability. Eli Calloway said that their objectives were, we have combined all of the performance benefits into one ball, so players no longer need to sacrifice control for distance or feel or durability. Each rule 35 Ball contains a unique synergy of distance control, spin feel, and durability characteristics. This eliminates confusion and guesswork in trying to identify the golf ball that is right for each individual golfer. Tony Kynaston: So he was good at marketing as well because there’s certainly a, there’s certainly been a big upgrade in balls and that’s about to get rolled back there, be rollbacks happening golf, um, [00:26:00] to, to stop the pros from hitting it. Too far. So golf balls are actually being descoped in technology. I think it’s starting next year. Cameron: Wow. Tony Kynaston: debate in the golf community. I think it only applies to professionals. Um, amateurs like myself can still use top of the range balls, but yeah, certainly in the past you would buy a ball to hit it straight or to, you know. Make sure you didn’t scuff it, it’d be more durable or to stop side spin or to give you side spin. so you know, you buy a long ball or a spinning ball or whatever, and then. I always thought it was the tight list. Pro V one came along and combined all those things, but it could have been the Callaway that came along first. But, you know, as things have gone on, both tight list and Callaway still have soft balls, hard balls, professional balls, um, low spin balls, high spin balls, all that kind of stuff. So marketing takes over at some point. Cameron: Do you know why the ball was called a Rule 35 ball? Tony Kynaston: no. Cameron: Neither do I. I didn’t look that up. I’m just looking it up [00:27:00] now. Probably, probably a good reason anyway. Who, um, so he resigned a CEO and President in 1996. Remained as chairman of the board, died in 2001, aged 82. And he has a memoir that ca was published posthumously, the Unconquerable Game, my Life in Golf and Business. Tony Kynaston: Oh, I should Cameron: You ever read that? Tony Kynaston: I should Cameron: Well, probably not. No. Should send it to you as a birthday present. Tony Kynaston: thank you. Cameron: Um, so there you go. That’s a bit of the background on Callaway. They went public on the New York Stock Exchange in 1992, and then a couple of big pivots. So in 2020, October, 2020, they announced they would acquire Topgolf for $2 billion. Um, it happened in 2021. I think that went through. So a COVID [00:28:00] era thing. Tony Kynaston: Yeah, definitely. Topgolf took off. Mm-hmm. Cameron: 2022, they rebranded as Top Golf Callaway Brands and that’s when it’s ticket symbol change from ELY for Eli to, uh, MODG. And then they just announced, uh, in recent times that well, they sold off the, um. German clothing company, Jack Wolf’s skin outdoor clothing company. ’cause it wasn’t really working for them, I think. But they have announced recently that they’re gonna separate into two companies. There’s gonna be Topgolf and everything else. Callaway Top Tracer and Apparel two. Unlock value is, uh, the rationale for it. Tony Kynaston: I dunno if you’re gonna cover it, but it never went well. That merger, the, the share price tanked and it’s been in the doldrums ever since really. Cameron: And as we’ll [00:29:00] see when we get into the numbers, they’ve had a lot of write downs of their valuation because of that too. Tony Kynaston: did find an article in the Wall Street Journal about that from a year ago, and its headline was Topgolf sent Callaway into the rough. And, uh, you, you covered off a lot of the issues, but, um, there is a graph in the article, which, uh, starts from like is baseline is 2021 and the share price for Topgolf Callaway gone down 50%. And the share price for its major Callaway’s major competitor, a Kush net up, uh, 75%. Cameron: Oh. Tony Kynaston: because people thought the top golf. Our analysts thought the Topgolf acquisition, um, wasn’t a good one. And uh, it sounds like Callaway have come to that same conclusion now too, if they’re gonna spin it off. Cameron: Yeah, in mid 2 20 21, the share price was up around about 37, 38 bucks. It’s trading at about 10 Tony Kynaston: [00:30:00] Whew. Cameron: so it’s been a rough ride share price wise, Tony Kynaston: I did know Cameron: but. Tony Kynaston: I dunno if it’s, it’s germane. It might be just a small fish, but I know they had to build a, a, a new golf ball, manufacturing plant, or a big plant upgrade. ’cause a large part of their business is also selling golf balls. And that’s kind of the bread and butter because people like me lose them a lot. So we’re always re restocking golf balls, right? So, um, and Callaway golf. I like Callaway golf balls. They’re good, good balls. There’s one of the golf balls is called the ERC cam. I’ll tell you a story. It’s got a red line, a blue line, and a black line down the middle of it so you can line up where you hit it and where you put it. And it was taken from aircraft carrier technology, um, where they’d have three lines on the aircraft carrier for the pilot to line up where the hook gets caught. And apparently that that stops any sort of, if you have one line, you can have optical illusions and deviations as you’re moving around. So, they adopted that onto the golf ball as well. made much difference to Cameron: [00:31:00] Nice, Tony Kynaston: But, uh, again, it’s, it’s good marketing. But anyway, they had to Cameron: so Tony Kynaston: put $55 million for us from memory into a plant last year or the year before because, uh, they had quality issues in their golf balls. Cameron: Right. Nothing worse than having. Um, quality issues with your balls. Tony, I’ve always said that Tony Kynaston: it’s, it’s, an interesting, it’s true, but it’s an interesting thing because if you play, what, what they’ve, so Cameron: I. Tony Kynaston: been a rise of sort of, um, influences in golf and one of them is called My Golf Spy. And they would really take a part golf, uh, ball manufacturers and I guess clubs too, but particularly balls and put them through rigorous testing. One of the tests they did was to say, we’ll take a dozen golf balls and see if each one. up to the specs. And what they found with Callaway for a while there is that, like not every ball was, um, measuring up to the specs. And if, if you think about it, if you’re playing golf and you, you know, pull out half a dozen balls and ones rolls a [00:32:00] bit more to the side than the other ones, you think it’s you, you think it’s, oh, having a bad day. But really it’s the golf ball. So, um, Callaway had to address that concern by, uh, upgrading their, their plant. Cameron: it’s not you, it’s your ball. Um, their revenue mix is, so Topgolf is was about 41% of their revenue. Uh, this is FY 23 numbers, so a little bit old, but I think it’s basically the same today. Golf equipment, 32%, so that 41% is about 1.76 billion. Golf equipment, 32%, 1.39 billion. And active lifestyle, 26%, 1.14 billion, so about four. Tony Kynaston: Callaway owned the FootJoy brand, which is a big producer of golf shoes and apparel for golfers. Cameron: Oh, FootJoy. That didn’t come up in my list Tony Kynaston: I’m pretty sure it’s Cameron: possible though. Hmm. [00:33:00] So looking at, um, their financials in stock edia, they’ve, they’ve been losing money the last year or so, but we’ll get into the wise and wherefores on that in a minute. Total revenue CAGR is up about 20% over the last five years, 2019. Total revenue is about 1.7 billion. 2020 1.6, 2021 with the top golf acquisition jumped to 3.1 2022, just under 4 20 23, 4 0.3. And trailing 12 months is about 4.1, uh, and 2026 estimate. It comes in a little bit under four, so it’s coming back off a little bit. But again, I think this is partly due to the potential spinoff of getting rid of the. Jack Wolf Ski and maybe the spinoff of [00:34:00] Topgolf, but their operating profit has gone from 133 million in 2019 to 257 in 22, 238 in 23 to a loss of 1.275 billion in 2024. But when you break that down, most of it is non-cash impairment charge of 1.45, 2 million or billion, sorry, related to goodwill and intangible assets in the top golf segment. Uh, without that impairment, the underlying business, non GAAP measures for 2024, full year was about profit of 256 million. So if you take out the impairment, it’s still profitable. Doing okay. Um Tony Kynaston: can I just interrupt there? I, I’ve just, Cameron: hmm. Tony Kynaston: told me that no FootJoy is actually owned by a Cush Net, the competitor to Callaway, so Cameron: Okay. Tony Kynaston: Googled it first. Cameron: Apologies to the Tony Kynaston: Hmm. Cameron: fine people at FootJoy [00:35:00] for that confusion. So the golf equipment, the clubs and the balls throws off steadier cash than the venues. It’s a good part of the business. You have your diet in the wall, golf people like yourself that are always buying clubs and balls, and the whatnots. Top tracer is the toll road. It’s sort of high margin licensing and installs into third party ranges. They’re generating some good cash out of that. Uh, the top golf is the consumer funnel. One of the interesting things about that is it supposedly introduces new people to golf. You go along for a party, uh, and you pick up a golf stick for the first time. I think that’s a technical term. And uh, you go, oh, this is fun. And then you end up becoming a mad golfer. So that has been part of the. That’s the theory. That’s been the strategy. But, [00:36:00] uh, and, and it might continue to be as they spin it off, how they’re gonna spin it off is uncertain yet, whether it’s a, they sell it, they float it, they whatever they, I think they intend to keep some of it. I’ll get into that in a second. Tony Kynaston: um, just looking up, uh, an old article in the Wall Street Journal too. I think Callaway had been an investor in Topgolf right from the start. So, Cameron: Oh really? Tony Kynaston: think, uh, in, Cameron: Hmm. Tony Kynaston: um, whenever it was 2021 or 2022, they, they upped their position to be a full takeover, but they’ve always had some involvement in it. Cameron: Right. So one of the reasons why it is cheap at the moment is the venues, uh. Cyclical and traffic sensitive and capital hungry costs a lot of money to build these things. Once you build it, you’ve got your staffing costs and all of your regular costs for running it. So if uh, times are tough and people stop going to play, uh, [00:37:00] whatever it is, how would you like, uh, fun, family golf nights out, whatever. Tony Kynaston: Yeah. Cameron: Uh, you know, it’s like running a restaurant and a bar and all those sorts of things. You’ve got a, a fairly solid overhead and things are a little bit tough, as we said earlier on in the United States at the moment. And it’s probably gonna get tougher moving forwards, uh, the way things are going over there for large segments of the population. So they’re amount of people just going to play, uh. You know, not, not serious golf. What, what’s, I’m trying to think of what you would call that. Like entertainment, golf, social golf, eh, I guess. Yeah. Um, might be a little bit flimsy. Same venue. Sales have been wobbling and venue build, slowdowns have been spooking investors. Then you’ve got tariffs, wage inflation, and just the complexity of mixing restaurants and sports and retail. And as you said that, that they [00:38:00] haven’t really pulled off the acquisition merger very well. And the tariffs are costing them a surprising amount of money for the full year. 2025. Management is now estimating tariffs are gonna cost ’em around $40 million, Tony Kynaston: Okay. Is that Cameron: and it’s a. Tony Kynaston: import things from China or Cameron: Yeah. Yeah. They’ve imported goods, equipment, apparel, accessories. It’s all manufactured. I dunno if it’s all in China, but I’m sure big chunk of it is in China. Could be Vietnam, could be different places. India all getting hit by tariffs. And South America too, they get stuff I think made in Mexico. Um, so your margins are getting squeezed unless you can pass those costs on or save elsewhere. I think they have announced they’re gonna do some layoffs to try and. Save some money, but with this split up, what they’re proposing is two independent companies, Callaway, golf equipment and active lifestyle. Topgolf, venue based golf entertainment, probably a [00:39:00] spinoff of Topgolf to existing shareholders of MODG, Tony Kynaston: Right? Cameron: but there could be other options as well. Could be a, a sale, a combination, retained steak. Not exactly sure yet what that’s gonna look like. So they just came out on November 7th. We’re recording this on November 10th, November 7th. They just came out with their Q3 numbers and they were actually pretty good. Um, Topgolf Callaway, Q3 revenue, GR revenue growth, 3% year on year, which was, doesn’t sound like a lot, but that beat analyst expectations. Their adjusted EBIT DAF for Q3 beat, the consensus driven by golf equipment and Topgolf segments. Company raises full year 2025 revenue adjusters. EBITDA guidance company raises full year revenue guidance to. 3.9 to 3.94 billion top golf revenue guidance increased to [00:40:00] 1.77 to 1.79 billion and full year adjusted EBITDA guidance increased to four 90 to five 10 million golf equipment. Demand showed strong demand for golf equipment, drove revenue growth in the golf equipment segment. Top golf venue expansion, addition of six new top golf venues and improved traffic trends led to revenue growth, but then there was the tariff impact as well. So good numbers. Everyone seems to be happy with it. Tony Kynaston: So why are they, why Cameron: Uh, Tony Kynaston: then? Cameron: well, oh yeah. I mean, it’s good, but it could be better. I think if they split it up. And focus is the theory unlocking value. Tony gotta unlock value. Tony Kynaston: a love, um, you know, got a lot of management consultants. I guess they were involved somewhere. Got, we’re gonna get synergies Cameron: Gotta make fees. Yes. Tony Kynaston: golf in their name. Right. They’re Cameron: Yeah. Well, I kinda get it, you know? Tony Kynaston: [00:41:00] And now we’re gonna unlock value by splitting them out again. Yeah, Cameron: Yeah. And then they’ll have to buy them again. Tony, you gonna buy it? Let it go. Buy it. Let it go. It’s like outsourcing insourcing. Outsourcing insourcing. So, look, um, I’ll, I’ll just, uh, Tony Kynaston: with an AI company next, I think Cam. Cameron: oh, AI golf. Perfect. I love it. Tony Kynaston: traces. Cameron: I, I might be able to play golf if I can get the robot to do it for me. Uh, why? It’s on the checklist, Tony. So it’s got a QAV score of 0.10, quite low, but I went down and. Picked it just for you. Um, Tony Kynaston: enjoyed this. Cameron: I was like, oh, I gotta talk about this one. That’s crazy. You know, uh, average daily trade’s about 25 million. Price to operating cash flow is 6.26, pretty high by our standards. It’s below our cutoff, but that’s pretty high. We have a cutoff of seven, so it’s getting up there. So if you want to get in on this, this is your opportunity. Um. Quality rank is only [00:42:00] 40 in stock. Edia, we don’t score it unless it’s uh, 60 or better. So we didn’t score it for that. Stock rank is 85. We don’t score it unless it’s at least 90. The F score is five. We score anything that’s over 4.5. So that’s, its financial trend is reasonable, not great, but reasonable. Uh, it didn’t score for IV one or I, uh, no, it did Score for IV two, didn’t score for IV one. Shouldn’t have scored for IV two either. What have I got that’s wrong? Didn’t score for either of those because it’s got a negative EPS, um, and a negative future EPS. Tony Kynaston: Yeah, I was gonna say maybe the, maybe the forecast is for a positive VPS. Cameron: No, but the current, the last reported EPS was negative eight, and the forecast for next year is negative 0.374. So it’s improving a lot once they get rid of some of this. Uh, again, I said [00:43:00] like a lot of it was this impairment charge, so, but still not getting it into a positive territory next year. Tony Kynaston: So if I, if I get, if, if I start using Callaway. Golf balls exclusively and get my mates to do the same ’cause Cameron: Yes. Tony Kynaston: balls. We might be able to boost Cameron: Hmm. Tony Kynaston: back into Cameron: Yeah. Tony Kynaston: by the stock Cameron: Yeah. You should. Yeah. Tony Kynaston: start Cameron: And then buy golf balls. Yeah, let me know how that goes. Um. Tony Kynaston: I think the Wall Street Journal will be selling into the rough. Cameron: did score for price less. The book, book price is, um, 13.5. The price is 10.6, so the price is less than book. It also scored for price is less than book plus 30. And, uh, uh, my nu uh, Tony Kynaston: And I just Cameron: my numbers are all screwed up. Now, Tony Kynaston: listening who’s Cameron: where did I do this? Tony Kynaston: it could possibly be that price is, uh, the price to net tangible assets is different to the ratio to price the book [00:44:00] because if they’ve had a. If they had write downs, it’s probably because they were carrying goodwill on their balance sheet. Um, you, I haven’t Cameron: Yes. Tony Kynaston: to do that, but people can check that, which doesn’t usually worry me. But, um, obviously they take a cash, write down, a non-cash write down, sorry, as an impairment if they, if they carry assets so they, with lots of goodwill on them and it hasn’t worked out. Cameron: Book value has gone from. 677, sorry, 767 million in 2019, up to 2.4 billion in 2024, but that’s down from 3.9 billion in 2023. There was a big spike there that was part of the top golf merger, um, in a couple of years. But then it looks like that’s been re-estimate. Um, my assumption is Tony Kynaston: cash writedown, non-cash writedowns being Cameron: the impairment. Tony Kynaston: the impairment. Cameron: Yeah. Tony Kynaston: [00:45:00] Mm. Cameron: I think the auditors decided those assets were no longer worth what they thought they were worth a few years ago. Um, so bottom line is. Interesting business. Doing okay, generating a lot of cash, had that re that write down, but outside of that, if you factor that out, still generating a lot of cash. Seemed to be doing a lot of good work to. Offload things that aren’t working. They seem to be quite nimble in terms of moving things around, are being infected by the tariffs are being affected in some shape, particularly the Topgolf thing with the slowing down of the certain parts of the US economy. But as you said, as soon as they rebranded as Topgolf ai, um, it’ll probably be worth trillions. Tony Kynaston: Yeah, Cameron: The current CEO will get a trillion dollar pay package like Elon. Tony Kynaston: see a, like a, a fat cat with a cigar sitting in a. at Topgolf saying, Hey, my AR robot’s better at your AR [00:46:00] robot Cameron: Yeah, maybe that’ll be the next thing. They’ll just, Tony Kynaston: your robot by, Cameron: they should be just selling golf robots that’ll go out and play it for you. You can just knock it out of your golf cart, let your robot go and hit the ball on your behalf. Tony Kynaston: is a golf robot, it’s been around for a while, called I and Mike. It’s, they test clubs, golf clubs with, it’s like a big swinging arm that, Cameron: Right. Tony Kynaston: Yeah, the golf, I, I Cameron: You can’t take it out on the course with you though. Tony Kynaston: no, can’t take it to the driving Cameron: You, Tony Kynaston: it’s in the driving Cameron: you, you got a, you got a robot, uh, golf caddy for your 60th birthday, didn’t you? A couple of years ago you used that much. Tony Kynaston: It’s, it’s clocked up over 500 kilometers on the course now. Cameron: Wow. That’s great. Well, um, when I start my robot company, you’ll be my first customer to buy a golf robot. I’m gonna come and sell you a golf, golf robot that’ll carry your bag for you, carry your clubs, and then hit the ball for you as well. And then go [00:47:00] get the ball Tony Kynaston: I just wanted to say that’s a great shot, Tony. Well done little golf clap behind. Cameron: just glazing you. Yeah, just to sit there and go. Ah, Tony, you are such a great golfer. Tony Kynaston: And they can carry my clubs. Yeah. it up for me. Cameron: Well, that’s my pick of the week. Tony is, uh, MODG, Mouli, the golf company. Tony Kynaston: Uh, Cameron: that Tony Kynaston: very good. Cameron: I’ll let you go to the horse races. Tony Kynaston: you. Cameron: You got a horse running today? Tony Kynaston: Chacha Changes Cameron: Ah, Tony Kynaston: horse. I named yes. Racing Cameron: yes. After. Tony Kynaston: which is closer to where we live than most racetracks. So yeah. And Roddy’s down with me this week, so we’ll jump in the car and go up there and. Have a bit of fun. Cameron: Well, good luck. I hope your horse runs well and has a win. Tony Kynaston: Yes. Well, do you think there’ll be robot horses or jockeys at some stage? Sue? Cameron: Absolutely. Yeah. Uh, it’s a bit like, um, [00:48:00] Mabb, Magnus Carlson says about. Chess, like we have chess software that can play better than any grandma, but no one watches chess. Computers play against chess computers. There’s no fun in that. Tony Kynaston: Yeah. There’s the thrill of the thrill of the, uh, animal and the jockey’s taking risks and all that kind of thing too. Cameron: Maybe when AI takes all of the white collar jobs, we’ll all have to become jockeys. Oh, by the way. Tony Kynaston: the poor horse that I have to ride Well, you know, there has been, um, attempts to computerize horse racing for a while. TAs have a thing called Trackside in there. TAs are betting outlets in Australia, and they have a, a thing called Trackside, which was a kiosk with a horse race. AI simulation, very high quality graphics and I guess some kind of randomized result, but you could bet on it, place a bet and then, know, um, a bit like roulette. I suppose the way that TBS work in Australia is everyone pulls their bets and the winner takes a percentage lesser commission. So TB didn’t really care which [00:49:00] horse won, but you know, it faded and died, didn’t have the glamor of going to the track. Cameron: So last week in Australia we had the major horse racing event of the year, the Melbourne Cup, and the, you know, you had given me your tips for it the day before. How did, how did they go? Tony Kynaston: of the tips got up. It won. Cameron: It won. Tony Kynaston: So I gave four tips, um, and one of them, one of them won. Cameron: Was it your first, your, your, your primary tip? No. Tony Kynaston: I think it Cameron: No. Okay. Tony Kynaston: 12, I think. Cameron: Right. Okay. Tony Kynaston: But my second tip did, and that was good. Cameron: Your second tip one. Oh, well done. Did you have money on it? Tony Kynaston: did. I won money on it. and I think the odds were about $8 50, so it makes up for the last six years of dud tips in the Melbourne Cup. Cameron: Oh, well done. Congratulations. Okay. Thank you, tk. Have a good week. Tony Kynaston: Bye. That was fun. Thank you. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn [00:50:00] more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your [00:51:00] investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives Here’s an update on the performance of the other stocks we’ve done as a pulled pork (deep dive) since the start of the show. Overall, not a bad run for 8 months. I note that ZEPP has given up some of its gains. A couple of weeks ago it was up 1500%! 

Nov 12, 2025

51m
17

Flying on Points: American Airlines (AAL) – QAV America #26

Episode Overview In this episode of QAV America, Cameron and Tony dive into a deep analysis of American Airlines (AAL) — exploring its towering debt, its loyalty program goldmine, and its future prospects. They unpack how AAL’s Advantage points system, underpinned by a major new 10-year co-branded card deal with Citi, might serve as both ballast and buoy for a company flying through turbulence. Along the way, they riff on the airline industry’s cyclic nature, the debt-leverage paradox, and the Piotroski F-Score quirks that make AAL intriguing. Climate change, loyalty economics, Pratt & Whitney’s cursed engines, and the Buffett-era lessons on airline KPIs all make an appearance. After the financial deep-dive, the conversation drifts into lighter territory—Scorsese films, Gravity’s Rainbow, and Cameron’s bruising Kung Fu grading. ⸻ Timestamps & Key Topics 00:00 – 03:00 Market chatter: US–China trade mood, inflation data, and QAV portfolio updates03:00 – 06:00 Portfolio performance review: strong gains in Australian holdings vs. US pullback06:00 – 08:00 Introduction to this week’s pulled pork – AAL (American Airlines); early data glitch, initial impressions34:00 – 39:00 After-hours chat: Scorsese’s After Hours, King of Comedy, and the perils of late-night Pynchon, Wing Chun grading recap – Cameron’s ribs survive another day Transcription Cameron: Welcome back to QAV America, Tony, episode 26. It’s a beautiful day. Tony in America, east Ballroom being torn down. President Trump’s Tony Kynaston: it Cameron: gonna meet with President Xi. They’re gonna do the greatest deal. You won’t believe how great this deal is gonna be. It’s gonna be the greatest deal of all time. It’ll last about a week. Then it’ll fall apart and there’ll be more tariffs. Uh, but meantime, everything’s going great. Market’s up. US market was up yesterday, supposedly on the, uh, joy that, uh, all the beef is behind them. Rare earth minerals will be flowing back into the United States. Tony Kynaston: From Cameron: We’ll see. Tony Kynaston: From Australia but um think I think the market’s up potentially more so on the fact that the inflation figures came in okay on Friday And Cameron: Did they? Tony Kynaston: So Cameron: Oh, okay. Tony Kynaston: that’s probably driving the Cameron: Interest [00:01:00] rates are being cut, Tony Kynaston: Uh I think the the central bank meets this week I’m not sure what day potentially Cameron: right. Tony Kynaston: I’m not sure Cameron: Ooh. Okay. Well, uh, before we get into my pulled pork for the week, I just thought I’d give an update on our portfolio and how things are going. Our US portfolio, which has been running, oh, here’s my, uh, smoothie delivery system. Thank you, dear. Uh, Tony Kynaston: Black belt smoothie delivery system brown belt Cameron: right. Yeah, the, uh, delivery, the delivery, the portfolio that’s been running since September, 2023. Uh, so a little over two years is up 57.6%, uh, versus the s and p 500, up 54.7%. So we’re beating the index just by a little bit, but that’s okay. That’s good. Um, the [00:02:00] pork situation, the pulled pork that I’ve done, uh, over the course of the show, I haven’t had a look to see how they are doing. Uh, where is that list? Tony Kynaston: that you were you were talking Cameron: Hmm. Tony Kynaston: portfolio’s performance and um for this financial year which in Australia’s only four months in cause we are 30th Cameron: Hmm. Tony Kynaston: June end of year Cameron: Hmm. Tony Kynaston: financial Cameron: Hmm. Tony Kynaston: And and that’s pretty good Do you recall those numbers Cameron: Yeah. Uh, well, I do, the Australian portfolio is up like 25% this financial year. Our financial year is, uh, from the beginning of July through to whatever we are now, end of October. I. For the calendar year, current calendar year, uh, our Australian portfolio is up 31% versus the benchmark. The index here, which is up [00:03:00] 14%. So a little bit sort of double the Australian market. So it’s going well year to date. Our US portfolio not doing so good. It’s down 16% versus the s and p 500, up 16, 17%. But as I say, every week, that’s because our portfolio was up so much. Towards the end of last year before Trump took over the White House, that it had a lot of gains and it’s come back. It’s not like the portfolio’s done badly, it’s just come back a lot from massive gains. At the end of last year, it was like Tony Kynaston: Must Cameron: incredibly inflated. Tony Kynaston: lots of work stocks in there Cameron: Well, it was Willis Lease Finance Company, which was the big one. It was up 300%. It’s now only up 175% since we bought it. I dunno how woke Willis Lease Finance Company is, but there you go. Tony Kynaston: Well it was a black Cameron: Um, Tony Kynaston: stepfather wasn’t it Very woke Cameron: what you, what you’re talking about Willis Lease Finance Company. It’s what you’re going for there. Yeah. Um. [00:04:00] Some of the companies, so I’m gonna do a pulled pork on American Airlines this week, but some of the ones that we’ve done over the last four or five months, just a review of how they’re doing. Some good, some not so good. Zim. Is down 20% since we talked about it in March. Uh, Methanex we talked about at the end of September is down 12. Titan Machinery is down 14. That’s so most of the down ones in terms of the up ones. Zep Health Corporation we talked about in July is up 1444% since we talked about it. Ford Motor Company that everyone said was carrying too much debt when we talked about it in May is up 23% since then. Uh, let’s see. Chemex we talked about in March is up 65% Canadian. Imperial. Bank of Commerce we talked about in May is up 30% since then, some big numbers. Sasol is up 28% since we talked about it in July. Precision Drilling Corporation is up [00:05:00] 26% since we talked about it in June. IHS holding, we talked about in May it’s up 27%, but. A couple of weeks ago or a month ago, uh, a 3rd of October, I did a pulled pork on community health systems. Remember them? Hospital rollup up, up 47% since I talked about ’em at the beginning of this month. Tony. Tony Kynaston: They mustn’t be doing vaccinations or dispensing time and they’ll that network Cameron: 47% since then. That’s, uh, kind of crazy ’cause it was sort of, it was a good story, but I didn’t expect that. Um, Tony Kynaston: and I Cameron: no one expects, Tony Kynaston: the point to make is Cameron: Hmm, Tony Kynaston: a lot of those stocks aren’t in our portfolio We you just pick a stock to do deep dive on from our buy list but we only change the portfolio over if something’s a sale and Yeah So we Cameron: wish I had put all of those in them. Tony Kynaston: Yeah So what that’s I guess what I’m getting that’s what I’m getting at I guess is that there are plenty of opportunities outside [00:06:00] our portfolio to to buy Cameron: Plenty of opportunities and things are going great and um, you know, I’m often seeing, as I’ve said before, people on the in value investing subreddit saying they dunno what to buy. And I’m like, are you kidding me? Opportunity everywhere. If you Tony Kynaston: what you’re talking about Willis Lease financing Cameron: Willis, lease Finance company. There are opportunities everywhere when we look at the US market and apply your QAV process to it. Well, this week I was gonna do Shell because you used to work for Shell, your old employer. They are on the buy list, but crude oil is a Josephine for us. Um, it’s in a sell state, so I thought I won’t do that. So I looked around and as every week most of the buy list is full of finance companies or shipping companies. That’s been true for the last six months. Still true today, and I’m sick of talking about finance companies and lease and shipping companies. So I’m always looking for something different. And this week I [00:07:00] picked a a l, American Airlines, which was on the buy list. Now I’m gonna preface it by saying. After I did three hours of research on it, I checked its chart and realized it’s a Josephine, which for us means it’s above its cell line, but below its byline. It’s recovering from a bit of a dip. No, sorry, it’s not a Josephine, it’s not even a buy. It’s not above its byline at all. Um. But that’s because my script, uh, had a bug in it. My US script had a bug in terms of doing the charting analysis. So when I was doing this yesterday, the current price was about $13 78. Buy price is actually $15 87, so we wouldn’t buy it unless it went above that. But it’s an interesting story and I wanted to do it anyway to get your thoughts on it, assuming that it does become a buyer. ’cause it’s, it’s got a lot of problems, a lot of possible red flags and um, it’s also got a big point [00:08:00] system and I know that you used to run a points based company here for one of Australia’s largest retailers. So, you know, points. Tony Kynaston: didn’t run up but had a yeah had a Cameron: CFO. Oh, I thought you were the CEO of it. Tony Kynaston: No Cameron: Okay, well, still a good story, Tony Kynaston: yeah I still have a fair bit of experience with the with loyalty programs for sure Cameron: right? So I’m looking forward to getting your thoughts on this when I run through it. Basically, American Airlines is a domestic heavy network with a loyalty cash engine. Lot of possible red flags, though. It’s all about the prm, Tony, that’s what I’m gonna call this episode. It’s all about the prm, PRM passenger revenue per available seat mile. Tony Kynaston: Oh yes Cameron: And it turns out if you don’t have enough prm, you fall into the chasm. Which is, uh, Tony Kynaston: Hmm Cameron: it’s a little thing. Cost per available seat mile is your [00:09:00] PRM versus your chasm, your revenue versus your cost. Tony Kynaston: Well it’s interesting because Warren Buffet who famously didn’t like buying airline stocks but did um he he came out he used the I think he called it um kilometers flowing per seat or something like that as an example of what he called the heavy lifting KPI he said every Cameron: Right? Tony Kynaston: one that just one it’s usually uh as a ratio like something per something Cameron: Yep. Tony Kynaston: yep And uh he used this one as as a as an example of what to look for when you’re analyzing industries and companies Cameron: The. I mean, Americans are gonna be very familiar with American Airlines. I’ve flown on ’em. You’ve probably flown on ’em. If you’ve flown on into America, around America, you’ve probably flown on ’em at some point. Giant passenger airline based outta Fort Worth, Texas. Uh, Fort Worth, Texas, by the way, birthplace of Shelly Duval. Larry Hagman, Ornette Coleman, [00:10:00] John Denver born Henry Don Duchen Dorf Jr. Probably a good thing that he changed his name Tony Kynaston: They call Cameron: the birthplace of Mark. Tony Kynaston: Not John Texas Cameron: Yeah. Not John Fort Worth, funnily enough, it just, it didn’t, didn’t, didn’t roll off the lips. And it’s also the birthplace of Mark David Chapman. Tony Kynaston: Ah gonna change my world except for Mark Cameron: Mark, David Chapman. Is he still around? I think he’s still around. Tony Kynaston: As you know I’m Cameron: A a l is the Tony Kynaston: cc documentary at the moment Cameron: Yeah. Yeah. Tony Kynaston: they went through how Brinkley was obsessed with taxi driver and was thought to have been reenacting the uh attempted presidential assassination and taxi driver when he when Brinkley shot um Hinckley sorry Hinckley shot uh Reagan Cameron: Yes. That’s the famous story Tony Kynaston: Hmm Cameron: and I’ve, but I’ve told you about Hinkley and his connections to the Bush family before. Right. It’s one of my [00:11:00] favorite conspiracy theories. So the Hinkley family. Also from Texas, one of the biggest, um, financial supporters of George Bush, senior’s presidential campaign. He was obviously vice president when Reagan was president. Uh, on the day that the assassination attempt happened, Hinkley’s older brother was supposed to be having dinner with Jeb Bush. They were that connected, the Hinkley and the Bush families, and then Hinkley tried to kill Reagan. If he had killed Reagan, George Bush Senior would’ve become president. And it never gets talked about the connection between the Hinkley and the Bush families. It’s like, I remember first reading about it 20 years ago and like going, holy crap, that’s crazy. Tony Kynaston: And Cameron: How come I’d never heard that before? Tony Kynaston: taxi driver instead Cameron: Blame taxi [00:12:00] driver. Yeah. So, there you go. Uh, any who? A a l largest airline in the world. In terms of passengers carried and daily flights, almost 6,800 flights per day to nearly 350 destinations in 48 countries, serves more than 200 million passengers annually. Averages more than 500,000 daily, has about 103,000 staff members. It’s huge. It’s a huge airline. Core business is selling seats and bags on mainline and regional jets. They have the AA brand larger jets. They also have smaller jets that are known as American Eagles for domestic travel. Also makes money from cargo fees, uh, and a loyalty machine called a advantage. That [00:13:00] is a big part of the story. This is where the loyalty program, obviously part of it comes in, they sell miles to banks Tony Kynaston: The Cameron: for co-branded credit cards. Yeah. In 2024 A a l generated record revenue of 54.2 US billion dollars and had record free cash flow of 2.2 US billion dollars. But it’s carrying a Titanic amount of debt, $32 billion in debt. It’s carrying. So, you know, we don’t, we’re not. Opposed to debt all the time. Debt can be useful. Tony Kynaston: And Cameron: Debt can be a source of leverage. Tony Kynaston: kind of company too They’re basically The opposite side to Willis Lease financing They’re always leasing aircraft from people so they’re always carrying debt They don’t buy the planes they probably couldn’t afford to So they lease them [00:14:00] gives em a lot more a lot more um leverage in terms of being able to operate a lot more if they lease them rather than buy Cameron: I don’t know what their lease versus buy ratio is, to be honest, but I know that there’s problems with a lot of the planes and I know also know that. Airline travel is, uh, easily disrupted. Obviously we saw during COVID, but there’s a lot of other things that can disrupt it, Tony Kynaston: Yep Cameron: which is part of the story. It’s, it’s a, it’s a difficult, difficult business. It’s a very difficult business to, to run. Tony Kynaston: also it’s often taken as the other side of an oil trade because as the oil price drops the profitability of an airline increases cause one of the biggest costs is Cameron: Yep. Tony Kynaston: Yeah Cameron: Anyway, a little bit of background sort of began during an amalgamation of about 80 small airlines in the 1920s. In 20 19, 26, there was a union of more than 80 small airlines, [00:15:00] and it was sort of run by an aviation pioneer called CR Smith. Pulled ’em all together. One thing led to another and they sort of start, I think in initially they were just doing, um, like, uh, cargo. It wasn’t passenger based. It was cargo flying stuff around and mail mail carriers and other sorts of cargo they expanded into. Then it moved into passenger airlines. Listed on the NASDAQ eventually, and they launched a advantage in 1981, which is apparently often cited as the modern frequent flyer template. They, if not invented it, came up with the model for how to make those sorts of things work. In 2011, due to a downturn in the airline industry, their parent company, the A MR Corporation, filed for bankruptcy protection. And then in [00:16:00] 2013, American Airlines merged with US Airways, but kept the American Airlines name because it was the be better recognized brand internationally. And it was the, the merger of those two that created the largest airline in the United States and, and eventually the largest airline in the world. So I wanna talk about the card deal that they recently did In December, 2024, they announced that they’d signed a 10 year exclusive co-brand deal with Citi, who were taking over the business from Barclays in 2026. And I don’t understand much about how these point systems work. Pay very little attention to them over the years. So you’ll be able to explain how this works to me. But basically, as I understand it, the bank pays the airline for the miles. People earn miles when they travel. The bank buys those off them and then uses them to get people to buy stuff [00:17:00] on their credit cards. Is that how it works? Tony Kynaston: Kind of yeah So uh are a product and so American Airlines make a margin by selling points to the banks who then um issue them on credit cards often funded by what’s called the interchange fee So the bank isn’t actually paying for it themselves they’re passing it on to the merchants who um Pay a fee when the credit card’s used in store Um so that there’s that But yeah so they might uh the airlines make money out of a margin on the points that are issued So they they sell points to the banks Um the banks use the the merchants or the the retailers to pay for that usually and that um Attracts people to use one particular credit card over another one cause credit cards are much of a muchness They tend to charge similar sort of fees and interest rates And uh then some will have points on a better deal than others And so [00:18:00] people uh You know almost religiously compare the points and go to the the card with the best deal best yield in in some respects So it’s good for the bank good for the airline They get a margin on the points they sell to the bank but also they get what’s called breakage So all the points get redeemed Um So people will collect points and never use them They’ll never ring up the airline and book a flight or these days it’s not just flights Of course you can get product um to redeem your points for as well And there’s a margin in that for the airline just as there’s a margin if they take a flight the airline makes a margin on that as well So the cost of the points used to book the flight is still providing a margin to the airline Um but there’s a breakage so people don’t redeem all their points and so their points lapse Oftentimes these points come with a life cycle so after three years or five years they’re worthless if you haven’t used them by then then it’s it’s actually a hundred percent margin to the airline And [00:19:00] then you’ve got um and you’ve got a thing called the redemption rate So what percentage of the points are going to be redeemed anyway Um for what things And then that there’s a fair bit of actuarial work that goes on behind the scenes to tweak what products are offered what the number of points are for those products be they airline tickets or shavers or toasters or whatever um And then how many points are being redeemed for those things And it’s a big a big math puzzle So you a an actuarial will have like a three year if the life of the points is three years by month historical profile of who’s redeeming what and for what And then they’ll say okay we think that if you issue a new point now I’m just picking a number here 60 of those points will be redeemed and they’ll be redeemed for these things and therefore you should price the point at this much And so airlines are always juggling that So it’s a a fair bit of math goes [00:20:00] into it and um yeah it’s it’s a big big machine but it’s designed to make money for the airlines Cameron: Wow. Tony Kynaston: Hmm Cameron: Well, in AALS case. They earned roughly 5.6 billion in the 12 months, which ended 30th September, 2024. From cash remuneration, from co-branded cards and other partners, but starting 2026, they’re making Citi the exclusive issuer. They expect to make more money out of that reducing, reducing overlap, and competition between issuers, reducing carve outs. And they’re expecting the amount of cash that they get out of the card to, or the point system to go from 5.6 billion to nearly 10 billion annually under the New deal. So that’s going to result in 1.5 [00:21:00] pre-tax income, an extra 1.5 pre-tax income at maturity. So it’s a good deal for them. That’s gonna bring in a lot of extra cash. And it’s, as I understand it, it’s sort of. Um, there’s a bit of a buffer to the fuel prices and the, you know, problems with engines and planes and flights and all that kind of, the waviness of their regular business, right? Tony Kynaston: we did I did a pulled pork on Qantas the Australian airline Cameron: Mm-hmm. Tony Kynaston: for our Australian show the last year or the year before And I think from memory the points business there be similar to American Airlines I would think was a third to a half of their profit something like that Um think from memory Qantas made no money or almost no money out of international travel A lot from domestic and a lot from points and Cameron: Right, Tony Kynaston: time to time there’s always talk about spinning off the points business cause it’s as a standalone business it’s it’s quite profitable Um Cameron: Mm-hmm. Tony Kynaston: And so that’s always up the sleeve of airlines like [00:22:00] American if they do get into trouble with debt or whatever else to potentially spin it off and get a big cash injection back into the underlying Cameron: Mm-hmm. Tony Kynaston: doing that Cameron: Well in terms of their mix of their operating segments, it’s basically all fits under air transportation. But they do break it down by business line and geography. But the basic breakdown is domestic is about 70% of passenger revenue, um, and the international split Latin, Atlantic and Pacific. And, uh, cargo is sort of fairly small single digit. Ai, uh, sorry. A, a advantage a a di It’s very hard to say that A advantage Tony Kynaston: Great Cameron: uh, really the high margin side of the business, but it’s discounted, um, which is why it’s turning up on our buy list. And I was trying to figure out why the market is [00:23:00] discounting it. It seems to be a number of reasons. I mean, airlines are cyclical, capital hungry, weather exposed, exposed to labor, exposed to fuel, exposed to problems with engines, which is a big thing. Um, and a a l is also much higher leveraged than its peers are apparently carrying way more debt. But then they, they’ve got these problems. Well, it’s an industry-wide problem at the moment with the Pratt in and Whitney Engines p and w, they’ve got the GTF Family of Engines geared Turbo fans, particularly the PW 1100 G hyphen jm. It’s personally my favorite engine. It’s used on many Airbus aircraft, a three twenties. It’s been hit by a manufacturing floor contaminated powder metal in parts used in high pressure [00:24:00] turbines, which can lead to cracks and early removals. So this is. Leading to a lot of, uh, maintenance that needs to happen to aircraft. They’re grounded, means lost flying capacity, fewer seats, lower revenue, et cetera, et cetera. So the question for American Airlines isn’t whether or not they’re exposed to this, they are. It’s just how much the ripple effects are gonna hurt their revenue this year. Add in labor inflation. There’s some soft spots in domestic demand, and basically they’re trading at a fairly low multiple at the moment. And all of the debt, which they’re carrying, which has got the market a little bit scared off, apparently the 32 billion, they have been paying off the debt and paying it down. And that means they’ve got a good Petrovsky F score. So their Petrovsky F score is an eight out of nine. And so I was trying to figure out. If they’re carrying so much debt and that is such an issue, why do they have such a strong F score? [00:25:00] But of course, the F score is a trend score, like the financial trend we use in Stock Doctor. It’s not an overall financial health score, it’s a trend score. So there. Paying off the debt. Their situation is improving year over year, so their F score is pretty good. Doesn’t mean that they couldn’t run into problems with that amount of debt, just that they’ve been. Improving their situation over the last couple of years. So they’ve moved from bad towards less bad. Maybe they’re paying debt down, interest coverage is improving. Margins have normalized post pandemic cashflow has returned, so that’s ticking a lot of the F score boxes. Profitability has returned since, um, the COVID days, but, uh, it doesn’t necessarily mean they’re out of the woods. So I think there, you know, I think the market is looking at the fact that there [00:26:00] could still be lots of crises with the US economy if the economy collapses airline. See, sales could take a big hit. Whatever happens with the US and China could, you know, have an impact on, uh, flights both domestic and international. Um, so the, the market’s factoring in a lot of possible problems. There’s a lot of things that could go wrong with the business. Whereas we tend not to forecast and you know, we don’t tend to look at macroeconomics or anything like that. We just look at the numbers and from our perspective, it looks pretty good. There is one other issue though, that I wanted to talk about, which is climate change In terms of flight issues. Climate change is apparently one of the biggest problems for airlines. Right now is extreme weather events that are impacting on, Tony Kynaston: Run Cameron: um, [00:27:00] flight patterns. Extreme heat causes air density to decrease, which makes it harder for planes to take off, causing the airline to burn more fuel, and therefore affecting both profits and. The planet Tony Kynaston: Yep Cameron: high temperatures can also affect the weight limit, which reduces the maximum revenue generated by each flight. A Harvard University study estimates that 30% of the flights departing during the hottest times of the day will not be able to carry their weight capacity by 2050. Tony Kynaston: I hadn’t thought of that but it makes sense Cameron: Yeah, me either. So there are, there are some of these impacts or some of these things about climate change that are gonna have, you know, real, are having and will continue to have real impacts on businesses like this for reasons that are aren’t obvious to lay people outside of the industry. Tony Kynaston: hot was it in Brisbane where you are recording yesterday Cameron: Uh, 38 [00:28:00] degrees Celsius. Uh, Tony Kynaston: I Cameron: well, yeah, still in spring Convert 38 C to F Chat, GPTI used to be able to do this in my head when I spent a lot of time in the us, but now it’s been a while. Tony Kynaston: a Cameron: That’s it. A hundred 0.4. Officially. Yep. That’s a fever, says GPT, uh, step-by-step. So we don’t commit arithmetic war crimes. I thought it was antisemitic. War crimes. Okay. Um, so yeah, it was hot. That’s, that’s unseasonably hot for, uh, Brisbane, which does get a bit warm. But even so. So, you know, basic analysis, my basic analysis of this is it’s a, it’s a miles mint. It’s generating, you know, six now, soon to be $10 [00:29:00] billion a year in just easy cash coming from these miles. Uh, it’s got the largest airline in the world, largest in America. Debt is shrinking, but. You know, with a lot of possible problems, but that’s what we pay the management to navigate, is to figure this shit out. Right? They’re professionals, that’s what they’re there to do. Tony Kynaston: correct But but also too I’m guessing you’re gonna get to the Pr/OpCaf figure um which is gonna solve a lot of problems Cameron: Yeah. So I’ll get into the numbers. So. At a QAV score level, it’s, it’s a 0.21. It’s, it’s quite, quite a ways. Down in my US buy list, it’s probably in the top 30. Uh, but, you know, uh, uh, uh, I went down that far ’cause I’m looking for interesting things to talk about, as I said earlier, but it’s prop cap is 2.41 price to operating cash flow. Tony Kynaston: You’ve gotta do a lot of things wrong with a company that’s that’s [00:30:00] producing that much cash Cameron: The largest airline in the world generating $6 billion a year in revenue from, um, just points, selling points, let alone everything else. Uh, yeah, like it, it, it seems like, uh, easy, easy money, right? Tony Kynaston: cash Cameron: Yeah. Average daily trade is, uh, just short of a billion dollars, uh, 979. Million dollars average daily trade. Uh, in terms of the scoring, it’s got a quality rank of 64, so we score it for that. It’s got a stock rank of 96, so we score it for that. It’s got an F score of eight, as I said, so we score it for that. It doesn’t score. It’s, it’s, uh, above our intrinsic values. Our IV number one is $4 52. Price is currently 1378. Our IV two is $5 [00:31:00] 87. So it doesn’t get a score for either of those. Doesn’t score for price less than book because the book value is negative 4 billion. So, yeah. Tony Kynaston: interesting Cameron: yeah, it’s not getting a score for that. Tony Kynaston: Negative 4 billion for book failure Wow Okay Cameron: Yeah, which I just, you know, that’s the amount of debt, uh, less, you know, assets, less liabilities that they’re carrying. Growth over PE is not greater than 1.5, so we’re not scoring it for that book value. Growth is not positive. It’s, uh, very much not positive. Couldn’t score it for anything else really. So, uh, in our checklist, total number of items was 12, got a score of six, which is a 50% quality score from a QAV perspective. It’s not as high as we would like it to be, but with that prop calf, you know, it, uh, shoots, it, shoots out the lights pretty well for, from a QAV score [00:32:00] perspective. But as I said, a lot of issues, a lot of potential problems. But I don’t know. Tk, what do you think? What, what, what’s your analysis on something like that? Tony Kynaston: Well Cameron: the numbers. Tony Kynaston: Yeah Well it just reminds me of Qantas so much really And that’s been on our Cameron: Yeah. Tony Kynaston: list for a while now and it’s done incredibly well for us over the last couple of Cameron: It’s done well. Tony Kynaston: Yeah again when when a stock likes Qantas comes on the buy list people say oh you know it’s an airline who wants to own that And um it’s got plenty of debt and blah blah blah Lots of issues I you know how could it do well And it’s doubled in price over the last year or so So Cameron: Yeah. Tony Kynaston: Yeah Does having a high prop calf really does give management a lot of tools to work with to solve these problems Um Cameron: Prop or a low prop calf. Tony Kynaston: uh low prop cap Sorry High high cash flow Cameron: [00:33:00] Yeah. Tony Kynaston: Yeah was just trying to find the the what the um book value was for Qantas If I can quickly it might also have a negative book value Um just let me have a quick look In other words it might be endemic to the industry that they you know they run debt loads cause they’re carrying all these leases on uh on planes Yeah can’t find it quickly per share equity per share is positive for a QAs but it’s only about 50 cents and the share price is 10 bucks So it’s it’s you know almost zero really equity per share So it’s a similar sort of not as bad as American Airlines in terms of its debt load but it’s it’s to me it looks like it’s trying to balance its its debt to equity Cameron: Yeah. They’re like a, yeah. Almost an even situation. So that is, uh, American Airlines. That’s all I’ve got with that. But as I said, Tony Kynaston: isn’t it Cameron: [00:34:00] not quite a buy for us yet. Its price would need to get up a little bit more to get over the byline. So we would be a watch and see for us. But, uh, yeah, if it got over the byline, I’d probably give it a shake. Tony Kynaston: Yeah Good Cameron: No, that, that would change the prop calf too slightly. If it, if it got up, went from 14 bucks to over 15 bucks, it would change the price caps price to operating cash flow slightly, but I don’t think it’d have a dramatic impact on it. Tony Kynaston: No Cameron: Tony, well check that one out. Folks, if you’re, uh, looking for something, put that on your watch list. Perhaps a a l Do your own research though. Well that’s the main part of the show. We got nothing for me after hours, Tony? Tony Kynaston: Uh, Cameron: Yeah. Tony Kynaston: working my way through Scorsese, which is just brilliant, just loving it. Um, equally is interesting to go through all the low lights of his career when he made movies that weren’t as, um, well received, like Udan. And, [00:35:00] um, you know, he, he made a small movie, which I love, called After Hours, which didn’t, which did okay. he Cameron: Man, I’ve, Tony Kynaston: Bringing Cameron: I only heard about, so I only heard about after hours like a few months ago and I’ve been trying to track it down. I watched the trailer. I’ve been trying to track down where to watch it. It looks great. Tony Kynaston: is great. Griffin Dunn stars in it, and it was Cameron: Yeah. Tony Kynaston: Scorsese he come, what was he coming off the back of? He came off the back of a flop. Oh. King of Comedy, I think. And, um, Cameron: King of Comedy be a flop. It’s like, it’s a great movie. King of Comedy. I think they, Tony Kynaston: Wasn’t well Cameron: it was just, Tony Kynaston: out though. yeah, Cameron: yeah, really just to like, sort of that dark comedy thing. People didn’t associate Scorsese with that. Tony Kynaston: yeah. And, and he, the way he tells it, it was more of it, the Niro vehicle. The Niro really wanted to make it, and Scorsese’s heart wasn’t in it so much. So, um, that was interesting. But, um, yeah, I Cameron: Sandra Bernhardt, [00:36:00] Jerry Lewis. Tony Kynaston: Yeah. Cameron: Great. Tony Kynaston: Great. Uh, so they shot, the way they shot it was, um, had all these scenes where Jerry Lewis would be walking down like Fifth Avenue or New York or something, or going to 30 Rock or whatever to um, shoot something. And, um. You know, Scorsese be pulling his hair out saying, we gotta have the extras here. They gotta be doing this. Lewis said, no, just watch. Roll the camera. He started walking down the street and cars would pull up, Jerry, how you doing? And he just sort of wave and keep walking and people would come up and he signed all the grass and just keep walking. Completely unscripted. But he knew exactly what would happen if he walked down the street. Cameron: Yeah. Yeah. Wow. He’s Jerry Lewis. Yeah. Tony Kynaston: Yeah, So, but, but great. And then they go through the last temptation of Christ, which was fantastic. And know, how, how the Christian Right. You know, took up arms against it and he had to wear a bulletproof vested the Academy Awards that year and all this kind of stuff. So yeah, just amazing. series. Great [00:37:00] series. Cameron: I look forward to checking it out. Um, by the way, I did mean to mention I checked my audit script. It does look for disclaimer of opinion. Yeah. It didn’t have DGL because I think the last time I ran it, it was before the report came out. I ran it in September, so I’ve gotta run it again. I’ll have to, Tony Kynaston: Yeah. Cameron: all the major reports would’ve been out by then, but I’ll have to, I might just set it to run once a month. Tony Kynaston: Yeah. It’s a good idea. Cameron: Alright. What else you got? Tony Kynaston: No, that’s it. Horses are racing. So I got, um, lake Forest on Wednesday, Bendigo Cup dates racing there if this goes out in time. And then, uh, qua doto next week, uh, perhaps on Melbourne Cup Day, but also perhaps on kind in Cup Day the following day in, on Wednesday next week. Cameron: Fine And cup day, is that what you’re calling it? Tony Kynaston: Yep. Cameron: Hmm. Tony Kynaston: Jenny and I are going up for it too. We’ve got a event up there. We’re going to, it’s a good idea. I’ll call a, I’ll walk in and say, uh, Cameron: Hmm. Tony Kynaston: better let me in. Yeah. Cameron: Eson Cup Day. [00:38:00] Uh, well, I, what am I, I’m still reading Gravity’s Rainbow. Not sure I’m gonna continue with it. It’s too, too convoluted to read at midnight. I’m like, what the hell is going on with this? Um, Tony Kynaston: It Cameron: yeah, it’s about it, Tony Kynaston: convoluted story. Cameron: man. I was talking to ChatGPT, GPT about it ’cause I have to look stuff up, like, what’s he talking about here? Because he’s like, so many sort of scientific and historical references, just absolutely embedded in it. And I’m like, what’s this? What’s that? What’s the other? But, um, I kept saying, I thought this guy was the protagonist pirate. There’s somebody. He goes, well, no, he was for the first 30 pages. Then it flipped to this guy. And eh, it’ll flip back to Pirate, but it’s not, you know, it’s, it’s all over the place. Tony Kynaston: Yep. Cameron: Keeps you on your toes. Um, finished. Elephant Man. Loved it. Um. But, you know, again, sort of beautiful, [00:39:00] very, very simple, sweet, sad, sort of a story. Not, uh, your typical Lynch vehicle, although at the end when he, I dunno if you remember, but at the end as he’s dying, spoiler alert, people haven’t seen the film from 1980. Um, the face of his mother appears in space and just sort of hovers there. Very Laura Palmy. Like it’s got this whole sort of, it finishes with a sort of a preview of Laura Palmy sort of head in space dead something, something which, you know, and Twin Peaks didn’t come out for another 10 years or whatever it was. Was it 1990? I think Twin Peaks. But anyway, um, yeah, that’s about it. Oh, we had a karate grading, uh, karate kung fu grading on Friday that went well. No broken bones. No broken noses. Uh, we survived that. Tony Kynaston: So take us through it. You were beset by attackers for an hour or so and you had to fight them off. Is that how it [00:40:00] goes? Cameron: Well, two hours. Uh, the first, first 90 minutes was probably demonstration, so we have to do our techniques. Dummy sets, forms paired up with one person who’s like a black belt. Usually they’re throwing random punches, kicks, whatever at you. And see if’s like, show me this, show me that. Show me this technique. Show me that technique. And you just have to stand there and block and counter punch and counterstrike sweeps. We did a lot of sweeps. Hit ’em, take ’em to the ground, punch ’em in the face. Didn’t do baseball, bat or knife defense. Um, he didn’t, we ran outta time. I think there was so much stuff he wanted to see and we just ran outta time for that, unfortunately. Then, oh, and the dummy section of the wooden dummy. We had to get on the, do our dummy sets on the wooden dummies, all that kinda stuff. Then sparring. So then we did like, I don’t know how long the sparring went for. Felt like an hour. It was probably 10 minutes actually. It was, I think we went through about 15 rounds [00:41:00] of sparring, 15 to 20 rounds of sparring. And I think they went for two minutes each. So yeah. What is, so it was probably half an hour to 40 minutes of sparring. And the guy who was with me at the end, he said to me afterwards, I kicked you in the ribs and you didn’t flinch. I thought, oh, Cameron’s done. And I said, ah, just, I, I was just too tired to block it. I just thought, ah, I’m gonna wear it. And he said, yeah, but you didn’t even move. You didn’t even try to block it. I was like, yeah, I was too tired, man. Too tired to try and block it. But that was good. I was really proud of Chrissy. She did really well. Um, uh, so yeah, our next, uh, belt is our black belt, so we’ve probably got 18 months to get ready for that. So. That’ll be the next thing to do. Tony Kynaston: Does that mean you can go out and become a kung fu trainer or a sifu and open up your own, what do they call ’em? Doge. Cameron: Jojo. That’s Japanese. Yeah. We call him a Kon in Chinese. It’s a [00:42:00] Kon. Uh, well, possibly, yeah. Bruce Lee only did like two years of Wing Chung and he went to America and started his own school of Kun Do. But um, yeah, I don’t think that’s in the cards. Although when AI takes over everything, then maybe teaching kung fu is all we got left till the robots come and teach Kung fu. I saw Elon had his robots doing kung fu demonstrations this week at the, at a movie premiere in la Tony Kynaston: Were they plugged in or were they autonomous. Cameron: No, it was a Tron, uh, premiere, I think. And he had a, he had a one of his robots out the front doing kung fu. So that’s that. Alright. Alright. Quite a good week everyone. Thank you TK Tony Kynaston: Bye. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our [00:43:00] website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. [00:44:00] The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Quote of the day: “As the physicist Richard Feynman said, ‘Science is what we have learned about how to keep from fooling [00:45:00] ourselves.” The Beginning of Infinity David Deutsch Free Podcast Archives 

Oct 30, 2025

45m
16

Keep CALM and Trade On – QAV America #25

**Episode Overview**In this episode of *QAV America* (Ep. 25), Cameron and Tony unpack a wild few weeks in the U.S. markets following Donald Trump’s latest tariff threats on China and the subsequent “birthday crash.” They discuss Australia’s surprising role in rare earths, portfolio moves including DAC and GTN, and new additions VSAT and RNR. The main feature is a deep dive into Cal-Maine Foods (ticker: CALM), America’s largest egg producer, exploring its scandal-ridden history, DOJ investigations, and surprising fundamentals. From “egg cartels” to F-scores, the duo balance analysis and absurdity, topping it off with film talk (Scorsese, Lynch) and kung fu bruises. — ### ⏱️ **Timestamps** **00:00** – Market chaos, Trump’s tariff tantrum, and rare earths politics**06:30** – Australia’s rare earth advantage and Gina Rinehart’s role**10:00** – Portfolio moves: selling DAC and GTN, buying VSAT and RNR **18:00** – Portfolio performance update and lessons from volatility**22:30** – *Pulled Pork:* Cal-Maine Foods (CALM) deep dive **52:00** – After Hours: Scorsese, *Taxi Driver*, Lynch’s *Elephant Man*, and kung fu chaos Transcription   Cameron: [00:00:00] to QAV America, Tony, episode 25. We’re recording this on the 21st of October, 2025. Well been a big couple of weeks in the US market. Tony, uh, Donald Trump. Crash the market again on my birthday, October 10th. It was his, uh, birthday present to me, which I appreciate. I’m wearing your birthday present to me. My fight club t-shirt, um, was good ’cause I had a broken nose and black eyes when you sent it to me. That was fun. Uh, but Donald Trump threatened massive increases in US tariffs on Chinese imports, following China’s announcement of stricter export controls on rare earth elements. And the market predictably crashed and then he said, uh, 10 days later, yesterday, today when meeting with our prime Minister, Anthony Albanese, our KAKA [00:01:00] Albo. For the Americans. That’s what we call our prime minister here. That’s the amount of deference you get as a Prime Minister in Australia. We call you Albo. He had a fantastic deal he’s gonna put together with China after a fantastic deal with Australia. I mean, I don’t know. I don’t know about you, but I think Albo was very happy. About the, uh, announcement of the rare earths deal from China, because it gave him a really good chance to have a really great meeting with President Trump. They had something that they both wanted to talk about, gave Trump a good positive news release. Our former Prime Minister, Kevin Rudd, who’s the current, uh, ambassador, didn’t have as good a time with President Trump. He said, I don’t even know who you are and I don’t like you, but it’s all forgiven. He said, immediately afterwards. Tony Kynaston: Yeah, it’s, it’s, it’s, um, it’s hard not to like someone you don’t know, but I, I take. I take Cameron: I dunno. I, I, I saw, I, I had a look [00:02:00] at Kevin Rudd’s face and decided I didn’t look at him too. Tony Kynaston: he is. He’s Trump’s not alone is he. Cameron: No, no, no. Tony Kynaston: gotta say Australia saves the day again. we elbow’s ridden into the US with a mineral, a rare minerals agreement. You know, hold my beer. I got this. We got you want rare minerals. Let’s do a Cameron: yeah, Yeah. Tony Kynaston: yeah. Cameron: yeah. G Gina Reinhardt to the rescue. ’cause she controls a lot of what we have apparently. Uh, but just to put it in perspective. Australia is the fourth largest producer of rare earth minerals in the world at present on track to be number two, I believe. But China controls 70% of the global market and even an A larger share, 85 to 90% of the refining and processing capability globally. Tony Kynaston: which is important. Cameron: if we can dig it out the ground. We need to send it to China to get [00:03:00] processed probably. So you know they, Tony Kynaston: called Linus, which has got a plant to process rare earths minerals in, say the Philippines. I think somewhere in Southeast Asia. Cameron: Hmm, Tony Kynaston: easy. There’s been a few with the local government over it, but um, yeah, there is a fallback. Cameron: right. But anyway, the market recovered. Uh, it tar and, uh, everything’s back kind of to where it was pre the announcement. So the frothy market is back, and I did have to sell a couple of things though in that period, uh, out of our US portfolio, which is rare. So I had to sell DAC Dan aos, a Greek shipping company that I had owned. For quite a while and got to sell it at a profit too, but it broke our three point trend line sell trigger for new listeners. Uh, we try and hold [00:04:00] for as long as possible when we buy a company, but we do have a couple of sell triggers. One of them is a three point trend line sell. We’ll track it on a five year, month end. Graph and if it breaks through that support line, we’ll sell it. And this did, but I still managed to sell it at a 5% profit. Plus there were dividends over that period as well, which don’t get factored into stock edia. But, uh, neither does the s and p five hundreds dividends, so it all tracks. Okay. So we sold it at a 5% profit. I also had to sell GTN the TV guys. Tony Kynaston: really? Cameron: came back quite a bit and also became a three point trend line sell neutral result for us. Plus, there were dividends factored into that one as well. And I added two new companies to the portfolio, VSAT via sat, a global tech, a global communications company, has defense and advanced technologies. It’s up [00:05:00] 7% since I bought it. Which is pretty good. And Renaissance Air Holdings, RNRV, SATs on the Nasdaq, RNR is on nzi. Um, it’s a global provider of reinsurance and insurance companies. It’s down 5% since I bought it, so they kind of six seven is the kids say you don’t have kids, so you probably don’t know that, but six seven. Six seven. Yeah. God. Thank think yourself. Lucky you don’t have a 11-year-old boy right now ’cause that’s all you hear all day, every day. 6, 7, 6, 7. Tony Kynaston: okay? Cameron: and I probably should have done a pulled pork on one of those today, but I’m not. Because I wanna talk about eggs. But before we do that, um, I’m also gonna talk about our US portfolio, which is not having a good time. Quite honestly. It for the Cal, for the 12 month period, it is down. 17% versus the s and p [00:06:00] 500, which is up nearly 15% year to date. It’s down. Well, about the same actually. So it’s all started. It started when Trump took office. Whether or not that is coincidental, I don’t know, but uh, for the. All time since inception, which is September 20, 23, little over two years, our portfolio is up 56% versus the s and p up 51.5%. So we’ve. We were doing triple the SMP going back to late last year and now we’ve come back to even Stevens. So has not been a great year for our portfolio, but it’s still doing okay. Like all in all, all told we’re beating the index so over two years, which is fine, up up nearly 60% in two years. Like no rational investors gonna [00:07:00] complain about that, but I. It has not been a good year for our US portfolio. Not that anything is done particularly badly. I mean, I’ve had to sell a couple of things. Everything’s doing okay. It’s just come back from insanely good highs, as I say, every week, but I’ll say it again. Willis Lease Finance Group, which is our best performer, was up like 300% late last year. Now it’s only up 174%, so it’s lost a lot of gains, but still it’s up. 174%, uh, since I bought it in November, 2023. So two years up, 174%. I’m not complaining. It’s doing okay. But the company I’m gonna do a Paul pork on today, Tony is Palm, CALM. Keep calm and keep trading trade on. Tony Kynaston: what we need When the [00:08:00] portfolio comes back to the index isn’t it Cameron: keep calm. Keep calm. Great Ticker. I had to do it. I saw that I had to do it. The company is actually called Cal Maine, and they are the largest egg business in the us. The largest producer and distributor of fresh cell eggs in the United States. Guess you could say they’re an excellent company, Tony, an excellent stock. But I’m not sure if I’m gonna call this episode number one in the pecking order or the Bad Egg. ’cause they’ve had quite a few scandals. Tony Kynaston: Oh really Oh dear Cameron: Yeah, yeah, yeah. Well. But, but before we get into that, couple of things I wanna point out. If anyone’s thinking about investing in them, we wouldn’t right now, because they are a Josephine No, actually, they’ve kind of rebounded from a Josephine. They were a Josephine. So from our perspective, a Josephine is a stock that is above a byline above our cell line. [00:09:00] But it closed or its price was less than the end of the previous month. It, it has come back from its peak, but it’s rebounded from that. So it’s still above, its. Bylines in its latest bylines, so it’s probably still okay. But there is a egg commodity. You know, we, we love to track underlying commodities and this has an egg commodity. There are, there is an an eggs US commodity that I found on trading economics.com eggs, us and eggs are currently a three point trend line cell. Tony Kynaston: That’s why the prices are down probably and calm Cameron: Yeah, well actually it’s, it’s a Schrodinger. Um, so for new listeners, what we call a Schrodinger is when it’s simultaneously above its byline, but below its cell line. So it is both things at the same time, like Schrodinger is cat. Uh, until you look at it and then you go, okay, well it’s below its cell line, so it’s a cell not that far below its cell [00:10:00] line, so it doesn’t have to recover much to get back above. Um, but it is so, uh. The way QAV works. If we have a stock that has an underlying commodity and that underlying commodity is in a, is not in a buy position, we won’t buy the stock because experience shows that stocks tend to follow with a bit of a lag. They’re underlying commodity, but eggs are a messy business as we’ll. See, Tony, there’s a lot going on with eggs in the US market and in the Australian market, to be fair. Egg had been big. Uh, see, I could have gone with that too. So many egg jokes that we could make. Eggs had been big news in the last year, uh, in the us. I remember Donald Trump talking about egg prices during his campaign. How day one, two things he was gonna do on day three. Things he was gonna do on day one was bring peace to Gaza, bring peace to Ukraine. [00:11:00] And get the egg prices to drop. He did none of those three things on day one or day two. Uh, he has got some sort of a peace deal in Gaza now it seems. They had to flatten Gaza and kill everyone first, but, uh, some sort of a peace deal there. Although I. I don’t think that, and the egg price eventually came down. It went up for four months, five months after he got elected, but it started coming down a couple of months ago. Um, so. Egg prices have surged in the last five years due to combination of things. COVID was one, avian, flu was another one. Supply chain issues. I read that at one point US federal agents were seizing eggs more often than drugs at the US border. I’m surprised he’s not. Bombing Venezuelan boats for trying to get eggs to the US. In March of 2023, consumers were paying [00:12:00] six to $10 a dozen for eggs Tony Kynaston: Mm-hmm Cameron: uh, sort of pre COVID. So egg prices had gone nuts. Um, as I said, Trump said he’d reduced the price when he got into office, uh, but he tared the eggs instead, they went up. Um, and I love an egg taco. You can’t go wrong with an egg taco. It was like a breakfast burrito, basically breakfast burritoed the egg prices for a few months. Can’t go wrong, right? Tony Kynaston: Hmm Cameron: But they came back down eventually. Um, in Australia at the moment, eggs are about five to seven bucks a dozen 11. If you’re going organic, according to. Cage free. Well, I think cage free. You can get cage free, sort of, uh, down the cheaper end of the range, depending on which, if you get like a home brand, Kohl’s or Woolies, it’s sort of five, six bucks. Um, according to Fred, uh, the US BLS. Bureau of Labor [00:13:00] Statistics, um, average retail price for a dozen large great. A eggs in the US is about US $3 59, which is about five 50 Aussie as of August, 2025. So about the same there as it is here. But it is, as I said, a commodity cell at the moment. So the backstory to Cal Maine, which is spelled C-A-L-M-A-I-N-E, uh, surprisingly, they’re not based in Maine Tony Kynaston: California Cameron: No, none of those things, so I dunno why they’re called this, but they are the largest producer and distributor of fresher eggs in the us. Uh, plus a range of specialty eggs, cage-free, organic, free range past your raised, nutritionally enhanced. They also sell egg products and prepared foods, hard cooked eggs, liquid frozen eggs, egg wraps, [00:14:00] protein pancakes, crepes, and. Omelets and they do private label for big grocers. So pretty much they do hatch to carton to store. They cover the whole egg value chain? Tony Kynaston: Do they sell chickens as well Like it’s is it like the company in Australia called Ingham’s Cameron: No, Tony Kynaston: Okay Cameron: eggs and egg related products to the best of my knowledge. Um. Tony Kynaston: should them Hey I got an idea Cameron: Sell chickens as well. Well, that’s how they did start though. So the history go. The founder was Fred Adams, Jr. He was, uh, the lesser known member of the Adams family. He was raised on a Mississippi farm, purchased a used truck in 1957, started delivering feed to rural areas surrounding Mississippi’s Capital, Jackson, not to be confused with, uh, the other Jackson, I think Michigan Tony Kynaston: [00:15:00] harder than a proper sprout Cameron: Jackson. uh, financial that I talked about on an earlier show that had based in Jackson, Michigan. This is Jackson, Mississippi. Later that year, he started his first chicken farm on leased property and began his first commercial laying operation in Mendenhall, Mississippi in 1958. In 1963, they built the world’s largest egg farm in Edwards, Mississippi in 1969 Adams Foods, as it was then known, merged with Dairy Fresh Products Company of California and Maine, egg Farms of Lewiston, Maine, creating Cow, Maine Foods, Inc. Supplying eggs from California to Maine. Floated on the NASDAQ in 1996. So there you go. Quite a story. It’s all about eggs. Tony eggs, eggs, eggs. [00:16:00] Market cap of about $6 billion and I dunno what their current numbers are, but at the conclusion of 2019, they had a flock of 45 million laying hens. Can’t afford to sell ’em. They’re working. Chicken, chicken Run those anime, those, um, whoever those films are. Mel Gibson, Tony Kynaston: He was one of the Cameron: is he in Tony Kynaston: I think of the hero on Cameron: Really? Chicken Run? Wow. Tony Kynaston: Alex Cameron: an and Tony Kynaston: Yeah Cameron: Chicken? Any who? Um, yeah, so that’s the Fred Adams story. Couldn’t find anything else out about him. Now they have been racked with scandals though, and lawsuits and there, and there’s an investigation going on at the moment, which might explain why it’s showing up on our buy list is currently undervalued. Tony Kynaston: Mm-hmm Cameron: the COVID-19 pandemic, uh, [00:17:00] they increased egg prices over 300% from a dollar to $3 44 a dozen, and they were sued by, I think it was the Texas Attorney General during this period. Who said the price? Tony Kynaston: Egg Glu Big Egg Cameron: Yeah, like, yeah, he loves his eggs, eggs and oil. Um, challenged the price jumpers, unjustified, but because there hadn’t been any actual supply chain interruption at the time, but the lawsuit was dismissed in August of 2020 without prejudice, so that one they got away with. But in November, 2023, the company was found liable in a lawsuit alleging that it colluded along with Rosaker Farms, United Egg Producers and United States Egg Marketers to reduce the supply of eggs and increase prices from 2004 to 2000 and. Eight. The [00:18:00] plaintiffs in the case were a large, a group of large food manufacturers led by Kraft and Nestle. They filed the lawsuit in 2011, and it didn’t reach trial until October, 2023. And, and a jury found that there was a conspiracy and found for the plaintiffs. So, um. Big Egg Tony. It was, uh, a big egg conspiracy. Tony Kynaston: of the Chicken World Cameron: What does OPEC stand for? Something. Egg Consortium. The, uh, original. Tony Kynaston: produ Yeah Cameron: Original, Tony Kynaston: Producers Cameron: Big Egg Cons Consortiums. Yeah. Yeah. Big Egg. Uh, were found guilty. Um, then they received $44.8 million in taxpayer funded [00:19:00] indemnity payments for exterminating flocks due to avian influenza. The birds were killed using the controversial killing method known as ventilation shut down, plus basically chicken gas chambers. I think, um, speaking of. And he submitted chickens. Oh, this is dark. It’s getting really dark. Um, and then just recently in 2025, the United States Department of Justice Antitrust Division has begun an investigation into Cal Maine. Something to do with, uh, profiteer allegations of profiteering and collusion from the bird flu outbreak at the expense of small farmers causing national egg shortage. There was even a story I read where, uh, 280,000 cartons of eggs disappeared were [00:20:00] from a truck, some. Mafia, dude, stealing eggs. Uh, uh. I could, I didn’t write down the notes, but it’s a weird thing. Anyway, lots of, lots of really like eggs. It’s, it’s, it’s a dirty business, Tony, we were talking about. Tony Kynaston: smuggling cartels Cameron: yeah, It should have been like an episode of Sopranos. Yeah. Hey, uh, you wanna buy some eggs? Hey, hey, you wanna buy a used egg? Um. Yeah. Look, um, I, I, I don’t know what’s going on, not making any allegations myself, but it’s, it’s, it’s a, there’s dirty egg stories all over the place involving these guys, but how they make money now just basically selling eggs. Their FY 25 revenue mix, 67% comes from conventional eggs. 27.6% comes from specialty eggs. 5% comes from egg products and prepared foods. So mostly eggs, eggs, eggs, eggs and eggs. And I love [00:21:00] eggs. I eat eggs often. Do you eat eggs? Oh, all the time. I’m eating eggs. You know, I need my protein for my kung fu. I’m loving eggs. Oh, lots of eggs. How do you cook your eggs? What’s your favorite way of preparing your eggs these days? Tk. Tony Kynaston: scramble but most days I can’t be bothered so I just fry them Cameron: Well, I, I learned a tip for scrambled recently off a TikTok video from some chef and it’s killer. Absolutely killer. Just get a little microwave mug, you know, like a little whatever si thing. Um, crack your eggs into it, whisk ’em up. Take a little sliver of butter and like a teaspoon or a tablespoon of mayo in. Boom, microwave for a minute. Pull ’em out, give it a little stir, put ’em in for another 30 seconds depending on how many eggs you got. Boom. Come out fluffy. Perfect. No cleanup, just the mug. You don’t have to clean a fry pan or any of that nonsense. Just clean the, you know, the, whatever those things are made out of.[00:22:00] What are those? What’s the, what’s the, those glass? So, no, no, no. It’s called something else. Anyway. Pyrex. Thank you. I was going Cyrex. No, that’s not right. Pyrex. Yeah. Quick clean of that. Boom. Bob’s your uncle. Perfect. But also, yeah, fried. So Friday night post kung food training. My standard is fried eggs, fried and butter. You know, I make my own whole grain bread. Slice of that in the butter. Pull the eggs out, what’s left? Fry. Put the bread in, slip, flip, flip. Flop eggs on the bread. Bit of green. Tabasco on it after with some sea salt. Killer killer. Every, every Friday night, Chrissy and I are like, yeah, can’t wait to get home to eggs after four hours of kung fu. Anyway, getting hungry. Haven’t eaten yet today. Um, prepared food. So this is a big thing. They, they recently finalized the acquisition of a company called Echo Lake Foods means nothing to me, but Americans might know the brand. Uh, that [00:23:00] brought in $70 million of sales in Q1. Their prepared food net sales jumped 839% to 83.9 million, up from 8.9 million in the prior quarter. It’s still small out of their billions in sales, but. It was a big thing for them and, and prepared foods matter because it’s less commodity like. So one of the problems you have with selling raw shelled eggs is things like avian flu can come along and it can create massive disruptions to the market. But, uh, value added formats like prepared foods, pancakes, omelets, uh, you know, Americans love their pre-prepared frozen. Get it, put it in the microwave type. Food things personally wouldn’t touch that with a 40 foot pole, but tend to do well in your, uh, Walmart. Uh, but for these guys, it sort of [00:24:00] smooths out demand, potentially improves margins. Uh, nice like buffer when there’s problems in the, uh, egg space. Tony Kynaston: Like the Cameron: So Tony Kynaston: in Australia anyway know the Cameron: how so? Tony Kynaston: rev milk Well Cameron: No. Tony Kynaston: think it was the Victorian state government but it could have been somewhere else regulated price of milk had to be sold for a certain amount Cameron: Right. Tony Kynaston: so the milk companies decided if they put a bit of water in the milk it wasn’t Milk and they could call it skim milk low fat milk Cameron: Get out. Oh, Tony Kynaston: put a proper margin on it Put a big margin on it So they Cameron: because it’s skim. Tony Kynaston: Hmm Cameron: Less milk, more profit Tony Kynaston: Correct Cameron: Really. I mean, dirty. Dirty, but genius. Wow. Alright, so let’s talk about why it’s working and why it’s cheap. So, man, you’re gonna [00:25:00] love, you’re gonna love this when I get into the numbers. This thing throws off cash like you would not believe. Um, vertical integration, they own hatcheries feed mills, plus buying things like grain on scale, which keeps their unit costs Low. Specialty eggs carry higher unit margins. Um. And have steadier demand for some reason. You know, people want their organic, if you’re into that kind of thing. Prepared foods, as I mentioned, less cyclical revenue, but they’ve got massive scale and footprint. They’re across 40 states, so they, um, have good deals with freight and supply. They have lots of brands and licensing deals, again, means nothing to us as Aussies, but Americans might be familiar with. Eggland best or land Oex. Let’s try and give it an Irish spin. So it’s Irish eggs sound like pickled eggs. A lot of private label bread that they have too. Doing it for the big supermarket brands, but [00:26:00] it is, uh. Uh, it does have this risk of HPI, which I had to look up. Highly pathogenic, avian influenza, basically bird flu. We know that’s been an ongoing problem for years now. Feed costs can go up and down. Egg spot prices. As we can see, uh, from the commodity chart I mentioned earlier, uh, way down, they can whipsaw the DOJ scrutiny overall of this adds some more risk to it. You know, we don’t know what could happen with that. They could be hit with massive fines, who knows? But, you know, not our problem really. We play it as day by day, but that’s probably one of the reasons why the market might be discounting it at the moment. But once I get into the numbers, as I said, just crazy numbers. So the price to operate in cash flow, which is obviously the thing that we always look at first, is [00:27:00] pretty low. It’s 3.31 times we look for something under seven. Some of the stocks that we’ve done recently on this show have been down to one, so this isn’t that good. But still, 3.3 times is good dividend yield of 8.84%, which is. Very, very strong. It’s got an F score of nine out of nine, Tony Kynaston: Oh Have Cameron: which I don’t think we, no, I don’t think we’ve ever seen that before. Nine out of nine. Um, Tony Kynaston: well managed Cameron: Price to book is 1.7 times, it’s three year book value. CAGR is 32.35%. And when you look at the financial summary in stock, EDIA, I mean, uh, I don’t know. It’s not only my eggs that are hard boiled. Um, in 2020 its total revenue was 1.3 billion. Um. It [00:28:00] goes up to 20 25, 4 0.2 billion. Uh, it’s the, the 2026 estimate is down a bit, 3.39, so it’s drop dropping a bit this year. Time to market, uh, uh, sorry. Time always go. Time to market butt and trialing. 12 months is 4.4. It’s expected to be back a little bit this year, but it’s CAGR over five years is 25.8. Five, uh, 25.8% for revenue growth, operating profit, 1.27 million in 2020, which was obviously a, a bad year. Um, yeah. Uh, and avian flu and COVID. Lost money in 20 21, 20 6 million. Um, jumped to 1 44 in profit in 2022. 968 million in 2023. Down to 312 million in 24, 1 0.5 billion in 2025, and [00:29:00] trailing 12 months is 1.6 billion in operating profit. So a 340%, I mean, it’s, it’s, it’s sort of a messed up starting point, I guess COVID, but 314% CAGR over five years in terms of their operating profit. Net profit went from 18 million in 2020 to one point. To 7 billion trialing 12 months. EPS reported has gone from 38 cents in 2020 to 20, uh, $26. Um, it just, the numbers are off the chart. Operating margin 2020 0.9% to 36% trailing 12 months. It’s like this last five years of just. They’ve been making money hand over fist. Now they are being investigated as part of this. So, you know, a lot of people are looking at this and going, whoa, whoa, whoa, whoa, whoa, whoa. This is, you’re making way too much money here. Something’s going on. Ah. From my perspective. [00:30:00] Wow. You know, leaving all that aside, um, they’re making money hand over fist. So that’s all I’ve got to say. I’ll just run through the numbers. Um, oh, I will also say that the Adams family. Um, how, you know, gotta do that. Um, currently controls 53.2% of the voting power thanks to Rupert Murdoch style super voting class A shares, but have about 12% of the economic ownership in the company. So. They get a point. We don’t do that for US stocks ’cause it’s hard to get into the system, but they would get an extra point in our system ’cause they control more than 10% of the business. But even said that, um, they have a QAV score of 0.23, which is very strong. Um, average daily trade of about 91 million, uh, price to operating cashflow of 3.3 quality rank in. [00:31:00] Edia of 99. So we score them for that. Stock rank is below 90, so we don’t score them for that. But the F score, as I said, is a nine outta nine. So they score for that price is below our IV number one. It’s below our IV number two. Um, it is not below. Price to book, what did I say? The price to book is 1.7 times, so it’s low but not low enough, but it does score for, uh, book value growth being positive Tony Kynaston: We look for 1.3, don’t we, in the price to Cameron: 1.3 or 1.5. Tony Kynaston: 1.3 or below. Cameron: Oh right, so it’s low but not low enough. Um, doesn’t score for growth over PE being greater than [00:32:00] 1.5? Does score for PE greater than yield scores for yield greater than bank debt? Um. And um, obviously it’s got positive sentiment in and of itself, but the commodities are itself anyway. Total quality score from our perspective is 10 outta 13 or 77%. We’d get an extra for the, uh, skin in the game. Family ownership, if we could score for that would do even better. But yeah, unfortunately. Commodity is a sell. So, uh, we’d have to wait. We’d wanna wait anyway I think for that to, to ride itself. But, um, that said, tremendous, tremendous, uh, little business. Um, sorry, by the way, I think I said market cap was, when I say the market cap was at the beginning, I said it was like. 6 billion or something. I think that was a maybe Australian 6 billion. Yeah, it’s Australia. I think the market cap [00:33:00] US dollars is what I should have quoted is about 4.6 billion USD. Um, so yeah, that’s it. Terrific little business. Tony Kynaston: Looking at the share price too. If I’m looking at the right graph, it’s, a bit of a hold at the moment too. You wanna see, I’m guessing that’s come down a bit because of the egg price commodity coming down. So perhaps when the egg price commodity goes up, we’ll see the share price become, uh, viable again. Cameron: Well, I don’t know because it’s above its latest byline in the ator. I mean, it, it did come back a bit from its. Highest peak, but it, it fell, but then it started to recover from that. So, um, don’t know how you would Tony Kynaston: price is below. Its monthly close. Cameron: not in, not when I did a screenshot of the bread later this morning. I’ve got the previous month close. [00:34:00] $94. 10. Current price. 94 56. Tony Kynaston: Oh, Cameron: Are you looking at the bread later or are you looking at a different grant? Tony Kynaston: I’m looking at the bread later and the current price is now 91 25. Cameron: Oh wow. Tony Kynaston: So Cameron: So it’s, it’s dropped literally today. Okay. Tony Kynaston: hmm. Cameron: Oh yeah. Looking in Yahoo. 91 25. Wow. Okay. Alright, well my apologies. It has, why did it drop? But that’s a large drop today. I wonder what happened. I don’t see anything in the press releases or the news. Okay, there you go. Well, it’s the pulled pork curse. Um, Tony Kynaston: Still interesting company. Cameron: maybe. Maybe our Prime Minister Albo, maybe Albo, did a rare Earths and eggs deal with Donald Trump. Maybe he did a deal on egg tariffs from Australia or something. Tony Kynaston: Well, I mean maybe, [00:35:00] maybe the DOJ is saying, well, we’re gonna find you unless you drop the price of eggs. ’cause that’s what the president wants. So bit of a do a deal situation. Cameron: Okay, well then it’s a, it’s a, it’s a hold from us and hold on the commodity price. But that said, outside of that, again, I, I picked it because classic boring business, right? Classic Berkshire boring business eggs. But they got an egg moat. Tony Kynaston: Yeah. And they, you know, uh, how do those businesses grow? And you outline the growth in the last five years. and they’re obviously tackling it. They’re either buying other companies, they’re, um, getting into new markets with their pre-prepared meals, et cetera. So it’s possible they can, these companies can grow boring as they are. Cameron: Yeah, although like. To be fair, you know, we were coming from a low base then [00:36:00] 2020, but if I look at their total revenue going back 10 years, 20 16, 1 0.9 billion 2017 had dropped to 1.1, up to 1.5 and 20 18, 1 0.4 in 2019. 1.35 in 2020 1.35 in 2021, then 1.77 2022 up to 4.2. So it, it tracked sort of, you know, Tony Kynaston: Clockwise. Cameron: Actually negative, it dropped down from 2016 till 2023. So whatever happened in 2023, um, maybe some acquisitions, maybe just. Co collusion. I dunno, the egg, I guess. Egg prices. That’s what happened. Egg prices went up. Yeah. For whatever reason. Legitimate or not, but uh, [00:37:00] yeah. So that’s all I got. That is Cal May. This After hours Tony you wanna talk about school Za Tony Kynaston: I do I I loved it Um you on you on Apple Plus there’s a documentary series and I’ve forgotten what it’s called But anyway it’s probably just called Scorsese It’s fantastic It’s his life I’ve only watched the first two episodes which are quite long but it’s um really high quality documentary Plenty of interviews not just with you know film stars Have been directed by Scorsese and Spielberg et cetera um people he grew up with which is really interesting He’s kind of been put into a diner in New York with his buddies from the gang when he was a kid and they’re going over old situations which is great But the second episode is about the making of mean Streets and Taxi driver And doesn’t live here anymore and it is fantastic And you there were things in there which I didn’t know and I I’ve watched [00:38:00] Taxi Driver a million times and loved De Niro and Scorsese But um I didn’t realize that they grew up two streets apart from each other in New York And uh like so De Niro’s being interviewed and Scorsese’s being interviewed and they said yeah we got together the cause you know we had a mutual friend and I was casting for mean streets and they said oh you gotta see this guy from New York He’s perfect for the role of Johnny and in Mean streets And they turned up and De Niro goes I know you And Scorsese goes I know you And then they were two streets apart They knew each other as kids De Niro was called Johnny the Hat by Scorsese’s Gang cause he used to get around in the hat And when you see mean streets Johnny wears hats all the time and mean streets and great And I interview one of Deni uh Scorsese’s childhood friends who was the role model for that character And he’s kind of reluctant to come on and be interviewed and uh but he’s you know super cool dunno how old he’s in his eighties or whatever And yeah it’s just really great to hear all these stories I [00:39:00] was telling you off air about how um de Niro made a movie for Roger Corman boxcar Bertha with David Carradine And it was a pretty straightforward rip off of Bonnie and Clyde he was out in in Hollywood in California trying to break into a film over there And he was getting friends with you know um and but also uh Milius and uh Coppler and all that that kind of crowd And he made this Coleman flick and they all said No we don’t wanna know you now you’re not gonna make money for make movies for money Cameron: They all got started with Corman Lucas and Coppola they they all worked for Corman Mm-hmm Tony Kynaston: yeah possibly Um so course Scorsese goes by kick us back to New York He’s casting around what am I gonna do I still wanna make movies Cave Who um that famous Cinema Verite Director was still [00:40:00] a friend and he walked over Hug Score Stacey I love you but she gotta make a movie from your heart not for cash Scorsese says I’ve got this script about me growing up mean streets about people in my gang and my neighborhood and stuff Cave loves it You got a caster puts people together they get the neuro in Tel who’d been in Scorsese’s student cause like the in the first episode it goes through Scorsese like this uh sickly kid like all the other kids he’s growing up with they’re all going into Cora and they’re all becoming some kind of small businessman or whatever He’s really sickly can’t can’t really live in that world And he goes through he says like you know I almost died of asthma as a kid And I used to we used to live in a tenement three stories up and I used to see the world Below us Everyone was playing from up above And he went through and then showed all basically every one of his movies has a high shot [00:41:00] looking down that pans across from left to right which is him looking out of his window down at it it goes through all this kind of stuff It’s fantastic So he goes to NYU it’s like it’s up the block from where he was growing up Um falls in at the time of the Vietnam War protest Uh falls into the film school there gets mesmerized by a professor gets his friends go to shoot the Woodstock movie up in upstate New York And um but he’s never credited on the on the film and it wins a wins an Oscar for best director or best documentary And uh he’s really upset because they all go to California and get jobs in Hollywood and he’s left behind So it’s it’s always about him being to get to be a part of a group and being ostracized And and one of the people that’s interview they interview says you know you gotta understand all of Scorsese’s movies about outsiders who make it good That’s Scorsese retelling his story over and over and over again So about uh you know the Wolf of Wall [00:42:00] Street to make it big in Wall Street getting kicked out making lots of money It’s all these stories are about Scorsese it’s just it’s a really good documentary So he makes Mean Streets takes it to Cannes He’s he’s had to battle all the way with the studio cause it’s it’s it’s violent They don’t wanna release it They threaten to hold the print He threatens to break in and steal it The sensors threaten it with the next rating He comes up with the idea eventually to desaturate all the blood color in it back to Brown and make the final scene grainy where he shoots up the pimp Um and so that gives them the next rating below X So it’s RI think rather than X but it it gets a wider release They get they take it to Kahan at by this stage the NI and and Scorsese It just Shellshocked like you know what have we done No one wants to see this No one wants to release it we had to fight really hard to to get it to be released outside of porno you know theaters drive-ins Um [00:43:00] stay in their rooms and can they don’t go to any of the press Jody Foster who’s like 14 or 15 does all the all the press Cameron: was Tony Kynaston: the press for it in Cannes They bug out fly back to New York before the official showing get back to New York get a phone call Hey you won the Palm Door Cameron: fly back Tony Kynaston: No it didn’t it already happened And then um I I think I think it was you know some one of his buddies says Hey you gotta go and see the taxi driver opens in one cinema in New York He says Hey go and see it There’s a line around the block they’re not buying gold bullion They’re going to see Taxi driver and it becomes a big hit It’s Cameron: great film Tony Kynaston: Mm Cameron: Well the I looked it up It’s called Mr Scorsese the documentary series and it’s directed by Rebecca Miller AKA Lady Day Lewis cause she’s married to Daniel Day Lewis and she’s the daughter of Arthur Miller was born in 1962 not [00:44:00] to Marilyn Monroe but uh his third wife Inga Morath an Austrian uh photographer Imagine imagine being Arthur Miller’s wife after Marilyn Monroe I mean how do you this a how do you compete with that Really very good Well I don’t have Apple tv but I guess I will see it at some point Tony Kynaston: It’s worth watching Cameron: I’m halfway through watching Elephant Man which I’ve never seen before Tony Kynaston: Oh you’ve Never seen it Really Cameron: seen it because in my head it’s not really a Lynch film Tony Kynaston: very much Is Ridgefield Cameron: Well yes it is As you watch it I mean it’s not as weird as a as a Lynch film I mean you go from a razorhead to that I mean it has nothing really apart from black and white and some of the uh the the just the weird sort of soundtrack There’s always like gas burning and you know all [00:45:00] that kind of really offsetting Yeah But Tony Hopkins is great isn’t it Tony Kynaston: but it’s also it’s got a it’s a very stylized way of shooting it It’s like lots of closeups on people lots of zoom ins on people who who have almost stilted delivery emotional delivery It’s it’s not natural in the way it’s shot Cameron: didn’t have that impression but it’s beautifully shot I mean it’s I do think it’s more like straight story It’s more of a mainstream kind of lynch film But anyway really enjoying it and glad I finally sat down and watched it It just turned up on HBO Max or something and I was like oh God I’ve never seen this How can I have never seen this I gotta sit down and give it a watch I’ll tell you Tony Hopkins is always just I mean he’s just his ability to deliver a line is magnificent and and Bancroft is marvelous in it I think it was I mean Mel Brooks made it I saw Lynch [00:46:00] you know I’ve seen Lynch talk about how Mel Brooks gave him the opportunity to make it many many times and he was making films of the vehicle for Anne Bancroft and she’s marvelous in it Always loved Anne Bancroft but I can’t remember the last thing I saw her in But she’s terrific as is John Hurt Tony Kynaston: Patrick Cargill from memory I think’s in it does a great role Was it Patrick Cargo one of the other English actors Cameron: John Gil Good’s in it Um but um Tony Kynaston: owner of the Elephant man and displaying Cameron: so that is um uh not Terry Jones um something Jones Um Tony Kynaston: Anyway he’s good Cameron: he is fantastic yeah Yeah Tony Kynaston: Yeah Cameron: Really Yeah Yeah He’s fantastic in it Um obviously difficult performance to get across that kind of humanity under all of that makeup Um the the Freddy Jones is the name of the actor who plays the [00:47:00] original owner who was then in Dune Lynch’s Dune among other things Um but yes he’s a he’s a great old British actor Tony Kynaston: Yeah Cameron: What else have I got finished a robot and loved it loved it Slow start and I’m glad I persisted with it Oh is there Okay Tony Kynaston: Yeah Cameron: well I mean I’m not sure if what I read was it felt like an anthology but it’s all the Susan Calvin story so I dunno Yeah Tony Kynaston: more more Calvin stories Yeah Cameron: well I think that was probably everything that I read cause she dies at the end of the last one that I read Um but it was uh great like the philosophical questions that he posed about alignment what we call alignment these days between robots and humans is uh it was I mean so brilliant He was so far ahead of his time thinking about the issues that we’re now dealing with in real life [00:48:00] in 20 25 75 years later Amazing And then when I finished that I started reading Gravity’s Rainbow Thomas Pinch on for the first time you ever read Pinch on Tony Kynaston: I have yeah a couple of years ago actually Gravity’s Rainbow a couple of years ago but I’ve read another pinch on too Cameron: Well I already had it in my books um and I think it was cause you told me about it and I don’t think I ever got around to starting it So I I I read a thing about him in the New York Times recently and they were talking about what a great author he was and uh I think I start I was gonna start one of his so yeah I’m enjoying it It’s uh intense Tony Kynaston: it Yeah Yeah Cameron: Um Tony Kynaston: I mean just for people out there who haven’t picked it up it’s got some crazy plot lines in there about the V one bombers targeting the bedrooms of an agent who’s been sleeping with different people in London and someone’s trying to work it out and work out the [00:49:00] probabilities of where it’s gonna land next And but that’s like that’s the plot and that’s as that’s as much as you get of it cause it just goes off into all sorts of different intricate and arcane meanderings really Cameron: An intense style he has Do you um do you know uh American comedian called Tim Robinson Tony Kynaston: No Cameron: stuff Um uh Tony Kynaston: there called was it Tim Robinson or Tom Robinson Cameron: possibly Dunno yeah Tom Tom Robertson Hmm This guy was on SNL for a few years like over a decade ago but um he’s had a couple of shows that we’ve really loved One was called Detroiters and one was called I Think You Should Leave and he got a new show called The Chair Company which is only a couple of episodes in we’ve only seen the first episode but it’s terrific He he he tends to play really really angry [00:50:00] white men who just get angry over nothing and bit bit sort of John Cleese’s style like he’s just feels like the world is conspiring against him and he has this uncontrollable anger inside of him that comes out in inappropriate ways Um this new show the the Chair company he’s a office executive and he’s doing a big presentation and it goes well and he’s in front of the entire business and he sits on a chair and it breaks and and they everyone laughs at him and it sort of ruins his self-esteem And then he starts believing there’s a conspiracy uh from this chair company He starts hunting down this chair company and he can’t find him cause it’s just a name with like a registered office And he goes on this mad conspiratorial Hunt for this chair company that made him look bad Just taking out all of his you know white middle class anger on this chair company that um [00:51:00] made him look like a fool Anyway he’s got a particular style I dunno if you e everyone would appreciate it but we really love it Just this these guys that just are angry for no particular reason He’s got a good family wife kids they love him He’s got a good job Everything should be going great but he’s just angry for some reason and he can’t contain it Anyway I think that’s on Max Check it out Tony Kynaston: Yeah It sounds a bit like Curb your enthusiasm Cameron: It’s a bit like that but it’s different cause Larry’s just Larry’s just rich enough that he doesn’t need to care what people think Tony Kynaston: Yeah Cameron: This guy’s Tony Kynaston: over Cameron: does get over Yeah Yeah Um uh Harry Vander has got a new track out Have did you catch that Tony Kynaston: No Cameron: Devil Loose he’s like 80 and he’s just come out with a new track I think you’d dig it It’s very sort of Vander and Youngie good riffs called Devil Loose He’s just talking about how crazy the [00:52:00] world is Yeah 80 years old just came out with a new single so I was you know we were talking that had that thing a a couple of months ago like the Triple J top Australian songs of all time kind of thing And I dunno how many must of those would be Vander and Young Tracks but there’d have to be at least Tony Kynaston: Should be Cameron: six 10 of those in the top 100 Um so I didn’t even know he was still around but that was great to see And then we have our kung fu grading this week back to Kung Fu Fight Club So we passed our pre-assessment I think the last time I was talking to you we were had to do our pre-assessment We passed that So this Friday into the ring two hours of getting punched in the face So uh that should be fun Well at the first hour of it is demonstrating all of our techniques in our form So we have to do baseball bat defense knife so people running at me with a baseball bat We need to defend ourselves against an [00:53:00] aluminum baseball bat being swung at our head Tony Kynaston: I just had a vision of the Mabb Python sketch John Cameron: fish or a baseball bat Tony Kynaston: I’m gonna show you how to defend yourself with a banana Come out here a banana Cameron: the whole thing The rest of the fruits Yeah Uh we have to do knife defense um you know a whole bunch of spurious Techniques that but then the second error is basically sparring So those of us that are grading and there’s only a couple of us are in the middle of the room and then they have a line of 20 black belts that come in one minute at a time and they cycle through and we just keep going We don’t get a break It’s just go go go People coming in and attacking you and you’re having to defend yourself against these people that are fresh You are knackered and it just goes on for Half an hour to an hour until you fall over And the sifu you know he he wants you to tire you out to see when [00:54:00] you’re tired and you have nothing left in the tank What can you what you know how how how can you uh defend yourself cause he says you know fights don’t necessarily they’re not necessarily over in a minute right Fights can go on a long time So what matters is when you are exhausted can you still keep your hands up and keep your guard up and move and handle the situation So I will get punched in the nose uh many times and it’s still broken so that should be fun Tony Kynaston: what Cameron: so that’s this week This is the second brown belt for us level six in our system So the next one is our black belt So next year we’ll be ready to do our black belt or the year after depending on how long we go Tony Kynaston: is Chrissy gonna also be subject to exactly the same force you are being subjected to Cameron: Yes but Tony Kynaston: it females or they female Cameron: no no no no no no I mean look no one’s in there to kill us We’re not it’s not like deliberately full contact but it’s you know we’re wearing [00:55:00] gloves and mouth guards and stuff and she Chrissy got injured at two weeks ago We’re not trying to kill each other but you know adrenaline people throw stuff you miss stuff you misjudge you walk into things You know what we always get told is in a real fight if you’re lucky you might block one punch And he always says you know there it doesn’t matter how good you are you know there’s there’s a limited number of attacks you can block One’s always gonna get through right So you try and shut it down on the first one uh because everyone after that There’s a higher percentage that you’re gonna miss it and it’s gonna hit you But yeah Chrissy’s been punched and kicked and she’s always full of bruises and corked muscles and everything Like I am She hasn’t anything broken yet like I have But people will go harder on me because I’m me [00:56:00] everyone Tony Kynaston: What you’ve antagonized everyone in the dojo have you Cameron: pretty much Tony Kynaston: you wanna wear a T-shirt and they’re saying come on that all you got yeah yeah yeah yeah Cameron: I do that all the time Thanks That’s Good   Cameron: Yeah Tony Kynaston: Wow And you pay for that do you Cameron: I do I do To get beaten up Tony Kynaston: You Cameron: Oh Fox will be videoing it Yeah Tony Kynaston: you should put it up And even so we can see how to fend ourselves from a knife attack or a baseball attack and Cameron: Alright I’ll post some video of baseball Bat Knife bat defense Yeah Tony Kynaston: Yeah so so no one’s gonna sneak up behind you with a baseball bat one punch GR grading over Cameron: Uh no   Cameron: Yes Yeah yeah yeah Hard to defend yourself against sneak attacks though unless you’re a ninja Yeah Tony Kynaston: I remember I remember being in Katon Street in Brisbane [00:57:00] one New Year’s Eve and someone coming out of the in the dark and just one punching me Cameron: Really Tony Kynaston: again Oh yeah yeah Is that’s what you gotta defend yourself against camp You don’t Cameron: What happened to you Tony Kynaston: Oh Cameron: you did you Tony Kynaston: stood up and he’d gone he ran back into his hiding hole wherever he was from and uh I stumbled Got up and I remember a a guy on the other side of the road at a table overlooking Katon Street that came racing over Yeah okay mate let me buy you a beer And took me over to his group of friends and looked after me and Yeah Had a few beers with them He used like we thought you were gone We thought you were gone And I’m like Cameron: Wow Tony Kynaston: got up again It was like it was fine to me must have Cameron: So you guy didn’t mug you or anything He just didn’t like the of you just Tony Kynaston: to be the guy guy Cameron: tall ringers I mean you’re a walkin target really Aren’t you Tony Kynaston: think just guys in general. There’s always some little guy out there who wants to [00:58:00] Cameron: Have a crack Yeah Yeah yeah yeah Tony Kynaston: When I Cameron: Alright you got any golf or horse news Tony Kynaston: News. I’ve got, uh, Qualo Doto running tomorrow, which people may not hear in time, but Wednesday at Geelong Double Market was scratch from the Avoca Cup on Saturday and she’ll run on Friday night at Moon Valley. So, Cameron: wins lately Tony Kynaston: nah, BES was a second with Lake Forest a couple of weeks ago, so that’s not too bad. Cameron: Well good luck Hope you get a winner Tony Kynaston: Yeah. And Steve’s in, Steve MA’s in double Market with me, so it’ll be doubly good if we can get a win. Cameron: I was gonna when we were talking to Gabriel and he was talking about he was talking at some point about horses and uh you know I know we were talking about horses we were talking about Steve Mabb and I was gonna point out at one point that you and Steve had a horse but I the opportunity didn’t uh rise [00:59:00] Arise All right Have a good week everyone Tony Kynaston: Yep. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. [01:00:00] Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be [01:01:00] reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives 

Oct 23, 2025

1h 01m
15

QAV America 24 – The Beauty of Boring: American Axle (AXL)

Cameron and Tony kick off episode 24 of QAV America by discussing the U.S. government shutdown drama and comparing it to Australia’s last major political standoff under Whitlam in 1975. The conversation then turns to portfolio performance: while the Australian portfolios continue to outperform dramatically, the U.S. one has cooled a little since the Trump administration’s return. They dig into long-term value investing principles and how cycles of underperformance are normal. Cameron presents this week’s Pulled Pork on American Axle & Manufacturing Holdings (AXL) — a classic, boring-but-profitable value stock that makes axles and driveline components for giants like GM, Stellantis, and Ford. They explore its fundamentals, merger news with Dowlais Group, and why its low valuation may make it attractive. The show wraps up with their trademark “after hours” chat: Tony’s social adventures, new music finds (Red Continent, Lyle Lovett, Sparks), Cameron’s film pick (Stalker by Tarkovsky), and their reflections on Asimov’s I, Robot, fascism, capitalism, and the short-termism of modern democracy. ⸻ ⏱️ Timestamps & Topics 00:00 — U.S. government shutdowns vs. Whitlam’s dismissal in Australia.03:00 — Portfolio performance: U.S. QAV fund up 62% since inception vs. S&P 500 up 51%.06:00 — Revisiting QAV philosophy: buying quality companies at a discount.07:00 — Historical perspective: patience through short-term underperformance.08:00 — Review of recent Pulled Porks10:00 — Portfolio holdings update11:00 — This week’s Pulled Pork: American Axle & Manufacturing (AXL) deep dive.30:00 — After Hours Transcription   [00:00:00] Cameron: Welcome back to QAV, the American Edition. Tony. I think this is episode 24. How are you doing? Tony Kynaston: I’m very well. Thank you. Nice and Cameron: I know that ’cause we, we just did our Australian edition. Yes. Very hot. Where I am. Very cool where you are. That’s Australia right now, depending on which part of the coast you’re in. Well, Tony, uh, talking about American news. Got a, they’ve got a, a shutdown. They’re funny. They have these shutdowns. We don’t really understand shutdowns. Last time we had a shutdown kind of thing in Australia. It was during the Whitlam government, wasn’t it? Tony Kynaston: November, 1975. Yep. Cameron: Yeah, it is. 50 years ago. The last time we had a government down, and it’s still talked about in Angry Voices to this very day. Tony Kynaston: We’ve had a couple of other examples, like a, ’cause they call it block supply here. So a government has to [00:01:00] be able to guarantee convince the Governor General, they can guarantee supply, which means that their budget will pass. So there’s been other cases where there’s been minority governments that can become topsy tur. Like the most recent case was in Tasmania when, uh. The minority government there had a vote of no confidence and the blocking of supply, and then they had to go to an election and they got reelected. Same problem. Yeah. Different time. Cameron: Well, the market, uh, you know, did stumble a little bit when they couldn’t, uh, prevent it, but yeah, thinner. Well, I don’t know. I mean, I have seen these sorts of things before. Not exactly with this level of urgency and animosity, I think, Tony Kynaston: always is that level of urgency and animosities happened what 11 times since Clinton or something’s been a lot it, [00:02:00] and it’s always brinkmanship. Cameron: yeah. Tony Kynaston: for the government workers who don’t get paid and they may not get paid under this current In the past they generally Cameron: Yeah, Tony Kynaston: they’ll get back pay. But that’s, there’s threats to withhold that. So we’ll see what happens. Cameron: I like other things that happen in the news, in the economy. We tend to ignore it and just stick to our knitting. Um, I do wanna. Talk about our portfolio performance, though our US portfolio, which for new listeners, we’ve been running well for new listeners. Uh, we’ve been doing a value investing podcast for six years in Australia. Tony’s been a value investor for 30 odd years. Oh, gangbusters. Absolutely. Our por, our Australian portfolios are all doing gangbusters, double market or better. Um, our US portfolio is doing okay. Not as well. It was, it was like three times market before the Trump administration came in. [00:03:00] It’s come back a little bit this year, but it’s only two years old and, you know, we work on five to 10 year timeframes for cycles to, uh, come and go. Um, I’ll start with the all time performance. So we started the US portfolio back. A little over two years ago, 19th of September, 2023. Since then, our portfolio is up 62% versus the s and p 500, up 51%. So we’re doing better than the s and p 500 over the long haul, but we’ve come back a long way. Um, a year ago we were up a hundred percent versus the s and p up 34%. So, uh, after the Trump administration came in, things started to go south for some of our stocks, but it’s not that bad. I mean, Willis Lease Finance Company, WLFC, which is our best performing stock, at one point it was up 300%. It’s [00:04:00] now up 189%. So it’s come back nearly half then, but still up 189% since we added it. I don’t know when, uh, let me see. Tony Kynaston: blame the Trump government on some of those. I mean, they wouldn’t have an impact on Willis Lee’s finance. It’s probably got more to do with interest rates than anything else. I would’ve thought, Cameron: I am not blaming them. I’m just saying it’s a fact. Since the Trump administration came into power went backwards, Tony Kynaston: well, it’s, but Cameron: we’ve. Tony Kynaston: is it just coincidence? Cameron: Who knows. That’s beyond my pay raise. My pay grade, Tony. Um, we bought Willis Lease Finance Company in November, 2023. It’s up 180% since then. So I’m not complaining it’s at all. But year to date, our US portfolio, uh, is down 13.44%. By the way, year to date, I’m talking. Um. Tony Kynaston: Calendar. Cameron: Uh, [00:05:00] calendar year. Yeah. So January 25, it’s down 13% this calendar year versus the s and p 500, up 14%. In the last month. Our portfolio is down 6% versus the s and p up 4%. So it’s not a good part of the cycle for us, but as we were just talking about in the Australian show, some of our Australian portfolios were underwater. Six months ago, now they’re doing double market ’cause they’ve exploded in the last few months. So it comes and goes. At the end of the day, the QAV philosophy is to buy. Shares and companies that seem to be generating a lot of cash when we can buy them at a discount to their intrinsic valuation for whatever reason, hold them as long as we possibly can. We have a couple of sell triggers that we will obey, but other than that, we hold them as long as we can wait for their share price to regress to the mean wait for the market to [00:06:00] pick up in one way or another. This is actually a healthy little business and. Six times outta 10. We hope that we buy the right ones and, uh, we outperform The market that seems to have worked for you over 30 years seems to have worked for other value investors over many, many decades, and in the years we’ve been doing the show, it seems to work well for us as well. Tony Kynaston: And we saw the same sort of thing happen with the Australian portfolio when we first set it up. And the first couple of years it, remember it in the first year, I think it outperformed about four times compared to the index. And then it went backwards and there were periods of underperformance. That’s, it does take a little while for a portfolio to beat itself down, usually. Um. it stutters and you have to sell things quicker than you’d like, and then start again. So, yeah, it’s, it’s the old, I mean, you talk to anybody about, um, investing and they say don’t base your decision on the one year return. at a longer term. So we have [00:07:00] a two year track record now. It’s still outperforming the market. But yeah, give it, it three to five before you sort of can see the real proof in the pudding. I think. Cameron: And since we started doing this show regularly in March of 2025, I’ve been doing a deep dive or a pulled pork, as we call it, on a stock every week. And most of those have been doing gangbusters since we talked about them. Uh, the one I always start with, Zep, which we did in July Z Double P, Zep Health Corporation, is now up nearly 1800% since we talked about it. Um, which is like, it’s not a Mag seven, no one’s heard of it. But, uh, doing gangbusters share price has gone from $2 98 when we talked about it to $56 today. They make, uh, like an iPhone competitor. Um, and they’ve just not an iPhone Apple Watch competitor, smartwatch, uh, company. Tony Kynaston: people who, Cameron: Yeah.[00:08:00] Tony Kynaston: fans like me would know that’s reference to Cameron: A Chinese Watch Tony Kynaston: really Cameron: this. Watch. Ready? Yeah. Tony Kynaston: Yeah. Cameron: Mother. Um. Yeah, but a lot of, uh, a lot of the other companies that we’ve talked about have done well as well. ChemX is up 59% cement company, Canadian Imperial Bank is up 28%. Orx up 24. Jackson Financial up 22 IHS holding 24 Ford Motor Company, which has a little bit to do with the company I’m talking about today. Up 18%. Gray media, up 28% Sasol. Up 24%. Couple have gone backwards. Titan Machinery’s gone back 14% since I talked about it. Um, it’s the most surprising one. Zim Integrated shipping, which we said was looking dodgy at the time when we talked about it’s gone back 24%. But, uh, you know, the rest have done pretty, pretty well. So, as I always say, you know, I [00:09:00] mentioned. In my last show that I was on the value investing subreddit the other day, and people are complaining about how there’s no value opportunities left in the US market. I did my US buy list over the weekend and there was 170 companies that our checklist system, uh, identified that we think are worth having a look at anyway. Tony Kynaston: And I think it’s fair to say some of those names you’ve read out that, that you’ve done deep dives on, they’re not part of our portfolio. So it’s Cameron: Oh yeah. Most of them aren’t because we’re fully invested. We were fully invested when I started doing this show, so, um, yeah, a couple of them. Jackson Financial, gray Media, we do hold. I think that’s. It. But to give people an example, like so the stocks that we do hold Willis, lease Finance Company, I mentioned up 189% since we bought it. Euro, CS ESE, A shipping company up [00:10:00] 105% in over International, up 85. BLX Foreign Trade, bank of Latin America up 84%. Regional management RM up 66 UBS up 33 gas, stealth gas, GASS up 30%. Kt your initials backwards up 27. Um, gray media are set up 20% since we bought it, so yeah, so there’s a lot of opportunity in value stocks despite what you may believe or may hear in the, uh, investing media. And the company I’m gonna talk about very briefly today. I didn’t have a lot of time to prep for this this week, but uh, I’ve done a quick overview of it. They’re called American Axle. A XL is their ticket code, American Axle and Manufacturing Holdings, a a m. They’re commonly referred to. Uh, they did drop a little in trading today. I did my analysis on ’em yesterday when they were a buy. They’ve dropped a little bit below our buy price, uh, [00:11:00] overnight. They’re down by like 15 cents, but they’re another classic boring business. Like, uh, some of the ones we’ve done before, but like Seneca, the canned food companies. You know, over the last six months we’ve been doing the show. The stocks that I’ve been picking. I always say that when I look at a buy list every week in the US they’re mostly shipping companies and financial services companies. Uh, and I and I look for different things to talk about, and they fall into two categories. The ones that I find that aren’t one of those two, they’re either dirty businesses. Things that are involved in some dirty industries with a lot of scandal surrounding them or ESG issues. And so investors are steering a little bit clear of them, or they’re a little bit complicated, but we see value in them or this claim, which is just boring. No one’s heard of them. They’re not sexy. They’ve been around a long time. They make boring components for boring things, [00:12:00] but they make money. And they’re not sexy, but that’s a classic value type investment. Tony Kynaston: Correct. story. hard work. Cameron: Yeah, so these guys make, uh, axles basically, um, if I’m gonna simplify it, they make heavy bits of machinery that turn engines or motor of motor power of some sort into wheel motion axles, drive shafts, differentials. E-beam axles for EVs. Do you know what an e-beam axle is? Tony? Tony Kynaston: I don’t have an ev. Cameron: Neither did I. An e-beam Axle is a self-contained powered axle for Tony Kynaston: okay. Cameron: that bundles an electric motor. A reduction gearbox and an inverter inside the axle housing or attached to the axle housing. In some cases, you swap a conventional rear axle for [00:13:00] this unit and it spins the wheels electrically. They also have a business that makes a broad set of forged or metal formed parts used in engines, transmissions and safety critical components. Think what connects torque to tires. That’s basically what these guys do. For pickups, SUVs, and EVs. They do. They torque T-O-R-Q-U-E to tires. Yeah. Hey, customers, general Motors, 42% of sales, uh, stellantis, 13% of sales. Stellantis, if like me, you’ve never heard of them. You’ve heard of Atlantis. Well, stellantis is got nothing to do with Atlantis. It was, uh. It’s a global automotive company that was formed in 2021 via the merger of Fiat Chrysler and the PSA group, which was Pergo, Citron, and Opal. Speaking of Fiat, I just did a. [00:14:00] Podcast on the rise of the fascists under Mussolini in Italy, one of his big funders and supporters was Fiat. Uh, Tony Kynaston: Makes sense. Cameron: they were like, yeah, smash the socialist. Let’s get that Mussolini boy into work. We like the cut of his jib in his black shirt, say sexy in his black shirt. And Ford Motor Company is 13% of their revenue. Say what you want about the fascists in the early 20th century, Tony, they were dashing Good, good uniforms. Hugo Boss. Yeah. Making Nazi uniforms. Uh, so the founding of this company, a a m, born in 1994 when Richard Dick. Dauch, D-A-U-C-H pronounced Dauch rhymes with ouch LED investors to buy GM’s final drive and forge unit, and then they later iPod in 1999. Dauch. [00:15:00] Had a background in manufacturing at gm. VW Chrysler wrote a book not long before he died in 2013, he died quite young of cancer. It’s like 71. He wrote a book called American Drive about rebuilding US manufacturing. His son, David Doch, is now chairman of the Board and Chief Executive Officer, but somewhat surprisingly, only owns about 2% of the stock. Thought he might own a bigger chunk, and we like to score companies where you have a founder or executives that own a big chunk, but not the case for the douches. Apparently still, I wouldn’t mind. Nice one. Yeah, I’ll pay that. Very good. Uh, so that’s what they do. As I said, relatively boring. I mean, I don’t need to go into a lot of detail. I think about this. They make a, they make axles and different bits of cars that make wheels turn. They’ve had a few major pivots in m and [00:16:00] as over the years. 2017, they acquired a company called Metal Dine that added scale and, uh, the metal forming segment of their business in 2019. They sold a casting unit to sort of streamline, but the big announcement at the moment is at the beginning of this year, they agreed to buy a company called Dow Lice. They’re a British company, owner of GKN Automotive, spelled D-O-W-L-A-I-S Dow. LAIs is, it’s how it’s pronounced. They’re buying ’em for a $1.4 billion cash in stock deal. Um, they’re gonna de-list and then maybe list, do a secondary listing of the merged entity in London. Dow Lice is a British specialist engineering slash auto components group that was only formed in April of 2023 via the demerger of GKN automotive, GKN power metallurgy, and GKN hydrogen [00:17:00] from a company called Melrose Industries. I think we’ve talked about them in the past too, for some reason. Sounds familiar. Anyway, they have a bunch of businesses that are somewhat similar to the business that a a m are in, uh, driveline, powertrains E drives, um, CV joints, powder metallurgy, metal powers, precision parts, and hydrogen Clean Energy Engineering, which is a smaller but an emerging vertical. So it has a, has a footprint in. The UK and Europe, 25,000 employees across 19 countries, but has been losing money in recent times since it was created. And so these guys have swooped in and, uh, merging with it. So a xls current segments are basically drive lines, axles, AWS four wds, [00:18:00] EBE drive, about four point. Two, 4.3 billion in external sales, which is about 69% of their revenue and metal forming where they’re forging gears and shafts and engine and transmission parts, which is about 1.8, 1.9 billion of their revenue. The other 31%. Uh, that’s, that’s it. That’s what they do. Nothing fancy. Uh, just make bits that make cars move. Tony Kynaston: Hmm. Cameron: Why is it cheap? Well, first of all, I should point out that the reason it’s on our buy list is their price to operate in cash flow. AKA, the prop calf is 1.63 times. So not as low as some we have seen recently, but low enough. For us, um, trying to figure out why the market is discounting it, you know, [00:19:00] it throws off a lot of cash when volumes are steady. If you look at their, if you look at their revenue, like it’s not that exciting. Let me pull up their, uh, revenue page here. Tony Kynaston: that? I mean, I can, I can just see the management consultants now saying, oh, it’s the price taken or the price maker. face competition from overseas. Who can do it cheaper? Blah, blah, blah, blah, And yet, it’s Cameron: Yeah. Tony Kynaston: long has it been around for? Cameron: Uh, 30 years. Nine, four. Yeah. And you know, they’ve obviously got deep relationships with these, with gm, with Ford, with Stellantis. If you go back and look at their revenue line 20 19, 6 and a half billion, drop down to 4.7 in 2020, up to 5.1 in 20 21, 5 0.8 in 22, 6 in 23, 6 0.1 in 24. Estimate for this year is 5.8, so [00:20:00] they’re not growing. Sort of their sales are just kind of hanging in there. Operating profit though in that time has gone from negative 300 million in 2019 to 241 million profit in 2024. Time to market is 100 and uh, sorry, time to market trailing 12 months. The other TTM 172 million net profit estimate for this year will be 54 million. This is going from a 444 million loss in 2019. So they’re doing something right. They’ve gone from making a. Tony Kynaston: which probably means that there’s opportunity, right? Well, m and a. Cameron: Streamlining. They got rid of divisions and that kinda stuff. Yeah. Um, if also you look at their operating margin, 2019 it was negative four point a 5% dropped to negative eight point a 5% in 2020 it’s up to positive 3%. This year it [00:21:00] was 4% last year. So they’re doing some something right in the background to make money and make a profit. Tony Kynaston: percent’s a very low margin, but that could be their strength, right? It’s a barrier to entry. Why would you billions in all the equipment you had to make axles? out and try and pick up business from established players if you’re only gonna make 3% margin. Cameron: Yeah. Good point. Uh, so anyway, you know, the, and you know the, I think the car market, we talked about this when we did Ford. Um, the car market is a bit choppy in the us. Goes up, goes down. EVs have been stop, start. So these guys, uh, riding sort of these uneven cycles. It’s not exciting. It’s not a Mag seven, it’s not an Nvidia or it’s not an open ai, but they seem to know what they’re doing in terms of running a [00:22:00] steady as she goes business and tweaking it year after year to become more and more profitable. They do have deep know-how in rear axle and four by four manufacturing and long program lives with GM and Ford. They have a manufacturing footprint in the US and Mexico, which is possibly a good thing in the tariff wars that are going on. The e-beam tech that lets them electrify trucks without redesigning frames is a big strength for them. If they, um, if that, you know, continues to be an ongoing trend. Although I know Trump thinks petrol is great and we EVs are terrible, but didn’t ask Elon about that before he said that. So they’ve got maybe a a bit of a moat in terms of switching costs and validation cycles with their relationships with these big American automobile manufacturers. Tony Kynaston: Mm-hmm. Cameron: [00:23:00] The market might also be discounting it though because of concentration risk. Gm, as I said earlier, is 42% of sales cyclical exposure to North American trucks and that whole EV demand whiplash, which makes, uh, e e-beam investment and predictability on returns on that. A little bit iffy, but then they’ve got the Dow lice. Merger, uh, which is a potential win for them depending on how well they execute and how that plays out. So we’ll see how that goes as well. So the, they’re, they’re waiting on some approvals for that too, with various regulatory bodies. So that may or may not actually see the light of day. No one really knows. And there’s also tailwinds If US truck production stabilizes, um, who knows what’s gonna happen with the US economy. I know when we talked about. Some of our agriculture plays too. We know that [00:24:00] trucks along with, um, agricultural machinery, I can’t remember who that was. We talked about a, um, big US agricultural play recently. Um, the whole farming sector is struggling a little bit over there at the moment. They probably buy a lot of trucks as well, or Utes as we would call them here, utility vehicles. So. But again, our basic policy is we stay outta prediction. We stay out of both mi microeconomic and macro analysis. We just look at the fundamentals of the business. Does it seem to be well run? Are they generating cash and can we get it at a discount? And we let management. Figure out the rest of it. Let them run their business to the best of their ability. Assume that the incentive programs that they have will mean that they do the right thing by the business long term. More often than not, we hope. [00:25:00] Lemme run through the numbers. Um, do, do, do, do, do. Oh no. They’re at the top of my thing, not the bottom. Tony Kynaston: And we don’t have companies like this in Australia, or at least listed companies like this. It’s not a big, we don’t even have a local vehicle manufacturing base anymore in Australia. ’cause it was subsidized for a long time. Um, Cameron: Yeah. Tony Kynaston: Yep. And, uh, it’s, probably a weakness for Australia at some stage. I mean, I, you know, I understand why we don’t have it ’cause we can’t stack it up overseas imports. But, um, you know, it’s, it’s, it’s gotta be a strength for a country like America to have a local base that can produce parts for vehicles calls, have all that technology available. Cameron: yeah, although, I mean, I believe that people aren’t gonna buy cars in the near future. You, you’ll just have AI driven shared vehicles that you just book on [00:26:00] your. You tell your AI that you need a vehicle and one will turn up in your house a minute later. So I dunno what that’s gonna do to car ownership. And car sales trucks might be different, but uh, Tony Kynaston: so this company’s probably Cameron: yeah. Tony Kynaston: Yeah. Cameron: Well I’m talking about Australian manufacturing, but I also believe we will see the cost of manufacturing drop when we have. Robots building vehicles along with everything else. You know, one of the reasons we can’t be competitive in terms of building anything like that here is that. We can’t compete with China in terms of labor costs and insurance and all those sorts of things that go with hiring human labor. When you get rid of the human labor and you have robots building these things, all of a sudden your unit cost drops dramatically and maybe we can build them competitively, price competitively. Of course, no one will have a job, so no one will be able to afford to afford to buy a car or a truck. So. Tony Kynaston: But we don’t predict, but our, but our market is, is also very [00:27:00] small. So there’s economies of scale we just can’t achieve in Australia. just for the US listeners, our market’s about the size of California the US market overall is a lot larger than that, 10 or 20 times bigger. So, um, yeah. Cameron: Anyway, to the numbers for American axle, average daily trade, about $22 million. So quite large Pr/OpCaf, as I said, 1.63. Uh, in Wikipedia they get a quality rank of 63, which is above our cutoff of 60, so we scored them for that. They also scored for a stock rank greater than 90 and f scored greater than 4.5, so they score very well Inia for those. Metrics. Um, their, their value score is 97 in stock. Edia momentum is 90, surprisingly, and the stock rank is 98. So Wikipedia’s analysis really likes them. They did not score for the price being [00:28:00] less than our IV one or IV two. Did not score for price being less than book, but they did score for price being less than book plus 30. They also scored for a new three point upturn. That was when they were actually above the byline yesterday. But, um, I’m assuming that they will go back above that in the next couple of days. If not, we wouldn’t buy them. But they did get a score for that when I did this over the weekend. They did not score for growth being greater than PE over 1.5 and, uh, they didn’t score for PE uh, less than yield ’cause they are paying a, a dividend. Also, don’t score for yield greater than bank debt. Don’t score for future IV being higher than, uh, double the price. So they, uh, added 12 items that they scored for. They got a nine out of 12, which is a [00:29:00] quality score of 75%, which is pretty good for us. And, uh, a QAV score of 0.41, which again, is, uh, pretty good for us. Yeah. Sh. Boring, but solid. And I like it, Tony. I like it. What do you think? Tony Kynaston: it’s necessary. Um, it you spot on. It’s a, it’s a classic value play. It’s low growth, um, grinding every day to make a 3% margin, but throwing off lots and lots of cash heavily embedded in the industries with relationships. Uh, which has gotta be a MO for it. So yeah, it’s, um, it’s a classic value play. Cameron: By the way, I didn’t say that their F score is actually eight out of nine, like one of those. Healthiest F scores that I think we’ve seen since we’ve been doing this show. So financially, very solid and, uh, [00:30:00] doing, doing okay. So there you go. Boring axles, axle rose, boring. Um, you Guns N Roses fan, Tony. Tony Kynaston: bit. Cameron: That first album. Actually, the first couple of albums pretty good. You know, Tony Kynaston: I agree. Cameron: appetite for Destruction, though. Can’t, can’t Beat it. Great album. Okay. After hours. Tony, Tony Kynaston: Yeah, a couple of things. Um, I’ve had a, had a nice Cameron: I. Tony Kynaston: I went out to Flemington, to the Turnbull Steaks Day with Ruddy. We had a nice lunch in the member’s dining room. Caught up with some friends, so that was lovely. Um, he came down from Wagga Wagga, uh, which was nice. and continuing on the social trend, I had the visit from Alex and her boyfriend and their, their family. Yesterday. So they drove around to come and see us. They’re over here from Adelaide Holiday. Well, the parents are, and Alex and Sean came down from Melbourne. So it was lovely. Had a nice, [00:31:00] uh, nice week of socializing, which I don’t often do down here at Cape Schanck, away from things. And on the listening front, red continent, have you heard that Cam? Cameron: What’s that? Tony Kynaston: so Jim, you know Jim Mo or NY Hurst. Two x Cameron: I know Rob Hurst. Tony Kynaston: So Cameron: Oh yeah. Tony Kynaston: to record and they put out an EP recently. It’s, it’s pretty good. In the style of Cameron: Is the. Group called Red Continent or is that the album name? Tony Kynaston: the ep. It’s got, I think it’s only got four or five tracks on it. But they’re pretty good, Cameron: Right. I’ll check that out. I love Rob Hurst. Great drummer. Tony Kynaston: is, isn’t he? Cameron: Well, I’ve got a film for you Stalker by Andre Tak Kovski. You ever seen a Tchaikovsky film? Tony Kynaston: no, Cameron: Uh, you’ll love it. I think you’ll love it. Tchaikovsky. Um. Soviet, um, art [00:32:00] house director seventies and eighties, much Bel he died in 86, age 54, Tony Kynaston: Oh. Cameron: beloved by um, David Stratton. I remember Tony Kynaston: He Cameron: David Stratton used, Tony Kynaston: did Tchaikovsky make, uh, Solaris? Cameron: he did make Solaris, the original Solaris. Yeah. Yeah. You remember David talking about that? When Soderbergh’s, well, Soderberg and Clooney’s ver uh, remake of it came out and, uh, I remember David just saying, no, the Tarkovsky film was far superior and I watched, I’d never heard of Tarkovsky and I tracked it down somehow and watched it after that and loved it. Very moody. No dialogue. Well, stalkers another film he made in 79. Um, he did five films and it was the last of his films. Um. Oh no, he made a couple more after that. Sorry. But, uh, he made them outside of the Soviet Union. I [00:33:00] think he, he moved to Paris, but a Russian friend of mine at Kung Fu said, have you seen Stalker by Tchaikovsky’s name? He goes, oh, you gotta see this. It’s great. So I’ve been watching it and it’s fantastic. Very lynching. Um. Based on a science fiction novel, about three guys, the stalker, the professor, and the writer, and the stalker is taking the other two to the zone where all their wishes will come true. And it’s, that’s all you know. And it’s very mysterious, very atmospheric. Not a lot of dialogue. Beautifully shot. You can find it on YouTube. So there’s a. There’s a YouTube channel called Moss Film, MOS Moscow film, MOS film that has a whole bunch of Soviet films for free. And, uh, this is one of them that I’ve been watching and it’s beautiful. It looks, must be a digitally remastered version of it. It looks glorious [00:34:00] and, uh, just really weird and moody. So yeah, very lynching. Um, it reminds me at the beginning a lot of, um. A Razorhead, Tony Kynaston: okay. Cameron: but was made after a razorhead. Uh, razorhead was like 70, 77, 78, I think, wasn’t it? Tony Kynaston: Oh, I’m not sure remember Cameron: Mm. Tony Kynaston: so it must have been done by the eighties. Cameron: 77. Just looked it up. Yeah. Anyway. I highly recommend that. Um, as I’ve mentioned off air, I’ve been reading Asimov’s original Eye Robot novel, which I’d uh, never read before. I think we talked about some of his short stories in the Positronic brain, uh, last year when I read one, but I got into this and I was just really, it’s, it’s kind of archaic, 1950. So his depiction of robots and everything’s a little bit off, but, um, his introduction of the three laws of robotics, I found fascinating. The [00:35:00] way he positions it, the way he introduces it, and the problem’s inherent. In the logic of it was brilliant, like really, really clever. Tony Kynaston: Yeah, Cameron: Not surprisingly for Asimov. Tony Kynaston: two books. It’s the rest of the robots as well, just keeps the theme going and. Cameron: Right. Well, the one, I’m not sure if the one I’m reading is a compilation. What, but there’s, I’m up to like chapter four. But, um, I like in, I think the third chapter, the two main guys, Donovan and whoever the other one is the two robot engineers. They’re on some distant space station where they, um. Put together an advanced robot QT QT one, and it’s a highly advanced, intelligent robot. And the first thing it says is they said, we major. And it’s like, yeah, I don’t think that that, that makes any sense. I’m gonna have to take some time to reason this out ‘ cause I’m [00:36:00] obviously far superior to you and it doesn’t make any sense logically that a less superior being could build a. More superior being so I’m not buying that. They’re telling him. But there’s all these humans, there’s billions of humans on earth that make robots and it’s like, nah. So it ends up deciding, it ends up basically building a cult where it and the robots are worshiping the master, which made all things and believes the humans are just delusional. ’cause they believe in this fairy tale because they have to tell themselves that because they’re inferior Anyway. Fascinating. Tony Kynaston: Great. Great stories. Almost detective stories. Cameron: Yeah, but also interesting to me to read it. So here we are, 75 years later, he was trying to work out how do you design adv artificial intelligence? In a way that it will be aligned with what’s good for humans. Here we are, 75 [00:37:00] years later, we’re now actually dealing with that, and we still have no idea what we’re doing, how to do it. You know, everyone’s mucking around trying to talk about alignment, but yeah, when you read between the lines, no one cares. No. It’s just like build it as quickly as. Build it as quickly as possible. Make as much money as possible. Establish our dominance as, and we’ll worry about it later. We’ll worry about stopping it from killing us all down the track. Tony Kynaston: were talking about off air before too. Like in a hundred years ago or so, the, the Royal Society of England would’ve been the hot bed of debate about ai. the great minds of the world would’ve gotten together and made presentations, debated, argued, up with the, with a good solution. Cameron: Yeah. Tony Kynaston: like it’s been corrupted by capitalism. It’s like, uh, we’ve gotta build our own ip. Keep it quiet. Get out there, fasten the market, build a moat, become dominant. Gather all the eyeballs and bugger if it’s good for society or not. Cameron: Yeah, we’ll [00:38:00] worry about that later. Tony Kynaston: Hmm. Cameron: Well, actually that reminds me, I told you that I just did a couple of shows on fascism this morning on the bullshit filter with Ray, uh, talking about Mussolini, Hitler and the rise of fascism in their respective countries and. You know, when you study the history of it, fascism both in Italy and Germany was as, um, Trotsky wrote in the early thirties. It was the response of the bourgeoisie to what they saw as the imminent threat of socialism, uh, post the Russian Revolution and World War I, and then the Great Depression in Germany’s case, the threat of. Socialism arising in their countries. They needed someone at arm’s length to come in and crush the unions and the workers and the socialists. They outsourced that in both cases to the black shirts and then to the brown shirts, [00:39:00] and then put them in positions of power legally. To finish the job, to crush socialism. There was the petty, there was the industrialists and the large landowners and the church that came together to put the fascists in power in Italy and Germany with the view that, well, we’ll just put ’em in power for a few years and they can crush the socialists and then, then we’ll get rid of them and everything will be fine. Right. Tony Kynaston: Right. They just got rid of Cameron: It was this short. Tony Kynaston: Yeah. Cameron: Yeah, it was the short termism. Well, we’ll just give them dictatorial powers. Well, they didn’t even think that. We’ll just put, put them in government. And then the first thing that both cases they did was take dictatorial powers and then get rid of all of the opposition and all of the dissent and, and Tony Kynaston: We’ll just put Cameron: yeah. Did not end well. Tony Kynaston: See Cameron: Yeah. It’s this short termist thinking like Ray and I always laugh when we did the Caesar show, the assassins, uh, of Julius Caesar, Brutus, and Cassius, like it was step one, kill [00:40:00] Caesar, step two. Ah, let’s not worry about that right now. Like, like, whoa, Tony Kynaston: I got a Cameron: let’s not get ahead of ourselves. Tony Kynaston: lots on my plate. Come on. Just do. Just do it. Cameron: Yeah. What are we gonna do after we kill Caesar? Well, we’ll worry about that when we worry about that. Let’s not, let’s not get ahead of ourselves here. You think too hard. Stop overthinking it. Tony Kynaston: predicting. Cameron: and Yeah. Never turns out well, this short termism, which you know, and I’ve said this before, this is why the Chinese are brilliant. The Chinese figured out. The flaw in capitalism, which is short term thinking capitalists only think as far as next quarters profit statement. And the Chinese came in after, you know, after dong took over and was like, well, you can make stuff cheaper if you give it to us to make. Just give us all of your manufacturing finance, our factories, teach us everything, and you’ll make better profits. You’ll be able to keep more money. It’ll all be great. Tony Kynaston: not just capitalism, it’s democracy, isn’t it? As we do it with three or four [00:41:00] year terms, you can’t, government’s Cameron: yeah. Tony Kynaston: to build a highway that if it takes 10 years. Cameron: Yeah. Well, it’s democracy as we do it. That’s right. It’s the, it’s the short termist view of Tony Kynaston: Mm-hmm. Cameron: China has a democracy too, but their democracy is, we’re gonna take a hundred years to become the most powerful country on the planet again. And, uh. No one get in the way of that. We’ve got a plan. We’ve got a vision. Tony Kynaston: Yeah. Cameron: 50 years actually is what Dong said. Tony Kynaston: And when in 10 years or 20 years or 50 years, it becomes an issue and Amer America will throw all its resources at a short term solution for it. Cameron: Yeah. Oh, Tony Kynaston: it’s a Cameron: how do we stop it? Tony Kynaston: bit like climate change. It’s not really affecting us yet. Cameron: Yeah. We said during COVID, when COVID hit. Every government in the world said, right, we need to fix this now. This is, this is gonna hurt the economy. We need to get on it. And all of a sudden you could just print money out of the blue to fix a [00:42:00] problem. Tony Kynaston: yeah. No, exactly. Yeah. Cameron: that. To fix climate change, but to fix COVID. Sure. Whatever it takes. Tony Kynaston: it to fix climate change potentially. I. Cameron: I know, but they won’t. They, they said you can’t. We’ve been told for the last couple of decades, well, we can’t do anything that might affect the economy to prevent climate change. COVID. Yeah. We just print money. Worry. We’ll worry about what that means later on. Tony Kynaston: As as you are sitting in a room of what’s the temperature in Brisbane today? In the Cameron: 34 in my office right now. Yeah. Tony Kynaston: start of October, Uhhuh. Cameron: I got my kung. Grading pre-assessment on Friday. It’s gonna be 35. I’m gonna be doing two hours of uh, K FU and 35 degree heat. It’s gonna be so much fun. Tony Kynaston: I am guessing the gym Cameron: Um, my, Tony Kynaston: the dojo. Cameron: it is air conditioned. Um, unfortunately the air conditioning always seems to fall, fall over and die. That’s what they tell us because their previous [00:43:00] dojo before this one had no air conditioning and no fans and was in corrugated iron. And all the old timers say to us, you guys are so weak, you should have been in the old school. Um, my music recommendation this week, Tony is Lyle Lovet. Tony Kynaston: Really, Cameron: gotten to Lyle Lovet? Tony Kynaston: not Cameron: I, I’ve loved Lyle Lovett for decades. I hate country music, but my exceptions are always Johnny Cash, Dolly Parton, Kenny Rogers, Lyle Lovet, and, uh, I don’t know, maybe. And, and Willie Nelson. Like, they’re the, they’re the five that you’re allowed to listen to, uh, in our house. Yeah. You know, like Dolly Parton. Come on. Tony Kynaston: Uh, Cameron: Anyway, lol. Love it. He’s kind of sits in this weird space between, it’s sort of Americana country. It’s more like sort of Neil Young, I think of him in that sort of space. There’s an album [00:44:00] he came out with in the early nineties called I Love Everybody. Which I lo I’ve always loved. I used to have it on CD and I’ve just got back into listening to it again, along with some of his more recent albums with a big band, does some jazzy kind of stuff. He’s very experimental. Anyway, check out Lll. Love it. I love everybody. Songs like Fat Babies have no pride. Um, Tony Kynaston: I heard a good country in Western Song title recently. My best Cameron: yeah. Tony Kynaston: my wife and boy do I miss him. Cameron: That’d be you and Roddy. Um, I. Yeah, like he’s, he’s his, his lyrics are quite funny, quite satirical, acerbic. Um, it’s got that humorous thing. Oh, the Sparks just came out with an EB EP two for the, I know we’ve got some listeners that love the Sparks, like I do check out their new EP there. Our last album that came out six months ago was called mad and they just [00:45:00] came out with a four track EP called mad. Uh, and all the tracks are great. Terrific. Ron just turned 80, Russell just turned 78. Their songs are terrific. Very funny. Um, great riffs. Anyway, so that’s my music for this wing. Tony Kynaston: Good. I’ll check it out. And the movie too. Looking Cameron: Let’s, oh, it’s really good. Like really good. Yeah. Tony Kynaston: Yeah, well when people listen to this, you’ll be another year older, so happy birthday for, is it Thursday or Friday this week? I think Cameron: Friday. I’m also doing a Kung kung fu pre-assessment for my grading, which is basically the grading before the grading. So we’ll see how that goes. Not feeling confident. Yeah, thanks. Tony Kynaston: So this Cameron: Kung fu is hard man. Tony Kynaston: to improve for the grading, is it? Cameron: No, it’s where he says you’re not ready to do the grading or you are ready to do the grading. Um, as you know, I just got my nose broken at kung fu last week. I think it’ll just be healed. Takes about six weeks to heal. My grading is in. [00:46:00] Two weeks, so it’ll just be time to get it broken again when I do the sparring round of the grading, where I will inevitably get punched hard in the nose 20 times. So Tony Kynaston: you, can’t put a helmet on, can you? This is Cameron: no, Tony Kynaston: felt like Cameron: no, no. I just gotta, Tony Kynaston: right? Cameron: I just gotta walk in there and hope it doesn’t get re broken too badly during my grading, but Tony Kynaston: Can’t they Cameron: this is why we do it. Tony Kynaston: snatch a pebble from his hand or something? Isn’t that how kung fu gets created? Cameron: Well, that’d be better than, uh, picking up the boiling vat with my forearms from, uh, cane of Kung fu. Yeah. Tony Kynaston: Well, good Cameron: Yeah. So that’s, thank you. It’s gonna be a big week. Fun week. Fun. Tony Kynaston: Hmm. Cameron: Hmm. All right. Talk to you later. Tony Kynaston: See you. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you [00:47:00] can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. 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Oct 9, 2025

48m
14

QAV America 23 – For-Profit Healthcare: CYH

In this episode of QAV America, Cameron and Tony review the US portfolio’s performance in 2025, which—despite lagging this year—is still well ahead of the S&P 500 since inception. They reflect on past stock picks, before diving into this week’s “Pulled Pork”: Community Health Systems (NYSE: CYH). The discussion ranges from the messiness of America’s healthcare system to the company’s staggering debt load, CEO transition, scandals, and surprisingly strong cashflow. They weigh the risks (reimbursement uncertainty, capital raises, softening acuity mix) against the opportunities (deep undervaluation, strong operating cash generation, potential turnaround with new leadership). Along the way, they also touch on cultural differences in healthcare, Reddit debates about value investing, and how profit is often a “management decision,” while cashflow is the truer measure of resilience. ⸻ Timestamps • [00:02:00] Portfolio check-in – US portfolio performance vs. S&P 500. • [00:04:30] Revisiting past Pulled Pork picks • [00:08:00] Pulled Pork: Community Health Systems (CYH) – Company overview, history, scandals, and current challenges.   Transcription   Cameron: [00:00:00] Welcome back to QAV America, Tony, episode 23. We’re recording this on the 30th of September, Australian time, 2025. Been a couple of weeks since we’ve talked about the United States. Tony, uh, I know that you’re an avid follower of the Wall Street Journal. Anything going on? Anything go happen in the United States in the last couple of weeks? I haven’t seen anything about the United States for a couple of weeks in the news. Nothing going on. Tony Kynaston: The contractor to service the UN elevators or escalators is up for That’s a bad end. I think Cameron: Well, the story there is that it was, uh, did you see that? Why the escalator stopped? Tony Kynaston: number of reasons why the escalators stopped, including a photographer pressed the stop button. Cameron: I read it was Trump’s photographer who was going backwards up at whose foot got caught in it and it jammed and stopped, and then the teleprompter was apparently run by the White House who screwed up the teleprompter. So it was, uh, [00:01:00] his own fails from his own team apparently, is what I read in the New York Times. The failing New York Times. Well, Tony, I thought I would, uh, that’s what he calls it, doesn’t he? I dunno if they’re failing or not. Um, probably large media. I wanted to, before we get into my Paul Pork this week, I just wanted to do a quick recap of how our US portfolio is doing and talk about what’s going on with some of the other companies that. We’ve covered over the last few months on this show how they’re doing. So let me bring up our US portfolio. As I’ve said many times before, it’s been an interesting year for our portfolio in the US It was. Doing three times the market by the end of last year, but then after Trump got elected, it has not had a good year.[00:02:00] So all time, our portfolio in the US has been running for just over two years now. I started at 20th of September, 2023. Over that period of time, it’s up 65% versus the s and p 500, which is up slightly less than. 50%, so it’s doing reasonably better than the s and p 500, but not double like we’re doing in the US and certainly not like triple like. By the end of 2024, a US portfolio was doing three times as good as the s and p 500. So it hasn’t had as good a year. 20, 25 year to date, it’s actually down 12% versus the s and p 500, up 13%. As we know, that’s how it goes. We go up, we go down, but generally we go up more than we go down over the long haul. Tony Kynaston: Great. just. Cameron: of the, uh. Tony Kynaston: can I jump in here? There was a, um, I know the show was [00:03:00] released in the US last week, which was a discussion of the QAV Bible and it mentioned that, um, long-term returns were 19.5% cagr, and that’s certainly the case back when we started QAV, but uh, it’s not the case now. So I just wanted to highlight that for people don’t wanna mislead them. That’s why we use the term double market. ’cause my returns are the markets or roughly twice the market still. Um, but the market’s moved since then, so, um, it’s, I just don’t wanna mislead people by putting, posting a number out there. Um, it’s more instructive to look at the long term, um, and to expect to get something like twice the index if you, um, successfully according to what I’ve been doing for a long time. Cameron: So I’m just, uh, looking up my list of Paul Porks that I’ve done over the last six months. Can’t remember who I did in episode 21. I. [00:04:00] Um, oh, MEOH. Yeah, right. I don’t have an update on MEOH, but for the rest, uh, like I was saying to you on our last Australian show, um, when I’m on the, some of the value investing forums in the us like the subreddits, that kinda stuff, a lot of people talking about how. They can’t find anything to buy. Value investing is dead. Uh, I saw, we saw an article from some guy saying that, uh, people saying they can’t find anything, all the value’s gone. And I’m like. What is your problem? Because I did a buy list, a US buy list at the end of last week, and there was like a 200 companies that were on the buy list, which means that, you know, they’re, that’s what our, our buy list is showing us as being undervalued at the moment. Well performing, well performing businesses that are undervalued, but just the list of companies that I’ve talked about on this show since March. Zim was the first one that I did on the 13th of March. It is [00:05:00] down 26% since I talked about it. Uh, but then in order of shows that we’ve done, so the next one was CX Chemex. It’s up 68%. Dan Aos, DAC is up 16% since we talked about it. Canadian Imperial Bank is up 23%. Chile is down 10%. Ford Motor Company is up. Eight IHS is up 37. JXN is up 16. Oryx Corporation is up 27. Precision Drilling is up 18. Costco’s up five Zep. Corporation, Zep Health is up 1511% since we talked about it on the 11th of July. Sasol is up 43%. Bausch Health Companies up 16 Seneca up 9% Gray media up 40%, and we talked about that on the 7th of August. There’s up 40% in less than eight weeks in seven weeks. An old television station, Titan [00:06:00] machinery’s up 11%. Kimball Electronics is up seven. Sno is down two since we talked about it at the beginning of this month. And then, um, M-E-O-H-I, I’m, oh, I can have a quick look on Yahoo Finance. Let’s see, how’s MEOH doing? Tony Kynaston: post out. to this Reddit sub value sub investors club, or whatever it’s Cameron: I do, I do, I do. And every I get just get abused for being an idiot. Um, em, me, O-M-E-O-H, um. Tony Kynaston: rich idiot, though, isn’t it A successful idiot. Cameron: MEOH uh, is up a couple of points since we talked about it. Um, actually it’s about the same, it was about $39 when we talked about, it’s still about $39 Methodex Corporation Co. So anyway, so there’s, I, I dunno what people’s problem is. I dunno what kind of value investing they’re doing that where they can’t find [00:07:00] value when we are finding value all over the place. So speaking of that, I thought I’d, um. Tony Kynaston: to interrupt, is that, um, you’re not even picking the top stock in the buy list. You are just picking out stocks, which are interesting that we don’t have Cameron: Yeah. Tony Kynaston: or just look worthy of a bit of investigation. So it’s kind of a random selection from the buyers that you’re picking. Cameron: Yeah. Yeah. I’m looking for something that’s, you know, different to what we, because as we keep saying every episode, there’s a lot of shipping companies, a lot of financial services companies, and I just don’t wanna talk about the same thing every week. Well. We’ve talked about a lot of dirty businesses, um, in this epi in this show over the last six months, Tony, and this time I’m gonna do dirty healthcare, not because I wanna highlight the company we’re talking about as dirty. Although they have had a very long list of scandals and fines and things like that, but just because the healthcare system [00:08:00] in the US is just a mess. Now, you know, obviously we’re Australian and we have a very different healthcare system, but I would not want to be a patient in the US for for-profit healthcare system. And that’s what I’m gonna talk about today is one of the companies over there, CY. H is the name of the company, community Health System. CHS. It’s known as, but the ticket code is CYH and I, you know, I often hear Americans in person and online. You know, I’m married to an American, spent quite a lot of time over there. They think they have the best healthcare in the world for some reason. You often hear American politicians, particularly Republicans, stand up and say, we have the best healthcare in the world. And, and, and I’m hate to break it to Americans, but that is just not the case. Compared with other rich countries, the US has worse population health and the most expensive popu, uh, health care [00:09:00] system in the world. Hold on. I just hit the wrong button here. Okay. Um, you know, just to give you an indication. Bottom line is despite far higher spending per capita, the US has worth, worth. Lemme start that again. Worse population health. In 2023, US life expend expectancy was 78.4 years versus 82.5. In peer nations, the lowest among the group, and every US state sits below the peer average. Life expectancy gap is big and stubborn. The US rebounded post pandemic, but still trails by 4.1 years in 2023, that gap predates COVID and reflects higher premature deaths from overdoses, violence, and chronic disease. Infant deaths are higher, maternal mortality is higher. Avoidable deaths trend the wrong way. Where the US does [00:10:00] shine, it ranks second on care process prevention, safety, coordination, patient engagement, a sign that it can deliver high quality clinical episodes, even if population outcomes lag. And for several cancers, for example, breast cancer, US five-year survival is among the best internationally. So, but the cost context is the US spent $13,432 per person on healthcare in 2023, about double the comparable country average, and still posted the worst overall performance in the latest international scorecard. So that just gives you an indication of where it sits healthcare outcomes wise. So. Wouldn’t wanna be a patient, but maybe it’s okay to be an investor. ’cause we’ve talked about a lot of dirty businesses, uh, over the years, Sasol, et cetera. We’ve talked about [00:11:00] some companies and industries with, uh, pretty bad track record, but the end of the day they, they could be good investments and this could be one of those. I do wanna flag though, before I get into the details that. CYH from our perspective is currently, uh, a Josephine, meaning that its share price is not above the byline, but it’s, well, it was once sent away from the byline. When I was doing this analysis yesterday, it was at $3 18. The buy price was $3 19. I think overnight it dropped down to $3 14. So it’s a little bit off its byline, but. Oh, the other thing I wanna flag is that it took a big hit a few months ago. It dropped like 28%, uh, a few months ago when it came out with some bad results. And the CEO longtime, CEO announced his resignation. He actually [00:12:00] leaves today, the 30th of September. It’s his departure date. The CFO is gonna be the interim CEO, but they’ve been recovering since they had this big drop a few months ago, and, uh, they’re nearly above the byline Again, as I said, I’ll give you the high level though. The prop calf price to operating cash flow is 0.9, so that’s why we’re talking about them today. They’re insanely cheap looking at ’em from a cashflow perspective. And these guys are huge. Their market cap is only 445 million, but the enterprise value is 11.39 billion in their revenue last year was 12.65 billion. They’re a Fortune 500 company based in Franklin, Tennessee. Community Health Systems, as I said, is the name of the company. They were the largest provider of general hospital healthcare services in the United States in terms of care facilities. In 2014, they had around [00:13:00] 200 hospitals, but as of 2025, they have about 70 hospitals, or 71 maybe in 14 states with 10,000 plus beds and a thousand plus sites of care. So they’ve sold awful lot of their network over the last 10 years or so. They run general acute care hospitals ERs, surgical imaging, physician practices, urgent care, cancer centers, and more think local hospital operator at national scale, but focused on mid-sized markets. They bought up a lot of stuff, sold off a lot too eventually, but they, they sort of did a big roll up of medical facilities around the country for years. They were formed in 1985 by executives of an earlier [00:14:00] for-profit hospital chain or a number of hospital chains. The I they IPOed in 19 19 91, went private in 1996, then re-listed in 2000. Then they bought Triad Hospitals in 2007 for 6.8 billion, which doubled their footprint. Then they spun a bunch out into a company called Quorum Health in 2016, which later went bankrupt in sort of April, 2020 as COVID started to hit and got delisted. They’ve had a bunch of scandals. These guys, a lot of billing slash false claims settlements and a 2014 cyber breach. They, they’ve, they’re reputationally, uh, they’ve got a lot of baggage, a lot of issues. I’m not sure if the CEO leaving is going to really. [00:15:00] Help with that, but I guess it’s a start. They’ve had a lot of pivots, a lot of crises, a lot of m and a, and you know, a lot of trying to get rid of debt, which might, you know, if the, if interest rates come down, that that might help them refinance some of their debt this year. But it’s kind of a. A bit of a messy, messy business and a messy history bunch of scandals. As I said, they’ve had to pay multiple fines to the US DOJ due to their billing practices, allegations of defrauding the US government, something called the False Claims Act, basically claiming money from the government for stuff that they shouldn’t have been claiming money for. Um. Allegations of, uh, breach of fiduciary duty by CHS executives, allegations of fraud with regards to financial projections. You know, I know in [00:16:00] we tend to have a governance red flag with a lot of the companies that we. Look at in Australia, these guys would, in the past, a lot of these things are over the last 10 years, so they’re, they’re not necessarily the last year or so talking about 20 14, 20 17 dates like that. But yeah, not, you know, it’s like not a very clean bill of health in terms of, uh, at least the presentation of how they run the business. They, they’ve settled a lot of these things. So these were allegations that they ended up in lawsuits, either, um, from other hospitals or from governments or from patients. They’ve also had lawsuits filed against them for alleged predatory liens. Practices where hospitals file for liens rather than bill individuals. Health insurances, insurers resulting in massive fees for patients. So they go and take a lien over your car if you have a [00:17:00] a bill, healthcare bill builders you haven’t paid, Tony Kynaston: dear. Cameron: but Tony Kynaston: kidney, Which one Do I Yeah. Okay. Cameron: Current reality though, is for this company is revenue in hospital services as paid by managed care, about 57%, Medicaid, 21%, Medicare, 21% self pay 1%, and their trailing 12 month revenue sits around 12.6 billion. It’s down a bit from where it was sort of. Peak COVID and it’s a complex business. Um, you know, I’ll get into sort of the breakup of the financials a little bit later on, but you know, the, the way that these guys make money is a mishmash of different things, that 28%. Drop though in July. I just wanted to touch on a little [00:18:00] bit. So they trimmed their full year guidance down to 1.45 billion, down from 1.55 billion. Um. At the same time, they announced a CEO transition. So there was this double whack of lowering their outlook and leadership uncertainty dropped 25 to 32% in a day and finished about a quarter lower. So that was a big whack for investors at the time. But it’s recovered since then. Tony Kynaston: I think also too, cam, if I can interject, it’s um, it’s CEO Transitions can be a good thing. Um, I Cameron: Yeah. Tony Kynaston: to know what, uh, what will happen with this one, but it’s often a time when a new CEO comes in and they clear the deck, so to speak. So should go into this with their eyes open in that it’s possible that a new CEO will come in and try and take every possible, write down [00:19:00] possible restructure they can in their first year. so, you know, they may even lose money in their first year, so, uh, they can set themselves up to achieve their bonuses meaningfully in the following years. So just be aware of that, I guess if you’re looking at investing in this company. Cameron: Although the caveat on that is I’d say that the incoming interim, CEO anyway is a lifer. He’s been there since 1997. He was the president and CFO, so it’s not like. He can’t play the three envelope strategy and blame all of their woes on the outgoing CEO Tim Hinge H. Hinge Gin, H-I-N-G-T-G-E-N. Your guess is as good as mine is how we provide, it’s like Trump trying to say acetaminophen a setter, a sitter. A set of a set of, yeah, we just call it Tylenol. Yeah. So Tim Tylenol who’s retiring today. Um, yeah, so the, but the, you know, he’s the, [00:20:00] the incoming guy Hammonds, I dunno if he’s gonna be the long-term CEO, but he’s the interim CEO as of tomorrow. Tony Kynaston: Yep. Cameron: So if they get in a new guy, some fresh blood, he might make some big changes. Um, what spooked investors last time, apart from the CEO transition was management pointed to weaker volumes in a softer acuity mix. Acuity mix. New term for me is acuity, is how sick or complex the patients are. So you have high complexity cases and low complexity cases, and high complexity ca. Tony Kynaston: and they’re not coming back in. Cameron: Or people aren’t sick enough, I think is the issue. You know? Well, you’re not really sick enough. You, we can’t make enough money out of you. ’cause you’ve just got, you know, I don’t know. You got a cold or you got, you broke your nose at kung fu like I did on the weekend. Yeah. My doctor went, eh, it’s fine. It’ll heal. Go away. Leave me alone. [00:21:00] Versus, uh, long-term care. So they make more money out of higher acuity cases. But their acuity mix has been softening. Uh, apparently costs are sticky. Your labor, your equipment, your, you know, all, all the other costs that you have, power, et cetera, et cetera. Real estate costs, but margins compress when the price per case drops. So that was one of the issues. Um, the CEO is officially leaving for personal reasons. Nothing to do with Tony Kynaston: isn’t sick. Cameron: bad numbers. No. To spend more time with his family and pursue personal dreams, he said like personal goals, personal objectives, Tony Kynaston: people in a mass Cameron: the $8 million he took home last year. Yeah. I dunno. Maybe once more.[00:22:00] So what’s working and why it’s cheap? Um, yeah, look, it’s generating a lot of cash. As I said before, the price to operating cash flow is less than one, which is, we get a lot of those on this show. The prop caps that we see come through are insane, so. There’s a combination of things, isn’t some of the things that go into the mix of hospitals making money or healthcare businesses making money over there. One is throughput, obviously. How many paying episodes you push through the system, ER visits, admissions, surgery, scans, births, the more bums in beds, more cash, higher volume. Then there’s the payer mix. Who’s paying the bill? Determines your margins. The rough rule of thumb for US hospitals apparently is that commercial insurance pays best. Medicare 65. An up pays less Medicaid, [00:23:00] which is for low income people, pays even less, and then self-paid or uninsured often pay nothing. I think that’s emergency rooms and that kind of thing. There are some things you can get done in emergency where you don’t have to pay in the us so. You want to have more commercial work than Medicare, Medicaid works if it tilts towards Medicaid or self pay. When people then don’t pay and you need to take a lien over their car, uh, your revenue per patient falls. Then there’s rate discipline. How hard you to go. Tony Kynaston: Can you imagine a doctor in Australia taking a lien over someone’s calf and not paying their bill? that would just be front page used. They’d be drummed out of the business. Cameron: Yeah, like it’s just, yeah, like it, like a lot of the stuff we see in the us, like it’s insanity, like gun laws, just insanity. You know? I was, I was [00:24:00] in, uh, the Mormon subreddit or the ex Mormon subreddit because of this guy that just, uh, attacked. Uh, um, sorry, what’s your question? Tony Kynaston: what’s the question? The ex Mormon subreddit, were they for the pe? They’re the people who were shot on the weekend in the Mormon church. Cameron: oh, oh. Dark Tony Dark. No, people talking about like the, the alleged shooter of Charlie Kirk came from a Mormon family in Utah. Now there was an attack on a Mormon church. Tony Kynaston: on, The alleged shooter. Cameron: Yeah. Well I don’t think he’s been found guilty yet by a court of law. So he is an alleged, the alleged shooter. Yeah. And then there was an attack on a Mormon church, uh, um, over the weekend. So. I was reading some of the commentary on that and, uh, you know, people were defending the gun laws in the US and have taking away guns, doesn’t do anything. And I’m like, Australia here, uh, Australia would like to [00:25:00] weigh in on that. Took away our guns, uh, semi-automatic weapons anyway, in 1996. We have more guns now. In the country than we had in pre 1996. Did you know that? More guns in now? Yeah, but not semi-automatic. And the ones that we do have now are usually organized crime, and they’re not getting into the hands of mass shooters. So we haven’t had a mass shooting really since 1996. So, uh, yes. Saying it, it just doesn’t work. Might be a little bit simplistic. Anyway, back to, back to healthcare. Um, rate discipline, how hard you negotiate and defend prices with insurance, uh, with insurers, better contracts, those sorts of things comes into play. How you manage your working capital. Um, how you collect from people that owe you money, all of that kinda stuff. Waste less run leaner supply rooms. Don’t overstock, don’t overpay or don’t pay your vendors [00:26:00] earlier than you have to. All of the usual sort of working capital things that you have to do. Uncompensated care, charity care, and, and bad debt. You wanna drive that down. Your Acuity case mix that I mentioned before, agency nurse spend, apparently they use a lot of temp nurses at very high hourly rates, so you wanna tame that as much as you can, keeping your length of stay or LOS efficient. Get patients home as soon as possible. Get ’em out. Get sick of bums in beds. Tony Kynaston: through the, the sort of third and fourth page of the Hippocratic Oath. The very, uh, the not, not so widely known Cameron: print. Tony Kynaston: your, get your charity. That will work down. Get the patient out quickly, Cameron: Yeah, yeah. Yeah. Uh, and then there’s the competitive edge. I mentioned these guys do a lot of stuff in non-metro areas, so that’s kind of their moat. If they have a moat, they have, you know, big, a lot of [00:27:00] facilities in regional areas where you then have physician relationships, fewer direct competitors than you might get in big city clusters. So some of their portfolio pruning over the last 10 years has been to, I think, focus their energies more in these areas where they can be more competitive than they might be in areas where there are more healthcare providers. So that’s sort of the mix up of the business. It’s quite complicated, uh, and some of the reasons why it’s cheap. They’re carrying a lot of debt. They’ve got, um, you know, sort of, uh, I can’t remember, billions of, billions of dollars of debt, but potential interest rate cuts coming through in the us so they might be able to refinance some of that. They’re also selling off. Assets selling off hospitals. They’ve got some other deals on the table at the moment. They’re trying to sell off more stuff and they can use that to pay down debt. [00:28:00] Some of the other issues, there’s this reimbursement risk in the US election cycle. So Washington and state capitals apparently set big chunks of hospital pricing, Medicare rules, medicaid rules, all this sort of stuff. So when you have elections, new state and federal governments can come in and you know. Budge, the amount of money that the, these healthcare providers can get their hands on, pay less, pay differently, pay later. So they’re dealing with that sort of mix. And then the investors are a little bit scared of, apparently of the for profit boom bust optics in this sector, apparently it’s got a track record of, uh, you know, like, as I mentioned before, quorum going bankrupt during COVID. One of the, the. They spun off a bunch of their businesses into this other listed company that then went bankrupt. So [00:29:00] investors are a little bit wary on this and possibly for a bunch of good reasons, but. You know, from our perspective, it’s very cheap and it’s generating a lot of cash still. And the numbers, which I’ll run through in a minute, look pretty good. There are some red flags, but if the cash engine stays real and they’re able to divest or deleverage more, uh, it could look even better in the future. So the QAV score is 0.7, which is pretty good. Average daily trade is about 8 million. Pretty strong quality rank on stock. Edia is a 61. We score anything that’s 60 or above. The stock rank doesn’t score, uh, ‘ cause we only score for a 90 and the stock rank is, uh, [00:30:00] 86, so it’s slightly below our cutoff there. But they do score for. For the F score, the petrovsky financial health score, which is pretty strong, they get a seven for their F score. We’ll, we’ll score anything that’s four and a half or above, they get a seven. So despite all of that debt, their F score is actually pretty solid. They don’t score for price being less than IV number one or IV Number two, they don’t score for price being less than Book book value growth is not positive. They don’t score for p less than yield ’cause they don’t have a dividend, they don’t score for yield is greater than bank debt for the same reason. Uh, so it’s largely based around, uh, Pr/OpCaf. Tony is the main score. They, they had 11 and uh, 11 numbers. Uh, that we could score for. And they got a [00:31:00] seven out of that. So quality score is 64%.   Tony Kynaston: I think one of the things I’ll just chip in here is that I don’t think they’re making a profit at the moment either at a net profit line. Cameron: Well, that would be why. Tony Kynaston: Yeah. So they’re losing money. although I think it’s, I think it’s forecast to get back, to break even half or next half. Um, so even though they’re throwing off lots of cash, it’s being spent and it looks like it’s being spent on CapEx. So that’s either equipment or I guess. Building hospitals, which, which don’t know what, what part of the cycle we’re at with their CapEx. It might be ending soon, or it might be, it might be a fairly average year this year. so we’re really basing our, our liking for the stock on its cashflow And then Cameron: Yeah, if I. Tony Kynaston: new management can, uh, can boost margins and reduce costs and get back to a, a net profit [00:32:00] basis. Cameron: Yeah. If you look at their profit history 2019, they lost 675 million profitable in 2020. 20 21, 20 22 key COVID years, and then they started losing money again from 2023 onwards, but their loss in 2024 was 516 million. The estimate for this year is down to 36 million, and for 2026 it’s 17.8 million. So it’s like the forecasts are that it’s turning around. Their book value is negative, um, because of the size of their debt, I guess. So that’s why the price to book is dodgy. But yeah, they’re, but they’re, Tony Kynaston: but my Cameron: yeah. Tony Kynaston: if America spends twice as much on healthcare per person in comparable nations, why can’t a hospital make money? That just seems Cameron: Yeah. Tony Kynaston: in the system if it’s not the healthcare [00:33:00] provider. Cameron: Well, the CEO took home an $8 million paycheck, so, uh, he is, yeah. Well, I think you, like we know that doctors over there make insane incomes, right. Compared to doctors in the rest of the developed world in. Doctors? Well, yeah, I think so. Like doctors in Australia aren’t making most, I mean, you might got some surgeons or plastic surgeons or people like that, that are making millions of dollars a year here, but you don’t expect your, your GP or most of your doctors here to be making a ton of money. Right. They, they do Okay, but they’re not millionaires. You know, I think, I think doctors in the US make a lot of money and I think insurance companies make a lot of money. That’s probably where a lot of it goes. So, yeah, so I don’t know Tony, so that’s an interesting one. So they’re generating a lot of cash flow, but they’re not profitable ’cause they’re sinking a lot of money into CapEx and paying off their debt and [00:34:00] all that kind of stuff. So, I dunno, how do you feel about a business like that? Tony Kynaston: I like a business throwing off lots of cash and um, I’d be trusting and hoping the change in management, even though it’s a insider, sounds like he’s interim. So there might be a change in management to an outsider coming up, um, would clear up their problems. So they seem to be clearing up anyway from a profit point of view. we have seen cases of this in our Australian investing and it hasn’t worried me too much because. It’s my experience that, um, if a business is throwing off a ton of cash, it solves a lot of problems. Um, it pays down debt, it funds CapEx. It’s, it’s a, it’s a, you know, it’s a, a big pot to play with to solve a lot of problems. And if they have had problems and maybe they were COVID related, I, I don’t know, then getting back to break even. And, uh, you know, the cash will help them get back to profit. I’m fairly sure. Cameron: Yeah, so at the end of the [00:35:00] day, Pr/OpCaf is what we really care about. Tony Kynaston: And as we’ve said, as I’ve said time and time again, I, I haven’t, I don’t know this company, I haven’t into it as much as you have. I don’t know why their profit is negative, but it could be. I. For accounting reasons, it could be for, um, you know, the fact that they’re over providing for certain things like bad debts or whatever. So as, as we say, uh, profit is as much a management decision as it is an accounting decision. So, um, that’s another reason why I focus on cash flow. So, uh, it’s got heaps of cash. I’ve used strong cash flow as risk mitigation. We’re getting, getting, um. Paid back by the operating cash flow with in under a year. If we put our money into this co, into this company uh, that, that means, know, we, our exposure is quite low in terms of risk. Um, going forward, if this company was profitable again, it, it would trade [00:36:00] on a much higher multiple obviously. and, um, you’d see a material rise in the share price for it. Cameron: so a lot of, a lot of the money’s going to debt servicing 2024, interest rate expense was 860 million. Operating income was 542 million on 12.6 billion of revenue. So their margins are low, sort of a 4.3% margin. So interest alone wipes out operating profit even before taxes and things like that. Then they had in 20 24, 300, 1 million of impairment and loss on asset sales, plus 486 million depreciation and amortization. So that’s where a lot of, you know, the, the net loss is coming from. Tony Kynaston: Well, the debt’s a worry, but they’re paying it down and I’ve got the cash to pay it down. The, the, um, impairment would be non-cash, so that’s once off and it doesn’t affect the cash flow. Um, [00:37:00] those things will. Just with time, go all the impairment will go away, be there next Cameron: Yeah. But yeah, as you said, profit is an accounting decision, right? Tony Kynaston: Uh, profit is a management decision. Cash flow is an Cameron: Wow. Tony Kynaston: there are Cameron: Our accounting determines that is a management decision. Tony Kynaston: Correct. you know, for, I mean, CapEx is a management decision. How much you spend on CapEx is decided by management. And could probably make the company more profitable or all profitable tomorrow by just with withholding a bit of CapEx. Um, so it’s always a trade off, um, which is, which is why I prefer cashflow as a, a metric to value a company rather than Cameron: Yeah. Tony Kynaston: Hmm. Cameron: Alright. Well. That is all I’ve really got Tony on. These guys, [00:38:00] CYH, community health do your own research people, but it’s uh, it’s an interesting business I think, and good luck not having to get involved in hope. You don’t end up as a patient. As you know, my son Taylor lives over there, but. Tony Kynaston: Us and it’s, it’s not cheap. Cameron: Yeah. You know, Taylor, my son who’s been living in LA for six months has been trying to get health insurance over there and can’t get it. He, he’s, he’s like all of the hurdles that he needs to jump through as, uh, a foreign citizen, uh, who works for himself and runs his own business. Trying to get healthcare over there has been a nightmare. He’s, um. Trying for months and just can’t get it. So if anything happens to him, he just needs to get on a plane and come back here to see a doctor. Really, I. Tony Kynaston: [00:39:00] And they might not let him on if he’s, you know, coughing and sneezing and red and running a temperature. but look, I, I think, you know, the, the one risk I think that, that could be coming for this company is a capital raise. they want to clear their debt quickly, they may actually go to the market and ask for, or, uh, money from shareholders, which would dilute people. But it, um, if it puts the company on the profitable footing, it might be worth it. So just bear that in mind. If someone’s looking at buying the stock. Cameron: Thank you, Tony. Tony Kynaston: Thanks Cameron: Talk to you next week. Tony Kynaston: All. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. 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Oct 3, 2025

41m
13

QAV America 21 – MEOH: Diving Deep into the Methanol Market

We discuss the latest U.S. economic slowdown, then pivot to a detailed portfolio update (US portfolio vs S&P 500). After a rapid recap of recent stock picks — from ZEPP to ZIM — we dive into a comprehensive analysis of Methanex (MEOH): its global footprint, methanol market dynamics, e-methanol shipping prospects, the Geismar 3 outage governance risk, and key valuation metrics. Timestamps • 00:03:00 – US Portfolio Update: +7.6% in 30 days vs S&P 500 +1.65%; since inception +70.4% vs S&P 500 +46% • 00:06:00 – Deep Dive on Methanex (MEOH) Transcription   [00:00:00] Cameron: Welcome back to QAV America, Tony. This is episode 21. How are you? Tony Kynaston: I am well, thank you. Father’s Day celebrated Cameron: good. Tony Kynaston: Hope everyone out there did the same. Cameron: No, they’re Americans, Tony, they celebrate Father’s Day in a completely different time of year to us. Mm. Tony Kynaston: did. Anyway. I was gonna segue that into hope they all got their small packages, but, um, can’t Cameron: They’re small packages, Tony Kynaston: Day gifts from Australia, which have been held up. Cameron: Oh, that’s a reference to the fact that Australia Post has stopped shipping packages to the United States because of the de minimis ch rule changes. Uh, we were just talking on our Australian podcast about the, uh, state of the economy in the US second lot of weak jobs, job numbers has just come through, and as I pointed out in the last episode, all of the reasons that we’ve been [00:01:00] talking about. Over the last, uh, six months or so on this show, according to the failing New York Times, as the president likes to refer to it, analysts offered a variety of explanations for the slowdown the president’s tariffs on nearly all imports have driven up, driven up costs for companies and prices for consumers. Mr. Trump’s immigration crackdown has made it harder for many businesses to find workers while, while simultaneously reducing the need for them because they now have fewer customers. The federal government has cut jobs directly and canceled grants and contracts that have bled into the private sector. The uncertainty surrounding Mr. Trump’s ever shifting policies has made corporate executives more cautious about hiring and investing. So. You know, who would’ve guessed that, uh, putting Donald Trump back in the White House would lead to chaos and uncertainty? Tony? No, certainly not me. I, that was not on my bingo list. I thought, here’s a man who’s calm and [00:02:00] most stable genius I’ve ever seen. So it’s deeply surprising to me. What about you? Tony Kynaston: Yeah, surprising, surprising to all the Republicans, I would’ve thought. Who, uh, Um, yeah, but I, well first of all, I didn’t access the New York Times ’cause it’s a paywall and I’m not gonna sign up to the New York Times. with the Wall Street Journal, Cameron: What do they have to say? Tony Kynaston: probably the Cameron: Right? Tony Kynaston: Reprinted, uh, anyway. Cameron: uh, as I, I’m gonna do a pulled pork this week on an interesting company, meo. They’re a, uh, methanol, well, they’re the 800 pound gorilla in the methanol space, which is interesting ’cause I know or new before this. Nothing about methanol. But before I do that, I just want to. Give a portfolio, uh, performance update. Our US portfolio is up about 7.6% in the last 30 days versus the s and p 500, which is up [00:03:00] 1.65%. Uh, since inception, which is, uh, September, 2023, our US portfolio is up 70. 4% versus the s and p 500, up 46%. Year to date though we are still struggling. We’re down 7.2% year to date calendar, year to date versus 10.43 for the s and p because of some of Mr. Trump’s policies that tanked our portfolio at the beginning of the year, but over a one year timeframe. We are up 31% versus 20% for the s and p 500. So despite having a rough start to the year, uh, we’re still looking pretty. Um, I, I’ll also just, uh, mention the companies that I’ve done pulled Porks on over the last, uh, 20 episodes on this show. Um. Zap in order of best stories, [00:04:00] zap the smart Chinese smartwatch company that I covered on the 11th of July is now up 1511% since then. It’s just not slowing down. It is down 4% today. Um, but it’s just not slowing down. Gray media is up 40%. Titan machinery is up 11% since we talked about it. Precision Drilling is up 18%. Orx Corporation up 27 IHS holding up 37. Ford is up eight since we talked about it. Chemex is up, uh, 68%. Dan aos is up 16 Canadian. Imperial Bank of Commerce is up 23%. Jackson Financial, up 16%. Costco’s up five. Sasol is up 43% since I talked about it in July. I said they were a dirty, dirty, dirty business they were in and they’re up 43%. Bausch Health Companies is up [00:05:00] 16%. Seneca Foods is up nine. Kimball Electronics is up seven Sno that I talked about last week though is down 2% since last week. So there you go. Then there’s also Zim, uh, which is down 26% since we talked about it back in March and, and now Chile is down 10%, but the rest of them doing quite well. Well, with that out of the way, let me, let me talk to you a tale of Meow, Tony. Meow, MEOH. There’s the ticket code for Methanex. I’m calling it Meow though. We’re talking about the world’s biggest methanol producer. That’s who these guys are. Headquarters in Vancouver. Plants all over the map. Louisiana, Canada, Chile, New Zealand, Trinidad, and [00:06:00] Egypt. But I’m gonna preface this as I did last week by saying that the underlying commodity for Metanx, which is methanol, is a Josephine. So for new listeners, we chart underlying commodities on a three point trend line, looking at month end prices over a five year graph, and when a. Price has been in decline. We classify it as a Josephine. It could also be a cell, but this isn’t a cell. It’s not below its cell line. It’s above the cell line below the byline, so it’s a Josephine, so we wouldn’t, what that means is, regardless of the numbers, I’m gonna talk you through with Methanex today. We wouldn’t buy it. We’re not, we, we don’t have any room in our portfolio anyway, but if, if, if we did, we wouldn’t buy it until the underlying commodity gets back into a buy territory. Because we’ve learned from experience that prices tend to follow the underlying commodity price, which makes sense. Tony Kynaston: [00:07:00] methanol used for? Cam, Cameron: Tony, I’m glad you asked. Thank you for asking. Tony Tony Kynaston: you are Cameron: Methanol’s used for pretty much everything. It’s the Lego of the chemical world. It’s used in millions and millions of different things, including making crystal meth as we all learned from breaking bad. Um, it’s precursor to methyl a methyl lamine. Methyl lamine, I think is what they had to hijack trucks, uh, or trains in the desert, uh, in wherever they were. New, New Mexico, new something. Anyway, it methanol is the simplest alcohol, CH three. Ohh. It’s a clear liquid. It burns cleanly, mixes with almost anything mostly made from natural gas methane. Then you catalyze it into. Methanol. It’s used in plastics, paints, adhesives, resins. It’s blended into fuels, biodiesel, [00:08:00] gasoline, and the big future for it is something called e methanol, which is formed from CO2 and green hydrogen, and it’s a low carbon marine fuel. All those tankers moving. Well, you know, but based on President Trump’s tariffs, we won’t have to worry about shipping stuff around countries anymore ’cause it’ll all be made in America by, not by immigrants though, by good, good Americans, we’ll be working factories for $1 a day and happy. That they have a job that hasn’t been taken by a robot or AI yet. But basically this is the, it’s the Lego brick of the chemical world. Cheap, versatile, snaps into more complex stuff, and. Tony Kynaston: bare feet. Cameron: And Well, I was gonna say, light Legos. Don’t eat it because it’s highly, highly toxic and can kill you. So [00:09:00] don’t get it in your eyes. Don’t breathe it in, don’t get anywhere near it in its raw state, and that’s one of the problems as we’ll see. But methane X-M-E-O-H is the world’s largest methanol producer, as I said. They not only produce it, they run their own fleet of tankers, which is good bit of vertical integration, probably also why they want to have their, uh, own shipping product, fuel product, marine product, and it. It also means they can shift supply to whichever region is paying best, uh, at a fairly low cost. And these guys run a really efficient, low cost operations. One of the reasons why they’re on our buy list, they go back to a company called Ocelot Industries, which was like a oil and gas company. 1968 in Calgary, pivoted to methanol in the 1980s, became Methanex. And they’ve survived despite the government policies [00:10:00] around the world regarding methanol being pretty volatile, as is methanol over the last, uh, 50 years, which I’ll talk about. But first of all, I wanna talk a little bit about the methanol market. It’s global, it’s priced in USD. The big markets are China, Europe, south America, Korea. 22% of the market is in China. They use it for fuel blending and plastics feed stock. Dunno if you know this Tony, but a lot of plastic stuff gets made in China. They use a lot of methanol. Um. Europe and the US use it for chemical intermediates and some energy. South American Korea use it for a whole bunch of different things. The basic price drivers for the methanol market are natural gas costs, oil and NAPFA spreads the competition for fuel and regulat. Both in terms of what you can put in your [00:11:00] fuel and also rules around what can be used and when it can be used in like marine rules and those sorts of things. Bottom line is the prices swing hard. There’s a lot of inputs, a lot of variables, and it’s a fairly choppy market. That you have to have deep pockets to be able to navigate successfully year in and year out, which these guys seem to have done a good job doing over decades. They have massive scale, so they have massive price influence. Their posted price often sets the market for North America and Asia. They’re market makers effectively. They also have a low cost gas advantage. They have this site called GeMar in Louisiana. They just recently opened G three GEMA three. Third plant there, but it is world class, cheap supply, a lot of, lot of methane in Louisiana. [00:12:00] Tony, I guess, uh, a lot of swamps. Lot of, uh, yeah, a lot of, lot of swamp. Uh, I’m thinking Tony, what’s his name? Uh, to who is, who’s the swamp blues guy? We on little Louisiana where the alligators grow so green. There was a girl who I swear to the world, made the alligators look tame. Poke salad. Annie a gator. Got your granny no Tony Kynaston: the Cameron: Annie. Tony Kynaston: who sang it. Yeah, yeah, Cameron: Well, Elvis covered it. Poke salad. Annie originally sung by and written by Tony, Joe White. Yeah, I think he passed away. Recent, uh, not that long ago. Yeah. Oh, 2018 nicknamed The Swap Fox. Best known for his hits poke salad, Annie, 1969 and Rainy Night in Georgia, which he wrote, but which was first made popular by [00:13:00] Brooke Benton in 1970. There you go. Tony Kynaston: Okay. Cameron: also wrote songs for Tina Turner, Elvis Presley, Tom Jones. There you go. Uh, I love me a bit of Tony, Joe White, the swamp Fox. Go check him out on Spotify after this, if you haven’t heard, like, just had that sort of what you’d expect, somebody called the swamp Fox’s voice would be wait on in Louisiana, where the alligators. Anyway, back to back to methanol. Um. So, uh, don’t have time. Got a kung fu class I gotta get to. So, um, although I, I hurt my back last week. Um, my hip spin out, I went to my physio on Saturday. She said my hip’s out, my should’s out, my right ankle was out. So that’s, uh, that’s kung fu for you. But she put my hip back in. But I, I, I. I left it too late and I tweaked it like, you know, [00:14:00] and it sort of, it would’ve been compensating on the side that was Yeah. It’s, anyway, yeah. Hurts any who? Um. As I said, they, they have a diversified footprint, so if Egypt runs short of gas, they can move their production around to other plants. They’ve got a very large, very sophisticated operation. They’ve got this new capacity, as I said, just came online in mid 2024, GeMar three. They also have done a bunch of acquisitions in Texas, something called the High Fuels Platform. Basically they’ve got scale and they’re positioning their manufacturing as well as their output to a low carbon future. There’s this whole idea of low carbon, um, methanol, which is as far as I can tell, isn’t, is. Very realistic today. I think I saw something like 0.2% of methanol production is low [00:15:00] carbon at the moment, but there is some promise that it’ll be low carbon in the future. but some of the risks. Tony Kynaston: is of, um, carbon, uh, emission. So. This is a big, a big, uh, carbon offender, I guess if it’s methanol. Cameron: Well, if you are capturing it and processing it, it burns cleanly, I think is the deal here. So we always hear about. Cow farts and methane being a big contributor to climate change. But if you can capture the methane and synthesize, catalyze it. Synthesize it into methanol, it burns cleanly, I believe, but. Tony Kynaston: Really? Okay. Cameron: Yeah, that’s what, uh, my notes here say clear liquid burns cleanly. I’m not gonna, I’m not gonna stand trial on that if it goes to court, but that’s what my [00:16:00] research said. But the risks with these guys are some and many, uh, varied. Methanol prices fall as they have been falling and they get stuck in the commodity cycle risk. Uh, there’s supply is a little bit shaky in places like Trinidad and Egypt. Um, policy swings. So methanol and fuels have been banned and restricted before because of toxicity. If you. Get anywhere near methane, it becomes incredibly poisonous as it turns out. I, I did an earlier version of my notes did have. Some numbers on this, but it’s been removed in various, uh, different iterations, but it’s like a small amount will make you go blind. A slight, like I think [00:17:00] 30 mils will, is potentially fatal. 10 mils I think will make you go blind. And I remember talking about this on my, one of my podcasts, I think it was my War on drug series on the bullshit filter years ago, talking about prohibition. So one of the things that the US government in its wisdom did during prohibition, you know, there was still industrial alcohol available in the US for industrial processes and bootleggers were grabbing that and turning it into. You know, drinkable alcohol and selling it. So they started mixing it with methanol, became methylated spirits, didn’t affect the industrial uses, but if you drank it, it would kill you. And bootleggers grabbed it and sold it anyway. And. Thousands of people died from drinking this, uh, methylated alcohol, [00:18:00] which the government did. The government didn’t sell it to them and force ’em to drink it, but they were mixing it in and didn’t warn people effectively that if you drink this stuff, you will die. And people drank it and died. Thousands of people. So anyway, it is very toxic as opposed to ethanol, which. Nice green hippie stuff. Everyone loves ethanol. Methanol, not so good. So that gets caught in this whole ethanol, methanol war. Ethanol has a very positive public perception. Methanol has a very scary public perception. So there were some trials in the US in the 1990s, in the two thousands. For something called MTBE, methanol based gasoline basically, or gasoline additive, and they got banned because of groundwater contamination. That was a big issue. China also [00:19:00] trialed, uh, some methanol based fuel additives, but then pulled back partly because of safety concerns, partly because state oil giants got upset and, uh, lobbied the Chinese government to stop doing it ’cause it was affecting their revenues. This in the 2000 and tens and then China pivoted EVs and so that market sort of collapsed. But I. There’s still a big market for methanol, but it, it, you know, it can get caught up in some of the, the politics of it being toxic. Um, I’ve got some notes on the chemistry here. Me, ethanol has two carbons is what makes it different, and is drinkable. Methanol has one carbon and is toxic, so there you go. Ethanol comes from crops, methanol comes from gas or coal, or CO2. Ethanol is widely blended into petrol E 10, E 85, et cetera. Methanol blends exist [00:20:00] but are niche due to toxicity and compatibility industry use, though ethanol is narrower. Methanol is the global industrial building block. For all of those things I mentioned before, paints, plastics. Basically industrial chemistry where safety is less of a concern. ’cause you’re not drinking your paint unless it’s a big night. Well, it’s a big night then. Okay. Eventually you end up on the paint. But you know, my dad used to tell me that the alcoholics in my hometown would just buy methylated spirits and pour it through a loaf of white bread. Not sure that actually Tony Kynaston: was, it was terrible out in Alice Springs, um, where the service stations would have metho and white bread in the fridge Cameron: Right. Tony Kynaston: to sell to people. I’d Cameron: Keep the, Tony Kynaston: that Cameron: the, the meth. The meth was in the fridge. The meth, methylated spirits was in the fridge too, so it was cold. Wow. [00:21:00] Wow. Tony Kynaston: It Cameron: Yeah. Tony Kynaston: they didn’t do Cameron: Convenient. Tony Kynaston: with, out slices. Cameron: Wow. Tony Kynaston: Hmm. Cameron: So the, the, the basic bottom line is ethanol is politically popular biofuel, methanol is industrial poison plus future shipping fuel, but still a huge market for it. But there could be a bigger market for it because of the shipping stuff. I think that’s the big upside for these guys if they can get this right. Today’s marine fuel is very dirty. There are a lot of demands for. A replacement for marine fuel. Obviously a, a large chunk of the carbon emissions that the world generates comes from shipping and transport in general in terms of international transport, planes, boats, and the boats part of it is big. And [00:22:00] as, um, ah, who’s that guy who’s written the books on Energy I read a couple of years ago. I can’t remember his name. A guy that Tony Kynaston: telling me about him? Cameron: Bill Gates put me onto him, not personally, but talks about him a lot. No, but he, uh, but this guy’s book was saying, you know, all of this stuff about green energy is great, but you’re not gonna run ships and planes on batteries in the near future. It’s just, or electrical. You’re not gonna have electrical planes, you’re not gonna have electrical ships in any foreseeable timeline. Too heavy. Yeah. And just not enough power to, you know, last the sort of duration that you need. You can’t recharge them midair, well, I guess maybe you could in the middle of the ocean anyway. Um, an alternative is needed that is less destructive and low carbon, methanol, biom, methanol, or e [00:23:00] methanol. Biom methanol from biomass m, methanol from CO2 and and green hydrogen, as I said before. Is one possible solution. It’s liquid at room temperature. Easy to store. It’s easy to retrofit, sorry, retrofit engines, and it’s a cleaner burn, so there are already some people adopting it. Mabb have 25 plus ships that are using it. Costco, C-M-A-C-G-M, Hyundai Shipyards Ports Worldwide. A building. Bunkering systems for this. So it’s, uh, it’s happening. If it happens in an even bigger way, a lot of upside for, uh, methodex. Some issues though, I mean, supply gap is gonna be one. Mask alone need five to 6 million tons a year by 2030. It’s a little bit higher cost. The whole green hydrogen plus the methane capture side of it is expensive. They’re gonna need lots of huge new [00:24:00] plants that’ll need to be built. So it’s not without its issues, but Methane X’S Angler, they’re the world’s biggest producer. They own waterfront shipping with methanol powered tankers. They can integrate these high hydrogen fuels, high fuels from their OCI acquisition recently. So it could be a multi-decade demand kicker for these guys if they get it right and it all comes to fruition. But that’s forecasting and we don’t like to base anything on forecasting. Tony Kynaston: sorts of things could happen if, if methane does become a fuel, you know, why wouldn’t Shell and bp and. All Ords get into it as well. Cameron: Sure. They’ve also got some big problems that I’ll talk about, uh, including a securities fraud cloud that they’re in the middle of at the moment. Um, actually I’ll talk about that first. So in February, March of this year, their new plant, GeMar three, had an [00:25:00] outage and they didn’t really disclose it until March 9th and the stock dropped 13% in a day. Now there are a handful of law firms that are. Investigating why there was this delayed disclosure on behalf of shareholders. No lawsuits or regular regulator action yet, but it could be big and it could be messy if it turns out that they knew something that they didn’t disclose. The plant restarted in May, 2025 operations and. Back to normal, but there’s this possible litigation, overhang, governance, credibility is at stake. Potential settlement costs could be in the hundreds of millions of dollars. We don’t really know, but there you go. So they’ve got some problems on that side of things as well. That might be why it’s at a bit of a discount, apart from also the methanol price being in the doldrums at the moment. Tony Kynaston: [00:26:00] because of governance? Cameron: Oh, well we would, if they were an Australian company, wouldn’t we? Yeah, we would red flag them. Yeah. Good point. Okay. I’m red flagging them. Tony Kynaston: just run through the issue again. So they had a plant closure, which they didn’t disclose. Is there any reason for that? Cameron: Yeah, look, it said that needed maintenance, but they didn’t give advance warning about the fact that this plant that had just come online, um, nine months earlier was gonna be shut down for a couple of months. The reasons behind, it’s not clear. Um, so there’s, there are lawyers looking into it, trying to figure out what’s really went on and why. Obviously they didn’t give the market advanced notice. I think the share price was pumping because this new plant had just come online, which is, you know, Maxim, you know, increasing their capacity, et cetera, et [00:27:00] cetera. Then all of a sudden it shut down for a few months. So yeah, we should probably flag them for governance, although we don’t know the reason. Uh, we never know the reasons behind it. Do we? Well, anyway, let me talk about the, yeah, I mean, they did put out something, um. Let me pull up my notes here on the notes not listed in my notes. Yeah, there was, there was something in an earlier version of my notes about what their story was, but it, it was sufficiently vague that, um, oh, here we go. Due to issues with its automal reformer. I mean, I’ve, I’ve. Not about you, but I’ve had lots of issues with my automal reformer, Tony. The automal reformer. You, you never really, you, you never really be sure of those. Tony Kynaston: When was Cameron: Yeah. Tony Kynaston: was the date? Cameron: [00:28:00] late February, they experienced an unplanned outage Tony Kynaston: Okay. Cameron: stem from issues with the plant’s. Automal reformer. Yeah. Tony Kynaston: so they will have reduced, they will have released new numbers since then. So the market can digest that. So it’s probably okay not to red flag it. Cameron: Okay, no red flag. Then talking about the numbers though, um, I mean the big one of course for us as always is price to operating cash flow, which is 2.76 times. Dividend yield is 1.9%. Petrovsky F score is a seven out of nine. Book value growth is 7.5% cagr, and the price to book is 1.14 times so cheap on a lot of our metrics. The price is above our IV hurdles though, but I’ll run through the, I’ll run through the numbers. [00:29:00] Um. Average daily trade, 2120 2 million. So pretty big quality rank on. Stock Edia is a 68. We give it a score. If it’s over 60, the stock rank is below 90 though, so we don’t score it on that. Stock rank is 77. F Score, though, as I said, is a seven. We score it if it’s over 4.5, so financial health score is quite good. Prices above our IV one and our IV two. Um, it is however below book plus 30. It’s above book, just slightly as I said, but um, very close to book. It’s below Book plus 30. Doesn’t have a new three point upturn, but the book value growth is positive. Uh, what else have I got it scored on? That’s about it. The forecast IV is not greater than twice the share [00:30:00] price. The yield is, uh, not greater than the bank debt. PE is not less than the yield. All in all, I scored at eight outta 1260 7% for our quality score on a QAV score of 0.24, which is a pretty good score for us. Fundamentals are good. Market caps around about 3 billion US share price just for the record. Closed at about $38 61. The. But, um, yeah, the major problem I would have with it right now is the methanol price is still pretty low. It’s just above its cell line, actually. So we would wanna see the methanol price get back into a positive territory before we added it to a portfolio. I’ll put it in my, um, tracker though, just to keep an eye on it, just for shits and giggles. Tony Kynaston: [00:31:00] on the Australian show that the, um, oil prices down and OPEC are thinking of increasing supply. So if that’s a big feed into this methanol conversion, which is sounds like it is, their input price. To what they produce will go down, which mean their margin should go up. Cameron: Yeah, I, I, I dunno though. I think that. As a fuel methanol and oil might be competitors. Tony Kynaston: I thought you said before they were taking oil and then converting it into methanol. What’s their base crude stock? Cameron: Well, it’s methane. Which is a gas, I mean, they need oil to run their plants and everything. I’m sure. it’s a component of operations, but I’m not sure. Tony Kynaston: was an So where does methane come from? Is it from natural gas? Are they fracking? Natural gas? [00:32:00] Uh. Cameron: Well, yeah, I mean, I’m not exactly sure if they’re fracking it, but they’re getting natural gas out of somewhere from all of these plants, all of these operations. Tony Kynaston: tend to in lockstep with the oil price, or at least has some kind of relationship to the oil price. Cameron: Yeah, I think. Oil is a component of their supply chain, but I think it’s also a competitor in terms of, um, end fuel products to an extent. So, uh, if the oil price comes down that may make methane based fuels more attractive, um, might also be a competitor In terms of some of the chemical ingredients that are used for producing plastics and paints, I’m not sure. That’s outta my depth, Tony, but um, yeah. Anyway, there you go. That’s meow. [00:33:00] Methanol producer, of course, crystal meth too, I’m sure is a big market. So not sure where the crystal meth market Donald Trump cracks down on Mexican and Venezuelan drug imports into the United States. Maybe there’s a big market for domestic crystal meth production. Uh, maybe that’s, maybe he’s putting tariffs on crystal meth coming in over the border. Tony Kynaston: ‘ cause it’s a Canadian based company, there’d be, there’d be tariffs on their production into the US if they were doing it in Canada, Cameron: Yeah. Tony Kynaston: them. Cameron: Yeah, but the Louisiana plants are all in the us. I’m not exactly sure. I mean, how it breaks down, I’m sure they’ve got some complicated mathematic algorithms to work out their tariffs. But yeah, anywho, that is methodex. Keep an eye on it and, uh, see what you think. Folks do your own research. Not a recommendation, but uh, an interesting business that is, [00:34:00] seems to be fairly priced at the moment. Tony Kynaston: And as we say, very different to businesses in Australia. We wouldn’t have talked about a methane producer at all. Cameron: And I gotta tell you, I did a new, a new us buy list yesterday to prepare for this. And it was enormous. Like there were. Hundreds of things to look at. Most of them were shipping and financials companies. Still, if I, I’m just opening up my buy list, my US buy list, and I’ll tell you, I. Tony Kynaston: are doing it tough ’cause of the tariffs, I would’ve thought. Cameron: Yeah, but well, shipping companies have been on our US buy list since, well before the Trump administration. I mean, I know there was some tariffs left over from the first time around. Um, and there was a whole bunch of. COVID related issues and global [00:35:00] supply chains and wars and all sorts of stuff. But, um, yeah, shipping companies and financial services companies galore on the US buy list for some reason. But I look for different things to talk about. Tony Kynaston: the reporting season in the US so maybe the new figures are triggering extra stocks on the buy list. I’m not sure. Cameron: the new numbers may have an effect, but here we, like, lemme tell you this, like, hold on, lemme look at this. There were, 205. Companies, and that’s just the ones with a score greater than 0.1, which is an arbitrary cutoff that we come up with. Um, it’s really, there’s just value everywhere popping up. Gray media is still the top of the buy list, by the way. QAV score of 1.12, even though the price is up 40% since I talked about it a month ago, it’s still at the top of the buy list with a quality score of 85%.[00:36:00] So there you go. No. Anyway. Thank you, Tony. Gotta go to kung fu. See how my back goes? Yeah. Tony Kynaston: better at Cameron: tk. Tony Kynaston: right. Cameron: Right. Okay. Cheers. Tony Kynaston: Cheers. Have a good week. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. 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Sep 15, 2025

38m
12

QAV America 20 – From Fluff Pulp to Fortune: SUZ

In this episode, Cameron and Tony dive into the turbulent world of tariffs, the performance of the QAV US portfolio, and Cameron’s “Pulled Pork” deep dive on Brazilian pulp and paper giant Suzano (SUZ). The discussion ranges from Trump’s tariffs being declared illegal, to the surprising success of companies like ZEPP (the smartwatch maker), Gray Media, and others. Cameron traces Suzano’s roots back to its immigrant founder, explores its dominance in eucalyptus pulp production, highlights both its financial strengths and ESG controversies, and weighs up risks like Brazil’s economic volatility and cyclical pulp prices. It’s a mix of global politics, investing fundamentals, and a surprising education in “fluff pulp.” ⸻ Timestamps & Stocks • [00:00:30] Trump’s tariffs ruled illegal — implications for markets. • [00:02:30] QAV US portfolio update: performance vs. S&P 500. • [00:04:15] Reviewing past Pulled Pork picks: • [00:07:30] Pulled Pork: Suzano (SUZ) — Brazil’s pulp and paper giant. Transcription   [00:00:00] Cameron: Tony, I’m the chillest person on the planet. Welcome to QAV America. Tony. Episode 20. Uh, Tony’s just laughing Tony Kynaston: Mm. Cameron: ”cause I said I don’t have any aggression. Tony Kynaston: person on the planet, Cameron: I am the chillest person on the planet. You should know that by now, Tony. Um, uh, well, we’ve, we’re just talking about this in a. Tony Kynaston: I post, uh, democratic, things on Facebook. Cameron: You doing your, uh, David Markin impression? Um, Tony Kynaston: I did Cameron: uh, we just, Tony Kynaston: when you started talking politics. Cameron: yeah. We talked, uh, on our Australian show just now about Donald Trump’s tariffs being declared illegal by a federal appeals court. Tony Kynaston: Has Cameron: so no. Well, no, but he, he reckons it’s gonna go to the Supreme Court, but it just fascinates me when governments. Do [00:01:00] things that they know are illegal. I mean, he must have had somebody in it. I know his administration isn’t necessarily stacked with the finest and the brightest minds, uh, available, but they must have known that, well, we can’t really do this. Let alone the big card that said, these are reciprocal tariffs when they were just made up numbers. But Tony Kynaston: Oh, I, Cameron: must have known that it wasn’t legal. Tony Kynaston: about that. I think the advice, the legal advice was if you declare an emergency, then you have the power to implement. Well, the executive has the power to implement tariffs and that’s Cameron: courts are saying no, Tony Kynaston: Well, this, the and the courts are saying no. which means the underlying court said yes. it’ll go to the Supreme Court and I’d Cameron: No, the first court said, no. The first court, the first court said it was illegal. The Trump administration appealed the first court’s ruling, and the apple at court said no. It was the second time it was declared illegal.[00:02:00] Tony Kynaston: Pesky Cameron: anyway, we’ve talked a lot about how, you know, and I’ll talk about it again when I do my Paul pork today, how it’s, you know, just throwing everything into disarray and as it turns out, is illegal in the first place. And the Supreme Court may or may not side, but the president probably will. ’cause they seem to be pretty favorable towards letting him do whatever the hell he wants to do. But if they say no, who knows what happens next. But um. Tony Kynaston: I will Anyway. it Cameron: Yeah, Tony Kynaston: in the first place. Cameron: I guess, and, and you’ll probably get Congress to back it, so yes. Should have been doing that all along. Before I get into my pulpo for the week, Tony, just do an update on our US portfolio. Uh, in the last 30 days, our US portfolio is up 12.5% versus the s and p 500, which is up 3.5%. Year to date though, our portfolio is down 7.5% versus the s and p. That’s up nearly 10%. But [00:03:00] as I pointed out in our last show, that’s because at the end of last year, our portfolio was up. Uh, I don’t know. Crazy amount. Like 80%. Tony Kynaston: 80%. Yeah. Cameron: 80%. And then, uh, the, at the beginning of this year, when Trump’s Liberation Day, et cetera happened, a lot of our stocks gave up a lot of the gains that they’d had. Um, all time though, going back to when we started this portfolio in September, 2023. So two years ago we will be in a couple of weeks. Our portfolio is up 73% versus the s and p 500, up 45%. So still doing quite well. I also wanted to update you on the performance of the pulled porks that I have done, uh, since we started this show. Uh, just because they’re not all reflected, well, most of them aren’t reflected in our [00:04:00] portfolio. Um, of course the big one being, uh, Zep, the Chinese smartwatch company, which I did on the 11th of July when they were trading at $2 98, they’re now trading at $45. They went up 19% today. Tony Kynaston: Really? Cameron: crazy. They’re, they’re now tr they’re now. Yeah, we talked about this last time. They just signed a bunch of brand deals, uh, not brand deals, ambassador deals, all these, uh, yeah, sporting ambassadors. Uh. Yeah. Um, well that’s why they’ve gone up 14, uh, a hundred percent since, uh, I, I first talked about them. I dunno what happened today in particular. Um, but, uh, I do have a, there is a site called, um, is it Fin Viz? Yeah. Fin Viz carries all of the Zep news. Let me see what happened today.[00:05:00] Uh, a Mabb Fit. Oh, that was August 13th. No, there’s been no news in the last couple of weeks, but you know, all of the news articles from early August were a Mabb Fit Partners with, which is one of their brands, partners with female elite trail runners. Croft and Rosala to drive innovation in sports watches. Before that, it was a Mabb fit announces Ultra Runner Rod F’s new brand ambassador, NFL running back. Derrick Henry joins a Mabb Fit as Athlete Ambassador. Um, so they came out with a bunch of these. Promotional brand ambassador deals. I assume that’s had something to do with it. They also came out with their unaudited financial results, which said that revenue was up 46% year on year. So that might’ve helped. Tony Kynaston: Yeah. Cameron: Anyway, we covered it just at the right time before they blew up luck more than skill, [00:06:00] but the rest of the stocks are doing okay. Gray media’s up 40% since we did it, uh, early August. Um, Tony Kynaston: and said, how can this legacy media company go anywhere from where it is? Cameron: yeah, right. Um, Python machinery that I covered on the 14th of August is up 5% since then. Kimball Electronics from last week is up 1% since we covered it. But, uh, anyway. Tony Kynaston: you just, blow my mind talking about gray media. I mean, it’s up 40%. It’s not a Mag seven stock. It doesn’t make semiconductors for AI processing. It’s a, it’s a television network in a dinosaur industry, but it throws off Yeah, but they’re doing a lot of new media stuff. Remember they’re sort of down in Atlanta and they’re getting people in and they’re doing cool stuff. They’ve got ponytails like me, Tony, a lot of guys with ponytails doing, they’re cool stuff, Yeah. Cameron: double [00:07:00] macchiatos. Yeah, the But, but did you say but successful? Yeah, right. Just like you, but successful. Oh, right. Tony Kynaston: I did Did you have Uhhuh? You thought it, but uh, did you have any other, did you have any other, uh, news that you wanted to talk about US related? Before I get into my deep dive, Tony, I uh. you. Cameron: Okay, so unlike some of the dirty businesses I’ve covered recently, like Sasol, this one Suzano, SUZ, is the ticker is kind of clean. I say kind of. There might be a little bit of greenwashing going on and how clean they make out they are, but cleaner than oil. I guess Ano is a bras Tony Kynaston: comment. Cameron: which bit cleaner than oil. Tony Kynaston: Well, I know you’re gonna talk about this [00:08:00] company and it’s a, it’s a paper manufacturing company, isn’t it? Um, that Cameron: paper. Tony Kynaston: on the Australian stock market called Guns, which ran the processing mill in Tasmania. And I, I, you know, it might be different in that I think guns got involved in some old growth for us, but they were certainly also. paper from Plantation Forest, but it involves a lot of chemicals. It’s a very heavy duty plant and it releases a few toxic, I shouldn’t make any allegations here. It can release toxins into the water supply, clean, pristine lakes and rivers. So, yeah, dunno about this company, but the industry hasn’t always been seen as being green Cameron: Yeah, I’ve, I’ve, as we get into it, I’ve got a lot of the criticisms from different, uh, environmental, uh. C agencies or whatever about these guys and what they’re doing. So we’ll talk about that. But certainly their website, they talk about sustainability a lot. [00:09:00] It’s, uh, all over their website about what a great job that they’re doing. Maybe that needs to be tempered a little bit. Um, but we’ll get into that later. But it’s interesting particularly, Tony Kynaston: timber company, they are renewing what they cut down. So that’s a good thing. And hmm. that’s a good thing. So yeah. Cameron: Planting trees and then cutting them down. But um, and they’re also only growing on lands that have already been degraded, previously degraded lands or something like that. I think they call it. They’re not like chopping down. Pristine forest. But there, there are other issues about monocultures, et cetera, which I’ll get into, but they are a Brazil based forestry company, a developer of products made from eucalyptus forests and eucalyptus pulp and paper and Latin America Now as Australians, that’s weird, right? Because we think of eucalyptus as an Australian native tree. You and I were just talking in the last show about [00:10:00] how weird it is when I went to Nicaragua. 10 or 15 years ago to see eucalyptus trees everywhere and go to San Diego and San Francisco and you see eucalyptus trees. It’s always a little bit kind of weird for an Aussie. But they were the first company in the world to produce pulp and paper using a hundred percent eucalyptus fiber on an industrial scale. Their portfolio includes coated and uncoated printing and writing, paper paperboard tissue paper market pulp and fluff pulp. You know, your fluff pulp from your market. Pulp Tony. Tony Kynaston: I do not Tell me about Fluff Poll. Cameron: I am glad you asked Tony Fluff. Pulp is the kind of pulp that you make sanitary products out of, or nappies out of. It’s fluffy paper. Special manufacturing process, uh, makes it nice and feels nice on your, on your butt, Tony, or anywhere in your near the regions if you need to put paper on [00:11:00] your near the regions. You want your fluff pulp as, uh. Tony Kynaston: yeah. Don’t. Cameron: Is had a look at it. No, don’t get your printer paper and wrap it around and expect it to do much. Uh, the pulp segment of their business is like 80 to 90% of their revenue, the production and commercialization of eucalyptus pulp for the foreign market with surplus, uh, to go to the domestic market in Brazil. The paper segment is mostly domestic. Apparently paper is big still in Brazil. Um, their roots go back to 1924 when a Ukrainian immigrant, Leon Peffer. Opened a small paper business in Brazil. Now, by the way, uh, Brazil has had eucalyptus since the late 19th century. The first seedlings arrived via Uruguay and botanical gardens, and I looked into, well, how does Australia play in [00:12:00] eucalyptus paper or pulp? And as it turns out, we don’t really, we don’t really have, uh, big eucalyptus paper or pulp business. We tend to chip. Eucalyptus and send it offshore for processing. Tony Kynaston: right. Cameron: We have got a couple of small players in paper here, but nothing large and, and apparently it’s just because of the small scale of the domestic market here and how much it cost, how expensive it is to, you know, move stuff offshore Tony Kynaston: Well, and uh, the paper mill in Bell Bay and Tasmania, yeah, that was eucalyptus. uh, think so. Yeah. Could have had some old forest in it, but I’m pretty sure there’d be eucalyptus. Cameron: Right. So most of it’s, uh, done out of Latin America and China these days. So in the early 19 hundreds, uh, an agronomist, Mundo Navarro dire spearheaded large scale [00:13:00] planting of eucalyptus to meet demand for wood in railway construction. That’s why Eucalyptus was big over there because it’s fast growth, right. Tony Kynaston: Yep. Cameron: Um, and the climate over there is similar to the climate here, uh, humid temperate climate, so it grows quite well. Tony Kynaston: It is Cameron: back to Leon, Tony Kynaston: because, um, eucalyptus timbers typically a soft wood like a pine, um, which with it gets damp will warp. So that was interesting that they were using it, um, as sleepers. Usually I thought sleepers were iron bark and you know, more, I guess iron bark’s a, a eucalyptus variety, isn’t it? Maybe there’s some, some of the harder. Varieties of eucalyptus were used. Okay. Cameron: I cannot answer that, Tony. That’s a, that’s a, a deep dive. I did not go down. Tony Kynaston: You can tell my father worked in the industry. Cameron: Which industry? Railway or eucalyptus? [00:14:00] Oh, I thought he was a farmer. Tony Kynaston: No. No. He’s Do you have cattle? Cows? that’s Cameron: that’s your, that’s your, oh, right. Okay. Ffa back to Leon Effer. So he was born in 1902 to a Ukrainian Jewish family in Ukraine, and about 1910, his father was in. Worried about increasing antisemitism in Ukraine and immigrated to Brazil where he worked as a peddler, selling stationary items around Sao Paulo from an ox drawn cart. In 1920, he had enough money to bring his wife and two sons and two daughters to Brazil. So he was there by himself for 10 years with his little ox drawn cart before he could bring his family out, the immigrant story. And Leon started his first business manufacturing candles. Bad timing because South Paula was just getting electricity at the time. So [00:15:00] then in 1923, he founded a paper distribution business purchasing imported and domestic paper for sale to local retailers. So he would’ve been 21 when he started that business. By chance, a large domestic paper factory suffered a fire and he was able to purchase a large quantity of paper rolls, which were damaged. Don’t gimme that smile. It was by chance. I know what you’re thinking. Tony Kynaston: Yeah. Okay. Cameron: Ukrainian Jewish stock Take, no, it wasn’t his company. It was, uh, he was able to buy a large quantity of paper rolls that were damaged externally, but were okay internally and enabled him to profit greatly during the Great Depression after Brazil banned imports. Which leads me to a whole story about protectionism in Brazil. I went down, I did go down that rabbit hole. So World War ii, they [00:16:00] introduced high protectionism, um, for a couple of reasons. One was to save foreign reserves for stuff that was, um, really urgent. So they, they, they banned imports to hold onto stuff they, to hold onto foreign currency they might need for oil or medicine and stuff like that. Secondly, to try and build up their local industry to force, you know, businesses to build up locally and to protect those businesses, uh, so they could have more industry in Brazil. They still have very high levels of protectionism in Brazil. And I read an article about it in the Wall Street Journal. It’s back from February, I think. In quotes, uh, Brazil’s finance minister in the late 1980s and early 1990s, he says, Trump’s ideas on how to strengthen US industry are similar to what we thought in Latin America right after World War ii. The idea that protectionist tariffs would boost domestic industry [00:17:00] spilling over to services in agriculture and make the country rich. Well, it didn’t work. He says yes. Tony Kynaston: Does he No, he did, but I didn’t write it all down here. But yeah, but I mean, there’s a bunch of reasons, but you know, it’s, it’s the classic problem with protectionism. One of the stories is that the. Uh, industry in Brazil hasn’t had to become efficient because they have locked in guarantees of Yeah. Markets. Cameron: So, um, yeah, it’s like government owned businesses and canoes that we’ve seen in the past. So, yes, uh, a lot of problems. Brazil and the Brazilian economy has a lot of problems too, but I’ll get more into that later on. Back to Leon, he expanded by purchasing a printing press, established a retail [00:18:00] store, built an envelope factory, which became one of the largest in the country in 1939. He sold everything, including you would hope so that burn down fell into the swamp. So I built it again one day. Lud. Oh, this will be yours. What? The curtains, not the curtains. Lud, sorry. Um, sorry. For Americans who’ve never seen Monty Python, Phil before, in 1939, he sold everything, including his house, his wife’s jewelry, and his store, and built a paper factory in Sa Paulo. And used imported pine pulp to produce its paper. Apparently you, he could import pine pulp at that stage. Uh, he had his son Max was studying at the Julliard School of Music at the time, helped him find a local substitute for pine fiber. He was working with biologists at the University of Florida. Max was, this is, and they worked out that [00:19:00] eucalyptus pulp was gonna be a good substitute. So in 1946, Leon purchased Indu Damani and somehow that involved mixing eucalyptus fiber into its production. 1956 renamed the company Susanna Pappel, eh, cellulose 1960, bought another paper mill, and then by 1961 they were a hundred percent eucalyptus as raw material. Leon died in 1999, age 96, and the Effer family still controls ano today. David Effer. One of Leon’s grandsons is the CEO. The company is listed on the Novo Mercado in Brazil and on the New York Stock Exchange, and the family owns about 49% of the stock on the Novo Mercado anyway, so very much family owned and run business, uh, a hundred years [00:20:00] later. They are now the world’s largest producer of eucalyptus pulp and supply raw fiber for paper tissue and packaging worldwide. Run eight industrial plants across Brazil, sell to over 80 countries. And uh, as I said before, pulp is about 80, 90% of revenue. 2018, they merged with one of their biggest rivals, Fria cellulose, and created a pulp behemoth with 10.8 million tons of pulp produced annually, roughly 17% of global market pulp supply. It was a $14 billion deal. That vaulted Susanna to the number one global pulp spot. I dunno if you’ve ever been, I mean, if you haven’t, if you’ve never been to the global number one global pulp spot, Tony haven’t lived, you gotta go to the global pulp [00:21:00] spot. All the kids are talking about it. They love it. Brazil has a pretty turbulent economy though, political scandals, recession, external shock inflation, unemployment surges from time to time, although they’ve got pretty low unemployment at the moment, it’s around about 5.8%, which I think is a record low. But Sno has been able to sort of navigate these crisises from hyperinflation to commodity slumps by focusing on efficiency and scale. They just marked their hundredth anniversary in 2024, and they are. Doing well despite the fact that pulp is in a bit of a slump at the moment. And that’s one of the caveats on this, as I only discovered getting into it, that there is a pulp commodity index, not one that we track in our normal indexes, but it’s currently a, a Josephine for us. It’s in a, been in a decline for the last couple of years, year and a half, two years. So we wouldn’t actually buy this [00:22:00] today if it was us. ’cause we’d wait for the commodity price to turn around Tony Kynaston: Mm-hmm. Cameron: and it, it looks like it’s bottoming out. It does sort of go through cyclical phases, but there are some issues like tariffs at the moment that I’ll get into that may have an impact. But, uh, it is an export heavy business. They sell into Asia, Europe, and North America. And the. Uncertainty around the tariffs, both in terms of North American tariffs or the US tariffs and China, and the issues with China and tariffs and the impact on China’s economy are having an impact on the paper business and the pulp business as well. ’cause it’s a big market for them. So that aside, these guys are a cash machine. Oh, by the way, if you’re looking at this in. Stock Edia, which is where we get our fundamental data data from. [00:23:00] They do report in the Brazilian real R, not USD. So I had to twiddle the numbers in our spreadsheet and a couple of things changed, but it still came out. With very good numbers, even after I whittled the figures to accommodate the Royal, they’re, they’re a cashflow engine though, which we like. We like businesses that generate a lot of cash, and these guys generate a ton of cash. Give you an example. Last year the company generated about 16.2 billion or real in cash, which is about 3 billion US dollars. Its market cap is about 12 billion US dollars, so about 25% of its market cap. It generates in cash every year. That’s a crazy amount of cash. Tony Kynaston: That’s incredible. Cameron: Yes, so it’s got a very low, very low prop [00:24:00] caf. Which I’ll get into later on, and this is mostly because it’s one of the world’s lowest cost pulp mills. They’ve just got a, they’ve, they, they spend a lot of money on r and d and innovation. And you, I mean, I don’t know if you’re like me, you think you grow trees, you cut ’em down, you turn ’em into paper. How much innovation can there be? It turns out they do a lot in terms of trying to drive down cost, and they’ve had a big focus on economies of scale, of course too. They’re very large, so they can do. Good deals with suppliers, good deals with, uh, their ability to get into the markets, but also there, there’s a lot of innovation in terms of getting their unit costs down The. Cash cost per ton of pulp for them is about 828 real per ton of pulp, which is about $150 US per ton, which is very cheap in terms of global pulp prices. But as I said, pulp [00:25:00] prices are down. I read some analysis, a company called Coface. I did a really good analysis on this. I won’t bore you with all of the details, but basically says demand is down. China’s about 30% of the market. Tariffs are throwing a lot of uncertainty in the mix, so it’s uh, the craft pulp, if you wanna look it up, bleached eucalyptus craft, pulp Craft with A-K-B-E-K is the code for this is a commodity. And, um, it’s a Josephine, as I said, it, it, it, was up as high. Uh, this is in Chinese Yen, uh, CNY. It was chi, it was CNY. Is that chi? What’s that? CNY Chinese Yuan, not yen. Yuan, you know, have my yen and my yuan around. It never gets you yet in Yuan. Mixed up. Yeah, it was at the end of 2023. It was up around 7,500 CNY per ton. [00:26:00] It’s now down to about 4,900 something. So it’s come. Yeah, it’s come back a lot. I mean, it, it’s, it’s been up and down since then. And, you know, 2024, early 2025, it was up over 6,000. It’s dropped back down, but, um, 2022, it was up around seven and a half thousand, dropped down to where it is today at the end of 22. Back up in 2023 to seven and a half, then back down at the beginning of, sorry, uh, 20 21, 20 22. Yeah, back down in 2024. So it’s. It has lots of peaks and troughs when you look at, it’s very cyclical, uh, for some reason. But even with pulp prices in the downturn over the last year or so, these guys are still. Generating a lot of money. They recently took a, an accounting loss, but that was mostly due to currency swings on the US dollar debt. So with that big acquisition they did five or six [00:27:00] years ago, they took on a lot of debt. They’ve done a lot of acquisitions, but that was the biggest one. The merger, they’ve taken a lot of, a lot of debt. They carry a heavy debt load over $10 billion from a variety of acquisitions and expansion projects. But they manage it well and they’re been de-leveraging their net debt to EBIT DA is down to 2.9 times. They, they score well on, uh, p po petrovsky F score. I’ll get into that shortly. So yes, they’re carrying a lot of debt, but their flow is solid. Free cash flow is about. 20% of yields. So they’re, again, just generating a ton of cash because of the way that they operate. Uh, part of this is eucalyptus, by the way. Um, apparently because plantations mature in seven years versus 20 years for pines and colder climates, so they’re yielding [00:28:00] more fiber per acre faster, gives them a structural, uh, material advantage. Uh, what else can I tell you? Its newest mill came online in 2024. It’s, uh, it’s called the, uh, Serato Project. It’s already smashing performance records, ramping up to full capacity in under six months. Expansion, drove their sales up 7% last year, despite it being a down market. And what else? That’s about it. They’re just a very well run business. Now, I did talk about state of the Brazilian economy. That’s one of the reasons why it might be cheap, apart from the, the, fact the pulp prices are down. Brazil risk. Um, you know, it trades at emerging market valuations. People see a lot of sovereign risk going on in Brazil. A lot of currency volatility, political uncertainty, but the [00:29:00] counter argument is the FFA family is pretty powerful and they have a lot of control and they tend to provide a lot of stability. Um, which also means that minor minority shareholders have less say in things, but we like a lot of skin in the game from founders and these guys definitely have that. Then there’s the ESG overhang. Uh, as I mentioned before, if you go to their website, it’s, it’s just sustainability everywhere. It’s obviously a big focus of what they’re trying to push, but when you drill down and look at some of the criticisms of it, uh, they get quite a lot of criticism from environmental groups for things like. They’re huge farms and monocultures, which aren’t great for biodiversity. If you just have one crop everywhere, it tends to be bad for the environment. [00:30:00] Uh, and it’s not a native species either. You know, it’s an an imported species. They’re also linked to water scarcity. They’re plantations, ecosystem drawing, heightened fire risk. Low job density. Uh, because apparently once you have these things, you know, that that doesn’t take a lot of people to just watch a free grow for seven years. And they’re accused of greenwashing a lot too. Um, making themselves look like a good ESG stock when really if you drill down into it, maybe they’re not so much allegedly, but so, uh. Yeah, they could, they could get a big whack from an ESG perspective if, uh, a story or bad PR comes out about something involving how they’re running things. But that is probably one of the reasons why it’s discounted. So a combination of reasons. Brazil, sovereign risk, ESG, risk, pulps down [00:31:00] tariffs, uncertainty in the market, all those sorts of things. Flip side to that is near term catalyst could be pulp prices turn around, which they. Often do. It’s cyclical, as I said before, but also they’ve just announced a couple of really big deals. Uh, a $3.4 billion joint venture with Kimberly Clark to create a global tissue products company. They’ve got a 51 steak ou in. The this joint venture, basically they’re taking over Kleenexes or Kimberly Clark’s International tissue Assets, 22 tissue mills worldwide producing brands like Kleenex across 70 countries involves 99,000 employees, marketing and selling regional brands, including Kleenex, Scott and White, all in over 70 countries. So [00:32:00] this is their moving. Down the food chain or up the food chain, depending on how you wanna look at it, Tony Kynaston: Mm-hmm. Cameron: a bigger chunk of the profits in finished products. At the moment, as I said, 80 to 90% of their sales is pulp. 10% is domestic paper products. And, and, and. They call graphic paper. So paper that’s used for offices, for printing, for newspapers are all in decline because of digitalization and people using less and less paper on that front. You know, I remember when we used to go through here at home, um, you know. Thing of printer paper once a month and now we go through maybe one a year. We just never print stuff off, uh, these days. So, uh, there that’s in decline, but there’s a lot of higher margin consumer tissue. Sanitary products, toilet paper, tissue paper, all of that [00:33:00] kinda stuff that they’re gonna get a chunk of that with this joint venture with Kimberly Clark. So that’s big. Also, last year, 2024, they acquired two paperboard mills in the us, which is gonna get them into packaging in a bigger. In the North American market, so more margin upstream in that as well. So potentially a lot of upside for them in the future if they can execute well on these things. Sort of takes them out of relying on pulp cycles and might earn them a higher valuation multiple as they get more and more involved in integrated value added businesses. On top of that, they’re doing massive share buybacks. Which you love and dividends. So they’re doing both share buybacks and dividends. They paid out 1.5 billion real in 2024 and bought back 2.8 billion real in stock. So from [00:34:00] an investor’s perspective, best of both worlds buying back stock and giving cash out as dividends. Tony Kynaston: wow. Cameron: Keeping everybody happy, keeping Warren happy and keeping if people are looking for dividends, happy. So there’s risks, there’s also upsides, um, just to go through the numbers. Uh, average daily trade is 17 and a half million, so pretty big. The price to operating cash flow is 3.23, so very, very low. We explain this every week, but just for new listeners, one of the key metrics that we look at, price to operating cash flow, basically. How long would it take the business to pay you back from operating cash flow? And this is a little over three years, so it’s a very short payback cycle, which means low risk. We like that on stock. Edia, they have a quality rank of 70, which we like. We score anything [00:35:00] over 60, so we gave them a score for that. Don’t score them on stock rank though. The stock rank is 84. We only score over 90. But we do score them on their F score. They got an F score of seven, I think, from memory. Um, so they, we score anything over four and a half. So that’s basically a measure of financial health. We did score them for that. Their price was not below our IV number one when I redid the numbers, but it is below our IV number two, so I scored them for that. Price is not less than book. Or Book plus 30. So I didn’t score them for those, but they do have a new three point upturn, so I scored them for that book. Value growth is positive. PE is not less than the yield. Yield is not greater than bank debt. Uh, the forecast IV is greater than twice the current price, just by a margin, but they gotta score for that after I rejig the [00:36:00] numbers. So, all in all, uh. They got a score of 10 out of 14 or 71%, and a QAV score of 0.22. So pretty good score from me. Although the caveat as I said before, is that the pulp price is a Josephine. So we don’t have any spare capacity in our portfolio, so I’m not looking to buy them. But, uh, even if I were, I would wait until the pulp price. Became a three point buy, I guess. Keep an eye on it. Tony Kynaston: A very interesting company and another industry to explore, which is great. And heaps of Hmm Heaps of cash. Cameron: Heaps of cash Tony Kynaston: Founding Cameron: you know, Tony Kynaston: shareholder. Yeah, all the the paper business. I mean, while the printer paper thing is obviously gone, um, AI’s not gonna replace tissues and toilet paper [00:37:00] and sanitary napkins and nappies. Um, so I think that’s a good business for them to get an increasing chunk of both in terms of supplying the raw pulp and also getting moving into the end products. Cameron: Dunno how it’ll affect their relationships with their, uh. Customers they sell pulp to if they’re moving more and more into the finished products business themselves. But, um, that’s for them to navigate. I’m sure they will do their best to navigate those waters. Anyway, there you go. Different yet again. Very, very interesting business, isn’t it? Generating a ton of cash, but not, not getting a lot of love from the market. Tony Kynaston: Yeah. with a few reasons for that, right? It’s based in Brazil, which can have sovereign risk. It’s got terrorists to, to navigate through. At the moment, um, the commodity price is still going down. So that’s, it’s, it’s kind of like, it’s a, a driver of its margin, I would’ve thought. [00:38:00] Um, so yeah, but time to buy that sort of commodity price starts to turn up again, good time to buy. Cameron: Yeah, I like it as a business. Alright, Tony, I’ll insert after hours in there. Tony Kynaston: Thank you. Cameron: Have a great week. Tony Kynaston: Yep. Happy Nissy. Cameron: Follow us on TikTok. Look up QAV on TikTok, and follow us on TikTok if you want. Daily updates. Tony Kynaston: Wasn’t TikTok gonna be sold at some Yeah. Trump sorted that out. Yeah, well, lucky probably saying, gimme 10%. Gimme 10% and you can stay. Yeah. Yeah. All right. Cameron: And don’t, don’t allow videos of the strange marks on my hand. And we’ll, we’re all good. Stop spreading rumors that I’m dead. It’s fake news. All right. Have a good week. Tony Kynaston: All right, you [00:39:00] too. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance [00:40:00] should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft [00:41:00] Publishing. Quote for the day: “What have I always told you? Everything must be taken into account. If the fact will not fit the theory—let the theory go.” “The Mysterious Affair at Styles”, Agatha Christie Free Podcast Archives 

Sep 7, 2025
11

QAV America 19 – From Pianos to Profits (KE)

In this episode, Cameron and Tony dive deep into the US market’s latest moves following Jerome Powell’s comments at Jackson Hole, the surprising resilience of investor sentiment, and a look at how the QAV US portfolio continues to beat the S&P 500. They track the extraordinary rise of ZEPP (up 1,200% since Cameron’s July deep dive) and review other stocks they’ve covered, from Titan Machinery to Sasol. Cameron then takes us through a fascinating pulled pork on Kimball Electronics (KE), tracing its history from pianos and pipe organs to becoming a global contract electronics manufacturer. Along the way, Tony and Cameron unpack value investing lessons, the quirks of US versus Australian markets, and finish with a colourful chat about The Who, Leonard Cohen, Rip Torn, and China’s unique economic model.   Timestamps & Stocks Mentioned • 00:00 – 01:30 | Market update — Jerome Powell’s comments at Jackson Hole, Fed signalling • 01:30 – 03:00 | QAV US portfolio performance (up 74% vs S&P 500’s 45%) • Stocks doing well: RM (Regional Management), GASS (StealthGas), ENVA (Enova International), WLFC (Willis Lease Finance) • 03:00 – 05:00 | Cameron’s deep-dive tracker results • ZEPP (Zepp Health) up 1,218% • 08:30 – 36:00 | Pulled Pork: Kimball Electronics (KE) • 36:00 – 39:00 | Comparing US vs Australian markets, portfolio returns • 39:00 – After Hours • Tony’s golfing holiday & horse racing story • Cameron on The Who still rocking in their 80s, Leonard Cohen doco, Rip Torn nostalgia, and books on China’s economic model   Transcription   Cameron: [00:00:00] Welcome to QAV America. Tony, how you doing? Tony Kynaston: I’m doing well. I’ve just had a week off and it has been lovely and, played golf up in Yarra Wonga on the Murray, Cameron: let’s talk about US market. Um, j Powell. Jerome h Powell said The balance of risks across the economy had started to shift raising the odds. The central bank lowers borrowing costs at its next meeting in September. After, uh, he was at Jay Hole. Jay Powell was at Jay Hole. Um, you would think that when the Chairman of the Fed says The economy’s not going well, the market would react negatively to that. On the contrary market, thought that was the best news. Say Dad. Oh, week awake. Tony Kynaston: Uh, it’s, we’re through the looking glass, aren’t we? Cam? I mean, that’s just, yeah. Own. Powell came out and said that he thought there could be a decline in employment, which would, uh, [00:01:00] cause a slowdown in the economy and the market. She, and went up one and a half percent the day Cameron: Yeah. Tony Kynaston: Mm-hmm. Cameron: times. Good times. Well, speaking of good times, uh, we just talked about our US portfolio, so for new listeners, hi, welcome. Yes. We’re two Australians talking about value investing in the United States. We’ve been doing a podcast, uh, about value investing in Australia for five or six years, and, uh, we’ve got a US portfolio that I started back in September, 2023 following our QAV methodology that Tony’s been developing over 30 odd years. Quality at value is what that stands for in case you’re wondering. And that portfolio since inception is up about 74% versus the s and p 500, up about 45% over that period of time. In the last 30 days, our portfolio is up [00:02:00] 8.6% versus the s and p 500, up about 0.8%. So in the last week, some of the stocks that have done particularly well for us are RM regional Management up 8.5% gas ga a s, stealth gas up seven point a 5%. Enva, ENVA and Nova International up about 6.2% overall, our best stock, uh, has and continues to be. Willis Lease Finance, WLFC. It’s up 223% since we bought it, although it hasn’t had a good year. It’s down from about 300%. At some point it was. But generally speaking, our portfolio is doing well in the us Tony, and, um, as I did, uh, last time we did an episode, I’ve got, I’ve been keeping a list of the stocks that I’ve been doing deep dives on this [00:03:00] show. And just to see, because we don’t hold most of them in our portfolio. ’cause our portfolio has been fully invested for quite some time. And unless I need to trade something, I don’t have any capital left to put stocks in. So, but I’m keeping track of how they’re doing. Some of them have done. All right. Um, Zep, the, uh, Chinese smartwatch manufacturer that I did a deep dive on, on the 11th of July is up. 1218% since then. Tony Kynaston: Wow. They should send you a cheap watch. Cameron: Price was $2 98 when I talked about it. It’s currently $39 29. I like somebody, somebody on TikTok, when I posted a story about that last week, said, yeah, but it’s not gonna last. It’ll come back down Tony Kynaston: Nice. Cameron: it probably will, but yeah, up [00:04:00] 1218%, that’s insanity. And um, I think last time we spoke, I said I didn’t know why. I do know why they have, they hadn’t come out with new results since then, but they have come out with celebrity endorsements for their products. So, um, they, I mean, celebrities that mean nothing to me because I’m an Australian, but, uh, they have come out with news about, uh, various celebrities that are doing, uh, you know, something, something, something promoting their products, which is apparently as good. So, um, yeah, that’s good for them. Uh, dunno if that’s everything that’s got to do with their price rise of 1200%, you’d think that there’d be more than a couple of celebrity endorsements to do that. But no new [00:05:00] financials have come out that I can see, so unless it was just me talking nicely about them. Um, I don’t know. So, uh, what else? Let’s see. Um, the last one I did Titan Machinery. I did that a couple of weeks ago. They’re up 8% gray media that I talked about. 7th of August. They’re up 37%. GTN Sasol, the dirty, dirty company, oil company that I talked about are up 40% since we talked about ’em in the middle of July. Tony Kynaston: Interestingly Cameron: say something. Tony Kynaston: GTN. Yeah, I, I meant to mention this on the Australian show that, uh, I forgot to, I’ve noticed on, on our buy list, we’ve had, um, legacy media companies like Seven News and Seven Western News that’s called, Southern Cross Entertainment. So their TV networks in Australia, and uh, they’ve been on [00:06:00] our buy list on and off for a long time. They’ve all kicked up and since reporting. Results in the last week or so in Australia. Some, I, I, I think Southern Cross was up like 30% on the day of its results announcement. So, um, I’m wondering whether that’s, uh, a theme that’s going on in the market at the moment that Legacy Media, which has been much unlocked. Because, uh, streamers are, are taking over. you know, when they, I’ve seen this before. When an industry goes through a phase where it’s unloved, it becomes a value stock. And if the underlying business still has good assets, um, eventually they become so cheap that they get bought, um, Cameron: Mm Tony Kynaston: could be the case with GTM. Cameron: mm mm Well, yeah, a lot of, uh, I don’t know, but a lot of our stocks have been doing well that we’ve covered on this. Couple haven’t, Zim integrated shipping that I did back in March is down 21% since I talked about it. N now Chile that I covered in May is down [00:07:00] 13%, but the rest are very much. In the, uh, black. So Tony Kynaston: a good point Cameron: yeah, Tony Kynaston: um, you know, as we know from our experience in Australia, we don’t get every call Right. Or every stock that we analyze goes up. It’s, it’s the fact that we get, you know, probably six out of 10 right? And they do well and they, um, us to cover the four out of 10 that, that don’t do as well. Cameron: and we have rules in place for when to sell things. So the things that don’t go well, we get rid of them. When the time is right and replace ’em. Yeah. So the company that I’m gonna talk about today, Tony, is Kimble Electronics. KE is the ticket code. I do wanna point out though, that uh, I’m using an analysis that I did on August 8th when the price was $19. Since then, they came out with new financials on August 14th, and the price is now $28. [00:08:00] So, um. This would’ve been a much more impressive pulled pork if I’d done ’em a couple of weeks ago. I haven’t run the new numbers, um, but they probably look good because the share price went up. 50%. I, I did run the new price. I put the new price into our checklist and it didn’t change the scoring a great deal. But, um, I think price to book is the only one that it did score for, and now it doesn’t score for, because the new price is above the book price, but it still came out well, assuming the rest of the numbers are just as strong. I do because of how the share price reacted to their, uh, results. Anyway, as I often say when I do these, um, obviously do your own research. This isn’t a recommendation. It did turn up on our buy list a few weeks ago. I think it’s an interesting story, but the more interesting I. Thing that for me when I’m doing [00:09:00] these, is the kinds of businesses that are available to invest in, in the United States that I’ve never heard of. They’re not the kind of businesses that we see in Australia on our buy list. It’s a different market, much bigger market, much broader scope for investments, but it’s just to point out that there are lots of, when you’re turning over rocks. Us. There are lots of gems under these rocks. Is that what you find under a rock, or do you find Tony Kynaston: Inside the Cameron: Yeah, inside the rock. Okay. Picking up the rock. Cracking it open. Yeah. Okay. Tony Kynaston: Well, it’s, and the US market has different characteristics to the Australian market too, which is the other interesting thing. Far Cameron: Yes, Tony Kynaston: companies in the US than there are, in Australia, which is dominated by banks and miners, um, and market. Yeah. Cameron: just a little bit on their new financials. Um, Kimball Electronics Q4 sales Beat Estimates Q4 net sales were up 2% [00:10:00] sequentially, beating analyst expectations adjusted EPS for Q4 beat estimates. Uh, the company repurchased 162,000 shares you mentioned on the last show that you’re looking for to add buybacks into our checklist if we can figure out how to get those into our system. Um, but my numbers, as I said, are out of date, so do your own research. So who are they? Well. Interesting company with an interesting story and background. Essentially, this company, Kimball Electronics, is a contract electronics manufacturer. They don’t sell flashy consumer stuff. Uh, they build and assemble the electronic guts inside of other companies products. So think of. Circuit boards and control modules in car safety systems or medical devices or industrial machines. If you are a manufacturer of one of those things and you’re looking for somebody to make some of the core electronic innards, you go to [00:11:00] Kimball. They’ve been doing it for a long time. They build it for you, and they’ve got a very long track record and very good reputation for quality control and delivery and all that kind of stuff. They’re very, um, they, they have a great reputation for being ultra reliable, for building durable electronic components, is their thing. With a great culture as well. They’re very big on their human culture. So everything from printed circuit board assemblies to finished, uh, electronic devices for clients, even non-electronic parts in some cases like precision plastic components. But if an automaker needs a brake control unit, built a spec or a medical firm needs a potential patient monitor, assembled Kimball is one of the go-to behind the scenes manufacturers of all of that kind of stuff. The roots of it though. Go back to pianos. The roots of Kimball [00:12:00] Electronics goes back to 1961, but the parent company, WW Kimble and Company was for much of the late 19th and 20th centuries, the world’s largest manufacturer of pianos and organs. The company started as a piano dealership in Chicago in 1857 as WW Kimble and Company started by a guy called William Wallace Kimble. He died in 1904, but, um, was a, just a kind of a legendary guy actually. I read that. He in his company at the time, he got rid of punch cards, which were the thing at the time, and just built the culture around trust. I trust that you’re at work when you say you’re at work and I’ll pay you. So he really built a strong culture [00:13:00] that was built around trusting his employees and they built on that later on. Actually, one of the other guys built on that who ran the company. Um, the pipe organ division that he built was also large. They, they built permanent pipe organs, including one for the Mormon Tabernacle Choir, which was installed in 1901. And I have a family connection to that because one of Chrissy’s sisters, Tanya sings in the Mormon Tabernacle Choir, so she might be singing along to one of dub dub Kimble’s creations. I’m not sure if it’s the original that’s there, but probably I, I, I don’t think pipe organs, if they’re well maintained. Get replaced that often. Um, used to, used to know a guy had a listener of my podcast years ago whose father was the maintenance guy for the pipe organ at the Sydney Opera House. He’s like the only guy in Australia, I think, or maybe one of [00:14:00] two people in Australia who still knew how to maintain in tune. Pipe organs. Uh, good gig. Yeah. Now they need to see you like once, once a year, but you probably charge a lot when you go in. Um, so back, uh, in the 20th century, Kimball International. Which became built an electronics division to build electronic organs. Uh, the Hammond B three and stuff like that, you’d get in churches, which ended up as part of blues music. I dunno if they actually built the bit for the Hammond B three, but, Tony Kynaston: okay. Cameron: but they built electronic organs. They said they went from pianos to pipe organs, from pipe organs to electronics organs. And then they went broke, and then they were bought by a company called the Jasper Corporation, which was founded in 1950 in Jasper, Indiana, where it’s still hit, still headquartered by [00:15:00] Mr. Arnold Hub Big. They started off making television cabinets and other cabinets and furniture. He, he has a great story. He spent 20 years with Jasper Wood products company. Started as janitor, became plant manager, then became the mem, a member of the board of directors, and then launched the Jasper Corporation. And, uh, his own business came out of Jasper. But, you know, built his way up from nothing. This guy, real American, you know, bootstrapping sort of story. And, uh, obviously a good time to be building television cabinets ’cause television sets were booming in the, the fifties. Then he started sort of doing this vertical integration thing and bought WW Kimble and Company as a subsidiary in 1959. It, it had gone broke. It was nearly insolvent. For some reason, I guess the electronic [00:16:00] church organ business wasn’t really kicking it. But by 1969, they were again, the world’s largest piano manufacturer. And in 74, Jasper Corporation changed its name to Kimball International 1976. They floated on the NASDAQ and as the head of Kimball so big operated a profit sharing system for company employees and a scholarship program to fund nearly $2 million of his employees children’s college educations. Good time. Tony Kynaston: Yeah, Cameron: Good guys in this story. Yeah. So there you go. Um, we got some other story, Tony Kynaston: he restarted the piano manufacturing business when it went broke originally. Cameron: I think. Yeah. He must have, he, he, I don’t know. Yeah. Figured out how to fix it. Tony Kynaston: Yeah. Cameron: I think they’d made some Mabb, some bad investments, different places, as has Kimball [00:17:00] along the way. Um, uh, since then, you know, things don’t always work and you sell bits off and keep the core business. Apple was nearly broke when Steve Jobs came back in 1997 or eight, whenever it was. Did okay. Turned that around. Um, what else? Oh, in as part of the 1984 Summer Olympics opening ceremony in Los Angeles, 84 Kimball pianos were played. There you go. Fast forward to 2014, the Kimball Electronics business was spun off as an independent public company, separated from the furniture business to focus purely on electronics manufacturing, but it’s still headquartered in Jasper, Indiana. So, um, they’ve had a few speed bumps along the way. 2016, they acquired a small firm called Meditative Technologies for about about $8 million trying to get deeper into medical devices. [00:18:00] Um, then they bought global equipment systems in Silicon Valley for $50 million A few years later, it’s specialized in automation and test equipment for semiconductor manufacturing. Didn’t go quite as well, turned out to be a bit of an odd fit. They, uh, in 2024, they decided to sell off the entire GES division, which was referred to at that stage as the automation test and me, uh, measurement business to a, to another company, label them to focus on their bread and butter, which is contract electronics for auto, medical, and industrial clients. And, uh. The business has done well since then. Just getting rid of that bad division and refocusing. So now they operate globally with manufacturing facilities in the us, Mexico, Poland, Romania, China, and Thailand. About 48% of its revenues comes from the automotive sector, 25% from medical devices and 27% from [00:19:00] industrial applications. So about half of the business comes from cars, uh, making stuff for cars, steering and braking control units, and the rest is split between the other sectors. You know that, that means they, they’re diversified. So if there’s a slow down in auto production, they’ve got some buffers in the medical side of things. And, you know, as you can imagine, medical devices with an aging population, and particularly with ai, uh, helping us do figure out new things and figure out new ways to do things should be a pretty healthy business. I think in the next 10 years we’re gonna be using AI to figure out how to make people live. Longer and healthier lives. Hopefully. I note that OpenAI have announced today that they’ve just launched a new, um, uh, scientific genetics biology division with another company where they’re trying to follow in deep Google deepminds footsteps. Google DeepMind won the Nobel Prize for [00:20:00] biology this year. Um, for, yeah. The work that they did with, um, protein folding, they, they figured out how to, I think up until that point in time, humans had figured out something like the structures of 10,000 proteins. They did about a million in like a month or something after they build a neural network to figure out protein folding. Um, which is a huge thing for, for medicine biology. Uh, they generate about $1.7 billion in annual sales in FY 24. Uh, they’ve got about 24 million shares out there. Market cap. Market cap is in the few hundred million dollars range. Um, what else can I tell you here? Um, what’s working and why it’s cheap. So one thing that works is it generates a lot of cash relative to its [00:21:00] size. Last year pulled in about $154 million in operating cash flow and has had positive operating cash flow for six quarters in a row. They, they’ve done a lot of good stuff in terms of their capital management. They slashed inventory by $23 million in one quarter, which was a 25% reduction, freed up a ton of cash. And, uh, you know, they’re just one of these businesses that’s been well run for a long time, been around for a long time and knows what it’s doing. It’s just generating a ton of cash and the prop calf is really low, but I’ll get to that bit later. In terms of a moat, uh, it’s got a pretty good competitive edge. It seems like this isn’t. The kind of business where you’re getting the cheapest possible componentry for the low end of the market out of China. I mean, they do manufacture in China, but they’re obviously, you know, doing the quality control, that kind of thing. [00:22:00] Stuff’s going into braking systems and steering systems and medical devices. You want it done by a company that has a good reputation for quality control. And these guys are tier one, uh, suppliers for both the. Auto industry in the, the medical industry, and they have been for over 25 years. They’ve got a golden track record. Um, very, very good relationships with the big manufacturers in medical and automotive. Very, very rigorous, uh, quality standards. They’re known for delivering on time and on budget. Same with medical devices. So there are pretty high switching costs for those. Industries, so that’s kind of a pretty good moat. And they have a global footprint. So they build in Mexico for US customers, Poland and Romania for European clients. Um, sort of a, not a just in time, but a sort of a build it closer to home [00:23:00] kind of model. Quicker, faster shipping. Doesn’t have to go on a ship from one side of the world to the other. I guess when, uh, manufacturing ramps up or slows down, it’s better on, um, inventory levels. Um. It’s not the biggest EMS player electronics manufacturing service player out there, but it, its motors really built around being highly dependable and highly reliable and having deep, long relationships. But despite that, uh, the market has been discounting it. Possibly because growth has been fairly tepid recently. Uh, revenue is actually declining slightly this year or was expected to management, uh, projecting a two to 9% drop in sales for the upcoming year. Profitability also took a hit in FY 24. Their net income plunged EPS fell from about $2 22 to about 81 cents. A lot of that was due to one-time charges, like a Goodwill write down and an asset [00:24:00] impairment related to the business they sold. But on the surface of it, you know, it, it doesn’t look great for some investors. They also don’t pay a dividend, so some investors aren’t really interested in it. They hadn’t done big share buybacks until the one that they announced recently, so. Being sort of a smaller mid cap stock for 500 million, um, in a low margin industry, it’s kind of not really a target for big institutional investors. There’s also some fear, I think, about customer concentration risk. In FY 24, 2 customers both in automated automotive made up nearly 30% of their sales. So if they lose one of those, could be a big blow to their business. But that said, um, so far they’re doing well. In terms of near term catalysts, there’s a couple of things [00:25:00] that could go well for them. The CEO recently noted that they had a record number of wins for future business in the pipeline. Dunno the details on that, but seems to suggest they’ve got a lot of new contracts or programs that haven’t hit the revenue line that could be kicking in over the next couple of years. Sales could get a They’re intensifying their focus on medical devices positioning itself as a medical CMO contract manufacturing organization, usually higher margins in medical than in automotive. And it’s a bit of a stickier business. I understand. So more growth there could improve their overall profitability. And then the sale of the GS division that I mentioned before, they use that to pay down debt and buy back the shares. So they’ve been using that money, uh, wisely to attract investors, I think, and also just to shore up their, their business situation. Lowering debt means lower interest [00:26:00] expenses, helps earnings share buybacks means future earnings are split among fewer shares, boost the EPS, et cetera, et cetera. So they’re trying to boost shareholder value. They’ve got a new CEOI think he started last year in the, I read in the last, um, financial report. So I gather he came in to, you know, make some cuts, make some changes, you know, clean it up a little bit, getting cutting costs and doing a bit of a Tim Cook on the inventory situation. Um, so let’s look at some of the numbers. The price to operating cash flow is three. So for new listeners, that means that the stock is trading about three times. Its recent operating cash flow. The, the way that we always talk about it is if you, if you bought a, a business, like a coffee shop is our go-to analogy that had a price to operate in cash flow of three years. It may, [00:27:00] it would mean that it would. Feasibly pay you back in three years, which is a fairly short timeframe, um, for a business to pay you back. So that’s, that’s pretty cheap. It’s one of the most important indicators that we look at in terms of valuation. Um, dividend is zero, as I said, the Petrovsky F score, financial health score from that Wikipedia use is a seven out of nine, so that’s pretty good. Generally, a seven indicates a company with strong financial health for a value stock. Suggests that despite a low stock price, its financial fundamentals checkout positively on most fronts. Uh, positive earnings, positive cash flow, no increase in debt. Uh, other improvements over recent years reduces the risk of there being a value trap. Uh, [00:28:00] book Value per share is, was when I did my numbers about 22 do dollars 98. The share price was about $19. As I said, the share price is now $28, so it’s above the pb. Uh, but I haven’t rerun the PB numbers with the new financials, so I’m not exactly sure how that would stare up. So I, I don’t wanna talk too much about that one, but at the time I did the it was positive. So, uh, why it’s on the checklist, you know, it’s a classic value play from my perspective. Solid financials, solid cash flow trading at a bargain basement valuation, had some short term issues. It seems to have done some restructuring in the last year or two. Uh, that’s put it in a better situation, but it’s not a sexy business. It’s not doing ai, it’s not doing, I don’t know, smart watches like Zep. It’s not, uh, it’s not a company you’re probably gonna [00:29:00] read about in Forbes Magazine or the Wall Street Journal any day now. Quite little business behind the scenes contract manufacturer to other businesses. A lot of upsides. Um, as I said before, you know the, the medical business, if they can build that, uh, segment up, it could be good for them. If automotive production picks up after tariff and supply chain issues get sorted out, if they ever get sorted out, that could be good for them. I also looked a little bit at what their tariff exposure is. It, it, you know, it’s, who knows? It’s lick your finger and hold it up to the wind. You know, the CEO says, you know, they’re factoring it in and they’re working on it, but he, like, every American CEO is like, who knows what the hell’s gonna happen tomorrow? So, will there be another pause? Will there not be a pause? Will they go up? Will they go down? Nobody knows. So all we can do is just play it day by [00:30:00] day. There are red flags, of course, cyclical risk as I mentioned. Um, if the economy slows orders for cars and other equipment can slow, their business line can dry up. They’ve already seen a bit of a sales dip over the last year or two. If, um, J Pals recession or job slow down or whatever it is, he is predicting picks in and the economy stumbles even further in the us, uh, that could have an impact on him. If they have pretty thin margins in the car sector, as I so not a lot of room for error if they get something wrong there. Customer concentration, as I mentioned too, could be a problem. But again, these are all predictions and we, we can’t predict what’s gonna happen in the future. I just look at it where it is today. The punchline is they’re sort of an ugly duckling stock. I think fundamentally decent business well run. Um, market doesn’t seem to like it for whatever reason. It’s kind of being ignored. [00:31:00] But, uh, the, the, they’re making money and they seem to be well entrenched in the businesses that they’re in, and they have some room for growth in the medical services thing. Um. Doesn’t necessarily mean the, the, the company is gonna double in size. But, um, you know, from an investing perspective, I think they’re undervalued and there could be all sorts of opportunities around that. In terms of how they scored on our checklist, um, they have a good average daily trade. As I mentioned, um, recent financials were good. Uh, even the ones that I haven’t checked look good. The price to operating cash flow is low. Uh, quality rank is a 79 in stock. Edia, we score anything equal or above 60. Stock rank is a 99. We score equal or above 90. Petrosky score was a seven. We score equal or above four or five. Uh, they [00:32:00] failed both our intrinsic value, number one and intrinsic value Number two, when I did an intrinsic value, number one was $5 78. Intrinsic value number two was $9 and three for new listeners. Um, we don’t live or die on our intrinsic value calculations. They’re. Two metrics across a whole heat map that we look at, but it did fail on both of those. It also failed on the future, IV being, uh, greater than twice the price. Um. It failed. Well, it, when I first did it past book, uh, price less than book value, it would fail it today, but it would still, assuming the book value hasn’t changed dramatically, it would still pass price being less than, uh, wise, uh, book value plus 30%. ’cause book value plus 30% is $29 87, so it’s slightly below that. It’s a positive book value growth over three [00:33:00] years. Um, does not get a score for growth over pe. Um, does have a new uptrend, does have a positive three point trend, but the. Dividend yield is not high in the bank rank ’cause they don’t have a dividend yield. So when I scored it, it got a 10 outta 14 or a 71% score for our quality score. When I reran it with the new price, it was, uh, about the same and, had a QAV score of, 0.24. So pretty, pretty strong. Tony Kynaston: Yep. Cameron: Yeah. But great little, great little business. Something a little bit different yet again, Tony. Tony Kynaston: And I was looking at, uh, looking at its numbers in Wikipedia while you were talking then, you know, the question I always ask myself if is it’s a good business, why is it not being bought? from the fact the share price has gone up since the results came out, [00:34:00] and I, I think it comes down to. F I think the forecast EPS growth was negative, uh, at least at the last results. Um, I know it’s now forecasting to grow the future, but, um, the market’s so focused on growth, it can lose sight of the fact that it’s still a very good quality company, um, with lots of cash coming in. And, uh, that’s a good thing. Cameron: Yeah, I mean, like, yeah, I guess there are, there are different ways of looking at companies like this from ans perspective. I mean. Okay. What’s gonna make the share price go up in the future? Yes. More growth, more money that’s gonna be doled out as dividends or used as buybacks. Um, you are looking for, um, a business that’s doing well and that’s gonna be reflected in some way, shape, or form in terms of the interest that the market has in it, but. Also [00:35:00] just ugly duckling stocks that there’s a lot of value in it, and the market’s just not reflecting that accurately today, right? Tony Kynaston: Yeah, correct. Cameron: Because they become targets for acquisitions or they have cash, they can go and buy things, and they take advantage of opportunities out there that you know, that there’s lots of different ways that it can become a good. Uh, good for an investor if it’s a well run business with a lot of cash flow opportunities. Tony Kynaston: that’s the key. I mean, you know, if this business didn’t have the cash flow, you could say, okay, well we need to mark it down, um, on growth. And then how’s it gonna get growth? Well, probably needs to raise capital from shareholders, which is another good thing. You get dilution. But a company that has some growth, speed bumps at the moment, and I’m, I’m saying gross speed bumps. If you look forward, the two year projection in the stock edia is to get large earnings per share growth, just not in the next half. So, [00:36:00] You know, you’re better off having a company throwing off lots of cash and then using that cash wisely to get back into growth, either through acquisitions or retooling factories or whatever. I can imagine this, this particular industry is quite capital intensive. if you’re building clean rooms to build, um. the integrated circuits, et cetera, it’s gonna be capital intensive, but they’ve got the cash to fund that. So in a good position from an investment point of view. You’ve got, um, you’re not paying much for the growth that’s coming, um, but there’s lots of cash to, to interest you along the way. Cameron: Yeah, honey, if you look at their numbers going back over the last five years. Their, um, operating cashflow per share has gone from negative 25 cents, um, to cents dollars. What’s that gonna be? Negative operating cashflow per share dollars, yeah. Negative 25 cents. I guess that’s just in dollars to, um, [00:37:00] $6 18 today. It’s gone up and down over the last five years, but the, the TTM is $6 18. Um, you look at their free cash flow. Per share, negative $1.25 in 2020 up to $4 85 today. Their, um, total revenue one point. One 8 billion in 2020 to TTM as 1.5. It was as high as 1.8 in 20 24, 1 0.7 in 2025. But it’s, so it’s gone down a little bit, but it’s still good growth over that. It’s like a CAGR of 7.72 over five years, which is nothing to snort at. Not double digit, but it’s pretty good. So, yeah, uh, you know, if I had a business like that, I’d be pretty happy. Tony Kynaston: I agree. Cameron: Growing at seven 8% a year on average. So that’s timber electronics. So I’ll add it to my little spreadsheet here and we’ll track it and see how it does. But um, [00:38:00] you know, I just like to see these different kind of companies learn a little bit about what’s out there. Tony Kynaston: Yeah. We wouldn’t have a nice, an integrated circuit board manufacturer in Australia. So it’s a new, whole new industry for us that we’re seeing in the us. Cameron: Uh, and as we said in the Australian show though, interestingly I mentioned that our US portfolio is up about 22% in the last 12 months. Our Australian portfolio is up 30% in the last 12 months. So despite all of the wackadoodle numbers like Zep being up 1200%, and lots of crazy stuff happening in the US market, the Australian market’s doing fine without these sorts of companies Tony Kynaston: Yeah, Cameron: for some reason. Yeah. As I said in the last show, somebody asked me at my kung fu class today, wh which is the better market to invest in the US or Australia? And I was like, eh, doesn’t matter. As long as you have a system that you’re following, I think it’s pretty much the same. Right. That’s QAV America.[00:39:00] Yeah. Tony Kynaston: sure. Cameron: Thank you Tony. Any, any other, any last comments before we go? Tony Kynaston: Known a little interesting company though. Thanks for outlining it. Cameron: If anyone is listening to this and you’ve got questions about QAV or you’d like me to take a look at a company that you think is a good value investment, uh, shoot me an email. Uh, cameron at QAV america.com or cr at QAV america.com is probably easier and, um, I’ll have a look at it. We can talk about it on the show or answer your questions on the next episode. after hours then, Tony, Tell us what you’ve been doing. Tony Kynaston: Oh. Went away. Had a vacation up at, uh, Yarra. Wonga on the Murray. I was gonna save it for after hours, but that’s fine. It was a lovely, lovely week away with, uh, ruddy and my brother-in-law, Wal playing golf. We stayed in the most, just a fantastic Airbnb in y Wonga, a couple of streets from the main dre, a couple of streets from the [00:40:00] lake. uh, it was just, it was a really nice house and, and super cheap. Stayed in this kind of, uh, Victorian, well, wouldn’t call it a mansion, I suppose, but it was very, um, flash and spacious and we had a great time. good fun. Cameron: That’s nice. I’m glad it was super cheap because I wouldn’t want you to be, uh, financially burdened with your, uh, golfing vacation. Tony Kynaston: No, well, wouldn’t have worried me, but, um, I wasn’t the only one staying there. We had a horse run on Sunday Lake Forest, which missed the start, so it didn’t do too well. Um, Cameron: What’s that mean? What does miss the start mean? Tony Kynaston: uh, Cameron: turned up late. Got stuck in traffic. No one. Tony Kynaston: played up in the barrier. and then when all the horses jumped, it didn’t, that was a, Cameron: Oh, Tony Kynaston: came Cameron: really? Tony Kynaston: from the Cameron: You’ve got one job. Horse. Tony Kynaston: Well, jockey. Cameron: it the, is it the jockey’s fault? Like, who gets the blame for that? Tony Kynaston: Uh, it can be the jockey’s fault, but I think in this case, if it played up in the barriers, it was just bad timing. The start is supposed, is supposed to keep an eye on the horses and, and not [00:41:00] start the race until all the horses have settled and to go. But if, um, if Cameron: Right? Tony Kynaston: in the barrier then the barrier doors open, we, um, we missed it Cameron: The horse is just like, not, not feeling it today. Don’t wanna, don’t wanna be here. Don’t wanna be in this thing. Why have you got me locked into this little booth? Tony Kynaston: could Cameron: out. Tony Kynaston: could be Cameron: Let. Tony Kynaston: of reasons. Could be, know, got a bit of an niggling injury. Could be that it’s just overexcited doesn’t want the jockey on board, who knows, gets excited like it’s ready for competition and starts to rear and buck and all sorts of things. You know, I’ve, we ask them and they never tell us. That’s a Cameron: Give AI a few more years. Tony Kynaston: line. Cameron: Oh really? Okay. Tony Kynaston: Why did the horse run so slow? You know, well, I asked it and never told me. Cameron: Nice. Tony Kynaston: Uh, been listening to your catch up with David Markham, which was really nice on the bullshit Cameron: [00:42:00] It was nice Tony Kynaston: Hmm. Cameron: and I’m hoping you’ll come on this week. Uh, he said he’ll come back and Ray and I are supposed to do a bullshit filter this week, so I’m hoping David will be able to come back on and we can do more politics stuff, but it was really lovely to catch up and have a chat with him. Haven’t spoken to him for a couple of years. Tony Kynaston: but I, um, I haven’t listened to the whole thing yet ’cause it’s about, goes for about an hour and a half. But, um, I had a chuckle to myself I think probably in the first 10 minutes you said about two words. And, and David nonstop. So it was a very different cadence to interviews with David, which took me back to the onic times. Cameron: That, that was where my podcasting started. Just ask David a question and then sit back and relax for an hour or two. Tony Kynaston: Yeah. But I Cameron: Yeah, Tony Kynaston: It’s great to hear, uh, hear the catch up. Cameron: I like, he’s doing well. He is, as he said, he turns 80 in December. And speaking of people who turn 80 or are 80, oh man, the who a touring at the moment. What’s left of them? Pete and Roger. [00:43:00] I, I read an interview with him in the New York Times yesterday, which was talking about, you know, this is the 15th time they’ve done it. This is our last tour. Tour and whether or not they’re gonna work again and all this kinda stuff. Then I saw on YouTube, people have filmed the entire concert. So I went and had a look at one. It was in Newark, just like from, I don’t know, a few days ago. Sensational, like Roger Daltry is 81 and he hits every note. You know, I expected him to do what McCartney does, which is pull down a register occasionally when you’ve got a really high note. No, no. He goes up, he, he pushes it further than he did when he was 35. His voice is amazing, and Pete on guitar is just as amazing as he ever was. He’s not, as, you know, his windmill arm isn’t wind bill as us and Roger twirling the mic. He starts at the beginning and kind of flubs it, but, and then he has a chuckle to the audience. But in terms of performance, unbelievable for men in [00:44:00] their eighties. Unbelievable. They are the new rock gods. I mean, the Stones are probably hitting that as well. And you know, as far as I know, they’re still kicking it. But Mick love Mick, but Mick’s not adultery. Like Mick doesn’t, you know, I’m a midnight ram. He does a bit of a Bob Dylan, and you can’t always get what, it’s not like singing Who are You or Pinball Wizard or, you know, any of those tracks. Like Dory really had to sing. And he can still do it. It’s his sta he reminds me of Russell May from Sparks, who’s, I think he’s 76 or 77, and he still hits really high notes. Everything, like his vocal performance is insanely good. His brother Ron is 80, like they’re up there as well. Those guys still doing two hour co show shows every night. Russell’s bouncing all over the stage, hitting every note. That’s, ah, [00:45:00] man, like this generation of rockers that has been going for 50, 60 years in the who’s case. 60, 64. 64, I think, uh, their first album came out. Tony Kynaston: I went to the WHO turns 50 concept when I was living in Toronto. That would’ve been probably 10 years ago. yeah. Cameron: So Ed Whistle would’ve been gone by then? Tony Kynaston: Oh, Cameron: Yeah, I think he, Tony Kynaston: in the nineties. Cameron: Really? Oh, okay. Right. Tony Kynaston: He was about 50 years of age when he went. Uh, did you notice if, uh, Zach Starkey was still playing on drums? Because I know he was sacked, but I thought there Cameron: No. Tony Kynaston: talk he was gonna be reinstated. Cameron: They sacked him. They reinstated him, and then they sacked him again. That was part of the New York Times article. They’re like, what’s going on? And actually Pete had a good line. He goes, he was never, he was never my favorite drummer. In fact, none of our drummers have been my favorite drummers. I didn’t even like Moon. I didn’t like Moon as a drummer. I’m like, who doesn’t? Nick couldn’t like Moon. Tony Kynaston: really? Go. Uh, if you get a chance, go and watch the [00:46:00] Is of White concert. Um, it’ll be on YouTube. It’s probably only about half an hour when the, who are playing. But, um, something happens, I think it’s might be whistles, amp blows and so there’s just Moon and Pete left and they start goes on for like, I don’t know how long, five, 10 minutes, where Pete will play something on guitar and Moon echo out in the drums, and then Moon will play something on the drums and Pete echo out the guitar and they just had this amazing rapport going back and forwards. Cameron: Oh, fantastic. Tony Kynaston: it’s incredible. Yeah. Cameron: I had a, a friend over, uh, one of Fox’s school friend dad’s, who’s a heavy model rock guy. And we, I, I, I have his kid comes over from school. Chrissy brings him home on a Thursday afternoon. I look after the boys. He get, he finishes work late and comes and picks his kid up. And by the time he’s gone on, I’ve always got something on YouTube usually, and it was like the Aussie tribute concert, or I’m watching something and he and I sit there and, or it’s a Go betweens [00:47:00] documentary or something like that. We’re always talking about music and I had, um. Who concerted on from like the seventies. And we got talking about it and I said, have you, have you seen the video, the official video for Who are you? I think it’s Who are you? He goes, no. I goes, oh, my gotta see this. Keith, like just Keith in the official video, he’s got his headphones gaffer taped to his head as he often did, but just the faces that he’s pulling, like the camera’s really up close and he’s doing his drum solo or whatever he is doing. And you know, a after the, you know, in, uh, who guess who are you? When it sort of breaks down, the song breaks down and the synth comes in. And then he and Keith comes back in Tony Kynaston: Boom. Cameron: and it starts building up and yeah. And then he’s just like, he’s, he’s like, he’s just going nuts, pulling monkey faces and, oh, so entertaining. So entertaining. Tony Kynaston: Yeah. Cameron: love moonie. Tony Kynaston: That was when the kids were all [00:48:00] right, wasn’t it? And he’s there rolling his Cameron: Yeah. Yeah, Tony Kynaston: Yeah. Cameron: he does that in this too, when they’re all singing around a mic, doing the, Tony Kynaston: that’s from Cameron: yeah. Tony Kynaston: the kids are All right. Cameron: Oh, okay. Tony Kynaston: Yeah. Great, great documentary. I, Cameron: Uh, after we spoke a couple of weeks ago, I watched The Man Who Fell to Earth on SBS Tony Kynaston: good. Cameron: and I’m now reading the book that it was based on. I didn’t know this, but the guy who wrote that book also wrote the book that the Queen’s Gambit was based on the Netflix series that blew up a few years ago. He also wrote the book that, what’s the, uh, the Hustler was based on Tony Kynaston: Oh, Cameron: the Paul Newman film and the sequel, the Color of Money. He wrote those books as well, so he was quite a prolific. Science fiction slash apparently he was a major drug addict and gambler gambling addict. And so he wrote books about what he knew and the, the [00:49:00] manfield work is quite good. Um, but yeah, the film really held up well and I’d forgotten Rip Torn was in it. Tony Kynaston: Hmm. Cameron: And I love Rip Torn. He’s like, he was like one of my all time favorite American actors and, uh, seeing here a young rip torn in a, well, kind of middle aged rip torn I guess. But before all of the stuff that he did in the latter part of his career. Gar Larry Shandler, Larry Sandler, the Gary Sling Show, and you know, Larry Sanders show Gary Ling and, um, men in Black and 30 Rock. And he had a great late part of his career. But I remember I saw him not long ago. He was in, um, Steve McQueen film where he’s. The, the poker play, the, the Cincinnati kid Tony Kynaston: All Cameron: Rip Torn is sort of the number one guy that he needs to play in that, uh, he’s like some Texan with his drawl and whatever. Yeah, great actor. Anyway, so thanks for telling me that was on SBS. That was great. I really enjoyed it. Tony Kynaston: Yeah. Cameron: And then I saw a, I saw a Leonard Cohen documentary on SBS after that [00:50:00] too, which was fantastic. It’s all about Hallelujah, the song, hallelujah. Tony Kynaston: Mm-hmm. Cameron: And how the album that he wrote that for, you know, he famously wrote like 180 verses for that song over 10 years, and the final version had five or six verses and, um, then he did it, he’d do it live and he’d do different verses. But the album that, that was on the label. Um, can’t remember which label it was. Columbia Records, I think, um, refused to put the album out. They said it was, the album was terrible. They hated it. There weren’t any good songs on it, and they refused to put it out e even though they paid for it to be recorded. So it ended up coming out on some little two bit label and didn’t sell. No one bought it, and that was it. It just, LL Leonard thought he was done, thought his career was over, and he was in his sixties at this point. And [00:51:00] then they talk about how that song, um, um. Somebody did a tribute album to Leonard Cohen and John Kale picked that song and did a version of it. And then one of the women who was the producers of the Shrek film loved the John Kale version and wanted to put that in the film. They actually had it rerecorded by some younger dude, but the John Cal version ended up in the film anyway. And then, um, Buckley, Tony Kynaston: Mm-hmm. Cameron: his name was, Jeff Buckley. Tony Kynaston: Yep. Cameron: He, before he was anyone, he was playing in this little club in New York and somebody said, um, he was looking for songs to play and it was kinda like, you know, just throw songs out. And somebody said he didn’t know the Leonard Con conversion. Somebody gave him the, it’s on kale version. [00:52:00] He did his own version of that. Everyone loved it. It was on the album. He died before it came out. Then it became a huge hit and then everyone on every American talent show like America’s Got Talent, whatever. There was always somebody doing the Jeff Buckley version of Hallelujah. And it blew at one point, three versions of it were in the top 20 in the US There was some America’s Got Talent star who had done it, the Jeff Buckley version. They were number one and two, and then Leonard’s version was like number 20 or number 18 or something. Tony Kynaston: Lan covered it too. I Cameron: I saw her. Tony Kynaston: Yeah. Cameron: Oh, I saw her do it in a tribute concert to him after he died too, which was great. It actually, the film finishes with her doing it live, which was a stunning performance. Um, yeah, so they’re just talking about how this song, the label hated it, wouldn’t even put the album out. And then it just got this massive life and, and then they [00:53:00] talk about Leonard’s career. I mean, the whole thing’s about Leonard’s whole career and how the last chapter of his life was just amazing, you know? He was so beloved and, um, yeah, it’s amazing. Really great, really great documentary. Tony Kynaston: I’ll look it up. Thanks. Cameron: Mm, goes on SBS. Yeah. Yeah. So thanks for, thanks for putting me on sb s. Lot of good stuff. Yeah. And I’ve been reading a good book. Uh, I’ve been reading, uh, Jiang Hui Hui. He’s a Chinese scholar at Udan University, um, on China. He’s got a couple of books on China’s economic and political model is the first one from 2012 I’m reading, is called the China Wave, uh, where his sort of breakdown on the China model, similar to the one that I read by the Canadian Scholar, Daniel A. Bell a few years ago. But it’s him sort of breaking down. And this guy’s like, he’s an advisor to Xi Jinping and he was a, I think he was an interpreter for Dong Xiaoping when he was younger. So he’s [00:54:00] been in the upper circles of the CCP for most of his life. But he has a great way of just explaining why China does it, the way that China does it, and why it works, in his opinion, why it has worked so well, why it continues to work, you know, and why the West doesn’t understand China’s model. It’s like, listen, we’ve been doing things our own way for 3000 years. You guys come along and think you know how to do things. We, we, you know, we’ve been doing this for a long time. We’ve just integrated the best of all the things that China’s been doing for 3000 years. And, you know, we’re back on top baby and we know how to make this this work. So just sit back and watch. So, um, Tony Kynaston: I saw a Cameron: yeah, it’s, Tony Kynaston: Um, it Cameron: hmm. Tony Kynaston: in the review of a book, uh, about, about China and comparing it to the US by a, a China, a Chinese person who had spent a lot of time in China, but then was studying in the US and spent time there too. Uh, but the quote was great. It said that the difference between China and [00:55:00] America is at the heart of the Chinese economy are engineers and at the heart of the US economy are lawyers. I thought that was a Cameron: Interesting. Tony Kynaston: Mm-hmm. Cameron: Yeah. But he just talks about, you know, the, the political model, the social model, and the business model and the economic model and, and how they work in China and how, as we’ve talked about before, you know, you’re allowed to be a billionaire, but you’re not allowed, as a billionaire, you’re not allowed to have any control over the political system. Um, we’ll let you be a billionaire, but don’t think you’re gonna have any say in what happens politically. And as soon as you get too big for your boots, you get taken to a little room and reeducated about Tony Kynaston: It sounds Cameron: how things work. Tony Kynaston: the moment. Cameron: Yeah, it does actually. Yeah, very much so. Tony Kynaston: Thanks. Alright, you too. Bye. [00:56:00] Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance [00:57:00] returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior [00:58:00] consent of Spacecraft Publishing. “And then you might see what the life of the good man is like—someone content with what nature assigns him, and satisfied with being just and kind himself.” “Meditations.” Marcus Aurelius Free Podcast Archives 

Aug 29, 2025

58m
10

QAV America 18 – Tractors and Ten-Baggers (TITN)

In this episode of QAV America, Cam and Tony dig into the latest market moves, starting with the chaos in gold prices caused by unexpected US tariffs on Swiss gold imports. Cam reports on the strong performance of the QAV US portfolio—up nearly 64% since inception—highlighting big winners like ZEPP (+964% in a month), CX, IHS, and Orix. They cover portfolio changes, including selling OPHC and adding Jackson Financial (JXN), and discuss broader US economic news, including tariff extensions, inflation concerns, and Fed rate expectations. The centrepiece of the episode is Cam’s deep dive (“Pulled Pork”) on Titan Machinery (TITN), one of the largest US agricultural and construction equipment dealers. He breaks down the company’s history, revenue mix, recent financial challenges caused by the US farming downturn, and why it still scores well under the QAV system. After the investing talk, the “After Hours” segment touches on classic films, new TV shows, and even the Rumble in the Jungle. ⸻ Timestamps & Stocks Mentioned • [00:00] – Gold price swings after surprise US tariffs on Swiss gold imports. • [00:02] – Portfolio update • [00:06] – Selling OPHC after sharp drop; replacing with Jackson Financial. • [00:09] – Broader US news: Trump’s China tariff truce extension; inflation report expectations. • [00:12] – Pulled Pork: Titan Machinery (TITN) – background, business model, global footprint, financial performance, challenges in the US ag market, valuation metrics, and QAV scoring. • [00:31] – Tony’s analysis on TITN’s debt, equity, and cyclical challenges. • [00:34] – After Hours: “The Man Who Fell to Earth” (SBS), “The Apprentice” (Stan), “The Handmaid’s Tale” final season, 1980s sci-fi cult films, “Kings” TV series, and Muhammad Ali vs George Foreman fight rewatch.   Transcription   [00:00:00] Cameron: Welcome to QAV America. Welcome back to QAV America, Tony, episode 18. Uh, we are recording this on the 12th of August, 2025. Well, Tony, it’s, it’s been a big week in America. Markets are kind of booming, kind of crazy, just, uh, the regular going on over there. Any US news stories that, uh, pique your interest this week? Tony Kynaston: Uh, a lot of us news stories picked my interest this week, not the least of which was the gold price movements on Friday afternoon, US time when, uh, Switzerland, which has had lots of tariffs put on it. Um. Somehow I, I’m not sure of the full detail of this, but somehow gold bars being transferred from Switzerland to the US attracted a tariff and that threw the gold market into a tier. And the government came out and said they didn’t mean that to happen. And so it’s all up in the air at the moment. But yeah, the gold price [00:01:00] vacillated quite a bit on Friday, and since then, um, settled down little bit. Um. But, uh, yeah, just a lot of on the fly decision making going on. So it’s, it’s dynamic, entrepreneurial it’s, it’s, uh, causing a few splashes here and there as well. Cameron: Yes. Lots of craziness. Well, I am gonna do a deep dive on another company that I think you’re gonna like today. This is, uh, Titan Machinery Inc. TITN is the ticker. And we’ll get into that in a little bit. Before we get into that, for new listeners welcome. I wanna explain what you’re listening to. Uh, yes. We are two Australian value investors. We’ve been doing a podcast, uh, on value investing for five or six years. Tony’s been a value investor for. 25, 30 years, and he built a system that we call QAV Quality add value buying shares in quality companies when you can get them at the right [00:02:00] discount to their intrinsic valuation. And we’ve developed a methodology, or Tony’s developed a methodology for doing that. It’s a spreadsheet checklist that we run companies through. We teach how to do that on this podcast. We’ve got. Big membership in Australia that we teach, uh, the system to every week. And a few months ago, we decided to start looking at the US market and applying QAV to that. And it’s been going quite well. In fact, we’ve got a US portfolio that I started using our system in September of 23. No, September. Yeah, September 23. Uh, over that period of time, coming up two years, it’s up 63, nearly 64% since then versus the s and p 500, which we use as a benchmark, which is up about [00:03:00] 43% over the same period of time. So it’s outperforming the s and p, and that’s kind of what we look at as our benchmark. Uh, and in the last, um, week. It is had some interesting results. GTN uh, TV stock that I talked about on our show last week. I did a deep dive on GTN and I actually had added it to our portfolio because I had to sell something and replace it. It’s up 23% today, Tony, today. Tony Kynaston: Okay. I can’t explain that. I was gonna mention that, um, their quarterly results were out, uh, and that revenue was down 7%, but it was above analyst expectations they had paid, I think it was 170 million to buy another network. Um, but those announcements were last week, so I’m not sure why that’s fuelling today’s stock [00:04:00] price rise. Cameron: I don’t know either, but it’s only up about 8% net since I added to the portfolio. ’cause it dropped a little bit after I added it. But I guess it’s probably, um, our episode coming out, which is probably responsible for, you know, we, I. Did talk about it on Reddit. I posted it to the value investing subreddit, and I’m sure everyone on that, uh, took my words of wisdom and, and jumped into the market. So I’ll say that’s the QAV factor unless people prove me wrong. Tony Kynaston: Well done. Cameron: Yeah, it’s the, the burden of proof is on people to prove me wrong. Uh, one of the stocks that I did a pulled pork on about a month ago, Chinese smartwatch manufacturer, Zep, ZE double P, is now up 964% since I talked about it a month ago. Again, I’m putting that down to the QAV factor. Um, that’s [00:05:00] pretty crazy stuff. Tony. 964% in a month Tony Kynaston: out there want us to Cameron: I. Tony Kynaston: pulled pork or want you to do a pulled pork on their company, they know where to contact you. Cameron: That’s right. I did a, I did the, uh, deep dive the Paul Pork on the 11th of July. Uh, it was at trading at $2 98. It’s now trading at $31 80. And there haven’t really been any announcements, uh, come out since then. So I do. I think it’s, uh, maybe an acquisition target. It might be what’s going on. But, um, anyway, that’s been a, and unfortunately I didn’t add it to our portfolio at the time because we were full. We didn’t have any room in the portfolio. We were fully invested. Damn shame that, uh, looking, looking through some of the other stocks that I’ve done deep dives on over the last, uh, few months. [00:06:00] Uh, Cemex CX is up 53% since we talked about it at the end of March. Uh, IHS holdings is up 25% since we talked about it at the end of May. Orix Corporation is up 20% since we talked about it in the middle of June. Yeah, most things have been doing really well. Poco is up 13%. Precision Drilling Corporation is up 14%. Jackson Financial, which I just added to our portfolio by the way, that’s up 10%. So I did wanna mention that I have done some trading in our portfolio since, uh, our last episode. I had to sell OPHC Optimum Bank Holdings on the 8th of August, the top. The stock tanked roughly 10 to 11% in a single day, became a three point trend line sell, but it, we sold it at a 2320 3% profit over the 18 months that we held it from November, 2023. So [00:07:00] that’s okay. Basically, they came out with results. Earnings quality were decent, but there was dilution per share decline in the EPS despite strong profit growth. So I think they’ve been issuing stock or converting preferred shares or something is going on to dilute the EPS. And also they reported loan book shrinkage. In a, an environment when interest rates are still high, so not really sure what’s going on there. Bottom line is I had to let them go and replace them with Jackson Financial, which was my pulled pork on episode nine. They’re the seventh largest US life insurance company for memory based outta Michigan, I think Jackson, Michigan, something like that. Where they got their start. Anyway, so the US market is booming, our portfolio is booming, but nothing like zep a th You ever seen a thousand percent increase in a QAV stock [00:08:00] in 30 days? Tony? A 10 bagger? Tony Kynaston: And I wonder whether there was Cameron: No. Tony Kynaston: kind of stock split. on that may have accounted for it, but I couldn’t see it in the announcements. Cameron: Yeah, me either. Tony Kynaston: Yeah. And the other one that, um, you haven’t mentioned that you did a pulled pork on was forward. And I, I’ll just, uh, bring you back down to worth a bit, even though the share price hasn’t, uh. Gone too bad. I don’t know what the numbers are like since he did the pool port, but their quarter, to profit was pretty much wiped out by the US tariffs that have come in. Um, and they a lot of importing of aluminum in particular, which is retracting high tariffs. I. Cameron: Yeah, I covered them on episode six. On the 21st of May, they were trading at $10 80. At the time, they were trading at $11, 14 as of last close. So they’re up 3% since then. So, you know, not shooting the lights out, but they haven’t gone the wrong way either. The only one that’s really gone backwards since I talked about it was, uh, who I mentioned last [00:09:00] week, INEL Chile, ENIC. They’re down 18% since I covered them in episode five on the 14th of May, but everything else is done reasonably well, Tony Kynaston: Again, I wonder if that’s Cameron: so. Tony Kynaston: driven too, if they’re exporting from Chile into the US perhaps. Cameron: Yeah. Dunno. So what else? Donald Trump signed an order extending China tariffs. Uh, truce, the tariff truce by 90 days. Today, the new order prevents us tariffs on Chinese goods from shooting up to 145%. While Chinese tariffs on US goods were set to hit 125% rates that would’ve resulted in a virtual trade embargo between the two countries. It locks in place, at least for now, a 30% tariff on Chinese imports with Chinese duties on US imports at 10%. So another 90 day delay by President Tar Trump. Tony Kynaston: Clemency. [00:10:00] He’s a compassionate man. Cameron: Uh, other news I saw this morning, July’s consumer inflation report is due on Tuesday and investors anticipate that the Fed will lower borrowing costs by about 60 basis points by December. According to data compiled by LSEG, the inflation data is starting to embody the more direct tariff impacts on the consumer raising concern that inflation will remain sticky. S Eric Teal, chief investment officer at Comerica Wealth Management.. So, um, I’m sure if the inflation report is bad, Trump will make sure that whoever prepared it gets fired and, uh, replaced with somebody who gets the right numbers. That’s the way it seems to work these days. I, Tony Kynaston: Well, I’m, I’m laughing as well ’cause um, as you know, uh, economists have been turning themselves in not trying to predict what the Reserve Bank is gonna do on interest rates in Australia. And, uh, they were blindsided last month and we’re waiting to see what happens this month. So. a bit of a fool’s game trying to predict moves in the Fed, I [00:11:00] think just like it is in Australia. Cameron: Uh, just on that, for our Australian listeners, the Reserve Bank has delivered its third interest rate cut of 2025 with a 0.0 0.25 percentage point reduction at its August board meeting, so you successfully, incorrectly, deliberately predicted it. Tony Kynaston: Yeah. Cameron: Yeah, you predicted a cut last month and they didn’t, so this time you predicted No cut. Just so they would do it to spite you. Tony Kynaston: it’s, Cameron: Outta spite. Tony Kynaston: hard to find a friend who gets things a hundred percent right. But it’s still equally as valuable to find someone who gets things a hundred percent wrong. They, they’re usually easier to find. Cameron: There you go. Yeah. Yeah. Why are you looking at me when you say that? Tony Kynaston: I have Cameron: Um. Tony Kynaston: on the screen. Cameron: Yeah. Yeah. Um, so unless you have other news, I’m gonna get into my Paul Pork, my deep dive for today, right. Tony Kynaston: I. Cameron: As I said, um, you know, the last couple of [00:12:00] weeks I’ve been deliberately sort of scrolling through the buy list, looking for sorts of companies that we haven’t talked about before, and particularly anything that I think is Berkshire worthy, that Warren Buffett would like. And this is another one I think. We’ll see what you think by the end of it. Titan Mac Machinery, as I said, TITN, they’re listed on the Nasdaq there, there are Josephine at the moment, just, uh, for new listeners, Josephine is what we call a stock that is a buy, but the share prices in a, in a decline from where it was at the end of last month. And usually we would treat that as a whole wait and see in case we can buy it cheaper next week. But it’s worth keeping an eye on because it is a buy and its numbers are good. To give you, um, just a sense of how much of a Josephine it is last month’s close. So the end of July was $19 32. It’s currently trading at a, I closed at $18 98 last night, so it’s down 34 cents, which [00:13:00] is in a great amount at 1920 bucks. But yeah, could be, could bounce back very quickly and become a buyer again. So, uh, this company is one of the largest dealers of agricultural and construction equipment in the us. They have a hundred dealerships throughout the world, including 16 locations in Australia. Tony, they claim to be the largest dealer for CNH industrial brands who are an Italian American corporation with global headquarters in the United Kingdom. And I mentioned Titan is listed on the Nasdaq. Now. Last week on the show we were talking about, um, no, the week before that s. ENEA, Seneca Foods that are listed on the Nasdaq. And he said, why the Nasdaq? I thought they were tech companies. And I looked into that this week. So as we talked about in our Australian show, there looks like there’s gonna be government of approval for another, uh, trading, share, trading, um, platform [00:14:00] in Australia. Nasdaq started in 1971 as an electronic quotation system. Uh, which was faster and cheaper to list on than the New York Stock Exchange. Didn’t have the old school in-person trading floor structure. It was all electronic and then it, because of that, it became the sort of exchange of choice for tech companies because it was faster and cheaper. And so we tend to associate it these days with tech listings, but that’s not the only re, I mean, that’s not the only company. So these days it’s home to PepsiCo, Costco, Hasbro. Every company that ends with an o uh, has to, by policy, be listed on the NASDAQ apparently and Titan Machinery. Tony Kynaston: Oh. Cameron: And Seneca Foods o Seneca. Yeah. So Titan uh, was born in 1980 in North Dakota, a place called Wahpeton. The founders [00:15:00] of Titan had a farm store, turned it into a dealership, started buying other dealerships, and one of the founders is still involved with the company. I will talk about him a little bit later on day iPod in 2007, uh, started buying up dealerships for basically farm equipment, farm machinery around the globe, and that’s pretty much what they do today. The revenue comes mostly from sales of equipment. About 75 to 80% comes from selling new equipment. Parts is about 15%, and service is about five to 10%. Parts and service, obviously that sort of 20 to 30% is good ongoing revenue that helps spread out bumpy sales. And the reason they’re on our buy list in a looking cheap at the moment is because it’s been a pretty bumpy period for selling new equipment to farmers, particularly in the US in the last couple of [00:16:00] years. So it still. It generates a lot of cash despite some recent losses. Total revenue has grown from 1.3 billion in 2020 to 2.7 billion in 2025, doubled its revenue in that five year period, which is. Not too shabby, but here’s the rub. It’s been losing money recently. Margins have collapsed. Now, this is because there’s been a collapse in the US ag market, and I’ll talk about the wise and wherefores of that in a minute because I don’t know how much you know about the US Ag market. Uh, we just talked about chicken farming in Australia. I don’t. And how they’re innovating the chickens. Uh, I didn’t know anything about this, so I had to drill down into it. But, um, to give you an example, their FY 2024 net profit was 112 million. Their FY 2025 was a $37 [00:17:00] million net loss. And that’s because basically the bottom fell out of the new equipment, uh, market in the us. And they’ve also got, uh, net losses forecast for the next couple of years, although they are forecasted to decline to a $9 million loss in 2027. Gross margins created from 19.3% in 2024 to 13.7% for trailing 12 months. So basically they had to just cut their margins to get stuff out the door. They were sitting on a bunch of inventory. And sales collapsed and they’ve been just doing whatever they can to get the stuff out the door. So why the ag equipment demand collapsed? There’s a couple of factors in it, but US farmers have come through a couple of brutal years. Incomes fell about 20% in 2023, and then another 4% in [00:18:00] 2024, even though they were producing bumper crops. Why? Well, their costs shot through the roof. Um, a few years ago, COVID, Ukraine, invasion, trade wars, all these sorts of things were going on. And, um, prices went up, like, uh, crop prices went up, corn, maize, that kind of thing. Bumper years. The underlying costs went up alongside it. Fertilizer, seed, diesel equipment, prices all went up, but then the prices all collapsed again. The, the crop prices collapsed. Corn dropped more than 20%, soybeans about 12%, but the underlying costs didn’t come down with them for a variety of reasons. So the farmers, um, borrowed a lot of money. At, at higher rates, uh, [00:19:00] bought a lot of staff on contracts at higher rates, then the prices that they can get dropped and they’re, they’re getting squeezed on their cash flow. They’re loaded with debt and the first thing you cut is big ticket spending like tractors and combines, they’re holding off on big spends. These farmers, they’re getting squeezed by the finances, the banks, et cetera too. So new equipment sales have been plummeting. Then you’ve got trade tensions, tariff fears. And that’s throwing another spanner into the works with anyone being able to predict what’s gonna happen tomorrow, let alone a month from now or a year from now. So dealers like Titan are sitting on this inventory backlog. They can’t sell fast enough. They’re slashing prices, pushing service and parts sales to try and make up for it, but that hits their margins too. So grain and oil [00:20:00] seed markets went nuts in 20 21, 20 22 because of the pandemic disruptions, droughts, and the invasion of Ukraine. Coin corn and soybean prices spike. So farmers bought more fertilizer, more seed, more equipment, thinking the boom would last, but then global production caught up. Ex Ukraine got some export markets moving again. Brazil had record harvests and demand from China softened, which led to the prices crashing back down, but the farmers were still paying boom time prices for their inputs. Fertilizer, diesel and machinery parts all rose 30 to a hundred percent in price during the boom. And then, as I said, suppliers didn’t drop prices when commodities fell because markets were still tight, fertilizer plants was slow to ramp back up, and manufacturers had locked in expensive raw material contracts themselves. So. Operating costs stay high while the selling [00:21:00] prices drop and the margins imploded. Most US farms finance their operating costs seasonally short-term loans for seed, fertilizer, fuel, and then pay them off after harvest, with rates going from 3% to seven to 9% in a couple of years. Debt servicing costs doubled or tripled, and big capital buys like $500,000 for a new combine are suddenly. A lot more scary. Then there’s this uncertainty going on about the US Farm Bill. The Farm bill is this big catchall law that they renew every five years or so, and apparently it decides how everything in US farming runs. Everything from crop subsidies to crop insurance, conservation payments, food stamps gets renewed every five years, but instead of passing a new one. Late last year as they were due to Congress, extended it out until September [00:22:00] 30th, 2025, which is only seven weeks away. And then, uh, the one big, beautiful bill. That passed a couple of months ago, rewrote big chunks of the ag commodity programs that normally live inside the farm Bill. So that means when the farm bill gets hammered out, supposedly in the next seven weeks, if it doesn’t get extended again, there’s gonna be less certainty and fewer supports for certain crops. So no one really knows or apparently, from what I can tell, what’s going on with that, how that’s gonna land. As we know, the entire Trump administration is sort of fly by the seat of your pants. No one knows who’s up, who, and who hasn’t paid. It’s, uh, whatever bright idea President Trump has when he sitting on the toilet in the morning on Twitter, um, or truth social now. So no one knows what’s going on. And tariffs don’t hit Titan directly ’cause they don’t [00:23:00] manufacture the equipment, but they suffer upstream. Higher equipment costs from manufacturers who are dealing with the tariffs, steel and aluminum inputs. Global trade tensions get passed down to Titan. So they’re getting squeezed both sides, right. Some of the big manufacturers like John Deere and Caterpillar are flagging the tariff impacts now. So that’s sort of the, sort of the background on these guys. Uh, good, been around a long time. Good operators, um, big network of dealerships, but they’re having a cash squeeze. That said, they’re currently sitting on $21 million in cash. The F score is a five, so not terrible, not great, but we score anything over a four and a half, so they get a score for us on the F score. Financial health is strong ish, but their net debt increase from 300 million in [00:24:00] 2023 to 960 million today, tripled in the last couple of years, so they’ve gotta figure out what to do about that. But from a numbers perspective, the price is $18 98, uh, $18 96. It closed at last night, operating cash flow. Per share. TTM is $4 81, so price to operating cash flow is just four times. Um, it’s pretty, pretty solid from our perspective. Not the best we’ve seen, like we’ve seen much, much lower than that and some of the shows that I’ve done recently, but it’s pretty good. Um, for us, what you will like is the price to book. The latest price to book is 0.7225 means it’s trading at 72% of equity value on the book. So if you shut the company down, paid off the [00:25:00] debts, you’d at least get back what’s. On the book. So it’s very, very cheap from a price to book perspective. Book value’s been growing too. Did take a small dip in 2025, but CAG a 12% for book value over the last five years. So the growing the business doing a great job. We don’t have either of our intrinsic values, IV one or IV two because their EPS. And their forecast, EPS are both negative, so we can’t give them a score on either of those. But I’ll get into the full scoring in a minute. Margins are down, but from my perspective, the the dealers, the parts and the service revenue creates a safety net equipment revenue slid. Four to 13% depending on segment or quarter, but the parts are steady and service is up 14.5% for the full year. So they are, obviously, [00:26:00] people aren’t replacing their combine harvesters and their tractors, so they’re having to spend more on parts and service. So they’re kind of ameliorate at a little bit. They’re cheap, I guess, because no one can see what’s happening and it could go belly up or it could go bad. If the economy doesn’t improve for farmers, maybe people know what something we don’t know about the future of farming in the us. But just looking at the numbers and the scoring for me, it looks good. I’ll get into the full scoring. Um. From a stock Edia perspective, quality score is 64%. We give them a score for anything over 60. Value is 91%, momentum is 86%, and stock rank is 96. We will score anything, uh, equal to or over 90. So, uh. Average daily trade is a little [00:27:00] over $4 million, so relatively large. Last financials I’m working on are from April, 2025. Price to operating cash flow, as I said, is a four, so we score ’em for that. We scored ’em for quality rank, for stock rank for F score. Not for the IVs. They do score for price less than book. They also, of course score for price less than book plus 30. They have obviously a three point uptrend. Um, despite the Josephine, I didn’t, they didn’t get a score for new three point upturn, but looking at it, they probably should have. They, they became, um, a new three point upturn. So for new listeners, that’s when their three point trend line goes above our byline. We score them for that. If they come out after their most recent financials, it happened just before their most recent financials like March, and their financials came out in April. Like, so somebody got ahead of the game and the share price went above it. So I didn’t score them for that technically, [00:28:00] but they probably would’ve got a score if I’d done it manually. They don’t get a score for growth over PE being greater than 1.5. Um, book Val, I, the, the system did score them for book value growth being positive. Even though I said they’re slightly down in their last one. I’m not sure why the score is wrong. I’m gonna have to look at my code for that. But it sort of counterpoints of new three point upturn, so I don’t care too much. PE is not less than the yield, um, because they don’t have a. Earnings. Um, yield is not greater than bank debt. Uh, forecast IV is, uh, time is not greater than twice the price. ’cause they don’t have a forecast IV ’cause they don’t have a forecast. EPS we did score them for Pr/OpCaf being less than seven. As I said, so they got, um, 10 out of 11 actually for the scores, a quality score of 91% and a QAV score of 0.23. By the way, one of the founders, David Meyer, [00:29:00] holds 8.44% according to Stockopedia not above the 10% that we normally score them on, but it’s, you know, that’s sort of a, the 10% is sort of a. Slick your finger and draw a line for Worthy. It’s a lot he owns. He’s got a lot of skin in the game as the owner founder too, so maybe I’d give him a half a point for that if I was manually scoring them. So anyway, the bottom line is, um, they do, they’ve had a tough year and they’ll have a tough year. They had a tough year last year. They’ll have a tough year this year, maybe a tough year next year, depending on what happens to new equipment sales and tariffs and, uh, pricing in the ag game in the us. Lot of farmers voted for Donald Trump, so, uh, I’m sure he’s gonna look after them. He’s that kind of guy. He looks after his people. I’m sure it’s gonna be beautiful. So it’s gonna be the most beautiful agriculture market you’ve ever seen [00:30:00] in the next, uh, little while, but old school dealership. Good business just with a tough time and therefore they’re cheap, but they score well for us. That’s Titan Machinery. Tony, what do you think? Tony Kynaston: look, I like them. It’s a, a Cameron: I. Tony Kynaston: buying opportunity, isn’t it? we can buy them for, um, steep on in terms of their operating cash flow, which is always good to see. Um, if their debt debt is increasing, then um, they’ve probably got the cash to work through that. by the numbers you’ve just mentioned. Uh, interestingly enough, their equity per share is still pretty good. So if they, oftentimes if you see a company dramatically increased debt, then the equity suffers, but doesn’t seem to be too much of a drag for this company. So that’s still a good thing. Um, look, negative EPS. Forecasters of the forecast, they’re going through tough [00:31:00] times. Um, like they’ve got enough reserves to, to weather that storm. And you know, from sort of cyclical companies I’ve seen before, it sounds like they’ve probably got a an overhang of inventory. Like the tractors, they can’t sell and they’re combine harvests, they can’t sell. And that’s a bit like a pig working through a python. So you’ll see a big bulge of, of, of stock move through the business and get stuck, and then eventually get. Discounted and sold. And before they take on new stuff, they’ll be, um, they’ll be selling their old stuff. So it, it should work itself out within a period of time. Whether that’s one year, two years, I don’t know. I dunno, the or the industry well enough, but, um, that that’ll be a problem that they’ll chip away at, get rid of. Um, may have the reverse problem if suddenly things come good in the farming industry that they haven’t got enough tractors to sell, but. Well, they’ll worry about that when it happens. But, um, yeah, it’s, it’s, to me it’s sounding like short term [00:32:00] problem is a buying opportunity. Um, it’s, it’s hard to say though, because we are in the new world of tariffs on their imports and farmers doing it tough because of, uh. Uh, costs are cost rising for them being able to pass it on to their customers. So I, I suspect it’s, it’s a bit of a turmoil, but is it gonna be a turmoil for the next 10 years? Possibly not. And, you know, both the farmers and this company will write it out. I would think. Um, certainly been well run so far. Like you said, as a founder, uh, with skin in the game, he would be very experienced at downturns in the ag industry. It’s not like it hasn’t happened before, and we’ll know exactly how to trade through what I would’ve thought. Cameron: Yeah, from my perspective, I agree with everything you said and it, like, there are going through a tough period, but it’s not of their own making. From what I can tell, it’s general macro economic pressures on the business, but outside of that seemed to be a very well run [00:33:00] business, double their revenue in the last five years. Um, you know, they, they’ve, and were profitable, uh, through all of that time, like their net profit. From 2020 through to 2025 was 14 million in 20, 20, 19 0.4 million, 20 21, 60 6 million in 2022, 102 million in 2023, 112 million in 2024, and then the pressures kicked in and it started to go backwards in 2025. As I said. And those were boom years, as I said, with some of those like 21, 22, 23. So that explains some of that increase. But, um, taking your net profit from 14 million to 112 million in four years, five years, you know, not a bad, not a bad business. They seem to know what they’re doing. Tony Kynaston: Yep. I agree. Cameron: All right. Well, uh, that’s all right. Now we’ll cut to is our tradition at the [00:34:00] end of our shows, after we finish talking about investing, we do after hours where we talk about books, music, film, tv, travel, golf, horses, kung fu. My abs, um, everything, anything else that people wanna know about. So let’s talk after hours. Tony. Marker Cameron: you’ve got a couple of interesting shows in your list of notes. Tony Kynaston: Yeah. So two in particular, uh, the man who fell to worth. The old, uh, David Cameron: The original, Tony Kynaston: The Cameron: classic. Tony Kynaston: yeah. I Cameron: Nicholas Rogue. Tony Kynaston: hadn’t, seen it since it came, since I saw it in the theaters when it, uh, probably its second time round, I think. I think it Cameron: Mm-hmm. Tony Kynaston: been R rated, so I don’t think I would’ve seen it the first time round. Um. Cameron: funny ’cause I was thinking about that movie just last night before I got your notes as I was shaving around my nipples and. I was thinking of the scene where he slices his nipple off and I [00:35:00] was thinking about that film and then it was in your notes. How weird is that? Tony Kynaston: I’ve got your bathroom bugged probably. Cameron: Uhhuh? Tony Kynaston: no, I um, yeah, but I, I loved it. Um, it’s, it’s Cameron: It’s great. Tony Kynaston: lynch in it, in its style. In that it’s, Cameron: And I remember, Tony Kynaston: does have a Cameron: sorry, I was going, Tony Kynaston: Yeah. Cameron: I remember reading an interview with Bowie, you know, late in his life saying he could, couldn’t remember anything about making that ’cause he was so high through the entire making of it. He had no recollection of it whatsoever. I. Tony Kynaston: Yeah, so I, I, what I wanted to say as well is it’s on SBS, so it’s, um, you can watch it there with a few ads, um, I’m finding SBS to be a treasure trove of quality movies. Um, they’ve got a. A section out there at the moment called the Oscars, and it’s probably about 70 really, you know, great [00:36:00] movies that, that, um, a couple I haven’t seen before, so I’m gonna go back and watch those. But, um, yeah, it’s a real, it’s my go-to destination for movies at the moment. I. Cameron: We’ve been watching The Handmaid’s Tale on SBS the final season of that, I should say. We hate watching it ’cause we kind of hate it right now. It’s so terrible, the writing, but we’re determined to finish it. I think we’ve got one episode left to go, but we’re just, we’re just being snarky through the whole thing now. Just hate watching it, which is fun in its own way. But I did see, uh, like all of these greater var. Films that they’ve got on there, all of his collection. And there’s a bunch of his I haven’t seen. And the ones that I have seen, I watched probably in the nineties. And I say that kept saying to Chrissy, we, we need to, I mean the ads piss me off on SBS, they’re the worst ads, and they repeat them constantly. It’s really, I dunno why the advertising is so terrible on SBS, but that aside, uh, yeah, good, good curated collection of content. [00:37:00] They seem to have. Tony Kynaston: And then, uh, the other movie I watched last night actually was The Apprentice. It wasn’t on SBS, it was on Stan. Um. And I’m loving it. I mean, Jeremy Strong’s fantastic is Roy Cohen, it’s, it’s basically the Donald Trump origin story, which is, is super industry Cameron: Hmm. Mm-hmm. Tony Kynaston: what he learns from Roy Cohen, the rule, the Roy’s three rules, rule one, attack, attack, attack. Rule two, admit nothing. And rule three uh, you never have a defeat. It’s always a victory. Cameron: Mm-hmm. Tony Kynaston: And, that pretty much sums up the playbook for Trump. Cameron: Yeah, Roy Cohen was the, well, one of, one of several guys behind him that helped catapult him, but uh, played a big role in helping him develop his strategy later in life. Yeah, well, through his real estate career too, but he’s turned it into politics as well. Tony Kynaston: Yeah. It’s an interesting sort of vibe for the movie. It’s, it’s set back in New York in the, probably the seventies, I’d say, before it [00:38:00] was cleaned up. So, you know, it’s, um, it’s, it’s. I think they’ve even adopted that sort of style for the film. It’s grainy and it’s, you know, lowly lit and, and all that. But yeah, very of its time. Cameron: Hmm. No, I’ve been looking forward to seeing that the, the guy who plays Trump in it too, I can’t remember his name. Stan something. Tony Kynaston: I don’t, I can’t remember his Cameron: Sebastian Stan. Sebastian Stan. Yeah, he’s done a lot of superhero movies. He’s looking like the Captain America things. But before that, when he was quite young, um, he was in a series that I can never remember the name of, but, um, star Ian McShane. So after Deadwood, there was this short-lived series where Ian McShane played the King of America. It was sort of an alternate reality thing. Tony Kynaston: uh, American Gods Is it? It’s the, Cameron: No, no, that’s where he plays a God. Tony Kynaston: Neil Gaman wrote. Cameron: No, Tony Kynaston: Man in Cameron: that one. Tony Kynaston: the High [00:39:00] Castle. Cameron: No, he’s not in that. Um, it’s called like butterflies or something. Hold on, I’ll tell you. Um, it only ran maybe two seasons. Kings. There you go. It’s loosely based on biblical story of King David. But said in Modern Day America. And, uh, anyway, Sebastian Stan plays his son in it, who’s sort of raised to be the heir to the throne, but he’s closeted homosexual and very sort of weak. And Ian McShane’s this brutal, uh, magnate, but he, the, the, it’s one of these weird shows where the writing is very good, very sort of Shakespearean, Macaulay Culkin was in it too. But, um, really well done. Check it out. If you ever get a chance, um, well, well worth a watch. [00:40:00] Um, but yeah, Sebastian Stan is good. Like I really thought he was a great actor in that. And then he went and just sort of, I won’t say wasted his life doing superhero movies ’cause I’m sure he got paid a lot of money. But Brian Cox is in it too. Um, from succession. Um, he plays the. Previous king who had been overthrown in a coup, and Ian McShane keeps him in like a, a prison. Everyone thinks he’s dead, but he’s really alive in this secret prison. And Ian McShane will go visit him every now and again with a very expensive bottle of scotch and they’ll just sit there and drink and talk about, I think he was like a, they were old friends that have known each other forever and he had to depose Brian Cox and they sit down and they have a little heart to heart about how to run the kingdom. Anyway. Yeah. Well, I’ve watched, I’m halfway through watching a 1984 low budget sci-fi film called Night of the Comet, which is set in la um, [00:41:00] lo I read it Mabb. It was shot for $700,000 and made 14 million when it came out. So a huge financial success, very low budget, sort of apocalyptic end of the world zombie thing. But fun. I just love, it’s like low budget, early eighties sci-fi movies. Yes, please. That’s for free. There’s a lot of things on YouTube that are free, like these old sort of bargain basement VHS films that are to totally in my wheelhouse. But the thing I wanted to talk to you about is, uh, over the weekend, for some reason, again, on YouTube, I watched the whole. Ali versus George Foreman fight in Zaire, the Rumble in the Jungle, Tony Kynaston: Okay. Cameron: which I haven’t watched for years. Oh, so good. So good to watch. Have you ever sat down and watched that? Tony Kynaston: The Roper Cameron: Oh, Tony Kynaston: Absolutely. Cameron: Roper dope. Tony Kynaston: Mm. [00:42:00] And Cameron: Ali. Tony Kynaston: is just my favorite documentary Cameron: Great, Tony Kynaston: brilliant. Cameron: great doc. I remember showing the twins that when they were probably Fox’s age. Yeah. Such a great documentary. I asked Hunter if he remembered watching it. He was like, nah, I dunno what you’re talking about. But yeah, great documentary, but watching the whole fight all eight rounds and just Ali 30 33 I think, and Foreman was 24 at the time. Ali just comes out, right? The commentators are saying, well, Ali’s gonna have to, he’s gonna stay away. Foreman hasn’t gone past two rounds in any of his boxing matches. Ali’s gotta just try and dance away from him and not let him hit him. Bell rings, Ali just leaps in there and starts throwing jabs and going at him and then getting in tight. And as we know from the documentary, just, is that all you got, George? Tony Kynaston: the roper do. I mean, Cameron: Gets [00:43:00] him angry. Tony Kynaston: the Cameron: Yeah. Tony Kynaston: great ‘ cause it. He talks about Ali walking past foreman training every day and seeing, seeing foreman tearing into the punching bag and then just getting tired and every Cameron: Yeah. Tony Kynaston: Ali’s going, that’s how he’s, I’m gonna beat him. Gotta make him tired. Let him hit me until he. Runs outta steam, which it like, you know, just imagine it’s, it’s almost like the Garden of Gethsemane, isn’t it? It’s like, you know, I know what I’ve gotta do, but this I’ve gotta get pummelled by. I’ve gotta go through rounds of train wreck of, of car crashes before I get to, you know, where I need to be to beating. Must be incredible Cameron: Yeah, Tony Kynaston: do that and physical Cameron: just keeping, keeping his arms up and just taking the body shots. He did take a few hit blows to the head, but a lot of bo, mostly body shots and uh, yeah. Tony Kynaston: Who Commentated, was it Cosell? Cameron: I think Cosell is, there’s a, and Joe Frazier is one of the commentators. They got a whole panel of Ken Norton? No, no. Ken [00:44:00] Norton came later. I don’t know. There’s, there’s a couple of other Ali victims that are on the panel, but, uh, yeah, just, and then just watching the last seconds of the eighth round when I think there’s like 20 seconds to go in the eighth round. And Ali just, just. Explodes off the ropes and just hits him with a couple of jab hook combos and lands one, and that’s it. He’s down. It’s just magnificent to watch. It’s really great. Ali’s last great hurrah, really? Tony Kynaston: Hmm. Cameron: Um, yeah. What a, what a what a what an athlete he was in his day. And an an interesting human being too. Tony Kynaston: Mm. Cameron: I read his memoirs many, many years ago. I was in my early twenties, I think. Really enjoyed those. Alright, well, uh, it’s not quite two 30, Tony. Um, should we check the news? it’s not on Reuters, [00:45:00] Google News. The Reserve Bank has delivered its third interest rate cut of 2025 with a 0.0 0.25 percentage point reduction at its August board meeting, so you successfully, incorrectly, deliberately predicted it. Tony Kynaston: Yeah. Cameron: Yeah, you predicted a cut last month and they didn’t, so this time you predicted No cut. Just so they would do it to spite you. Tony Kynaston: it’s, Cameron: Outta spite. Tony Kynaston: hard to find a friend who gets things a hundred percent right. But it’s still equally as valuable to find someone who gets things a hundred percent wrong. They, they’re usually easier to find. Cameron: There you go. Yeah. Yeah. Why are you looking at me when you say that? Tony Kynaston: I have Cameron: Um. Tony Kynaston: on the screen. Cameron: Yeah. Yeah. Alright. All right. Well, that’s all we’ve got for this week of QAV America. Uh, thank you Tony. We’ll see what we’ve got next week. Tony Kynaston: thanks Cam. And I’m looking forward to Titan going up tenfold after you’ve done a pulled pork on it, just like some of your other stocks. Happy Nasdaq everyone. Cameron: [00:46:00] Yeah. Yeah. Happy Missy. Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. 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Aug 14, 2025

48m
9

QAV America 17 – Gray Gold: Finding Value in America’s Forgotten TV Empire (GTN)

In Episode 17 of QAV America, Cameron and Tony dive deep into the murky waters of the US media landscape with a pulled pork on Gray Television (GTN) — a classic “cigar butt” Berkshire-style stock that’s generating mountains of cash, trading at absurdly cheap levels, and doubling down on local television and film production while Wall Street yawns. They dissect Gray’s sprawling empire of local stations, film studios, and sports networks, and discuss how its political ad revenue, cash flow, and real estate assets might be wildly mispriced. Along the way, they contrast value investing orthodoxy with their QAV system, explore commodity trends, and reflect on the ideological decay of US political and corporate culture. It’s old media, new math, and some good old-fashioned cynicism. ⸻ ⏱️ Timestamps & Stock Mentions: • [00:00:00] Introduction and banter about speaking pace, US markets, and ideological denialism in politics and business • [00:03:00] 📈 Portfolio Update • QAV US portfolio 30-day: -1% vs S&P500 +1% • 12-month: +19% vs +18% • Since inception: +56% vs +42% • WLFC (Willis Lease Finance Co): former star performer • [00:04:30] 💰 Commodity Trends Update • Iron ore, coal, copper, platinum, etc: many become Josephines • Gold, lithium, steel: remain buys • Wheat, nickel: now sells • [00:05:45] 🚫 Stock Sale: ENOC (Enochian Biosciences) hit Rule 1 • [00:06:10] 🐷 Pulled Pork: GTN (Gray Television) • TV empire with deep assets and hidden value • [00:29:00] 🧠 Discussion on cigar butt investing, M&A potential, market sentiment, and why now might be the time to buy • [00:33:30] Speculation about Skydance, Paramount, and future acquisitions • [00:34:00] Wrapping up – final thoughts on GTN and QAV philosophy Transcription   [00:00:00] Cameron: Welcome back to QAV America, Tony, episode 17, recording this on the 5th of August, 2025. We talk too slowly to somebody on YouTube, Tony Kynaston: Really. Cameron: so can you, can you speak faster this time, Tony? Tony Kynaston: I Cameron: Uh, well, not fast enough for this person on YouTube. have you been? Tony, you’ve been following the US market, you’ve been reading the Wall Street Journal this week, Tony, Tony Kynaston: I have, yes. Read the Wall Street Journal every day. At Cameron: what have you learned about the US market from the Wall Street Journal this week? Tony? Tony Kynaston: don’t learned this week. Cameron: Yes, Tony Kynaston: it’s a Cameron: yes. Tony Kynaston: Taught to us Cameron: Yeah, as we were talking about in our last show, uh, as people may or may not know, I’ve spent the last 20 years doing mostly history related podcasts and a lot of it on, uh, Soviet [00:01:00] Union and the Cold War. And it is very reminiscent of, you know, uh, an ideology based state like, uh, Soviet. Union under Stalin or uh, communist China under Mao, where you have a particular ideology and messaging that you wanna convey. And if the facts and the data don’t map neatly to that ideology, you deny it, you ignore it, you arrest the people that are promoting it, and, uh, make sure that you end up with a. With a culture, with a society where everyone is too scared to speak the truth, and they just say things that they feel they will be rewarded for, and that’s the problem. You, you, you, it’s a slippery slope then into a society that ignores, uh, facts and data. And, uh, it’s not, it’s not a good thing for society. It’s not a good thing for [00:02:00] industry. It’s not a good thing for business. It’s not a good thing for investors. Uh, so yeah, hopefully this trend in the US gets, uh, turned around at some point   Tony Kynaston: is never a good And I’ve seen it, and it’s kind of a corporate approach to things too. I Cameron: Mm-hmm. Tony Kynaston: plenty of times in big businesses where a boss wants a number when you come to your results, you hit the number by all call Cameron: Mm Tony Kynaston: even if Cameron: mm. Tony Kynaston: sometimes. So, uh, Yeah. no, Cameron: Yeah. Well, um, I think I will just do a quick portfolio update, uh, for our US portfolio. I did have a look at it this morning. And let me see. For the last 30 days, our portfolio was down 1% versus the s and p 500, which was up 1%. For the last 12 months, our portfolio is up 19% versus the [00:03:00] s and p 500 up 18%. And since inception, for our portfolio, which is September, 2023, we’re up 56% versus the s and p 500, up 42%. And as I said to you on our last show, you know, one of the. Well, the big, uh, success in our portfolio is Willis Lease Finance Company, WLFC, which it, by the end of last year was up like 300% since we bought it. It’s come back about 30%, so now it’s only up about 200% since we bought it. But a lot of the, uh, retreat in our portfolio this year has been Willis Lease Finance Company giving up. Its 300% returns down to 200%. So our portfolio. This year looks like it’s been going backwards, but really it’s just giving up some of the gains that had, that had already amassed last year. Still 56% versus 42% for the s and p 500 is, is a nice return in September 23, so like not quite two years, but almost two [00:04:00] years, nearly a 60% return. It’s pretty good, right? just on a commodity update this week, for people who are new to our show, when we’re investing in commodity stocks, which is a big thing in Australia, we tend to look at the underlying, uh, performance of the commodities that the companies are built on top of. If they’re a gold miner, we look at the gold commodity or iron ore or coal. There was some cha, there were some changes when I looked at the commodity graphs this week. Iron ore has become a Josephine, um, for new QAV listeners, that that means that it’s in a by state, but it’s declining. Uh, so the price. Today is lower than the price was at the end of last month. Yeah, end of the month was only a couple of days ago, but it’s retreating a little bit, but still in a buy state technically. But we’re gonna, we would wait if, if we had an iron ore stock that was a buy on our buy list. If the underlying commodity is a is a Josephine, [00:05:00] and I called it that because I’m a Napoleon buff, and Napoleon famously. Supposedly said, not tonight, Josephine. Um, gold is a buy. Thermal coal is a Josephine Coke, and Cola is a buy. Crude oil is a Josephine Copper is a Josephine. Uh, wheat is a cell. Nickel is a cell. LNG is a Josephine Platinum’s. A Josephine aluminum’s. A Josephine zinc’s. A Josephine tin is a Josephine Steel is a buy. However, lithium is a buy, so there’s been some changes this week. Iron ore, coal, platinum, aluminum, zinc, all became josephine’s this week. Nickel became a cell and wheat became a cell. They were the big changes for this week. So if you’re holding any stocks that are nickel or wheat based, you might want to think about stealing those, not financial advice. Do your own research also in a portfolio. Last week I sold a stock for the first time in a long time, I had to sell [00:06:00] Enoch. Um. Which I think I did a pulled pork on a little while ago. They became a rule one sell and an advanced Rule one sell too. They dropped 20% below the price that we bought them at, so I let them go and I replaced it with the company that I’m gonna do a deep dive of pulled pork on today, which is GTN Tony, and I’m quite excited about this one. Like the company I did last week, this is strikes me as another Berkshire classic Berkshire type company. Kind of out of favor, little bit boring, but generating a lot of cash. Uh, seems to have a bit of a moat and, um, we’ll see what you think after I deep dive. So I. Tony Kynaston: these. I. like these Berkshire [00:07:00] stocks. Cameron: Yeah, me too. And it’s interesting to see them, um, in the, in the US market because we, you know, we don’t, I mean, maybe we do have a lot, I mean, we have a lot of sort of in the, in the Australian market, companies that are certainly outta favor on our buy list all the time because they’re dirty mining companies. They’re digging up coal or they. In oil or things like that. And so they’re not ESG friendly, but we, we don’t tend to get a lot of businesses like this one. We do have some television networks. It’s in old media companies that pop up from time to time. GTN is gray television. There are, they call themselves a multimedia company. They’re really a television business with some add-ons. But I nearly bought this a year ago, July, 2024. For our US portfolio. And then you talked me out of it. ’cause it had a bad Zed score. That’s when we were still paying attention to ZED scores. It [00:08:00] was a good call though. ’cause at the time I was trading at $5 51. Today it’s $4 46. So glad you did talk me out of it, but now we we’re ignoring Zed scores. It’s back on the buy list. And I did add it last week. It has since become a Josephine at the end of the month. I will just call that out. So it’s price. Uh, this morning was $4 46. At the end of the month it was $4 51. So it’s slightly below that. So I wouldn’t buy it today, but it was okay when I looked at it, uh, late last week. But who are they? Gray, as I said. Yeah. Tony Kynaston: I, I what josephines, not Josephines, because, um. The long term trend might mean it’s a buy, but we can probably buy to a better price if it’s slower than what it was, but it closed out at the end of the month, So that’s the reason for looking at the short term trend as well. the short term trend is higher than the end of the last month, then the [00:09:00] upward trend is still intact and gives you, gives me more confidence that the momentum’s behind this stock. ’cause if it’s down, even in the short don’t know whether it’s a Cameron: Which makes you different from a classic value investor who just believes that if it’s a good company, you buy it regardless of the sentiment, regardless of what’s happening. You, you’re a little bit more sensitive to sentiment because as you said, you can. If you can buy it cheaper tomorrow or a week from now, why not buy it cheaper then? Tony Kynaston: Um, the classic value investor would hold it and just say, look, Cameron: Hmm. Tony Kynaston: got it wrong and it’ll wake Cameron: Hmm. Tony Kynaston: to itself. But like, you know, my is that can go on for a long time until the market. the stock and comes to its senses and I can better deploy my cash somewhere else in the stock, which has sentiment behind it, but still is less than I ascribe to that company. And I may as well put my capital to work go to work. Cameron: Yeah. Unlike [00:10:00] Buffet in, you know, late, late era buffet, late stage buffet, let’s call it that. It’s not like we struggle to find things to buy. As we talked about on this show last week, there’s. Plenty to buy in the US market, in the Australian market. And over the years we’ve been doing this show, there’s only been a handful of occasions that I can remember when we couldn’t find anything to buy, usually after a major market crash or, you know, um, what do you call it? Let’s re uh, re re something. Um, the market’s itself, a market reset. Tony Kynaston: major like COVID. And even those, and even those periods don’t last, haven’t lasted since we’ve been doing the show for very long. During COVID, it was, uh, a month, maybe month and a half. Um, you know, we haven’t been through anything like the GFC necessarily when it might be longer or like a really major reset, but anyway. Cameron: Okay. Gray, um, headquartered in Atlanta, [00:11:00] Georgia, just up the road from my father-in-law in Augusta. According to their website, they are the nation’s largest owner of top rated local television stations and digital assets in the United States that serve 113 television markets reaching approximately 36% of US television households. This portfolio includes 80 markets with the. Top rated television station and 100 markets with the first and or second highest rated television station. So, um, they go back to the fifties. Um, oh. The newspaper man called James H. Gray bought a TV station in Albany, Georgia, called WALB tv. Then he started adding more stations and they’ve continued to expand ever since, particularly in the last decade, they’ve bought a bunch of businesses.[00:12:00] Uh. Interestingly, they’re sort of their headquarters now in Atlanta, Georgia is a thing they called Assembly Atlanta. This was an old General Motors assembly plant for decades. It went outta business, I think in 2014, something like that. The site, which just huge. It’s like 165 acres. They flattened it. They’ve built their, basically like a mini Hollywood. They’ve got studios and back lots and parks for the public to come. And it’s like this whole sort of Hollywood in Georgia kind of thing, which they see as not only where they produce a lot of their. TV content that other people can come and produce content there. So it’s sort of the cornerstone of what they’re doing. Assembly Atlanta, and they’re doubling down on [00:13:00] television and film production, which is interesting. You know, it’s obviously a. Difficult time. We’ve obviously seen the announcement in the last couple of weeks that Paramount is, uh, shutting down what is it? Is it the, the, the Late Show? The Late Show. it’s the old Letterman show. I think Steven Colbert has, it’s the Late Show. I think Kimmel’s got the Tonight Show, not Kimmel, the other one. Jimmy Fallon. Yeah. Anyway, Stephen Colberg show whichever one it is and they’re saying, ’cause it’s not making money. Some people don’t believe that. They believe it’s more political than fiscal. But anyway, I mean, I think it, it’s a truism that the big TV networks are struggling in the era of streaming and TikTok and fragmentation of eyeballs and attention and all that kind of stuff. But these guys are doubling down so interesting. Um. [00:14:00] Th in 2019, they purchased a company called Racom Media, which owns multiple stations and also has a thing called Racom Sports, which is a long running sports production business, goes back to 1979, produces live events and original programming for college football, uh, college, uh, sport over there, which is a big thing in the US as we know. In 2021, they bought a company called Quincy Media, which is a Midwestern station owner, um, gives them more coverage in small and mid markets in the Midwest in 2021, they also acquired Meredith’s local media group, which added 17 TV stations and increased their national coverage. They have a brand called Tupelo Honey, which I assumed was named after an old Van Morrison song, but no, apparently Tupelo Honey is a real thing. It’s honey that, uh, comes from trees called Tupelo Trees. Uh, but the founder of this [00:15:00] business, Tupelo Honey, named it in honor of his wife, who was from Tupelo, Mississippi, and he referred to her as his Tupelo honey. Named the business after that. But it did get me listening to Van Morrison all morning while I was, uh, preparing my notes. So that was, that’s never a bad thing to listen to Van Morrison in the morning. Yeah. In 1969. Yeah. Or 71 or whatever. 71. I think that album came out. He predicted, uh, gray Media in 1971. People. Oh, honey, is a sports and entertainment production company again, that fo focuses on live events and also connects fans with athletes and brands. So I think they kind of do deals with big sporting stars and do branded content and um, you know, entertainment programming, all that kinda stuff with them. They also own a brand called Power Nation, which is an automotive. How to brand for car Enthusiast [00:16:00] shows they own a company called, well actually they just announced they’re buying a company as long as it doesn’t get blocked. Uh, called, uh, block Communications. Let’s hope Block Communications doesn’t get blocked. It’s a family owned media company. They’re in the process they just announced a couple of days ago. It owned stations in Kentucky, Illinois, and Ohio. It says pending re regulatory approval, which as I understand it from the, uh, paramount, uh, deal means, uh, a cash donation to the, uh, Trump Library. Uh, they also own third rail studios, which is a perfect. Yeah, professional film, TV facility. Um, it was acquired in 2021 and then folded in. It has sound stages and production infrastructure. So they own all of these TV media production assets and locations and stations. Their business model is based around a couple of things. Um, obviously [00:17:00] selling advertising into all of these local markets, local advertising, car dealers, hospitals, supermarkets. News and sports, but also on even years. Um, political advertising got a quote here from one of their executives, um, which is political advertising revenue in even years is typically five to six times higher than odd years. ’cause they have the, the midterms and the presidential elections. Right. Um, and this will, this will show up when, when I do the numbers later on because 2025. It’s not an even year. So their numbers for this year aren’t gonna be as good as they were last year and might be next year. Now, the revenue for next year is based on the assumption that there will be midterms. You know, I’m skeptical about that. Um, I, I don’t think the US is gonna have another election [00:18:00] for many years to come, but we’ll see how it plays out. However, we, we can’t predict, so we’re assuming that business will be business as usual, so they make money out of all of that. They also have retransmission. Content or retrans as it’s called in the lingo. I think this is, uh, the payments that they get from cable satellite and streaming distributors to carry the programs and the channels that they produce. And the good thing about that is that it’s contractual recurring revenue. It’s not based on advertising. Doesn’t really matter. Where the economy’s at, it’s not based on political advertising cycles. Advertising revenue can be lumpy depending on where the economy’s at, where the jobs numbers are at. And of course, if you don’t like the jobs numbers just fire the person that came up with them. Um, but they have this contractual revenue, which helps smooth out the bumps. They also sell production capacity. They have the ability to make shows, film, live [00:19:00] events. Um, I remember when, um, we were in, when, when we were, when were, when were we in Vegas with, with Ray and Markum? Like 2015. No, I, it was during Trump. I know Trump was still in the primaries for his first campaign. ’cause I remember having an argument with Markham about that. Markham was like, he will never win the Republican nomination. You don’t know what you’re talking about. And I was like, I don’t know man. And I rubbed that in his face every chance I get. so yeah. Tony Kynaston: Toronto was the, the head of Democrats abroad Cameron: Well, he is not from Toronto. He is from, he’s, well, he was living in Washington, lives in Toronto now. Yeah, yeah, yeah, yeah. Well, I don’t think it’s there, but yeah, somewhere else. Anyway, [00:20:00] um. They, they’ve, I, I, my point was gonna be, there was a guy there with us whose name I can’t recall, one of, one of the listeners to my Caesar show or my Napoleon show or something, who was a director for one of these live sports production companies. That may have been one of these, but I know he would just travel round and shoot football games and baseball games and, and that kind of stuff. So these guys do that too. Yeah. So, um, the reason that they’re on the buy list or the reason is they’re generating a lot of cash and their price to operating cash flow is wait for it. 0.62. So that means if this was a coffee shop and we bought it, it would be able to pay us back in six months, seven months. Yeah. Um, which is ridiculously cheap to be able to buy a business. [00:21:00] Why is it cheap? And look, they are carrying quite a bit of debt. They’ve, they’ve, you know, leveraged all of these acquisitions, uh, and. So, you know, the market doesn’t like that sometimes. Um, and I think old fashioned tv TV production is not sexy. It’s not Netflix, it’s not, uh, TikTok. It’s not, uh, anything that’s got AI involved in it. But on top of all of that, they’re paying a 6.44% dividend. Um, so that’s good. The F score, the Petrosky Petro Roky F score, despite all of the debt, is eight out of nine. So very, very healthy, uh, financial score. And you’ll like this one too. The price to book is 0.17, the, uh, book per. [00:22:00] Yeah, the um, price is $4 97. The book per share is $28 53, so it’s, um, crazy cheap. It scores its ass off too when I run through the QAV numbers. By the way, the average daily trade is about seven and a half million shares, so, um, it’s quite a, quite a highly traded stock. With the Wikipedia numbers, the quality rank is a 67. We score it if it’s over 60, so it scores for that. The stock rank is 97, so we score it for that as well. Lemme just, I’m gonna bring up the real, the live numbers here so I can see it. Tony Kynaston: so that’s Cameron: Quality rank? Yeah. Stock rank is 97, so we scored over 90, so it scored for that. The PETROSKY score, the F score for, no, what I say eight. We score [00:23:00] it if it’s over four and a half, so it scores for that. Um. IV number one, our intrinsic value, number one, which is our EPS over our hurdle rate of 19.5% is $12 35. The price is $4 97. Well, I was when I did the, when I did my analysis, it’s 4 49 last, uh, um. Market close. So it’s uh, well, a third of the intrinsic, uh, first intrinsic value number roughly. We don’t have an iv. Yeah, usually the harder one. Right? But here’s the thing, it doesn’t have an IV two because the future earnings per share is negative. Um, net profit for this full year is, uh, supposed to be negative 82.8 million, but, you know, uh. That’s because it’s not an [00:24:00] advertise, it’s not a political advertising. Here is one part of it. Right. So I looked, I drilled into this a little bit. They’ve got big depreciation and amortization charges. They’ve acquired a ton of stuff in the last few years. They’ve got a lot of intangible assets as part of that, a lot of licenses and goodwill. Property, plant and equipment like towers and stages that are all getting amortized and depreciated over time. Um, non cash expenses, but it kills reported earnings with gap. So even if they’re operating, cash flow is solid and it is operating cash flow for. Yeah, last year, 2024 was 3.644 billion for this year. It’s gonna be down a little bit. It’s gonna be 3.173 is the expected. Um, but next year, again, a political, um, the midterms year, it’s back up to 3.638. So, um. Actually TTM is [00:25:00] 3.60. That’s probably carrying over some from last year. I’m not sure how that works, but bottom line is they’re making, uh, cash flow, but a lot of, lot of amortization and depreciation, which is gonna bleed through to their EPS interest expense is. They’re servicing billions in debt. Um, the 2025 interest expense is about 120 million, so that that’s gonna eat through profit even if the operating metrics look okay. Bottom line is strong operating cash flow, strong F score. The core business seems quite solid, but the profit this year is gonna take a hit. Um, we don’t have a, um, uh. Double forecast IV because there’s no IV two. Um, price is less than book. As I said before. It’s also less than book plus 30. Book plus 30 is, uh, [00:26:00] $37. Price is $4 97, so it’s scored for both of those. Book value growth is positive. Uh, obviously price to operating cash flow, it’s scored for that. The PE is two point. Oh six. The yield is 6.44, as I said before. So it scores for PE less than the yield. And the yield is higher than the current bank rates. I think I’ve got 6.3 I think for bank rates in the us so 6.44, so it’s above that as well. And it has a three point uptrend and um, a new three point upturn as well. So it’s scored for both of those. So the quality score, QAV quality score was 86%. The QAV score, 1.38, it just killed on all of the numbers. Um, and it’s kind of been on the buy list for a long time too, like even [00:27:00] though it’s, when you look at the share graph, it’s been declining since 2022. But it’s, uh, it’s generating tons of cash and it’s very, very cheap. So, I mean, there’s a lot of things that could go wrong with this being tv, as we said, et cetera. I mean, it’s probably not as affected by the tariff wars, although if the tariff wars have a bigger impact on advertising revenue and or if there are no midterms ’cause. Trump declares martial law, uh, or is just arresting, is they’re, they’re arresting all of the Democrats. Did you see this in Texas? The and, uh, in Texas yesterday they, Congress there tried to have a vote. They were going to do some, um, gerrymandering of the, of the. Um, districts there and all of the Democrats left the [00:28:00] state, so they couldn’t have a quorum, they couldn’t have a vote. And now the Texas governor has issued an arrest warrant for all of the Texas Democrats who left, but they’re all in New York saying, well, your warrant’s no good in New York, so good luck. Come and get us. So, yeah, who knows, things are gonna play out year in the us but again. We can’t predict. We don’t predict. based on the numbers, Tony? Tony Kynaston: value play. question for you, it’s based in Atlanta. Is that, is that coincidence or is it, is there some kind of history or tie up with, uh, Ted Turner and his network? C Cameron: Well, no, I said the, the founder of Graham. The founder of Gray Media, James H. Gray bought a TV station in Albany, Georgia back in 1954, WALB, and they, they sort of come out of that. So, [00:29:00] no, I think it’s, um, distinct from Ted Turner’s operation. Didn’t come up anywhere in my research, but yeah. Interesting. He was also based in land. Tony Kynaston: like you know, it oftentimes you find there’s a productive workforce to pick from who have already been trained in TV production. And so if you open up another production facility, you can tap into that. So that, that makes sense. Um, reminds me, I mean, it’s a classic cigar butt stock, isn’t it? It’s, yeah, it’s, it’s, um, it’s, prices declined quite heavily over the last five years, but it’s, it’s It’s had a bit of an uptick now, so maybe it’s found its level. Um, certainly there are a lot of. Headwinds in the television industry kind of reminds me of Seven West Media in Australia that we did. We covered on our Cameron: Yeah. Tony Kynaston: show a little while ago, and you asked me the time when I talked about it, why would you station? And know my [00:30:00] answer is because eventually the price is right and it’s, this one in particular is throwing off so much cash. I mean, you threw some numbers out there about operating cash flow, paying you back in six or seven months, which is just. Amazing. I looked up the numbers on stocked while you were talking. Even if you like operating cash flows, the metric and want to use free cash flow. ’cause as you said, you know, there’s amortization and depreciation going on with all the, the, um, takeovers. Free cash flow per share is still $6 33 and the share price is $4 49. So you’re still getting paid outta free cash flow. More than what the share price is, which is, you know, kind of unheard of and crazy I think. And I guess the market’s taking a bet that TV will keep declining, but, um. All the things happen in these industries when they go into decline. There’s consolidation that can happen. There’s a lot of merger activity. Even with Seven West Media since we spoke about it. You know, there was net parts of the network being sold off [00:31:00] and parts of other people’s networks being bought, et cetera, which supports the, the, the current industry. see it in any sort of industry in decline. It’s, there’s always one or two players who. Get left holding the baby and it can be turned into a, a profitable sort of, um, industry, even though it’s much reduced as an industry compared to what it was. Cameron: Mm. Tony Kynaston: you know, looks like it might play out in a similar sort of way. There’s so much cash. I guess the last point I’d make is, um, even though it’s got lots of debt. I can see it being paid down over the last couple of halves. So cash, cash cures, debt. if you have lots of cash coming in, you can pay down the debt. And uh, if you do that quickly enough and you’ve still got the cash flow, it’s a terrific business to be in. And the time to buy it is now, not, not when people wake up to the fact it’s paid down, its debt and, uh, it’s throwing off even amounts of cash flow. Cameron: Yeah, well I, unlike the one I talked about last week, this [00:32:00] one I have added to the portfolio, as I said, because they were high up on the buy list when I needed to add something. Thing this week to replace Enoch with. So, uh, let’s see how it goes. Um, see what they do with all of that cash, you know, and again, it’s, it’s sort of part of the QAV philosophy that if when you’ve, when you’ve got a company that seems to be well run, um, smart people running it, they’re generating a lot of cash that we trust that they’ll figure out what to do with it. Uh, you know, hopefully. Make the business bigger and better, or sell it to somebody else who’s gonna make it bigger and better, uh, at a premium. Or Yeah, who knows? Who knows who wants to come along And like, um, Larry Ellison’s son, Ellison, um, who’s buying Paramount, which owns CBS, like he was a [00:33:00] production company, um, who made a, uh, he got started making, uh. Documentary about himself, uh, because he, he likes flying planes. He’s a pilot and so he, uh, sort of, I think self-funded with his dad’s Oracle money, a documentary about himself, and then ended up co-producing Mission Impossible Films and, uh, now is buying Paramount. So Tony Kynaston: Skydance. Cameron: he’s Skydance? Yeah. Tony Kynaston: Right. Cameron: I think Ance was the name of the original documentary. Um, I think so, anyway. Yeah. Uh, you don’t, you know, which startup’s gonna come along and decide. They, they want a bunch of television networks and production facilities and cash flow and, and pick it up, so, Tony Kynaston: sports broadcasting now. I [00:34:00] Yeah. when I open up Apple and Amazon. They’ve got the latest NFL game on them. And, and so, you know, they’re business people, they’ve gotta say to themselves. Well, if we wanna get into college football, do we go out and create a network from scratch or do we go over to this company and make ’em an offer on their sports broadcasting unit? Um, ’cause it’s cheaper. So I think, I think m and a plays into this. Um, I, can’t predict, but, uh, it’s so cheap. You’ve gotta think that we’re not the only ones who are looking at it. Cameron: Well, that’s GTN and that’s QAV America for this week. Tony Kynaston: stock. Thanks. Cameron: Hmm. Thanks Tony. Have a good one. Tony Kynaston: All right. Bye. Sarah: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com. 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Aug 7, 2025

36m
8

QAV America 16 – Seneca Foods – A Classic Value Buy

In this episode of QAV America, Australian value investors Tony and Cam are focusing on Seneca Foods, a classic American company known for its packaged fruits and vegetables. They discuss Seneca’s financial performance, history, and why it’s a compelling value stock despite being considered a boring business. The hosts also reflect on other stocks they have reviewed recently, showing significant gains, and emphasize the ongoing potential to find undervalued stocks in the US market. The podcast aims to apply value investing principles to identify promising investment opportunities. 00:00 Introduction to QAV America00:57 Success Stories and Market Insights04:34 Highlighting Seneca Foods05:33 Seneca Foods: History and Operations13:00 Challenges and Financial Performance19:15 Competitive Advantages and Industry Overview20:21 Financial Performance Analysis21:35 Cash Flow and Investment Strategy24:05 Stock Performance and Market Sentiment28:59 Seneca’s Historical Context32:57 Investment Opportunities in the US Market37:03 US Portfolio Performance38:57 Disclaimer and Transparency Transcription   Cameron: [00:00:00] Welcome back to QAV America. Tony, this is, uh, for new listeners. Welcome. We’re two Australian value investors talking about the American market. We’ve been talking about the Australian market for years. We’re like, let’s broaden our horizons. Let’s, let’s start investing in American stocks as well and applying value investing principles. So each week on the show, we take a stock. That’s on our US buy list, and I do a deep dive into it. Let’s try and figure out why it’s turning up in our buy list, as we call ’em a pulled pork. But, uh, how have you been, Tony, since we last spoke 20 seconds ago? Tony Kynaston: Thank you. Are we called QAV Cameron: I, Tony Kynaston: now? Is that, do we have to change our name? it’s no longer the Gulf of, Cameron: yeah. Tony Kynaston: it’s, or QAV. Cameron: Yeah. Tony Kynaston: QAV Cameron: Well, originally we were, yeah, we were QAV Mexico, but then Trump said we had to change it to QAV America. Tony, a couple of weeks ago on this here [00:01:00] podcast, I did a deep dive on a company called Zep, Zep Health, Chinese Smartwatch Company. Within days of me publishing that their share price jumped up 400%. Um, so I’m not saying I’m a genius. But, um, Tony Kynaston: It’s Cameron: some people say I’m the greatest genius who ever lived, so that was an interesting one. Um, they have. The this, this smartwatch technology that we talked about sounded pretty good, but apparently within a few days of me publishing that they came out and said that they expect the 30% year over year revenue growth growth for the second quarter of 2025. This would be their first revenue increase in three years, and it was seen as a big turnaround. We did talk a lot in the Paul [00:02:00] pork about. Some of the structural things that they were doing and changing their branding. And, uh, they’ve also apparently signed a couple of prominent athletes, NFL running back, Derek Henry and Ultra Runner Rod Fava as brand ambassadors for a maze fit one of the brands that they market under. On Amazon, which as I said, makes you think that it’s associated with Amazon, but it’s not. It’s just something they sell on Amazon anyway, so we don’t hold them. Tony Kynaston: they had, low point price points, I think too, didn’t they? Which was their, one of their big Cameron: Very low. Yeah. We don’t hold them, uh, in our portfolio. I wish we did, but our portfolio was full. We didn’t have any capital left to allocate to them or I would’ve bought them, but I did. Uh, the reason I found this out is I put together a spreadsheet just tracking the stocks that, uh, I’ve done a pulled pork on that we don’t hold in our official portfolio. [00:03:00] And, uh, they’ve, some of them have done really well. Um, CX is up 49% since we talked about it at the end of March. That one Z is up 361% since we talked about ’em on the 11th of July. Some of the other big ones are Poco Holdings. Remember them? There was on the 1st of July. They’re up 20% since we talked about them on the 1st of July. Precision Drilling Corporation we did at the end of June. They’re up 12% IHS holdings we did at the end of May. They’re up 18% Canadian Imperial and Bank of Commerce is up 16%. Uh, Dan OS Corporation is up. 13% Greek shipping company. The one that hasn’t done as well was NL Chile. It’s down 20% since we covered them in May, but the rest are all doing quite well since we’ve covered ’em on the show, which. Is, you know, all jokes aside, just evidence of a couple of things. [00:04:00] Number one, the US market is kind of bonkers at the moment, so I think a lot of things are doing well over there. But also, you know, we are picking stocks that are, um, undervalued, doing good businesses that are undervalued, so we expect them to do well over time. Tony Kynaston: and if you, I mean, it’s a kind of almost like a law of physics if you give. A lot of cash to good managers. They’re gonna invest it wisely and make money for shareholders. So, uh, that’s Cameron: You hope? Tony Kynaston: you hope. Yeah. All things being Cameron: You hope? Tony Kynaston: should happen. Yeah. Cameron: Well, the stock that I’ve got for this week, Tony, is unusual in a couple of ways. Number one, it’s a NASDAQ stock. I think I said in last week’s show. We don’t tend to. Tony Kynaston: Can you, whisper it to me before you announce it so I can. a four bagger this week. No, we don’t front run stocks. We should say that. We don’t. We don’t Cameron: Yeah. What have you done? Tony Kynaston: it. Yep. Cameron: No, uh, it might be one of the ones that goes down 20% too. You dunno. [00:05:00] It’s a NASDAQ stock. We said last week that, you know, we don’t tend to get NASDAQ stocks a lot on our buy list. Technology stocks tend to be way too expensive for us, but this, for whatever reason, is an NASDAQ stock. It’s also sort of a classic Berkshire type stock. Hmm. Tony Kynaston: find it on the nasdaq, isn’t it? It’s, I couldn’t see the Cameron: I dunno why it’s on the nasdaq. Tony Kynaston: and this company. Yeah. Cameron: No. Well, maybe when it floated back in 1995 it was. Anyway, the company is Seneca Foods, and I think if you’re a North American listener of this, you probably know Seneca Foods. I asked Chrissy, my American wife, Hey, you know Seneca Foods. She was like, yeah, of course. I was like, okay. Um, they, they distribute all around the world too, so I’m pretty sure we’ve bought. Seneca Products had them here, but [00:06:00] they’re a, they’re a classic American company. Been around since 1949. Big into canning and food packaging. So beans, corn, fruit. Um. Anything that needs packaging. They’re the kings of packaging food and they’ve acquired a lot of different companies over the years. They’ve been around, but it’s, it’s, it’s like one of those classic Berkshire type businesses, unlike a lot of the companies that we’ve talked about in the last. Few months, you know, like weird fracking operations and, and walking, um, oil wells and, and, and mobile phone towers in South Africa and smart watches in China, et cetera, et cetera. This is a boring food manufacturing business. And as I just said to you on an Australian show, I did have a question for you about it ’cause it is a little bit unusual. It’s cashflow. Tri is a little bit unusual, but we’ll get to that [00:07:00] later. So their website, by the way, their tagline on their website is Farm Fresh Goodness made Great. I dunno if that’s a MAGA add-on. They’re making farm fresh food great again, or if they’ve had that pre maga, not sure Tony Kynaston: Uh. Cameron: but. The founding of it is a good story. Founded in 1949 by a guy called Arthur Walcott, art Walcott, who had just graduated from doing a degree in, uh, business and economics at Cornell University in New York. He went to an auction in Dundee, New York. Uh, actually hadn’t graduated. He was a Cornell senior. He was looking for a good deal on a typewriter. He ended up buying a bankrupt grape juice plant instead, which apparently did own at least one [00:08:00] typewriter. So you buy the bankrupt company and you get the typewriter thrown in kind of deal. He must have seen something in it. Because he took it over and I think the first year it did like a hundred thousand dollars in revenue. Something small like that. Well, smallish but not bad. Tony Kynaston: big Cameron: And um, Tony Kynaston: though. Cameron: yeah, probably, yeah, would’ve been a lot. And he, but he turned it into an absolute monster company and he only passed away. In 2021, age 95, he was the chairman and president of Seneca Foods from 1949 to 1987, and then served as chairman of the board until he passed away at 95. So yeah, he sort of reminded me of a Charlie Warren sort of guy, been around, run his thing, stuck to his knitting, Tony Kynaston: it, Cameron: a good Tony Kynaston: out Cameron: [00:09:00] solo visit. Yeah. Yeah, yeah. Um, in the 1950s, Seneca contracted with Minute Made to co-pack the first frozen grape juice in the United States. And today they produce canned, frozen, bottled fruits and vegetables sold under their own brand and also through major retailers, private labels. In the 1990s, they did lots of act acquisitions and became for a period of time the world’s largest processor of canned vegetables. In 1995, the company went public. Today about 85% of their revenue comes from canned vegetables and fruits. The rest comes from pro frozen products, juices and snacks, and they have an EBITDA margin about 10 to 12%. Um, I told you about Walcott. He was married to his wife Audrey for 72 years. [00:10:00] Married her and bought the bankrupt grape juice plant in the same year, 1949, while still a senior at Cornell. Got back from World War ii. Um, went and studied, married her, and did his thing. The CFO of the company is a Michael Walcott. He’s also treasurer and senior vice president of the company. Not sure of the relationship, but judging by his photograph, I’m guessing he’s probably a grandson. Of the founder or maybe a very young son. Maybe he was, he and Audrey was still at it for a long time, and this guy’s his son, but he looks like he’s in his late thirties, early forties. Read a bit from their 2025 annual report. Seneca is a leading provider of packaged fruits and vegetables with facilities located throughout the United States. Its high quality products are primarily sourced for more than 1,100 American Farms. The company’s product offering [00:11:00] includes canned, frozen, and jarred produce and snack chips. Its products are sold under private label as well as national and regional brands that the company owns or licenses, including Seneca. Libby’s Green Giant, aunt Nelly’s, cherry Man, green Valley, and Reed. The company’s fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores, and dollar stores. The company also sells its products to food service distributors, restaurant chains, industrial markets, and other food processes. Export customers in approximately 55 countries and federal, state, and local governments for school and other food programs. Additionally, the company packs canned and frozen vegetables under contract packing agreements. Seneca Foods Corporation conducts its business almost entirely in food packaging, which comprised 98% of the [00:12:00] company’s total net sales in fiscal year 2025. Uh, already said the breakdown before non-food packaging sales, which primarily related to the sale of cans, ends seed and outside revenue from the company’s aircraft operations. Of course, why not rep, if you get enough tin cans, I dunno if you know this Tony, but you can make a plane. You get the tin cans represented 2% of the company’s fiscal year 2025 net sales. So. Tony Kynaston: Is that selling food to airlines to serve on the planes, or do they actually have an aviation Cameron: they, yeah, they bought an airline. I saw that in the notes somewhere. I didn’t, I didn’t drill down. It was small. I, I, I’m guessing it’s for, you know, moving stuff. Like they have their own integrated airline. Yeah. Something. There’s my, my guess, but I didn’t get into it ’cause it’s such a small part of their business now this is also, this is from the [00:13:00] chairman’s. Um. Report in their most recent annual report, fiscal year 2025 was challenging yet solid for Seneca Foods with net earnings of 41.2 million compared to 63.3 million the previous year. Major factors impacting profits include extreme weather during the planting and harvest seasons causing historically low crop yields. And ongoing inflation pressures. Additionally, significant tariff related cost increases, particularly for steel tin plate added substantial expenses. The severe weather, especially in Minnesota and Wisconsin, resulted in just 70 to 75% of expected crop volumes, forcing plants to operate below capacity inflating unit costs. However. Seneca leveraged plentiful inventories from 2023 to meet customer demand. Moving forward, the [00:14:00] company plans to operate at full capacity to rebuild inventories to normal levels. Steel tariffs remain a critical challenge. Since 2018, US domestic tin plate production capacity sharply declined forcing reliance on costly imports. Recent tariff increases from 25% to 50% will further elevate costs, inevitably passed on to consumers. Despite these headwinds, overall unit volumes rose, nearly 6% boyed by strong performance and branded retail channels, including green, giant products and new innovations like canned pumpkin, which by the way, you ever tried to buy canned pumpkin in Australia Tony Kynaston: haven’t, but we don’t do pumpkin pie, so I guess we don’t have much of it here. We don’t do, Cameron: while? Well, I, Tony Kynaston: Thanksgiving. Cameron: I do make pumpkin pie Tony Kynaston: good for you. Uhhuh, Cameron: for Thanksgiving. For Chrissy every year. Tony Kynaston: you are giving. [00:15:00] Thanks for Chrissy being here. Cameron: I am. That’s exactly what I’m doing. Yeah. Yeah. Tony Kynaston: you. Cameron: And I’m giving thanks to her country for letting her escape 16 years ago and come to Australia. Um, uh, but yeah, it’s, it’s the one thing, I started it years ago. It’s like, um. My small attempt at uh, Thanksgiving was her favorite sort of holiday in the US and so I try and recreate a little bit by making pumpkin goodbye and I’m bloody good at it too. But you over there they use canned pumpkin. We don’t have canned pumpkin here, so I have to get a real pumpkin and Tony Kynaston: it up. Cameron: it and puree it myself. Yeah. Yeah. It’s not a big deal, but yeah, you just can’t get tin pumpkin here. Chrissy’s always like, why is there no tint pumpkin in this country? I’m like, Tony Kynaston: No Cameron: We just have real pumpkin. Tony Kynaston: Yeah. Cameron: Yeah. Well, I mean, yeah, I guess pumpkin pie. I dunno what else you use tin pumpkin for, but yeah, Tony Kynaston: could, uh, you could Cameron: and pumpkin pie is a weird thing. Tony Kynaston: scones, couldn’t you? Cameron: It could. [00:16:00] Pumpkin pie is a weird thing if you’re not used to it. Like it took me a while to get used to savory dessert, you know? But I enjoy it now. I do a really low sugar one too. I used to buy one. There was a place in Brisbane that sold them. I used to buy it, and then they went outta business. So anyway, I had to make my own. Tony Kynaston: person who married an American. They’re like, Cameron: No, you had to order like six weeks in advance. If you wanted a pumpkin pie for Thanksgiving. It was like boom, boom season for them. Anywho, uh, moving right along. Uh, tinned pumpkin. Yes. The snacks and glaze fruit segments had strong years through though tariff induced price hikes on imported ingredients like. Pineapple and orange peel may impact future pricing. Seneca continues focusing on cost control, strong balance sheet management, debt to quality ratio at 0.62, and conservative liquidity strategies, positioning itself [00:17:00] to see strategic growth opportunities. The company maintains a robust workforce. I think they hire about. 27, 2800 people through competitive wages and significant investments in seasonal housing essential to sustaining operational efficiency. The president expressed confidence in Seneca’s long-term resilience, highlighting employee dedication and shareholder support, underscoring the critical role the company plays in providing nutritious, affordable food to consumers. One of the things that he did talk about is inflation pressures in the US driving consumers towards more affordable canned products. So their, their unit costs are up because of tariffs, but they’ve, they’ve sort of integrated them into their pricing and, uh, they think more customers are gonna be buying canned foods as Trump’s tariffs make everyone go broke. Um. There are, Tony Kynaston: did the Cameron: sort of a PR. Tony Kynaston: say that? Cameron: [00:18:00] No, that was, uh, I don’t wanna put words in his mouth, Tony. No. So why It’s cheap. Uh, you know, we’ve had a lot of crazy businesses that we’ve done Paul Porks on, um, over the last few months, and a lot of them are cheap for a lot of different reasons. This one. Hard to tell why it’s cheap from a value perspective, other than I think it’s just an old boring f. Food canning business, which is again, why it, to me just screams like a classic Berkshire Hathaway kind of investment. It did have a rough couple of years, which might have hurt it. Um, as he said, you know, they had bad crops. They, they were, they lost money for the last couple of years. They had to really dig in and support the business. Uh, they really had a great year in 2025, cashflow wise, profit wise, but it was [00:19:00] sort of a, a turnaround year, and I wouldn’t expect them to have that kind of year moving forwards. One of the things that they have done though, despite all of the challenges, is pay down nearly $300 million in debt. So that’s good. It’s reducing their, um, interest expense slightly, but they’ve got a lot of compe, you know, a lot of mo type compe. Uh, competitive, competitive advantages. Huge scale, very strong and old retail relationships. Vertically integrated operations, which protect it from volatility and supply chain costs to some extent. But it’s a mature industry. They don’t pay a dividend. They like to put the money back into the business, and they’re not sexy. You know, they, they don’t do, they don’t have an AI division, uh, they don’t have a chip manufacturing plant out the back. Um, Tony Kynaston: stock promoting them.[00:20:00] Cameron: no. Maybe we should, we should suggest that to them. Tony Kynaston: QAV Meme Stock America. Cameron: Yeah, well, just having it on this show is, is all it needs is Zep has proven, from a numbers perspective, the price to operating cash flow at the moment is 2.09. But this is what I wanted to ask you about. So I mentioned this earlier, so if I go over and look at their numbers in stock Edia, if I look at their operating cash flow from the last five years, so 2025, full year ending March, 2020 5, 330 5 million. If I go back to 2024, it was negative 83 million 2023. It was negative 213 million. 2022. It was plus 30.2 2021 plus 180 3 and 2020 plus 1 [00:21:00] 27. So it’s been a choppy five years. And the 3 35 is, is like the best year they’ve had in 10 years by a long shot. So I don’t expect them to do that again year after year. I mean, they’re not generating $335 million a year in cash flow. So whether or not their Pr/OpCaf priced operating cash flow will look as good a year from now or would’ve looked as good a year ago, probably not. But it does look that good right now. And so the one question I wanted to ask you is, if you’re looking at a company like this that’s had a rough couple of years, turned it around, had a really good year, but you know, and they’re forecasting that that won’t look like that forever. Do you discount the really good year or do you say a really good year is a really good year? And we’re looking at today’s numbers [00:22:00] and that’s good enough for me. Tony Kynaston: That’s exactly what I do. Um, again, this idea of if, if it’s a one-off year, um, look, I look, I might, I might pay attention if they sold something, for example, and that was. Uh, for some reason the assets went into cashflow. Doesn’t always do that. Usually goes into the balance sheet, but there could be some cases where they sold something, which did, um, that might sway me not to. But look, if they can generate this cashflow and they’ve through some bad years, which is probably the right time to buy them, frankly. Uh, ’cause it’s not like. Um, if they’ve been through the bad years and they’ve survived and now they’ve had a good year, that says to me that, uh, they can withstand bad years. And, um, so it’s, it’s, you know, buying when the going gets tough and then waiting for it to get better. And, uh, I take your point, this is a one off year for whatever reason. I think you mentioned off air that might’ve been because of inventory flows were a bit unusual. This year. So, [00:23:00] again, that might not happen in the future. Uh, but, but generally, like, it’s the, it’s not quite a law of physics, but you’ve got a company and it’s thrown off a lot of cash and the company is been around for a long time, it’s not gonna go broke. It’s got, as you say, moats. It’s pretty integrated into its industry. Um, and it’s got good management. Um. it’s either the son or the grandson or the founder. So they probably learned a lot about the industry along the way. Giving good, giving a high amount of cash to someone, like that’s probably a good recipe for them to invest it wisely. Uh, and so yeah, it might be a one-off, but yeah, if they could put that back into the business, they’re gonna grow sales, I would’ve thought And improve the business, or as you say, pay down debt. To improve the balance sheet. So I’m, I’m happy taking the one off cash bump, and, and not discounting it, you know, based on an average over a number of years or something like that. Cameron: Hmm. [00:24:00] Good. Well, I’m glad you feel that. Way, um. Some of the other numbers I said they’re not paying a dividend yield. Uh, the F score is a six, so that’s pretty good. Um, I wanted to just look at the Wikipedia numbers. They give them a quality ranking of 68. A value of 94, momentum of 68 and a stock rank of 93. So from our perspective, pretty solid stock edia numbers. If you look at the five year chart, uh, it’s been going up in a straight line since it bottomed out in the middle of 2023. Middle of 2023 was trading at $32, and today it’s around $102, just north of $102. So. Great time to buy. It would’ve been Tony Kynaston: Hmm. Cameron: middle of 2023. It’s gone up 300% since then, give or take. Uh, but despite [00:25:00] that still comes in very, very solidly with our numbers. Um, I’ve got some more quotes here before I get into the deep, deep before I get into the scoring. Um, let’s see what I’ve got here. The turnaround was driven by normalizing inventory levels, reducing working capital, drag and full monetization of the 2023 pack inventory that got them through the disastrous 20 12 20 24 season in FY 2023 and 2024 inventory built up. Buildup inventory buildup ate cash. But in 2025, they flipped that around 325 million realized from inventory alone, which was the biggest single driver of their cash surge. So it wasn’t magic, it was just they had the inventory and they pulled it out and they sold the crap out of it. So that’s good business, right? Tony Kynaston: [00:26:00] said prop calf was two, something like that, wasn’t it? Two times, Cameron: Mm-hmm. Tony Kynaston: even if, even if we average it over the good year and the bad year, and say you know, we should look at an average cashflow. It’s still gonna be a low prop cap. It’s still gonna be four or five times, I would’ve thought. So it’s still, Cameron: Low seven. Yeah. Tony Kynaston: it’s, it’s below seven. Cameron: Yeah. So not necessarily repeatable, that inventory reduction is a one-off event as they cleared stock, but it does, as you said, Lindsay puts ’em in a strong cash position where they can. Fund plant capacity or new acquisitions and they, they run a very tight operation debt wise as opposed to some of the businesses we’ve talked about recently carrying a lot of debt. So let me crack into some of the other numbers. Um. They don’t have a qualified audit. I check their most recent annual report. Positive Market sentiment has been for quite some time. [00:27:00] Average daily trade is about 6 million. So good liquidity for pretty much everyone. Price, fiber and cash flow 2.0. Six 2.09, something like that. Quality rank is a 68 outta 60, uh, sorry, a 68, which is above 60. So we give it a score for that. Stock rank is a 93, which is above a 90, so we score it for that. The F score is a six, so we score it for that. Priced, uh, is not less than intrinsic value number one. Our intrinsic value number one is $30 25. The price is around about 102, so it doesn’t score for IV one. There’s no forecast. EPS doesn’t have a lot of broker coverage, surprisingly to me ’cause it’s such a old and relatively large business, but no forecast EPS. So we don’t have an IV number two. Price is above the book, but lower than book plus 30. [00:28:00] Book plus 30 is about 119 and the price is about 102. So I did score it for that. It does have positive book value growth, it pa over the last few years. So it passes for that no dividend. So it doesn’t, uh, get a score for that. And the directors, from what I can tell, the CEO and the COO combined on about 6%. So less than the 10% that we want to score them for that. But all up they get a quality score, a QAV quality score of a hundred percent, 10 outta 10, uh, and a QAV score of 0.48. So very good QAV score. So that is Seneca. S-E-N-E-A is the ticket code. They just couldn’t fit the. Tony Kynaston: See. Cameron: CI couldn’t fit the C in. I tried, couldn’t get it in. How much do you know [00:29:00] about Seneca? The, well, the Seneca, the, the older or Seneca? The younger. Tony Kynaston: Uh, about as much as I knew about Seneca Food before you told me about it. Cameron: Well, I know quite a bit about the Senecas because you know, with the Caesar show that I do, we’ve talked a lot about, particularly Seneca, the younger Seneca, the elder, the father was, uh. Uh, philosopher slash rhetoric ion in ancient Rome lived through the reigns of Augustus Tiberius and Caligula, and, uh, you know, had a relatively interesting career and, uh, wrote a lot of interesting works that have, uh, survived, some of which have survived. But his son is the more interesting one. So his son was a very famous, stoic. Philosopher and was tutor to the Emperor Nero when he was a young lad. Hired to be his [00:30:00] tutor. And then when Niro became emperor, when he was, uh, 20 18, 20, something like that, Seneca became his advisor and basically ran the government for the first five years of Niro’s Reign, which is known as the golden years. Um, it was, everything was great, everything was going well, and then. Niro turned on him and Seneca also got himself into a bit of trouble. There was, uh, rumors of him sleeping around with people he shouldn’t have been sleeping around with, and there were suggestions that he was involved in some sort of treasonous plot and, uh, I think he ended up having to, um. Kill himself. He had to commit suicide. But uh, yeah, like a really interesting guy who tried to write [00:31:00] the situation in Rome in the early part of the empire. Tony Kynaston: Okay. Cameron: tried to bring a civilized approach to government for the first time since the death of Augustus. Really? And, uh, I dunno which one these guys named themselves after, but it, I assume the younger, but interesting to me when, Tony Kynaston: no. Cameron: Hmm, Tony Kynaston: Tin food in the Seneca household. In Rome. Cameron: yeah, yeah, they did, they did have ways of storing food, but. Uh, the company that we just talked about on the Australian show was called bgan. I guess after Rajni, these guys are called Seneca, I assume, after the stoic philosopher. So interesting. When you see companies that have deliberately chosen a very deliberate name, you imagine, to represent what they stand for in some way. Tony Kynaston: did wonder if they were based in Seneca, [00:32:00] New York, which is a town named after Sydney, I would think, but they may have just named it after the Cameron: Uh, interesting. Well, they were based up somewhere around upstate New York, so yeah, it could have been, could have just named themselves after that. And I’m reading too much into it. Alright, well that took the wind outta my sails. Thanks. Uh. Tony Kynaston: hypothesizing. I, I don’t know. Cameron: I dunno either. Anyway, check him out. Um, that’s, uh, Seneca, what do you think after all of that, Tony, as an investment? Tony Kynaston: as we said before, a lot of people wouldn’t get excited by that, but I thought it was a great, a great, uh, thing to pull apart when, uh, I saw it on the notes before the show. I got excited. It’s a kind of classic value business. Long history. The founders passed on, but the family still involved, so a lot of history in managing it. of moat and a lot of cash. Buy at two times cash flow. I’d be snapping it up if I was in the us. Cameron: You know, I, [00:33:00] you know, I follow the value investing subreddit and I, I see people post all the time on there that there’s no value buys left in the US they’re all talking about Google as being the value buy and that nothing’s left. Everything’s priced to perfection because of everyone’s got all the data and all the information. And we are finding these companies week after week that, uh, have. Just great, great numbers from our perspective. Like every week, I’m, I, Tony Kynaston: Niagara Cameron: I never struggle. Tony Kynaston: Yeah. Cameron: Yeah. Like the, the, I did a new buy list for the US market, uh, yesterday and on the buy list, the final version of the buy list, there is 54 companies. That, um, you know, some, we’ve already talked about, some we already own. There are some big brands like Vodafone, uh, Hertz, which I think we’ve talked about [00:34:00] Hertz before. Tony Kynaston: did. Cameron: Um, Tony Kynaston: outta bankruptcy, or it Cameron: of the, Tony Kynaston: going into bankruptcy when we spoke about it years ago. Cameron: hmm, don’t remember. United Airlines are on their, uh, shell. Is on there, Avis is on there. Um, so some very, very big brands on there, which you’ll be interested to drill down into. But then a lot of other companies, Methodex, A DO, ATCO, agro, a lot of financial companies. As we’ve said before, Waterstone Financial, synchrony Financial Up, FinTech holding. O’Reilly Automotive, some of the other ones we’ve talked about. Uh, yearend Digital, I think I’ve talked about them. I looked at them. Stealth Gas is still on there. Mammoth Energy Services, who I nearly did. Um, by the way, their share code, their ticket code is Tusk, which is, Tony Kynaston: Named off the Cameron: I dunno what that’s got to do [00:35:00] with. Tony Kynaston: yeah. Cameron: Yeah, you would think so. But I think it’s named after the mammoth in their name. But it’s a pretty cool name. Tus pretty cool ticket code, but it’s just like over 50, over 50 companies on the buy list that, um, so there’s, there’s, there’s plenty of choice if you’re looking for value buy in the US Tony Kynaston: And, we draw a, a reasonably arbitrary cutoff for the buy list too. So Cameron: Yes. Tony Kynaston: a more loose definition of value. You can find hundreds on the list, probably. Cameron: So for new listeners, um, we have a cutoff of a 0.1 QAV score, but the reason we have that is just so we have a cutoff. Right. It was very arbitrary Tony Kynaston: it gave Cameron: when you came up with it. Tony Kynaston: a list that we could easily manage and we’d always find something to buy, but it wasn’t too big to be unwieldy. Yeah. Cameron: Yeah, but if I, um, like, okay, so if I. Look at my overall scoring sheet and go [00:36:00] down lower than that. Yeah, there’s hundreds. Tony Kynaston: And if you Cameron: yeah. Tony Kynaston: once there’s, there’s about three and a half thousand, maybe 4,000 stocks on the US market. So if you took the top decile 400 stocks, you could, you Cameron: Yeah. Tony Kynaston: say there’s four. Stocks on the value buy list if we just kept going down the list until we had 10% of all stocks from a value ranking perspective. Yeah. Cameron: Yeah, so I don’t know why these people can’t find value stocks in the US market. ’cause I find ’em every week. Tony Kynaston: And they go up, you said, and the portfolio’s been doing well too. Cameron: oh yeah, I have, well, I haven’t done, uh, I should just do that before I go do an update on, uh, the, our US portfolio. Um. Well Tony Kynaston: But it is Cameron: in the last, Tony Kynaston: you saying that you can’t find value stocks. I mean, Warren Buffet said it all the time too, that he’s been teaching this stuff for 50 or 60 years [00:37:00] and he still finds things to buy. Uh, Cameron: yeah, so, um, our, our portfolio in the US has been running since September, 2023. It’s up. 59, 60% over that period of time versus the s and p 500, up about 43% in the last year. It’s basically been tracking just slightly, well, at the moment it’s about a little bit north of the s and p, it’s up about 19% versus the s and p 500, up about 17%. Going back to going back six months ago, we were up 40% for that period versus the s and p up 10%. But Trump’s tariffs have played havoc with our portfolio, but it’s still beating the index for the last 12 months. Um, but the last six months it’s come down quite a bit, but some of our stocks are, you know, doing very well. Willis Lease Finance Corp was up [00:38:00] 300%. It’s now up 200%, so it’s come down a bit in, in the last few months. Um, Euro Seas is up 84% since we bought it in over International is up 75% Foreign trade. Bank of Latin America is up 65%. Optimum Bank Holdings is up 40%. Regional management is up 37%, so they’ve all, you know, mostly doing very well. NL Chile is the one that’s down out of all of them. It’s the only one that’s down. It’s down nearly 20% since we bought it, but, uh, I might have to get rid of it. Tony Kynaston: getting close to a rule one then. Cameron: Yeah, but lots of opportunity Tony Kynaston: Yeah. Cameron: market if you know where to look. Tony Kynaston: Definitely, and you don’t get distracted by meme stocks, or you don’t get distracted by crypto or, um, anything else? Cameron: Yeah, right. Thank you, Tony. That’s QAV America for this week. Tony Kynaston: have, a good week, cam. Thank you. Alex: Disclaimer: This podcast is an [00:39:00] information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. [00:40:00] Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. This email is authorised by Anthony Kigh-nas-ton Authorised Representative Number zero zero 1 2 9 2 7 1 8 of MF & Co. Asset Management Proprietary Limited (AFSL five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives 

Jul 30, 2025

40m
7

QAV America 15 – BHC – Dirty Drugs, Deeper Discount

This week on QAV America, Cameron delivers a doozy of a pulled pork on Bausch Health Companies (BHC), the scandal-riddled pharma beast formerly known as Valeant. From jacking drug prices to a multi-billion dollar loss for Bill Ackman, this company has a backstory filthier than a New Jersey motel carpet. But does all that stink mean it’s a value investor’s dream? We break down the history, the cashflow, the debt, and whether BHC’s rebrand is enough to justify a second look — or if it’s just lipstick on a particularly greasy pig.   Tony weighs in on cultural overhang, conglomerate discounts, and why even psychopaths can run a good balance sheet. Oh, and we talk Trump, Maxwell, and the goddamn Godfather. — ## **⏱️ Timestamps + Stocks** – **00:00** – Welcome to QAV America 15: NYSE focus and value investing lens – **02:00** – This week’s pulled pork: Bausch Health Companies (BHC) – **04:00** – Dirty history: Valeant, price gouging, and the big rebrand – **07:00** – 10,000% price hikes and congressional heat – **09:00** – Philidor scandal, shady pharmacy networks, and fake aliases – **10:30** – Bill Ackman’s $2.8B loss and catastrophic exit – **12:00** – The Sprout female Viagra saga: billion-dollar boomerang – **13:30** – Current financials: $1.6B OCF, $20B debt, and F-score of 7 – **16:00** – Xifaxan, IBS, and hepatic snuffleupagus – **18:00** – Bausch + Lomb confusion: spin-off but 90% still owned – **20:00** – Conglomerate discount, legal overhang, and valuation mess – **24:00** – Why value investors should care: deep discount and high cashflow – **26:00** – Quality and QAV metrics: QAV score ~0.45 – **28:00** – Trump, Ozempic, and pharma pricing politics – **30:00** – Portfolio update: US portfolio YTD and all-time performance – **33:00** – After hours: The Open Championship, Godfather rewatch, John Wick realism, and Robert Maxwell conspiracies Transcription   [00:00:00] Cameron: Welcome back to QAV America, Tony, episode 15. We are recording this July 22nd Australian time, 2025. Just did our Australian show. Now talking about America. For new listeners, welcome. We’re two Australian value investors that have been doing a podcast in Australia for about six years on value investing, and now we’re doing one on the American market as well, where each week I take a company. On the New York Stock Exchange or NASDAQ in theory, but they always tend to be New York Stock Exchange. ’cause our system of value investing doesn’t tend to score very many NASDAQ companies very highly. But, uh, there’s a lot to choose from. On the New York Stock Exchange, so I, I pick one every week. That scores highly in our system of looking for [00:01:00] quality companies. And by quality companies we mean a lot of different things, but essentially generating a lot of cash is the big one that we’re looking for. And then we look at the, the valuation. What can we, can we buy them at a discount? We’re looking for companies that generate a lot of cash. Particularly interested in the ones that we can buy to discount to what we think their intrinsic valuation is. Then I’ll do a little bit of a deep dive or a pulled pork as we call them. And this week, oh, this is a terribly dirty, dirty company story. Yeah. I think last, I can’t, I think last week we were talking about dirty oil or dirty something. This week it’s dirty, dirty drugs Tony Kynaston: about coal tile last week. Cameron: Ah, that’s right. Well, this time it’s dirty drugs and dirty contact lenses. You don’t want your contact lenses to be dirty, but uh, turns out the business of contact lenses is dirtier than I realized. So the company is called. [00:02:00] Bausch Health, you’re probably familiar with Bausch and lom. The, uh, eyewear brand. Well, this is the parent company now, confusingly Bausch Health. BHC is the company that I’ll be talking about. Bausch Lo is a separately listed company on the New York Stock Exchange. They spun it out. I think it’s B-L-B-L-C-O is Bausch and Lam. Not talking about Bausch and Lobo. I’m talking about Bausch Health. They still own 90% I think of Bausch and lom. They floated off a small amount of it, and they might float off the rest of it too, which I’ll get to, but this is BHC. Now, I do want to preface this by saying. From a sentiment chart perspective, they are currently what we call a Schrodinger. They are above their byline, but slightly below their sell [00:03:00] line. So they’re simultaneously a buy and a sell. So we wouldn’t buy them, they just tipped down they were a buy. So I ran my checklist, my, my buy list, like, uh, two weeks ago. They were a buy at the time. They’ve just dipped a few cents below. Well, it’s a bit more than a few cents. Their sell price is $6 49. They’re currently about $6 31, so they’ve dropped 18 cents or so below their, uh, buyline. So we wouldn’t buy them at this stage, but I’m gonna talk about ’em anyway ’cause they could pop back up above that at any given moment. They’re a global diversified. American Canadian. Really? Canadian American. ’cause they come outta Canada. Pharmaceutical company. Primarily global corporate headquarters are in Quebec at a place called Laval in, uh, Quebec. Its US headquarters are in New Jersey, which is [00:04:00] fitting because I think for a long time they sound like they were run by like the mob. Tony Kynaston: Allegedly. Cameron: Oh, it sounds like they were run like the mob, not by the mob, like the. Dirty. Very, very dirty. Uh, they develop, manufacture a market range of pharmaceutical products, from diarrhea to constipation, from female horniness to itchy skin conditions and better contact lenses. They’ve got it all covered, although they sold off their female Viagra product. But it’s a really good story because I’m, I’m gonna get to that later on. They’ve had a bunch of scandals over the last decade in particular, uh, actually had other scandals going back to the nineties, but thi this is a company that has a stank on it. They’ve had lots of very, very expensive headline grabbing corporate scandals over the last 20, 30 years, [00:05:00] and that’s one of the reasons I think why they’re cheap at the moment. It’s just one of the reasons so bad they had to do a rebrand to try and get away from the stink on their brand. So they used to be known as Valiant, V-A-L-E-A-N-T. But then about seven or eight years ago, they changed their name to Bausch. So, um, people, as I said before, if you, if you, if you wear glasses or you have ever walked past a glasses shop, you’ve probably heard of Bausch and lom. They’re a pretty big global brand. This is the parent company. They bought that business quite some years ago. But they really are post-scan rebrand of this company, Valiant Pharmaceuticals. They have one of the filthiest backstories on the market. Um, about 10 years ago, they were in a heap of trouble in the US for all sorts of things. Jacked up, drug prices, lied about sales cooking. The [00:06:00] books blew up one of the most famous hedge funds on Wall Street. Your old friend Bill Ackman, then they changed their name in 2018. To, you know, I guess to in hope that the market would forget, and it hasn’t really, but this is how it all went down. I mean, the company goes way back many, many years started by a, I think it was a Canadian pharmacologist, but it went through decades of development. In 2003, it was called ICN Pharmaceuticals changed their name to Valiant. And decided they didn’t. The guy who was the CEO at the time decided they didn’t want to develop drugs. They just wanted to buy existing brands. So he started doing this massive rollup. A debt fueled rollup of other smaller drug companies, stopped really spending on r and d and just started borrowing like crazy, gobbling up small drug [00:07:00] companies. And then once they bought it, jacking the prices up. Through the roof, they would. Buy an old medicine, cut costs, raise the price and then milk the hell out of it. Got some examples. In 2015, they bought two old cardiovascular hospital drugs, Isoprel and Nitropress, and then raised the prices overnight by 525% and 212% respectively. No new research. No better version, just. A new sticker price, and that wasn’t a one off. They did that on 62 different drugs, raising the prices in some cases by more than 500%, and one antifungal called flu toine. It’s being sold in the US for 10000% more than it was costing in Europe, [00:08:00] 10000%. So they got themselves the, uh, in all sorts of trouble with Congress, the me there was a media storm around it. Then in 2015, the activist firm, Citron Research called Seller, Andrew left, who I think we’ve talked about before. He’s one of these guys that like in the big short, uncovers companies that he thinks are doing dodgy stuff and then he shorts them and then. You know, writes about them and tries to destroy the business. Yeah. He accused them of accounting fraud in 2015 through a shady pharmacy network called philidor. His allegations were that they had a fake pharmacy that they secretly controlled. Yeah, then they would use it to push their own expensive drugs and make the numbers look better than they really were. Valiant employees. Were allegedly working at [00:09:00] Philly door under fake names. So basically valiant people. Um. Pretending to be philidor people emailing doctors and insurers using fake aliases to hide the connection. The whole thing blew up in October, 2015. Valiant denied it at first, then tried to quietly cut ties with Philidor and get rid of the whole thing. Meanwhile, bill Ackman, the guy who runs the Pershing. Fund an activist investor, one of the biggest names on Wall Street. Loved Valiant. He took a massive position in Valiant over the years. At its peak, he was up billions of dollars. He loved the business model. Then when all of this stuff about the price gouging inquiries and the the filler door allegations all blew up, the share price dropped from $262 to under $15, and he sold [00:10:00] the lot. He lost $2.8 billion dumping his steak and had to walk away. He’s still around though. Tony Kynaston: Hmm. Cameron: And, uh, he, he did okay. He invest, he’s invested in lots of things, but he called it a very costly mistake. But it was, I was reading through, like he was pumping these guys up massively and then it all just collapsed like a house of cards. But the dur goes back even further. So their iCare unit, Bausch and loam were caught in the nineties. Selling the same contact lenses under different names and different prices, same product, different labels, different price tags. One was marketed to last a year, another would only last a month, and another would last for only two weeks, exactly the same contact lens. And they got in trouble. The states sued them. They settled for $68 million in 1996 and agreed to stop. I remember that a similar sort of thing happened here, I think with uh, [00:11:00] Neurophin Tony Kynaston: Hmm. Cameron: a few years ago, wasn’t it? They got caught doing a similar sort of thing. Tony Kynaston: Uh, well, similarly, yeah. I mean, they, they had, if you walked into a grocery store in Australia, you’d have different versions of neurophin. One for backache, one for one for this and that. But they’re all the same tablet, allegedly. Cameron: Same thing, yeah. But these guys sort of have a history of price gouging and yeah, not being exactly the nicest people on the block. Um, really, really full on aggressive marketing of pharmaceuticals. Then, this is my favorite story. There was this company called Sprout Pharmaceuticals, developed by a woman called Cindy Eckert. They developed this drug called Aye, which was a female Viagra, I think it had been originally discovered for lowering blood [00:12:00] pressure or something like that. Bit like Viagra and had a, another pharmaceutical use. Then people found out that it got made women horny and so they started marketing it. They got, she got approval from the FDA in 2015 to sell it as a female Viagra. Uh, Valiant. Bought it the next day for a billion dollars. Tony Kynaston: Whew. Cameron: But that was 2015. Just as all of this price gouging stuff started to blow up, she then sued them two years later because part of the agreement when they bought it was they had to do a good job marketing and she must have been getting a percentage of the sales or the profits or something as part of the deal, and they didn’t do a good job. So she got it back basically for nothing. They had to give it back to her a couple of years later for essentially for free. So she sold it for a billion dollars and then got it back a couple of years later, which, uh, I thought was great. Tony Kynaston: excited, then, then [00:13:00] nothing. Nothing will, Cameron: Steve was excited. Worked for her. Yeah. Oh, I’m sure. So that was a great story. So then the CEO, uh, Jay, Michael Pearson, I think his name was during this whole period, got the boot. They rebranded as Bausch Health in 2018, hoping the new name would sort of clean the blood off the walls, but they’re stuck with the debt. ’cause they went on this debt fueled Tony Kynaston: Yep. Cameron: rollup thing. They’re still carrying like $20 billion in debt. So that’s one of the problems with these guys. Massive amounts of debt. The, the CEOs, they’ve had two CEOs since Pearson got, uh, kicked out. And they’ve gone on a massive selling spree of their assets to keep the walls from the door. They spun out Bausch and Lam, as I said in 2022, but still owe 90% of it. And that’s also one of the problems with this, I think from a market perspective, it’s one of these Frankenstein monsters, we’ve talked about this in [00:14:00] other e episodes, these massive conglomerates that have stakes in lots of different businesses and lots of different sectors with different levels of ownership and different things. It’s hard, I think, for a lot of investors to figure out how to value it. Tony Kynaston: Right. Cameron: These guys have everything from drugs to beauty, lasers, gut meds, and eyecare division, which is partly spun out, but from our perspective, it’s still generating a ton of cash. So thumbs up, looking pretty good, carrying a lot of debt, but generating a lot of cash. So. Despite all of the lawsuits and the stink and the bad blood, it’s a money machine. It’s throwing off $1.6 billion a year in operating cash, and its market cap is $2.6 billion. So it’s a prop calf of about [00:15:00] 1.6 I think. Which is very, very low. Part of that cache comes from a gut health drug called Xifaxan. It’s mostly for IBS and liver related brain fog called hepatic slo. In, in, in, in encephalopathy, telepathy. Mr. Who’s the elephant on, uh, Sesame Street? Tony Kynaston: Mr. Cameron: Is he in n. Yeah, that’s it. It’s called hepatic snuffleupagus. It brings in about $2 billion a year, this one drug, and they, they had a recent court win that awarded them patent protection until 2029. On that, they sued another company that was selling something similar, I think. So they have got a few years of runway at least, to keep milking that. The contact lenses division, Bausch and Lo, that brand has been around since the 18 hundreds. [00:16:00] Uh, don’t think they’re making contact lenses in the 18 hundreds, but depends on what contact lenses would’ve looked like in the 18 hundreds. Uh, but it’s, it’s one of those, it’s got a sort of a moat in terms of the brand. It’s been around so long that it, it’s, it’s a trusted brand when it comes to eyewear. It’s got very, they’ve got very good. Channel penetration with optometrists and eyewear stores and that kind of things. B and l is sort of one of the go-to brands in that space. So it’s kind of a moat and it brings nearly half the company’s revenue. Tony Kynaston: So Cameron: Yeah. Tony Kynaston: Long got spun off though. They, what are they doing? So still has the contact lens business. What does Baus that’s been spun out? Are they the rest of the, spectacles? Are they? Cameron: No, well, they spun it, so they spun it off as a listed entity, but I think it’s all still run by the same [00:17:00] company, Tony Kynaston: well, okay. Cameron: so they own 90% of it. They, they spun it off as a float, but I think they still own it. And they still run it. They still run the business, I think. They just spun it off, uh, as another publicly listed entity. That’s my assumption that you don’t think that’s how it works. Tony Kynaston: you normally wouldn’t retain ownership if you spun it off. You might keep some ownership, but what’s the point of spinning it off if you keep, if you Cameron: Well, they’ve got 90%. Uh, I don’t know. Tony Kynaston: Okay. Cameron: Well, there is, there is talk that they’re going to sell off the rest of it. Tony Kynaston: Okay. Cameron: So maybe it’s, it’s a way of just offloading that to the public markets over time. Spin off the division. I dunno. But I know that it generates about half the company’s revenue, so the money is still coming into Bausch Health. Uh, so [00:18:00] I’m assuming they still run it. I didn’t go down into that level of detail. Tony Kynaston: Mm-hmm. Cameron: So why is it so cheap? Um, well the market doesn’t trust them and for good reason, even though they’ve had a couple of changes of CEOs since then. I imagine it’s culture that has spent decades. Manipulating the market and getting itself into trouble for it. So there’s probably a lot of cultural legacy I imagine from that. They’re still carrying around $20 billion in debt from the valiant years. One bad quarter, one lawsuit go wrong, and the whole thing could look pretty wobbly. And they got a fair amount of legal overhang as well. They’re still. Some level of opioid litigation, Xifaxan patent challenges that they, they have been dealing with. I think the Xifaxan is safe for a little while yet, but there’s a fair amount of legal uncertainty over the business as well, which [00:19:00] investors tend not to love. And then, as I said before, there’s the conglomerate discount. Bausch still owns 90% of Bausch and Loan, which trades separately, but there’s this structural messiness to the valuation. Have you, uh, discovered anything? I see you Tony Kynaston: Yeah, Cameron: some research. Did you ask ChatGPT Tony Kynaston: did. it said, back you up. It says that Bausch and Loan was spelt, it was spun off, but, uh, Bausch Health still retains a majority ownership stock. Cameron: and manages a day to day? Is is my understanding as well, like the division is still part of the company. It’s not like it’s a Tony Kynaston: says it’s a, Cameron: length thing. Tony Kynaston: it’s a subsidiary, so I just can’t get my head around why it’s listed separately then, but anyway. Cameron: It’s America man. Your gut’s to it’s America to spin off stuff. So they’ve been exploring selling the rest of b and l. If they do that, that could bring in billions of dollars and help them knock a serious [00:20:00] dent in the debt. They’ve refinanced some of their ugliest debt in 2025. They locked in a new series of loans that pushed out maturities lowered their risk profile. Wasn’t cheap. They had to pay a 10% coupon, but it bought them some time to pay off some of the debt that was coming due. If Trump’s able to get rid of, uh, Powell and interest rates come down, they could refinance again and save more money. They’re probably part of the Fire Jerome campaign. Hashtag fire Jerome. But the bottom line is I think, uh, you know, it’s a really. Impressive cash generation machine with some really great products that make a lot of money with a really bad history of bad corporate activity and getting caught out for it and having to pay lots of fines and share price collapse, [00:21:00] and from $262 down to below $15 is. A big hit. It’s trading at $6, by the way. Um, so it’s, it’s, uh, had a pretty steep fall since the heydays. Tony Kynaston: But new management, I’m guessing so, um, that’s all be the, the old days are behind it. Cameron: Yeah. As I said before, you know, well, as I said before, like new CEOs, but it’s a 30 year cultural legacy of. Doing things a certain way that I just know from working in big corporates like Microsoft. You know, you can have a change of CEO, but you have. A thousand senior executives that are still there and their little, you know, hierarchies and empires that are used to doing things a certain way. And there’s a certain mindset, come on, we [00:22:00] wrote a book on psychopaths, Tony, you know, psycho psychopathic cultures don’t get. It cleansed easily. I think, uh, if you’ve spent decades developing a psychopathic business culture that’s like, yeah, screw the customer. Who cares? We’ll get away with it. And if we don’t, we’ll just pay the fines. Uh, those sorts of cultures tend to have a residual effect. I think. Tony Kynaston: Well, we haven’t, have you Cameron: I hope I’m wrong. Tony Kynaston: you seen any legal cases though, since your management took over? Cameron: Well, they’ve got, yeah, they’ve got some residual cases around things like opioid litigation and stuff like that, but no, nothing, Tony Kynaston: Okay. I. Cameron: nothing that looked like it did 10 years ago, but they’re still cleaning up the mess from what happened 10 years ago. We, we dunno what’s gonna hit Tony Kynaston: we’re Cameron: a year from now. Right. Who knows? Tony Kynaston: the current management though. Cameron: No, I don’t, I, no new management. It’s been 10 years, you know, rebranding all that. They, they’re trying to do the right [00:23:00] things, like they’re trying to clean up the debt anyway. They’re trying to get rid of the debt, selling off divisions, making sound business decisions to dig themselves outta the hole brand wise, as well as business wise. You know, it’s not the sort of company that if I, I wouldn’t want to go to a dinner party and hand over a business card and say, yeah, I work for Bao. Remember the old valet? Yeah, that was us, man. You know, I wasn’t even comfortable saying I worked for Microsoft. At the end of it. I had to like hide my head in the sand. But, uh, but as an investment. I think it looks pretty good. Um, so as I said, uh, bringing in a ton of cash, dirt, sheep, uh, even after they pay, you know, we were talking on our last show about. Operating cash flow versus free cash flow. Their free cash is 1.2 billion, so they’ve got a lot of cash that they can [00:24:00] pay off debt. Invest in r and d, buy back shares, whatever it is. Their FF score is seven out of nine. Tony Kynaston: Very good. Cameron: It’s, which is one of the strongest that I Tony Kynaston: Hmm. Cameron: we’ve seen, um, on the QAV America Show. Um, so financial health wise, it’s pretty strong. Particularly this is a company carrying $20 billion of debt. Um, for a seven outta nine F score. That’s pretty good. The other, the other sorts of things that are interesting is the analyst consensus is that the earnings per share next year could hit $3 95, which would be about an eight time bump on what they earned last year. Tony Kynaston: Right. So what’s happening? Cameron: S Tony Kynaston: driving that?[00:25:00] Cameron: um, just dunno, Tony Dunno. Tony Kynaston: Okay. Cameron: I just dunno, Tony Tony Kynaston: Dunno. Don’t care. Cameron: much. Don’t, no analysts think it’s gonna make a lot more money next year than I made this year. It’s good enough for me. I’m not an analyst just telling you what the analysts think they’re doing my work for me. Um, what else have I got? I mean, I can take you through some more numbers. Um, just quickly. Um, quality rank, they scored on quality rank. They got a 68, so I score them for that ’cause it’s over 60. Couldn’t score them for stock rank ’cause it’s below 90. Did score them for the F score. The price is not lower than our IV number one, but it is lower than our IV. Number two, can’t score them for. Price less than book because their book is negative. ’cause they carrying $20 billion worth of debt, did score them for [00:26:00] a three point uptrend and there’s a new three point upturn. Or there was actually, when I scored them, it’s dipped below the cell line. But um. You know, those sorts of things. I’d have to rescore them if I was doing it today, but when I did it a couple of weeks ago, they both scored for that. Uh, what else have I got? Growth over PE greater than 1.5. They scored for that book. Value Growth is not positive though. PE less than yield. No. Yield bank debt? No. ’cause there’s no yield. They’re not paying a dividend. Um, the IV number two is greater than twice the share price, so that’s unusual. Scored for that as well. Yeah. So. Um, the, the quality score actually was 79% when I did it. Um, but I think I had to fix something in my sheet because there was a problem with the book price in the [00:27:00] first round of scoring. I think it came down to about 67 when I rerated it, but it had, uh, a QAV score of about 0.4, 0.45 at the end anyway, so a pretty good. QAV score. But again, it’s one of these things that we see I see quite a bit on QAV America. It’s like a hold your nose stock. Um. Which to a degree, any mining company is here for me too. You know, it’s a dirty business. I don’t like the business, I don’t like the impacts of the business. I mean, I’m happy for these people to sell drugs, but they’re obviously have a history of price gouging American consumers, which sucks to be an American consumer in the healthcare system, I guess, you know, come to Australia and get stuff cheaper. There was this thing, it’s a funny thing. I saw Trump gave a conference a couple of weeks ago. He was talking about a friend of his who was in the uk, uh, who had to buy [00:28:00] Ozempic. He ran. Did you see this? Oh my God, it was so funny. Trump Trump’s, you know, doing this press conference. And he goes, it’s a friend of mine. He’s a very, very successful businessman, very famous. You’d all know the name. He, he’s, he’s very fat. He’s very, very, very, very fat guy, very ugly guy. Very, very fat. But you’d know him. He’s very successful. Anyway, he says he’s on holiday in England with his family, and he’d run out of Ozempic. And he went to buy it in the uk and it was like one, 100th of the price that it costs him in the us. And he got on the phone to Trump and said, what the hell, why, why are Jug so cheaper? And then Trump says, well, we’re gonna, we’re gonna slash all the drugs. He said, this press conference, he said, we’re gonna cut the prices by 50%, 60%, more than a hundred percent in some cases. Like, really, you’re gonna cut the price by more than a hundred percent. You’re gonna gonna make it free. You’re gonna pay people to take the drug. What, what the hell are you talking about? But then, and then he’s [00:29:00] come out in the last week and said that they’re gonna start punishing Australia if we, if we keep, uh, making our drugs cheap. Tony Kynaston: Well, we have the pharmaceutical benefit scheme where we, the government negotiates on price with the pharmaceutical companies rather than each chemist chain or network or whatever, which the Cameron: Yeah, Tony Kynaston: companies don’t like. Probably vouch doesn’t like. Yeah. Cameron: so he’s gonna, he’s gonna Tony Kynaston: Up our tariffs. Cameron: penalize us, penalize us if we, uh, keep making healthcare cost effective for Australians. Any who, um, what do you think of Bausch Health, Tony from all of that? Tony Kynaston: Well, look, I um, certainly was aware of Valiant and so I’m Cameron: Were you, Tony Kynaston: yet heard of Cameron: you would’ve been living in Canada around about those times, weren’t you? Tony Kynaston: And heard of Bill Ackman’s. Big loss on it too. [00:30:00] So, um, yeah. Um, was aware of that. So look, I haven’t researched this company. I can’t. Vouch for the rebranding and the change in management, but assuming it’s, it’s an improvement. Um, I’d have to do some research into that. Uh, cashflow looks extremely strong, but they’re still carrying a lot of debt. So, uh, from the, from the quality point of view, I think they don’t rank as high in Wikipedia as the F score might suggest for, a quality ranking. I think they were down in the sixties from memory. Uh, but yeah. Um. Look, cash flow solves a lot of problems. And if they can sell off something like their majority stake in Bausch and long and pay off the debt, it’s, it’s cleared up quite quickly. So, um, I like the fact that it’s Cameron: They get a Tony Kynaston: and we’re buying it very cheaply. I, Cameron: stocked, gives them a 97 for value. Tony Kynaston: yeah. What’s the quality ranking though? Cameron: 68. Yeah. Tony Kynaston: Yeah. Cameron: [00:31:00] Stock rank is 74 68 for quality, but, but a 97 for value. Tony Kynaston: That’s probably a good summary though, Cameron: Hmm. Tony Kynaston: quality’s down ’cause of the debt, but it’s a deep value buy. Um, yeah. Which is, Cameron: But a seven for the F score, you know, so they can, they can pay their debt. They’ve renegotiated the debt, they can meet the debt. They generating enough cash to pay the debt. Yeah, so a bit different from the usual Tony Kynaston: Hmm. Very. Cameron: shipping companies and, uh, financial services firms that we’ve covered. Uh, I should say we, we don’t hold them in our US portfolio. Uh, we don’t, you know, we are fully invested in the US portfolio. I should also do just an update while I’m here on our US portfolio. I guess. Uh, where are we at? Let’s have a look. So. For the last 12 months, we’re up 23.7% versus the s and [00:32:00] p 500, up 14.54%. Um, year to date we’re down 15.7 versus the s and p up 7.2. Thank you Donald Trump for all your hard work. Tony Kynaston: calendar, year to date or financial year to date? Cameron: Y Yeah. Calendar, year to date since the beginning of January. Tony Kynaston: Yeah, Cameron: Yeah, and all time, so we started this portfolio back in September, 2023. We’re up 57.97% versus the s and p 500, up 41.89%. So we’re doing okay versus the index, not as good as we were. pre-Trump late last year we were up 90.8% versus the s and p up 34%. The uh, Trump Trumponomics. Has had a massive detrimental effect on our [00:33:00] portfolio this year. It’s the greatest economy. It’s gonna be the best economy. It’s gonna do great. Has not done great for our portfolio over there, but it’s, it was doing so great before that, that it’s still doing okay. Tony Kynaston: Yeah. Cameron: So there you go. Tony Kynaston: Very good. Thank you. Can Cameron: Alright, well that is QAV. We’re into after hours. Tk, what do you got? What do you got for me? Tony Kynaston: Well, we, I mean I’ve been watching the British Open, so that’s been my sort of entertainment diet for the weekend or the Open championship as they prefer to call it. get quite prickly when people call it the British Open, but everyone calls it the British Open, so, Cameron: Why do they get prickly about that? Tony Kynaston: Uh, because it’s officially called the Open Championship. And when I’ve pushed people over there as to why they get about it, apparently, and I don’t know if this is the the case, but apparently Northern Ireland is part of the [00:34:00] uk but not Great Britain. Uh, so they call it the British Open. If we call it the British Open, we’re not including Northern Ireland, which is where it was played this year. Um, Cameron: right. Tony Kynaston: you know, splitting hairs and you can, um, and when the English split hairs on things like that, you can see why the English language is so hard to learn if you weren’t born speaking. Um, Cameron: see why everyone hates the poms. Like just get over yourselves. You get the Great Britain, England, the United Kingdom. Tony Kynaston: yeah, Cameron: on. Just pick something. Tony Kynaston: like everyone else does. Cameron: Yeah. Tony Kynaston: fun, good fun to watch. It was, uh, at Port Rush in Northern Ireland, which is where, I went to with Ruddy when it was last there in 2019. Prior to COVID a great, great time in Northern Ireland, uh, and the rest of Ireland that trip. Um, had a, I think this year they had much better weather. When we were there, it was just cyclonic, the, the wind and the rain, and it was won by a local Irish player. This year it was, uh, [00:35:00] and sunny and the Americans prevailed. So, um, that, that was interesting. But, um, the other thing we did this week was after watching the offer, Jenny wanted to go back and watch The Godfather. So we did that, um, which was great. She hadn’t seen it in since it came out and, I hadn’t seen it for a Cameron: What? Tony Kynaston: Yeah, Cameron: She hadn’t seen it since 1972. Wow. Chrissy and I kind of watch it at least once a year. Tony Kynaston: We don’t do that. Um, uh, it was great to watch the offer and then go back and watch the, the Godfather and just get blown away by it again. And, um, and knowing some of the backstory on how it was created and, uh, really came away with the feeling of it being just like every scene is so special and just delivers a, a punchline in every scene set up, usually with a background of something big happening, a waiting, a funeral, and then tight, [00:36:00] you know, tight into a couple of protagonists and then punchline every scene, which was really, really quality filmmaking. Cameron: Yeah. And like it just holds up so well, it’s so beautifully shot. The performances are so great. The story’s so great. Um, and the second one, you know, arguably even better, the part two with, uh, cutting backwards and forwards. Tony Kynaston: our, next. Next, uh, watching this week. Hopefully to get to that, Cameron: Yeah. Well thank, thank God for Bob Evans who saved it on the cutting room floor as we joked about last week. Yeah, no, just every time, like I never get tired of watching The Godfather. It’s just such, such a masterpiece. My only complaint over the years has always been Jimmy Khan, James Kearn as Tino, not Italian. Doesn’t look at all Italian. Tony Kynaston: Ann was the, was the pick to play Sonny and that was the compromise. [00:37:00] I said, we’ll keep him in, but we’ll make, uh, we’ll give it to Al Pacino, but we’ll keep James Carney in. Cameron: yeah. Like he just does not fit with the rest of the cast at all. Um, but you know, Tony Kynaston: Impressive. I mean, he’s physically Cameron: yeah, Tony Kynaston: Plays the part really well. It’s a great part, but yeah, it doesn’t look like he’s part of the family. Cameron: he, he can do anger very well and you know, throws, goes off his rocker and all that kinda stuff. It’s great. Uh. Don’t want my brother coming out of the stalls with his, just his dick in his hand. Great line. Um, yeah. Anyway. Very good Godfather. Well, I haven’t really watched anything to speak of, was watching a bit of John Wick two last night. Um, still just appreciating John Wick was doing, doing knife defense at kung fu this morning with my sifu and he was like, you know, you get stabbed and that’s it. It’s all over. And I was [00:38:00] like, I saw John Wick get stabbed and he went on and fought 500 guys. I saw him get, get shot. In the abdomen and then ran at full speed for hours and hours through, uh, CCOs and took out a bunch of guys. Was doing, doing kung fu on people after getting shot in the belly. Uh, either being shot or stabbed in the belly isn’t as bad as you’re making it out, or I shouldn’t believe everything I see in a John Wick film either way Tony Kynaston: That’s Cameron: Anyway. Tony Kynaston: comment we made about the Godfather with the Coone guys take, can take all the bullets, like you see the, you see Don Coone being shot and he gets shot about five or six times and he falls on the car and rolls over and lives, you see, um, being shot at the toll booth and he’s like machine gun, but he still gets outta the car and stands up and he gets machine gunned again and he Yeah. Takes about 30 bullets to kill him. Cameron: Yeah, all the [00:39:00] squibbs going off. It was crazy. Um, but then, yeah, I’ve been reading this book on Robert Maxwell and it’s fascinating. Like I had no idea. I mean, I kind of, you know, I remember who he hearing about Robert Maxwell in the news in the eighties and when he died and that kind stuff. Never really paid that much attention to him. Knew he had a great rivalry with Rupert. See, um, Trump has sued Rupert for $10 billion or $20 billion or something now. So he’s suing Rupert, who owns the Wall Street Journal, but also owns Fox News, which is sort of his number one fan base. And then there was a story that JD Vance went and spent a couple of hours with Rupert and Lachlan a month or so ago. And then that’s followed by the Wall Street Journal article about Trump’s birthday picture drawing for Epstein and the suing. Like, [00:40:00] what’s going on? You know, how does Trump think this is gonna play out if he’s suing the guy that owns Fox News? Tony Kynaston: Yeah, yeah, exactly. Cameron: to, it’s hard to figure out how much is performative theater? How much is real? Tony Kynaston: oh, I think Trump’s lashing out to try and stop the Epstein files from coming out, but I don’t know what, what it, what’s in it for Rupert to prosecute It Cameron: Well, the, the word on the street has always been the Rupert completely loathes Donald Trump, like as everyone pretty much does, including his own administration, I think. But um, yeah, I don’t know, man. It’s fascinating. But anyway, the Robert Maxwell thing, Maxwell’s story is fascinating. Tony Kynaston: that, did you Cameron: Yeah. Tony Kynaston: Colberts being, um, canceled Cameron: Yeah. Tony Kynaston: and, Cameron: And the, the theories behind that, Tony Kynaston: yeah. Yeah. Cameron: I read Nate Silva did a big post on [00:41:00] it today. Did you see that? Tony Kynaston: No, I don’t fall on eight silver. Cameron: He did a big analysis on it and talked about all the different theories and, you know, there’s no doubt that late night shows and the, the big television networks are doing it tough. The economics of all of that is hard to justify these days with the fragmentation of attention towards TikTok and streaming and all that kind of stuff. Um, whether or not it was just, uh, a political hot potato after Colbert called Paramount’s payoff to Trump to get outta the court case over 60 minutes, a big fat bribe. And they just decided, you know what? This is, we don’t need you anymore. We’ll get rid of you because Larry Ellison’s son wants to take over Paramount needs, Trump’s approval, et cetera, et cetera. I dunno, interesting how all these [00:42:00] big media companies and big law firms are, uh, paying off Trump. As Colbert said, it just looks a bribe. Tony Kynaston: so-called, Cameron: It’s a shakedown. Tony Kynaston: independent, organizations. Cameron: Mm. Mm-hmm. Anyway, back to Robert Maxwell. He was born in this little town in the middle of nowhere in, uh, Czechoslovakia, sort of on the border of Czechoslovakia and all the other countries around there. Born to a poor family of nine kids. When he was 16, he left home and, uh, went and joined. Tony Kynaston: was that called the Maxwell House? Cameron: Well, funny you should mention that. So his name is not Robert Maxwell? No. His name is like Jan Yarn Cock or something. Changed his name three or four times during World War ii. Settled on Robert Maxwell and [00:43:00] then later on when he started building his empire in the United Kingdom in London, he did buy a building and called it Maxwell House. Uh, Tony Kynaston: Was there a Cameron: but. Tony Kynaston: like a big spoon coming out of the roof? Cameron: I think he, I think he got sued or they had some trademark issue with the coffee brand in the, in the United States. But anyway, born with, in this poor family, nine kids, he goes off joins World War ii, goes off and later finds out that his entire family got killed by the Nazis. His mother, all of his siblings, except two sisters survived. They got gassed at Auschwitz. Um, his father got shot by the Nazis. Um, so he’s a Jew, right? Um, they all got exterminated. And, but he, he ends up sort of becoming part of military intelligence, uh, in World War ii, working for the British [00:44:00] and changes his name and adopts a British accent and takes on the persona of a, he’s a bit like Don Draper and madman. He just takes on madman, takes on. This persona of this British upper class gentleman ends up getting funded by MI six to buy a. Uh, the, the rights to a scientific publishing business outta Germany that was trying to figure out what to do with all of its scientific literature that it hadn’t been able to, uh, export or sell globally during the war. So he buys all of these books, but it’s funded by MI six. So the big question at the moment with the Epstein stuff, which you probably have seen is whether or not Epstein was a, Mossad was working for Mossad and the CIA and how the line from him goes through Ghislaine Maxwell to her father, who it seems was a [00:45:00] Mossad agent, or was Mossad adjunct or something. I’m still trying to get to the part of the book where they talk about that, but he did seem to be, his early entrepreneurial activities were funded by MI six. And, uh, he, when he died under mysterious circumstances, falling off his yacht, just after he’d taken over a big New York tabloid, that’s a great story. So he took over this tabloid in New York in 1991 that was about to go outta business. He took it over and then made the managing editor of the newspaper, Paul Rupert Murdoch, and just to tell him, Robert Maxwell has just bought this paper. That was the phone call. So he calls Rupert, Rupert was in Australia at the time, apparently calls Rupert in the middle of the night. Rupert answers the phone. He goes, yes. He goes, oh, it’s John Hoge from the Daily, the [00:46:00] Daily World, or whatever it was. Robert Maxwell wants me to tell you. That he just bought this paper in New York. ’cause of course Rupert owned the New York Post at the time. He said Rupert just burst out laughing and said, tell him that’s fantastic. And I Tony Kynaston: Uh, Cameron: just, the, uh, the rivalry between the two was great. Anyway, so when he died, there was this massive state funeral for him in Israel, Tony Kynaston: I. Cameron: attended by Prime Ministers and the former heads of all of the intelligence services and uh, all this kinda stuff. So he was beloved by Israel for some reason. Anyway. So his whole family died then. He had nine kids of his own and two of them died very young. Um, one from I know encephalitis and one from a car accident. His eldest son got brain damaged in a car accident, [00:47:00] survived for like another 10 or 12 years, but was a vegetable and to a lot of tragedy, a lot of tragedy in his life, but, uh, managed to somehow turn himself into this media barren. And, and by the sounds of it, kind of one of those sort of psychopathic dudes who just treated everybody around him like. Shit. And, you know, yelled and screamed and abused his way. It could be extremely charming and flattering, but also extremely volatile and abusive. And when he took over the, uh, newspaper in New York in 1991, they were talking about how the, uh, security staff welcomed him to the building. And the first thing he did was fire all of the security staff because he wanted to replace them with his own security staff. So he just walked in and got rid of everybody, got rid of all of the staff in the paper, et cetera, et cetera, firing people left, right, and center [00:48:00] on day one. Anyway, we’ll see how that goes. That’s about it. Tony, Tony Kynaston: Yeah. Cameron: I got for you. Tony Kynaston: Widow. Cameron: to a lot of the Go-Betweens too. A lot of the Go-Betweens this week. Watched a good documentary on YouTube, on the Go-Betweens Tony Kynaston: Mm-hmm. Cameron: the 16 Lovers Lane album, which was fun. Tony Kynaston: Yeah, I’ll look it up. Cameron: Hmm. Tony Kynaston: watched that, uh, Tarantino clip on Dirty Harry too. That was great fun. Cameron: It is great, wasn’t it? Yeah. Yeah, yeah, yeah. Tony Kynaston: good. Cameron: Okay. Tony Kynaston: All right.   Cameron: All right. Talk to you next time. Thanks, Tony. Bernard: Disclaimer: This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own [00:49:00] personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own [00:50:00] it. This email is authorised by Anthony Kye-niston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of MF & Co. Asset Management Proprietary Limited (AFSL five 2 zero 4 4 2). No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing. Free Podcast Archives 

Jul 24, 2025

50m
6

QAV America 14 – Sasol: The Value of Dirty Money

**Episode Summary** In this episode of QAV America, Cameron dives deep into the murky, combustible world of Sasol (NYSE: SSL), a South African company built on the back of coal liquefaction technology born in Nazi Germany and refined under apartheid. It’s the kind of “anti-woke” fossil fuel juggernaut value investors might love—or love to hate. With Tony chiming in, they explore Sasol’s origins, tech, environmental baggage (they’re the world’s largest single emitter of CO₂), explosive safety record, and its appeal as a classic ugly-duckling value stock. They also tackle the ethics of ESG investing, ADR headaches, and Sasol’s brutal-but-effective cash-generating machinery. — **📊 Timestamps + Topics** – **[00:01:00]** Introduction to QAV America and this week’s pick: Sasol (SSL) – **[00:02:00]** History of Sasol: Nazi-era tech and apartheid origins – **[00:04:00]** How coal liquefaction works (Fischer-Tropsch & hydrogenation) – **[00:07:00]** WWII Germany’s reliance on synthetic fuel – **[00:10:00]** Sasol’s Secunda plant: 150,000 barrels/day, world’s #1 CO₂ emitter – **[00:13:00]** Environmental targets and underwhelming progress – **[00:14:00]** The disastrous Lake Charles Chemical Project and $4B overrun – **[00:15:00]** Ethane cracker 101 + LyondellBasell JV – **[00:16:00]** Explosions, deaths, and new CEO (Fleetwood Grobler out, Simon Baloyi in) – **[00:18:00]** Revenue breakdown: energy, chemicals (Africa, America, Eurasia) – **[00:20:00]** Currency complications: ZAR reporting on NYSE – **[00:22:00]** The QAV stance on ESG investing – **[00:25:00]** Sasol’s debt, coal reserves, and South African market dominance – **[00:27:00]** CO₂ taxes kicking in from 2026 – **[00:28:00]** Key QAV metrics: – Price/Op Cash Flow = 1.4x – F-Score = 6 – Price/Book = 0.39 – QAV Score = 0.51 – **[00:30:00]** Value thesis: ugly duckling, monopoly position, tons of cash – **[00:34:00]** US investor challenges with ADRs – **[00:35:00]** Final take: not pretty, but potentially profitable Transcription   Cameron: [00:00:00] Welcome back to QAV America, Tony, two Australian value investors talking about investing in the US market. That’s just, I put, put that in there for new listeners. How are you, Tony? Tony Kynaston: I am well, thanks, cam. Yep. Just finished the hour and a half on stocks in Australia, so it’s fun to see you Cameron: I. Tony Kynaston: Good to see you say Cameron: Well, um, I don’t really have any sort of broad news, as we say every week on this show. It’s in such a state of flux. The US market with tariffs are on, tariffs are off, tariffs are up, tariffs are down. It’s, you know, it, it’s really hard to make any sense of it. And so we don’t try, I mean, we just. Um, for people that are new to QAV, uh, what we try and do is look at the fundamentals of individual businesses and try and find [00:01:00] something that is a bargain. Something that we think is generating good cash flow, but we can buy it at a bargain for one reason or another. And, uh, then on this show, I pick one each week. That is on our US buy list and I talk about it for half an hour, uh, and why it’s on our buy list. And this week I’m doing a company called Sasol, which kind of sound we were just talking about, the Godfather. Um. On our Australian show, and it’s, there’s a character in, in one of the Godfather films, Joey Saso, I can’t remember. Tony Kynaston: part three. Cameron: Is it right? Joey Saso. Okay. Tony Kynaston: Yeah. Sza. Cameron: Oh yeah. Joey Saso. Yeah. Yeah. It’s, uh, well he’s, he plays Vincenzo Corleone, [00:02:00] his Sonny Zi. Tony Kynaston: kills Joey Cameron: S Joey Sasa. That’s right. Yeah. He’s saying something bad about Michael Corleone. Yeah. Yeah. Isn’t that uh, yeah. I can’t remember the name of the actor who played him. Anyway, not to get distracted. Sasol. SSL is the ticket code for Sasol. And you were on an Australian show. You were talking about anti woke. ETFs and I said, well, I’m gonna talk about an anti work company in some ways. This, this company is, uh, what a story they’ve got behind them. Uh, they’re a South African coal liquification. Company and they do other things, but that’s mainly, uh, their background and, and where most of their revenue still comes from. Today, I knew absolutely nothing about coal liquification. Don’t think I’d ever, ever even heard of coal liquification before I started this, but now I [00:03:00] know a little bit about it so I can talk to you about it. But this company, um, was started in the fifties in apartheid South Africa, mostly as a way of securing their energy independence. Because they don’t have a lot of oil in South Africa and they were under economic sanctions and so they were getting, finding it difficult to buy oil. So they needed to figure out how to take what they did have, which was coal, and turn it into petrol and chemicals that could be used for everything that they needed petroleum for. And so Sasol was founded in a dusty little town called Sasol Berg, which was created in 1954 to provide housing and facilities for Sasol employees. The, um, [00:04:00] there’s a couple of different ways to take coal and turn it into liquid petroleum, essentially synthetic gas or synthetic petroleum. And it was first discovered by German chemists in the early 19 hundreds, and the, there’s, the main way of doing it is called the Fisher TRO process. After the names of the. Two, uh, Germans who developed it Fisher, who was not a Nazi at the time, but became one later, uh, trs, got the hell out of there in the late twenties and ended up in the US But uh, Fisher stuck around. Basically you can take coal and force it to give up its liquid hydrocarbons. Uh, one way is to just make it really, really hot, and the other way is to pulverize it [00:05:00] and then put it under huge amounts of pressure. So without going into too much detail, the first way is what’s called the indirect route, which is the fisure tr method. You gasify the coal. Creating synthetic gas or sin gas as it’s known, you basically heat it up to 1300 degrees Celsius or 2,370 degrees Fahrenheit, which is pretty hot. You ever stood inside, uh, next to a furnace like that? Tony Kynaston: Ooh, good question. Uh, no. I’ve done firefighter training when I was working at Shell. It gets pretty hot doing that, so, but not a furnace hot. Cameron: I have stood near furnaces when, in my Microsoft days, um, uh, in Victoria we had some coal industry clients. I can’t remember who they were now, but I remember doing tour of some of their facilities. [00:06:00] And I remember being next to a furnace. Actually, no, this wasn’t coal, it was steel. They were melting steel, which is about the same temperature that it takes to gasify coal. And I remember, you know, being in the room next to the room where the furnace was on, and it was insane. It was like standing close to a sun. It was. The Oh hot. It was absolutely bonkers. Terrific experience. Highly recommend it. If you ever get the chance, stand, stand next to a feel steel furnace. Anyway, so they heat it up, then they clean it, run it over an iron or cobalt based catalyst that stitches the molecules back together in a way that you end up with wax, just these hydrocarbons that are a wax, and then you crack the wax and you end up with diesel and naptha. And this was a big deal in Nazi Germany. Uh, believe it or not, Hitler struggled to get his hands on [00:07:00] enough oil during World War ii, so not a lot of oil wells in Germany. Uh, so it became a huge part of German industry during World War ii, CTL as it’s known, coal to liquid provided 92% of Germany’s air fuel and over 50% of its petroleum supply in the 1940s. Uh, but then when they lost the war, it sort of got a bad rap because some Germans believed that they lost the war because they couldn’t produce enough. Uh, fuel out of that had nothing to do with the fact that the Americans and the, uh, Russians joined up and they just got summarily defeated and Stalin crushed them at Stalingrad. But that’s another story. Then the other way of doing it is called, uh, hydrogenation, the direct route it’s called where you pulverize the coal. Mix it with heavy oil and [00:08:00] hydrogen under 300 bar for people like me who dunno what that means. Um, I know you’ve been to at least 300 bars in your time, but that’s a different story. One bar equals atmospheric pressure. So 300 bars is 300 times 14.5 PSI. So 4,350 PSI comparable to the water jet cutting pressure used on stone basically. Then you strip out the sulfur and the oxygen, it’s quicker, but it’s a pretty harsh way of doing it. So you do this and it’s actually very expensive to do this. The output cost sits north of $50 US per barrel. Um, but you. You have to do it. If you don’t have access to liquid oil, if you can’t get it outta the ground, you just have to suck it up, which was a apartheid South Africa apparently. Tony Kynaston: I was gonna ask that because, um, [00:09:00] been some coal seed gas companies in Australia over the years and they’ve never off. And I think one of the reasons was it was just uneconomical. The, the process sounds fine and we have lots of coal, but, uh, never survive. But I guess if you are in apartheid South Africa, you need to do it Cameron: Or Nazi Germany. Yeah, Tony Kynaston: Nazi Germany. Cameron: and well, Tony Kynaston: now then if it’s, uh, South Africa Cameron: because it’s huge. Uh, it’s, it’s huge. Um, it’s turned into a absolutely mega company that’s produces a ton of this sort of stuff and I don’t know, they must be able to justify it, uh, economically. So they produce roughly two barrels of liquid for every ton of coal plus buckets of CO2 sulfur and ash. Which is where the, uh, anti woke side of this comes in. Um, [00:10:00] so Sal’s main operation is called the Secunda Complex, and it produces roughly 150,000 barrels per day. Which is a lot of, uh, oil, I guess. The, uh, China also does a lot of CTL, um, on a much smaller volume per facility. Tony Kynaston: you, say 150 barrels a day? Cameron: 150,000 barrels a day, 150 KBBL per day. Tony Kynaston: I. Cameron: China producers, uh, a little bit outta CTL two. There was a lot of CTL operations, uh, running in the us, but they kind of got replaced with shale, I think. Um, which is, as we know, not as economical as [00:11:00] sucking oil outta the ground either, but is, uh, lower Tony Kynaston: Yeah. Cameron: than. Pulling up coal and crushing it apparently, or cooking it. So, uh, yes. It works. These guys are the kings at it, Sasol, but really bad for the environment. So what else can I tell you? The founder Ion, uh, started the company in 1955, was sort of the plan of the Apartheid government then, and they’ve been producing it ever since. They, because of of decades of sanctions, they had to become really, really good at it. So they developed this really obsessive engineering culture that still runs the Secunda complex, the world’s single biggest CO2 emitter. And they’re trying to do [00:12:00] something about that, um, for a variety of reasons. I’m sure. It’s all just out of, uh, care for the earth. And also South African government is putting in really big taxes on carbon emissions. Uh, that might have something to do with it as well on the, on the ESG part of their website. I couldn’t find it anywhere where they admitted to being the world’s single largest. CO2 emitter. But they did say that they’ve, their goal is to be, uh, net neutral by 2050 or net, sorry, net zero by 2050. I guess it’s the same thing, net net neutral. Uh, but their goal, they’ve recently increased the 2030 goal from a 10% reduction of 2017 levels to 30% reduction of 2017 levels. Uh, ask me how they’re doing. Tony Kynaston: Are they, how are they tracking towards their, [00:13:00] uh, you call it, their, um, audacious, big, hairy, audacious goal. Cameron: Let’s say it’s a, it’s a, it’s a slow burn. Slow. Tony Kynaston: I should throw it in the kiln man. Cameron: They should, yeah. They got a lot, a lot of burning capability. I dunno why they’re not burning. They’re at about 5% reduction after eight years. They’ve got five years left, um, to get the other 25%. So who knows, maybe they’re just, maybe they’re gonna cram it all in in the last six months, like Tony Kynaston: they’ve spent five years building things that will help them in the next five years. Who knows? Cameron: would be, maybe they’re just hoping AI will solve it for ’em. Who knows? Um. So they listed in Jonas Burg in 1979. Then on the New York Stock Exchange in 2003, spent the 1980s selling fuel to sanction, hit markets that couldn’t buy it from anywhere else, [00:14:00] and then they started exporting their knowledge to Qatar, uh, in the 1990s. They’ve had a lot of problems though. Um. They’ve got a massive project in Louisiana called the Lake Charles Chemical Project, which ran, you know, a little bit over budget. Um, you know, four bill, what’s $4 billion between friends over budget? Tony, I think it was an $11 billion project, which is now looking at a $15 billion project. I like on their, on their website, it said it’s gonna cost somewhere between 11 and $15 billion. You know, give or take, give or take something around that. That’s a, uh, an ethane cracker operation. Eh, you know, it’s down in the south and the us there’s a lot of crackers down there in the south. But this is a particular kind of cracker. This is an ethane. Tony Kynaston: [00:15:00] oh Cameron: Sorry, I had to, had to get that one in. Tony Kynaston: to, the Andy woke show. Cameron: It’s the anti work show. I can say whatever I want. Tony Kynaston: what? We can Cameron: It’s a, Tony Kynaston: People Cameron: I can, yeah. No, it’s an ethane cracker. Um, it’s a giant industrial furnace that rips hydrogen atoms off of ethane to make ethylene. So it takes C two H six, turns it into C two H four, which is the starting block for most plastics apparently. So they ran over budget on that. They ended, ended up having to do a 50% JV with an American multinational chemical company called Lion de Bazel. Uh, they’ve had lots of other problems as well. Um, like just a lot of explosions. In the last 21 years, they have had 23 [00:16:00] onsite deaths at the Secunda plant. Which is a, a fatal accident rate or an FAR of roughly 2.2 deaths per hundred million work hours, which is roughly two to three times the international oil and gas industry benchmark. So not doing too well despite all of their engineering expertise on stopping their workers from dying. And that led to their CEO getting replaced in 2003. Uh, after yet another op, uh, 2021 was an Anna’s hoist. They had three separate mine side incidents. And, um, the outgoing CEO though had a great name. His name was Fleetwood Gobbler, which I gotta tell you, [00:17:00] I. Out of all of the names I’ve heard in my entire life, I think Fleetwood Gobbler is up there. It sounds like a Chevy Chase name from a Fletch film. Fleetwood Grabler. What a to. Congratulations to Mr. Grabler if he’s out there listening in. He was replaced by Simon Balli, who’s a process safety engineer. So he’s been the CEO since, uh, April, 2024, so they’re trying to turn that around. But yeah, they’ve had a lot of problems over the last 20 years with this sort of stuff. Um, and, you know, you know, delivering this ethane cracker project, et cetera, et cetera, how the money is sliced. Today, they have about four operating buckets, energy. Which is colder. Liquids plus gas and marketing is about 57%. [00:18:00] Chemicals. Africa, 37% chemicals, America 6% and chemicals Eurasia 3%. Um, they’ve got, um. Also a renewables thing. They’re trying to do renewables. They’ve got a green hydrogen thing like Australia’s, uh, Mr. Forest, Andrew Forest. So they’re, they’re playing around the edges with all of that kind of stuff. But it’s mostly steel, coal, uh, uh, liquid, um, operations. Tony Kynaston: I did know Cameron: But. Tony Kynaston: a large part of the company’s called Dino Nobel. And so two questions for you on that. Is that. Does that trace itself back to Alfred Nobel? ’cause he, I think was South African and uh, Donna Nobel in Australia is an explosives company. It was owned by a chemical company in Australia called Oracle. I think it may have just been sold, but there is an Australian company called Dino Nobel as well. So I wondered what the link was there. If you’ve come across [00:19:00] it. Cameron: Dino, no Bell. Um. No, I didn’t come across that in my notes. Where did you see that? On their, uh, website. Tony Kynaston: Oh, their business breakdown. I think it’s, I think it may be the name of the chemicals business. Cameron: Oh, okay. If I look up Wikipedia for diner, Nobel just talks about the explosives company founded in Sweden by Alfred Nobel headquarters, Brisbane, Australia, and Cottonwoods. Hi, Cottonwood Heights, Utah. Tony Kynaston: Right. there is. If you look up the Sasol website, one of their businesses called Sasol, Dino Nobel. Cameron: Oh, okay. No dunno. It didn’t come up in my notes. I’ve probably been to Cottonwood, Utah. It’s uh, in Salt Lake County. Spent quite a lot of time in Salt Lake. I anyw who [00:20:00] back to my notes. Um. Where am I here? So. Very low. So I, I should have said at the beginning, so this is another one of these companies on the New York Stock Exchange that doesn’t report in USD, it reports in z ar, the RAND in South Africa. But I did all the conversions and, and interestingly the scoring didn’t change for anything once I converted it. Um, our IV scores, um, but. It still prints a lot of cash. It’s the main thing I like about this. It doesn’t score very well, uh, in Wikipedia for stock rank or quality rank, but it throws off a ton of cash. So it’s got a very low prop calf. Um, I think single digits. We’ll get into the actual figures later on, but it’s, [00:21:00] it’s an ESG nightmare. But it’s generating a lot of cash. And for new listeners, do you want to explain the QAV policy on ESG investing? Tony Kynaston: Yeah. Well, so I said this on the Australian show when we Cameron: I. Tony Kynaston: about Um, we just produced by. List of companies that score well and it’s then to the individual investor whether they want to buy that company or look on. And we don’t take a position on whether it’s a good company or a bad company or whether investing in this company is good or bad. It’s up to the individual investor. And that’s, that’s the plus I think for QAV. ’cause you’re managing it yourself. Because we spoke about in the Australian show, there are ETFs out there, which are. calling themselves ESG ETFs. Oftentimes they’re just the index with a few stocks removed, and they charge you a lot of fees for that, for that pleasure. So you’re getting index like performance at best and paying more than the next fund. [00:22:00] whereas if you do it yourself, you can decide whether you wanted to, you might like all these kinds of companies and you might put together a, of value stocks that, um. our anti work. That’s fine. It’s up to you. We don’t take a position, we just say, here are the numbers, and, uh, create a buy list. And then it’s up to you whether you wanna buy this stock or an ESG stock, or you know, stocks which are in the defense industry or any particular filter you wanna place on it yourself. We don’t have a position. We just say, here are the stocks that score. Well go ahead and put the portfolio together yourself. Cameron: But what about your position on ESGS? Uh, ba Well, yeah. Buying ESG stocks or buying oil, let’s say that, or mining stocks. Tony Kynaston: so we’ve had this discussion before as Cameron: I. Tony Kynaston: is that, um, I would buy them, I don’t know much about Sasol, so I’d have to have a good look at it, but I would buy oil stocks or, or coal stocks on the ASX because I think, uh, you can’t just turn the lights off overnight [00:23:00] and, uh. replacements for, um, energy production just aren’t there yet. Um, might be down the track, but at the moment there’s a gotta be a transition path between, know, keeping industry going, keeping ourselves warm and well lit and fed through to the day when we can have, um, completely renewable Angie sources. But we’re not there yet. So I’m, I’m happy buying these stocks myself personally. Cameron: And the other other argument I’ve heard you make over the years, correct me if I’m wrong, but is that when we buy shares on the market, these come. Companies don’t get, unless we’re buying a, a new listing or a new issue or something like that, they’re not getting our money. They don’t get the money. So we’re not funding their operation. We’re not perpetuating their operation. We’re, we’re an individual buying share, a share off another individual or off another fund or whatever it is. So we’re not, um, encouraging the business. We’re not financially supporting [00:24:00] the business. We’re just buying a share. Tony Kynaston: And possibly buying it from someone who’s selling because they’re, uh, want the ESG issue in their Cameron: Yeah. Tony Kynaston: yeah, we do profit from them doing well, but we don’t provide them with any capital to, to grow their business. Cameron: Yeah. So, uh, back to this company, um, they’re a, they’re an ESG nightmare, so it’s one of the reasons why I think they’re cheap. They’ve also, they’re carrying a lot of debt, but they. They’re sitting on 1.9 billion tons of coal reserves that they have access to in South Africa apparently, which will keep ’em going for a while. They’ve got a 70 year learning curve. In this whole coal to liquid process, that, uh, gives them a bit of a competitive advantage, engineering wise, over competitors. Not that they have many competitors in the CTL space outside of China, [00:25:00] and they sell a lot of, uh. Petroleum synth gas synth petroleum to South Africa. I think they cover about 20% of South Africa’s demand. Uh, they’re protected by a regulated price, uh, in South Africa as well. Which is interesting. I wish we were protected by that here. The petrol price here has been insane. It went up 25% in a week. I filled up my car one week. It was like a buck 75 or something elite. I filled up the next week. It was like $2 25 a lead. I was like, what the hell? How? How’s that possible anyway? Tony Kynaston: It, and the oil price hasn’t gone up that much all that quickly. Cameron: what else? So, yes, so they got a lot of debt, 120 billion Z ar net debt, which is, uh, divide that by. [00:26:00] 20 to turn that into USD. So about what, 6 billion us? Is that right? 10. Well, by 10 it’d be 12 or 20 Be six. That’s 6 billion. Yeah. Um, and a lot of a, a lot of that’s coming from the Lake Charles. Kerfuffle, they, they haven’t issued a dividend since 2020. Their CO2 footprint is bigger than Portugal’s and the RAND has got some FX issues, a as any, my old IT guy used to be in South Africa and they had like constant. Grid blackouts all of the time. He’d be offline for a day here or a day there, or hours here. So the sort of problems in South Africa with supplying power, and I guess that impacts these guys in some way, shape or form. But, oh, the other thing is, um, the South [00:27:00] African government are really kicking up the penalties for being a carbon emitter and the next round kicks in next year. 2026. So these guys are gonna have to start paying, uh, bigger hike or buying more trees, something like that to offset. Um, but it’s gonna, it’s gonna be a hit to their numbers, but not a huge hit. I, I got some notes on that a bit later on, but. From the numbers, uh, the key numbers for us price to operating cash flow is about 1.4 times. So very low. They’ve got bus, they’ve got issues, um, and they, they look dirty on paper, but, uh, very, very cheap. From a Pr/OpCaf perspective, their F score is six outta nine, not as good as the. EDU you just talked about, but pretty [00:28:00] solid from an FS score perspective. And the price to book is 0.39 times. So very, very low. Uh, what else have I got for you? Um. You know, there, there’s like, there’s a lot of things we could look at. Um, if they pay off their debt, if there’s a rebound in polyethylene ammonia spreads, it could lift their earnings outta Lake Charles. There’s, there’s, you know, if they, if they come up with a better CO2 abatement plan, they could unlock some ESG investment. There’s a lot of things like that, but that’s all. Prediction and forecasting that are really of no use to us, but some of my analysis uncovered potential upsides in those things. Red flags are really higher. CO2 taxes or stricter South African emission laws, which are gonna force [00:29:00] them to continue to spend money on heading towards net zero or getting down to that 30%. Uh, level that I mentioned earlier on, or more blowups at secunda, or more problems with Lake Charles that could nuke their cash flow. But the punchline is really that there are. An ugly duckling refinery. I think, you know, um, sort of a classic value buy that we’ve seen a lot over the years that we’ve been doing the Australian show, just out of favor with a lot of funds because it’s such an ugly duckling. You know, it’s, uh, a, not a woke by, uh, because of all of the CO2 that they push out. The apartheid thing is probably in their past. Uh, just in terms of what we scored it on Price, uh, less than or equal to IV one. Yes. Price [00:30:00] less than IV two. Yes. Price Less than book? Yes. Less than book plus 30. Yes. Price to operating cash flow Less than seven. Yes. Petrovsky score better than 4.5. Yes. Fails on quality Rank fails on stock Rank. Fails on book value growth being positive, fails on growth over PE greater than 1.5. Does have a three point uptrend, has a new three point uptrend, but fails on yield being greater than bank debt and, uh, passes for Ivy two being greater than twice the current share price. So. The QAV score is 0.51, which is a pretty good QAV score. Yeah. But you know, it’s a, it’s sort of a hold your nose, uh, buy, I think if you were gonna buy it, it’s, it’s not very ESG [00:31:00] friendly and, um, but it’s the reality, as you said before, south Africans. Need to get their power generation from somewhere. They’ve got enough problems as it is. So, uh, these guys are providing a lot of that, and they are working hard too. It seems. 5%, maybe it’s not, it’s not evident in their results, but I believe everything they say on their website, Tony, they are trying super, super hard. They’re, they’re big believers. Tony Kynaston: like they do the old things really well and the new things not so much with changing to ESG and building a plant in the US I. Cameron: Well, you know, they, yeah, they are. I dunno how environmentally good or bad, Ethan cracking is really, I imagine if you’re having to, you know, post process things that intensively is probably a lot of flow on [00:32:00] negative environmental impacts from that. Tony Kynaston: which is a, cleaner fuel than oil. So, yeah. Cameron: but I dunno, in, in terms of, you know, ripping the hydrogen atoms off the ethane, um, you know what, what the trickle down carbon emission impact of that is, dunno. Tony Kynaston: Me neither. Um, but the last point too, I think we should say is it’s a commodity stock, obviously. Cameron: Mm-hmm. Tony Kynaston: not sure whether it was, we should track it as a coal stock or an oil stock, but they’re both buys at the moment, so it doesn’t matter. Cameron: Yeah. Yeah, they are. They’re both buys and these guys I guess, fit into their somewhere. I don’t think we have a commodity for synth gas or liquified coal, but, uh, I guess it ties into those pricing somewhere. I, I mean, I dunno if we track the commodity price in South Africa and if we would have to do that for these guys, [00:33:00] singers. There’s some sort of regulatory price, uh, controls around it there. Anyway, uh, in terms of it on our checklist, you know, I think it’s, uh, it makes sense to look at as a value investment. Again, it’s sort of the classic ugly duckling. Out of favor, but, uh, and has a lot of, lot of operational problems, but is still sort of, has a monopoly on what it does, has a moat and is generating a ton of cash and is very, very cheap. Is my summary. Tony Kynaston: We’ve done a number of overseas pulled porks. I’m guessing this is an A DR as well on the New York Stock Exchange, and I’m Cameron: I think so. Tony Kynaston: into some of these being value stocks as well, if that stocks some in the US from buying them. Interesting to get Cameron: Yeah. Tony Kynaston: that from the US what their experiences with ADRs. Cameron: Right. Yeah, we went through that a few episodes ago, didn’t [00:34:00] we? The, just the sort of reporting complexities, the paperwork complexities with ADR for American investors. Tony Kynaston: Yeah. Cameron: Yeah. All right. I’ll try and. We’ll see if I can get someone to come on and talk to us about that in a future episode. But you’re right. That’s probably one of the factors with these as well. know, when I’m going through our buy list each week looking for companies to buy, I’m, I’m looking for companies that are different to the ones that we’ve talked about in the past, and just a lot of them tend to be foreign based. Companies, it seems. I don’t go deliberately looking for them, but yeah, they just do the, I go, oh, okay. That’s a bit different. Where is it? Oh, South Africa. Okay, great. Tony Kynaston: Yeah, no, I get that. Cameron: All right, well that’s your, uh, stock tip to look at this week. If you’re looking for a value stock in the US market, take a look at Sasol, but do your own research. Tony Kynaston: Absolutely. All right. Thanks Cam. Thanks for [00:35:00] the pulled port. Cameron: Thank you, Tony, Tony Kynaston: Happy. Cameron: too late. Bernard: Disclaimer: This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future [00:36:00] performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice. Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it. Free Podcast Archives 

Jul 17, 2025

36m
5

QAV America 13 – Smartwatches, Smart Valuation

**Episode Overview:** In this episode of _QAV America_, Cam and Tony dissect the fundamentals of **Zepp Health (ZEPP)**, a Chinese smartwatch manufacturer with aspirations well beyond step counters. They unpack the company’s evolution from low-margin Xiaomi contractor to an ambitious, vertically-integrated brand aiming to take on Apple — at a fraction of the cost. Cam walks through the business model, leadership, geopolitical hedging via a Netherlands HQ, and a potential future in AI-powered wearables. Despite being unprofitable, Zepp boasts positive operating cash flow, aggressive R&D spend, and a book value nearly five times its share price. Tony and Cam debate its merits as a deep value tech stock in a crowded, commodified market — with a few detours into Marx Brothers references and Cameron’s post-Kung Fu abs. — ### **🔢 Timestamps & Topics** – **[00:00:00] Trump’s Tariffs & Market Volatility** Trump’s threats to Japan/South Korea spark global market reactions. – **[00:02:00] What is QAV America?** Quick refresher on the QAV system and the process behind selecting U.S. stocks. – **[00:03:20] Zepp Health (ZEPP) Introduction** Zepp’s background, link to Zeppo Marx, and business model basics. – **[00:06:00] What They Make** Smartwatches, fitness bands, health-focused earbuds under brands like Amazfit and Zepp. – **[00:08:00] Price Point Strategy & Competitive Landscape** Sub-$200 devices aiming to mimic Apple Watch functionality. – **[00:12:00] Founder Story & Business Transition** From a hacked pedometer to $10M investment from Xiaomi. – **[00:14:00] Post-COVID Strategy Shift** Moved final assembly to Vietnam, dropped Xiaomi contracts, chasing margin. – **[00:17:00] Netherlands HQ – Why?** Tax, regulatory and geopolitical benefits of being a “Dutch” company. – **[00:19:00] Historical Sidebar: Friars Hung for Transubstantiation** Cameron’s tangent on Gorinchem’s bloody Reformation history. – **[00:21:00] Crowded Marketplace – Smartwatch Wars** 45M units shipped in Q1 2025, Zepp fighting for space in cheap smartwatch jungle. – **[00:25:00] Margins, Hardware & Amazon Dominance** Race-to-the-bottom manufacturing, vertical integration, low build costs. – **[00:29:00] Financials Breakdown** – **[00:33:00] AI Push – The Bull Case** Expanding AI team to 120 people. Vision for on-device LLMs powering wearables. – **[00:36:00] The Future of Personal Devices** Onboard AIs, wearables, and the shifting market from fitness to full-assistant functionality. – **[00:38:00] Final Verdict** Transcription   [00:00:00] Cameron: Welcome back to QAV America, Tony, episode 13, timestamp. Tuesday, the 8th of July in Australia, about 2:30 PM in the afternoon. It’s a Tuesday. Uh, we’ve just done an Australian show where we talked about President Trump’s uh. Nobel Peace Prize nomination and congratulations to him on that. And uh, sure that’ll go great. And, um, more tariffs that he announced yesterday that he’s gonna hit Japan and South Korea with, if they don’t. Give him a call and pledge allegiance and, uh, the US markets fell, the Australian market fell and then woke up and went, what are we doing? And recovered. So Tony Kynaston: A, uh. Was that the Cameron: Kramer, Tony Kynaston: by the American? Uh, the Australian [00:01:00] market. Cameron: yeah. Tony Kynaston: it follows Wall Street up or down and it didn’t, it started to and it turned around today. But we do have Cameron: Started, Tony Kynaston: reserve bank meeting going on now, which may drop interest rates. Cameron: I think they had a cup of coffee, all of our traders, and realized that Trump will tar it. And so they went, what are we? Why are we doing this? Let’s just assume he’s gonna tar it and get back to business. Oh, I dunno what they did. Tony Kynaston: knows. Anyway, freedom Day number two. Coming up on Monday, Cameron: Yes, just volatility all over the place, still in the US markets. Um, we, we are fortunate that because we have a system that ignores noise, most of what’s going on, we just go, yeah, yeah, whatever. And we focus on the fundamentals. Tony Kynaston: And, and make a bit of fun of it too, usually. Cameron: Yes, you do. You Tony Kynaston: Hmm. Cameron: will just stick to our knitting. And so today I’m going to, for people that are [00:02:00] listening for the first time, um, QAV is a value based investing system that Tony has developed over the last 30 years, continues to develop and refine, uh, we call it QAV. It’s quality at value. So we’re looking for. Stocks in quality companies, basically companies that seem to be well run and are making money, uh, when we can get them at a discount to their intrinsic valuation. And we have a number of metrics that we look at. And so what I do in these US shows is I generate a buy list using our checklist that we have that scores companies based on whole range of fundamental metrics. I’ll pick one somewhat at random from that’s on the buy list. That’s getting a positive score. It comes up as a buy and then we’ll break it down and look at it. Tony and I are boast based in Australia, based in Australia. Dunno a lot about the companies that are on the US markets. New York Stock Exchange or the nasdaq, [00:03:00] and a lot of them are very different. Sorts of businesses to what we’re used to trading with in Australia. So we pull ’em apart and have a think about ’em and try and figure out, well, why is this showing up in our buy list and what do we think of it as an investment? If you know we do run a US portfolio, it’s doing very well. We actually don’t have any cash left to invest. So we’re not buying the company that I’m talking about today at this stage. But I will ask Tony the question at the end of this, if we had cash to buy, what do you think about this one? And these aren’t necessarily recommendations. We’re not financial advisors. See a financial advisor before you make any investing decisions. We’re just talking about companies that look interesting, uh, based on our analysis. And today’s company is one called Zep Health. I immediately liked it because I thought of Zeppo Marx. Tony Kynaston: did too. Cameron: Uh, yeah. My favorite of all the Marx brothers. Most underrated of all the Marx Brothers. Hey, he just, [00:04:00] he, he. He, he was, he was the good looking one. The good looking Marx brother. Tony Kynaston: didn’t Cameron: That’s what I think of. Tony Kynaston: though, Cameron: No, no. He was too good looking. Too good looking. That was his problem. Yeah. Yeah. Um, he was a DEI hire DEI. Diversity Tony Kynaston: The Nepo. Marks Cameron: the Nepo. zPo. The Nepo. Yeah. Tony Kynaston: The Nepo, Cameron: Um, ZEPP is the name of the company Z. That’s their ticket code as well. Tony Kynaston: ZEPP. This is the US Cameron: Z, sorry. ZEPP. Yeah. My American wife would, uh, have corrected me on that as well. Uh, but growing up watching Sesame Street, I should have known that. Anyway, uh, now I will, I. Just highlight the fact that if you’re looking at this in stock, EDIA, ’cause uh, that’s what our checklist is designed for. This is one of those stocks that we’ve been talking about lately [00:05:00] that does not report in USD. It reports in Remi, BRMB. Uh, for reasons that I’ll explain soon, so you’re gonna have to do a little bit of jiggling with the numbers. My other thing to let you know is that I did after our show last week when we decided to remove the Altman Zed score from our checklist. I did do that this morning, the score. Thank you, Tony. Although in Pulp Fiction, Bruce Willis says, Z’s dead baby. Tony Kynaston: Z’s dead. Cameron: Z’s dead. Tony Kynaston: Could never work that out. Cameron: Well, ’cause she’s French, I guess. Who is Zed? She sees the keys. Who is Zed Z’s Dead baby. Z’s dead and Z’s dead. Baby doesn’t, doesn’t work. So Tarantino? No. Near the alliteration there. Is that alliteration? No. What’s that? It’s just rhyming. Tony Kynaston: just rhyme. Yeah. Cameron: Anywho, yeah. Uh, so this is this, uh, company. I had to, I had to redo the [00:06:00] numbers. Um, the score wasn’t as good. When I redid it, the quality score wasn’t as good, but it still came out positive and still was on the buy list. The reason I picked this one is it wasn’t a shipping company and it wasn’t a financial services company, so, um, which is what most of them. Still. Uh, so I, I did a new buy list yesterday. I hadn’t done one for about a month for the US market, so I did do a new one. Pretty much all the same companies that have been on there for the last six months, which is fascinating. Tony Kynaston: Mm. Cameron: Even though our portfolio holds a lot of them and our portfolio is up 40% in the last year or something like that, um, those companies are still showing up anyway. What does this company do? Well, they design and wholesale smart watches, fitness bands and health earbuds odds. They are. They trade under a couple of brands. Now, AMA a Mabb Fit, but it’s no E in the Amaze, so it’s [00:07:00] M-A-Z-F-I, Tony Kynaston: Fit. Cameron: TMAs Fit, which they sell through Amazon Tony Kynaston: Um. Cameron: but are not associated with Amazon. But it kind of, when you look at it, you think, oh, this is like Amazon’s. House brand smart watches. No. And they also have their own brand, Zep. They also do some trading through Zomi. Z-I-A-O-M-I, big Chinese. I think they’re Chinese. Yeah. Chinese hardware company who I think now have rockets and you know, pretty much everything that can be built OMI have these days. Um, but these guys are on the low end of the smartwatch. Business. So you’ve got your Apple watches and you’ve got your Garmins, and then you’ve got, and your, your your top end, I guess, Android type brands. Then you’ve got all of the low end stuff, which is the majority of it. They’re [00:08:00] selling roughly sub $200 USD for a lot of the same functionality that you would get. From an Apple watch, they look like an Apple watch in a lot of cases. Um, but they’re, I don’t know what Apple watches sell for in the US probably 800 US I guess. So they sell for a quarter of the price of an Apple watch. These guys, uh, have their own. Software. They have an OS called zep. They have their own chip set huangshan, and they’re making big investments in ai, which is one of the reasons I think they’re an interesting business. I’ll talk about that a little bit more later. They do sleep tracking, heart rate analytics. They have, uh, all sorts of sport coaching and tracking and all of that kind of stuff, which Apple pushes really hard on their, do you have an Apple watch, Tony? Tony Kynaston: I do not, no, Cameron: Right. Tony Kynaston: no. I don’t need to [00:09:00] track my sleep or Cameron: I have an Apple watch. I bought it when I started having heart issues years ago because I thought if I have a heart attack, Tony Kynaston: it. Cameron: I thought if I had a heart attack, uh, I, you know, I wanted the notification thing that it gives off. Tony Kynaston: you’ll know before your watch tells you if you. Cameron: You laugh, but that’s not necessarily the case. And also, um, if I fall over, actually I was passing out a lot then I was, I was on blood pressure, blood pressure meds that were making me have a lot of, actually, the real reason I bought it, I, they were giving me lots of, I. You’d stand up and you’d get brownouts. And I thought if I’m home alone and I brown out, or even if I’m in my office and Christy’s somewhere else and this, and I brown out and hit the wall and hit my head, Tony Kynaston: Mm-hmm. Cameron: um, you know, somebody needs to know that I’ve, I’ve fallen down, you know, if, if I lie there by [00:10:00] myself for 12 hours, it could not be good. Tony Kynaston: Have you actually tested that? Cameron: Uh, well, yeah, I’m fine now. Tony Kynaston: Jenny. Jenny bought an Apple watch for the same reason, because she’s had Cameron: Alright. Tony Kynaston: a couple of similar episodes. It wasn’t quite bad. Um, and then she wore it and had another episode, didn’t get a ping or a text or whatever to say it had happened. So, uh, I’m not sure of the veracity of having an Apple watch for that function. Cameron: Well, I think there’s, there’s plenty of anecdotal evidence out there that it has worked for lots of people. I know my mom has one. We bought my mom one for the same reason, and hers has gone off when she’s fallen out of trees and done stuff like that. I. But also when she’s just fallen over it, it goes off, it’s over sensitive. If anything, mine has gone off a bunch of times if I’ve been bumped or hit or there’s a shock to it or something like that. But fortunately I haven’t had to fall over. [00:11:00] I don’t have that problem, Mel. ’cause I’m off the blood pressure medication now. This is pre kung fu now post kungfu. Uh, I, I, I, do you want me to show you my abs? Do you wanna see the current state of my abs? Y you do you wanna see it? I, I took a photo and sent it to my. Tony Kynaston: you. can show me, your Apple watch if you like, but that’s as far as I’ll go. Cameron: I took a photo, a shirtless photo, and sent it to my boys the other day and I’m like, just look at this. This is ridiculous. Look at this. It’s insane how shredded I am. Tony Kynaston: you know, you know, they, Cameron: I Tony Kynaston: they catch people with porn on their computers like that. Cameron: 54-year-old white man porn sending to his 25-year-old sons. Um. Tony Kynaston: Grooming, I think they call it grooming, don’t they? Cameron: Anyway, Tony Kynaston: Anyway, Cameron: back to Apple watches. Um, Tony Kynaston: or Cameron: so these guys cheap knockoffs. Yeah. Um, the, the founding story of this is, um, the founder, [00:12:00] Wayne Huang was a Hawaii I. Uh, Hawaii engineer and he supposedly hacked a cheap pedometer to a phone battery in 2013 because he kept forgetting to stand up during marathon coding sessions and, uh, he was showing off the contraption at some fair and Shenzhen. Some guy from Xiaomi wrote him a 10 million US dollar check and they launched the business. It was originally called ami, um, which meant smart rice. And now then they changed it to Zep. So. Uh, zPo Marks, it’s named after, I’m pretty sure big fans of the, uh, less appreciated Marks brother. So interesting business. They’ve had a lot of problems. Why? Tony Kynaston: Swordfish Cameron: I, yeah, Tony Kynaston: in the Marx Brothers [00:13:00] film, swordfish. Cameron: there was a password to what I. Tony Kynaston: To the speakeasy. Great Cameron: Oh, okay. Tony Kynaston: uh, Cameron: Right. Tony Kynaston: inside opens the door in the, the door, and Cameron: Yeah. Slot. Yeah. Tony Kynaston: let me in. gotta have the password. I. the password? I can’t tell you. Anyway, they go through a, a bit where he says, I can’t tell you. It’s a swordfish. Is it swordfish? Yeah. Come in. And then, and then Harper. Harper goes up to the front door and knocks. And of course he can’t speak the, the, the password. So I ask him what the password is and he opens his jacket and pulls out a swordfish and they go, oh, come here. Cameron: Oh, Tony Kynaston: I love the Marx Cameron: let’s go. Tony Kynaston: seen Cameron: too. I, I keep trying to get Fox to sit down and watch ’em with me and he won’t yet. One day. One day. Okay. So they’ve had a few problems. These guys. Um. COVID [00:14:00] closed down gyms, um, but drove record shipments for their devices in 2020, but there were chip shortages, lockdowns in China, which sort of ended up halving their revenues. By 2023 management Acts, 15% of staff moved their final assembly to Vietnam. To, uh, uh, I, I think partly to, uh, reduce costs and also to help try and avoid Trump’s tariffs stuff. They also switched focus from contracts they had with X Me, where they had pretty much no margins to higher margin, amaze Fit and Zep brands. They’re trying to climb up the. Value chain, taking their own brand out there, which is what a lot of these Chinese manufac electronics manufacturers do. They, you know, they start off [00:15:00] building it for a bigger brand and then they launch their own and try and build that up. Um, they sold off a unit to Alibaba in 2022 and they’ve moved their headquarters to the Netherlands for I think a, a bunch of reasons. I’ll talk about that more in a moment. But smart wearables are still the biggest part of their revenue mix. The amount of money that they make off the OMI contract is now only about 6% of revenue. Um, self branded gear is now 94% of revenue. So they’ve really switched the business around in the last couple of years, and as I said before, a lot more margin in the self branded gear. Um. Uh, but, uh, they’re still relatively small. Revenue is about 181 million in FY 24. Their FY numbers I think are coming out, no, their quarterly numbers are coming out in August. [00:16:00] We’ll see where they’re at, but they’re, they’re recently started turning it around. Their numbers in the last quarterly report was a big turnaround from previous years where they’ve been losing money. Uh, still not profitable, net profit, as you pointed out, off air. But, uh, gross profit is positive. They’re just spending a lot of money on r and d and moving stuff around to different countries and it’s, and, and the big AI division, big play on ai, which I’ll get to a bit later. So they recently moved their headquarters to Gorham or Goran. Kem. It’s pronounced both ways apparently in the Netherlands. Uh, I think for a number of reasons, from what I can understand, reading some of the paperwork and some of the analysis of it, uh, easier to get regulatory approval for medical devices in the EU if they’re based in the Netherlands, than it is if they’re based in China. [00:17:00] It also gives some distance between them and China, us tug of wars with tariffs and bans and all that kinda stuff. If they can say, oh, whoa, whoa, whoa. We’re not a Chinese company. We’re a Dutch company. Thank you very much. Look at the postal address. Also makes it easy to get EU funded r and d grant applications. The Netherlands also have some pretty good tax deals that they do for foreign firms. 25.8% headline rate that can actually be reduced down to single digits once you, you know, do a bunch of innovation. Um, applications and participation exemptions and this kind of stuff. So hundreds of tech multinationals apparently over the last 10 years have moved to the Netherlands to take advantage of these sort of tax schemes that they’re offering up. Bit like Ireland was doing. 20 years ago. Rotterdam [00:18:00] also is Europe’s biggest port. So good way to be able to get your stuff out and shipped, uh, pretty quickly through there. So, anyway, and, and there’s also, you know, you know, I guess they’re maybe reading the, the tea leaves with the TikTok ban in the us There’s not a big step from TikTok is. Spying on us to Chinese smart watches and Chinese smartphones are spying on us. They’re already done. The Chinese, uh, solar panels are spying on us, and Chinese wifi routers are spying on us. And so there’s this whole, you know, China’s built back doors into chip sets because the CCP has made them do it kind of thing. And who knows? Could be true. Anyway, so moving themselves outside of China, it might be a little bit of a defensive mechanism for that too. Anyway, you wanna hear a fun historical story about Gorham, where they’ve moved [00:19:00] to Tony Kynaston: Of course I do. Sure. Cameron: in 1572, around about the same time Monta was writing hearkening back to our last show. When I said, I’m reading Monte’s essays in Goku. The Calvinists hanged 19 Franciscan Friars. Uh, not guys working in a, uh, you know, low end eatery, Tony Kynaston: Right. Cameron: but uh, Franciscan Tony Kynaston: Fast Cameron: Catholic Tony Kynaston: And when you say hang, they weren’t sort of put on the, they weren’t painters, they weren’t artists. And they were put on the, Cameron: No, Tony Kynaston: No. Okay. Cameron: no, They were hung for their belief in the transubstantiation. Tony, you were raised a good Catholic boy. Explain to everybody who wasn’t what transubstantiation is. Tony Kynaston: holy Communion. The conversion of the wafer into the body of Christ. Cameron: The bread becomes the literal body of Jesus that you then literally eat Tony Kynaston: Mm-hmm. Cameron: [00:20:00] in an act of cannibalism. And they were, they were told to, uh, reject that belief and they refuse to do it, so they were hung Tony Kynaston: Why do they pick Cameron: because Tony Kynaston: and not any Cameron: nothing is. Tony Kynaston: beliefs that Cameron: Eh, eh, eh, Protestants are funny. There’s nothing more fun than Christian on Christian violence because, you know, it’s the religion of peace and love, Tony. Tony Kynaston: I Cameron: So, uh, you, you, there’s nothing that says nothing that says peace and love more than hanging other Christians. Any who that’s gorham for you. Um, maybe that’s why they moved there. Um. They’re like, yeah, that’s so cool. Didn’t actually get hung. They got hung at a place called Brielle, but um, anyway, they were from Gorham just up the road. So the cheap end of the digital, what market is interesting, it’s insanely crowded. And the more I read about these, I’m like, why, why did I buy [00:21:00] an Apple watch? I mean, I dunno. I, I should just buy one of these things. I dunno if they were as, they’re not as good as you would expect. But for a quarter of the price, they seem to be pretty good. I looked at the Amazon reviews for these amaze fits and there’s some models that aren’t as good, but some of the models have really high, like 4.5 outta five star reviews from thousands of reviews. Like they’re, they seem to be very well liked by their customers. They have a 10 day battery life. I have to charge my Apple watch. Once or twice a day, which is no big deal. Like I, you know, on the power chargers that come with it, they charge, you get a full charge in like. Half an hour. So I go to bed at night, I plug it on the charger when I lie down and then I read and half an hour later I take it off the charger and put it on my wrist for the night. And usually when I’m at my desk in the morning, I put it on the charger on my desk even for another half an hour and it fully charges [00:22:00] again. And so it’s always fully charged. So for me it’s not a big deal ’cause I’m always near a charger. But if I was, when I travel. Like when I was in the US a couple of years ago and you’re traveling for 24 hours on planes, trains, and automobiles with John Candy, it’s, it is a little bit of a hassle, right? You have to put it on low power mode and all that kinda stuff. So these things stay charged for 10 days apparently, which is pretty good. But they don’t have the functionality of an Apple watch. It is huge. Yeah. Yeah. Tony Kynaston: I’ll tell you Michael, watch Cameron: So. Tony Kynaston: my friend who had one and we went to Mabb, the masters, the golf tournament in the US a couple of years ago. And uh, you’re not supposed to take phones or cameras into the masters. Um, ’cause they control what images that get broadcast We’re at the, the first, uh, green and everyone’s quiet while someone’s putting, and then my friend’s, my mate’s phone goes off, his Apple watch goes off because he’s got a sim card in it. And like, because he’s the only phone going off on [00:23:00] the course is really loud. Everyone just turns and looks at him had to, you know, sort of dash into the bushes and turn it off. Cameron: Wow. Tony Kynaston: Yeah. Cameron: Dash into the bushes to turn it off could have just, you just put your hand over it like that. Turns it off. Tony Kynaston: that first. But everyone’s looking at him you know, thinking about throwing Cameron: dashing, Tony Kynaston: yeah. Cameron: dashing into the bushes is a good look. Tony Kynaston: Yeah. Cameron: Did he come out dressed as Superman? Tony Kynaston: no. Cameron: Okay. Disappointing, Tony Kynaston: off. Cameron: disappointing into that story. Um, IDC clocks, 45.6 million wrist wearables were shipped in Q1 of 2025 alone. Tony Kynaston: Wow. Cameron: Apple QAV and shall me. Chew up about 46% of that, Tony Kynaston: Mm-hmm. Cameron: leaving 24 million units spread across all of the smaller brands, [00:24:00] including zPo. So, uh, you’ve got three brands that are about 50% and then hundreds of low-end brands chewing up the other 50%. But this is obviously why they’re trying to get themselves up to having some of the more high-end, uh, units. But cheapest chips is, is now the biggest slice. Um, anything under 200 US dollars is called a, a basic watch when the analysts are breaking down this. Um, size, uh, this part of the market. So there’s also the, just the fitness bands. These, this company has the fitness bands as well. So no screen, it’s just an app on your phone that tells you what your heart rate is and you wear it when you go for a jog and that sort of thing. Or a swim, or et cetera, et cetera. Um. So if you go into Amazon and I did this and you do a quick search for cheap smartwatch, it returns over 30,000 results [00:25:00] and a maze fit. If you type in smartwatch a maze fit, you get 2000 plus results in Amazon. So that’s before you filter for color, for strap for models. It’s incredible. Like it’s a huge, huge space and it’s all lookalike hardware, right? So you’ve got the rectangular apple watch models, which Chinese manufacturers, you know, are just churning out by the millions. Then you’ve got the ones that look more like a, a round. Um, whatever you like, A seko kind of a or a high-end thing. These guys have those too. And it’s really interesting, like if you look at the photos of them, you think it is a mechanical watch, but it’s not. They just have a face that looks like a mechanical watch. You can do that on the Apple watch too, with some third party tools. Apple doesn’t really, and they have got some simplistic ones, but these look [00:26:00] like really rugged, um, mechanical watch interfaces, but. It’s all touchscreen. The bill of materials for one of these is about between 18 and 28 US dollars. Tony Kynaston: wow. Cameron: That’s the kind of margins that we’re talking about. To build one of these things, get an os, throw an OS into it, build a watch, throw in an os, and it can be in Amazon in six weeks. I mean, there’s really no barrier to entry for these things at a base level. I am amazed that like it’s not, you know when when you’re doing a marketing spend and you’re getting tote bags and pens and that kinda stuff, people could be doing their own smart. Yeah. We’ll just give you a smart watch. Yeah, take a smart watch. Actually, that reminds me of what Sam Altman said on a podcast re recently. He’s looking forward to the day when they can give away a humanoid robot for the house. With your open AI subscription. Said, we’ll just send you a robot. Just have a robot here. Have a robot on us. [00:27:00] And a smartphone. ’cause they’re coming out with their own device soon too. Anyway, um. So you’ve got all of these low end, it’s sort of a race to the bottom with all of this kind of stuff. Some bands go for like 35, 40 US dollars, really low end stuff. So everything from that up to a couple of hundred dollars with a screen interfaces, the low end. So that’s the space that they’re playing in. Why are they so cheap? So. Them, their operating cash flow is about 35 US million. Um, kind of flat unit volumes recently though, but their price to operating cash flow is about 1.2, so dirt. Cheap from a, you know, priced operating cash flow perspective. The battery life is very good, as I said. Um, in fact, they’re just the band. If you have just [00:28:00] the fitness band, they, they have a 24 day battery life versus the Fitbit, which has six days. Tony Kynaston: why isn’t Apple just buying the batteries from this company to put in the Apple watch? Cameron: It’s about functionality, so the apple. Has way more functionality in it, you know, and much higher degrees of accurate, see on heart rate measurement and all the, there’s a bunch of YouTubes. I watched a couple where people will wear six watches of major and, and lower in brands for a month and do a, do a lot of bike rides and swimming and sleep and then show you. All the, the tracking and how they different, and these guys, some of their models have aren’t as good, honestly, and I, I don’t even know how much I trust the Apple one. And some of these are a lot less reliable, right. But they’re all getting better every [00:29:00] year. And, and AI is gonna be a big part of this, and this is what I’m getting to with these guys. So, um, they’ve verticalized these guys so they have custom silicon anyway, that, that keeps their battery. Uh, life long. They have a vertical firmware stack, so they avoid paying royalties to people like Google and their bill of materials can be quite low. They also have a China supply. Cluster for the basic part of the manufacturing. They do the, the finish in Vietnam, but some of the lower end stuff is done in China and it’s all nearby where their, uh, main manufacturing plant is based. So all of their parts suppliers next door, right. Tony Kynaston: Right. Cameron: They also have a fairly tiny, um, a DT. Uh, I think I worked it out. It’s about $75,000 as the a DT. So it’s small cap [00:30:00] stock from our perspective. Tiny free float too. About 6 million us. Um. So it’s not of interest to big funds, too small for big players. Um, but might be interesting to, you know, people that are on the lower end of an a DT spent. You know, if you’re looking at a 10, $15,000 parcel size, these guys might be in the sweet spot. Uh. So, what else have I got here? A lot of their money is still going into r and d. So I mentioned before that gross profit is positive. Net profit is negative. Spending a lot of money on r and d head office overhead, moving their head office to the Netherlands, moving their final stage manufacturing to Vietnam. A lot of marketing to drive their high-end brands. The AMA Fit and the Zep get away from the. [00:31:00] Low margin business. So they’ve been sinking a lot of stuff into that over the last couple of years. Big question is, do they survive, uh, and make it and to bigger volumes at bigger margins, or do they get squeezed out? Do they get acquired? What happens to them? We dunno, it’s, it’s one of these businesses that quite frankly could go either way. But if we look at some of the numbers that. Really matter. As I said, prop calf is very, very low. 1.2, 1.23. No dividend. Their F score is five, so it’s a, you know, middle of the road, slightly above middle of the road F score. But. The book value is really interesting. Book Value per share is US $15 90. The share price is $2 [00:32:00] 98. I. You’re muted. So I didn’t hear that, but I saw the Owen Wilson. Wow. I just saw your lips move. Wow. Yeah. Tony Kynaston: I’ve turned my phone, my mic off when, uh, you are talking because it’s very windy here. There’s probably some leakage going on. Cameron: No, I can’t hear it. Not unless you are creating the wind. It’s gonna be far away enough from the mic that we won’t hear it. Some leakage. Unless you’re the one with the leakage, don’t worry about it. Uh, the directors, uh, the CEO and the CFO own about 6%, blow the 10%, so I didn’t score them for that, but they do have some skin in the game, just, uh, not enough for us to score it. Um, so positive cash flow gadget maker trading at about one fifth of book, getting rid of its worst business line. They’ve made a lot of pretty interesting management decisions recently, getting rid of staff moving, et cetera, et cetera, but. [00:33:00] The AI thing is what I wanna, uh, talk about. So they’ve massively increased the amount of people on their AI team. The CEO, uh, Wayne Huang is really focused on this idea of LLM in a watch. He sees that as the future. And I think this is the smart play, honestly. I mean, we know that Apple is really struggling to come up with an AI offering that works at their most recent, um. Announcement day, they had, can’t even remember what they call them anymore. A couple of weeks ago, uh, they basically fell on their sword over their big AI announcements that they’d made a, a year earlier. They were like, yeah, we, we couldn’t deliver on any of that. Uh, we thought we could and we couldn’t. So the rumors in the industry is that they’re looking to buy one of the. [00:34:00] Top tier players that aren’t open AI or Google or Anthropic, they might buy perplexity is the rumor at the moment. Uh, and just sort of integrate it into their thing. But there’s gonna be a huge opportunity, like the, the next version of wearable devices is an onboard AI that is. Listening to everything that happens, tracking everything. Um, basically your go-to personal assistant that, um, is on your wrist or in your ear or on your eyes, and there are gonna be the top tier, like there’s already meta glasses and. As I said before, OpenAI bought Johnny i’s business for $6 billion, uh, recently, and they’re gonna come out with, um, a device. They haven’t said what all of they, all they’ve said is it’s not a phone, but it’s gonna be some sort of wearable carry around always on AI device. But it’ll be [00:35:00] expensive too, I imagine until they give it. Unless they give it away with one of their top tier subscriptions. These guys are going for the low. Hmm. Tony Kynaston: you see the review and the Fin Review this weekend about, um, just such a. Device. It’s a broach, it’s got a magnetic clip. It’s about the size of an apple eag, and you clip it onto your shirt or your dress or whatever, and, uh, it, it listens in records. it seemed to be really just used for you dictating notes. Like if you have a thought, you just say it out loud and then come back with an AI version of what you’ve said, tidy basically. Cameron: I’ve seen a number of those have come out over the last year. Most of them have failed, like gone outta business because they just can’t sell ’em. ’cause usually they don’t work very well. They’re flaky, but I, I dunno, this one you’re talking about, maybe they’ve nailed it, but you know, there’s gonna be like, there’s a million low-end smart watches in the next few [00:36:00] years. There’ll be a million low-end devices that do that kind of thing. And I. Look, I find it incredibly useful. Like I’m talking to AI all day long, so is Chrissy. We both live Fox too. We all talk to ChatGPT about everything all day long and uh, I know you’re giving me that skeptical look, but most people will be doing the same thing in the next few years. Tony Kynaston: not what, that’s not what I’m doing. find it Cameron: I know, I know. But most people will be doing it in the next few years. Um, using it for note taking and reminders, but also just basic questions about things that you wanna know. I. I guess simple stuff. I was doing notes on for our last show about gold companies, and I couldn’t remember the name of the gold company where the CEO was arrested in Africa, and I went through my notes and I couldn’t find it quickly. I just said to Chae, Hey. About a year ago, there was an [00:37:00] Australian mining company operating in Africa. The CEO got arrested, held for a week or so, and then was released ’cause they wanted to squeeze more tax out of him. Who was that? And it was like, well, that was Resolute Mining and the CEO and it was in Mali. And I was like, yeah, that was him. Thanks. Like, why am I wasting my time going through my notes? I just asked AI who it was, and it’ll tell me. I’m like, yeah, yeah, that’s who it was. Yeah, yeah, yeah, yeah. That kind of stuff, right? I mean, just sitting stuff that you might have Googled 10 years ago. You don’t Google anymore, you ask cha. Anyway, these, these guys, I think he’s just increased his AI team from 80 people up to 120 people. And you know, we’ve seen these Chinese companies like Deep Seek, um, and Quinn, there’s a, there’s a ton of AI startups coming out of China these days that are, if not as good as the leading US companies, almost as good, but they’re doing it on. 1000th of the, uh, investment and the smaller teams, [00:38:00] and they’re, they’re lean and mean and doing a good enough job. Um, and they’re free. And, you know, they don’t have the same sort of limitations that some of the top tier US models do. So I think this is where these guys are headed over the next, um, few years. The, and you know, but I, we’re not gonna forecast, we’re not gonna invest based on predictions and forecasts, but I. You know, they meet some of the metrics as it is, and then they’re pushing hard into this stuff. Not only from in terms of the other stuff that I talked about, but a lot of health based stuff, like more accurate health readings because the AI is able to do a much better job of analyzing the data, generative AI workout plans. Um, you know, uh, have a camera on your device that you take a photo of your meal and it does your calorie counts and, you know, pretty much my entire weight loss, um, success in the last year is based [00:39:00] on cha EPT, I mean, using cha EPT to guide and monitor and track the whole thing the whole way along. I couldn’t have done it without ai. So we’re at the very early stages. It. Yeah, it was a combination. I did kung fu for years without losing weight, and then I said to GPT, okay, I’m doing a lot of Kung Fu, I’m not losing weight. He goes, well, you’re probably eating too much. I’m like, okay, let’s start to track my calories. I. More and let’s, let’s cut my calories by 500 calories a day. What should I eat? How should I eat it? When should I eat it? You know, how do I do that? How do I cut my calorie account but still keep my new nutritional levels correct? Get enough protein, enough fiber, enough nutrients, you know, it’s guided me through that whole process Anyway, um. Let me just, uh, go through the raw numbers for you. As I said, price, price is less than book. We scored it for that. Plus of course, less than book plus 30. Price is, uh, price to operating Cashflow is less than seven. Petrovsky [00:40:00] score is greater than four and a half. Um, what it failed on was the IVs. It, it did pass. Um. IV number two, greater than double the price the first time around until I rejigged it for RMB, and then it failed the IV metrics. It fails quality rank, it fails stock rank. Um, quality rank is 40 and stock edia stock rank is 60. Um, yield doesn’t have one, so it’s not greater than the bank debt Growth over pe um, is not getting a score because there is no pe. Um, so it, it, um, fails on a lot of those basic metrics, but. It’s making money, even though it’s spending a lot on r and d and those other sorts of things. And it’s, you know, making a lot of good strategic decisions. It’s building a, you know, it’s investing in this ai, it’s investing in building up its primary, [00:41:00] core, high margin business. Um. Whether or not it survives. If it doesn’t survive, it might get taken private or it might get, Xiaomi does have an option to buy it back. I think it’s got some sort of an exclusive pact, which lapses next year. So they might scoop it up, uh, at some sort of a premium, um, or, you know, or, uh, one of these EU med tech firms like Philip or ResMed might scoop it up or it could just go outta business. All sorts of things could happen here, but. On paper. I thought, yeah, I like this. I like the play, I like it. I like what they’re doing. They seem to be doing their best to handle some of the challenges of the last few years, and I think it’s cool. So that is Zep. Tony, what do you think? Tony Kynaston: Yeah. Thank you. I love the valuation of buying it so cheaply. It to me. That’s always how you, how you work out, whether the risk is worth taking and it’s, um, [00:42:00] in the price, isn’t it? If you get paid back within a year or pay back within two years, then takes sort of the risk off the tables. The company’s only gotta survive for another year to get your money back. So, yeah, I think it, I think it’s, uh, looks, I’ve got no opinion on whether. Low cost, smart watches are the way to go, or AI is gonna be a thing. But um, yeah, something for Cameron: Actually Tony Kynaston: at one times cash flow, it seems like almost a no brainer for Cameron: one up. Tony Kynaston: all the risk off the table. Cameron: I didn’t mention too, like they have 45 million customers. I mean, they’re not a startup that hasn’t done anything. They’ve, they’ve been around since 2013, right? They’ve been around for over a decade, 43 million customers. You know, they’re being sold in millions of millions of countries being sold all over the world. Um. You know there we were talking off air, you said We don’t often see in Australia, we don’t often see businesses like this that are not [00:43:00] making a profit. So it is a technology business that’s been around for a long time, is making money. Although it’s reinvesting all of that back into the business. But is also low Pr/OpCaf, like a lot of tech. If there are tech businesses in Australia that are growing fast and not making a profit, but seeing, and they have a great story, we’re gonna have a billion customers and we’re gonna take over this and take over that. They usually, their PEs are insane and their valuations are insane, and we won’t even look at them because. They’re nowhere close to being a, a value buy for us. These guys are, you know, sort of the best of both worlds. They are a tech business. There is a potential growth story there. They’re not a cigar butt stock that’s, you know, they’re not Berkshire Hathaway with bloody whatever the original business was when Warren bought it. What was it like cotton mills? Tony Kynaston: Yeah. Cameron: not a [00:44:00] dying industry here. It’s uh. Exploding industry with a lot of competition. Yes. But it’s an exploding industry, but it’s also really, really cheap, um, for us. So anyway, that’s, Tony Kynaston: I think the, interesting Cameron: yeah. Tony Kynaston: that there’s not big free float for a large company. So that’s the interesting thing. It Cameron: Yeah. Tony Kynaston: of, uh, as you said, large funds or any funds outta the market for it, allows us to buy in. But it can be good and bad because, um, if there is a takeover for the company and the founders agree to it, it’ll be at a premium, a large premium, which means the minor shareholders will make out really well. Usually, but it can go the other way too. If there’s a profit downgrade or whatever, then, um, yeah, and there’s not, not much trade. It’s thinly traded, so the price can move a lot, is what I’m getting at. Really. Uh, Cameron: Yeah. Tony Kynaston: a leverage price move. Yeah. Cameron: I didn’t, I didn’t actually talk about their recurring revenues too. They have a [00:45:00] subscription based sleep and coaching service that’s Tony Kynaston: Mm-hmm. Cameron: got much higher margins than the hardware. Um, I. So, yeah, and they’ve got 200 million devices that, um, are sitting on recurring data plus a training pipe because they collect data from all those devices too and feed them back into their ai. Anyway, that’s zep. So not a recommendation. Do your own research, do your own work, but on the surface of it, I think it’s worth a look. Tony Kynaston: Yeah. Thanks Cam. Very interesting company. Cameron: That is QAV America for this week. Tony Kynaston: And if there are any Australian listeners out there, the RBA has kept rates on hold. Cameron: Whoa. Tony Kynaston: Mm. Cameron: Beers are on Tony tonight. Tony Kynaston: No, no. I I want them to cut so they’re, uh, Cameron: I know, that’s what I’m saying. You got it wrong. You gotta buy the beers. Tony Kynaston: Ah, Anyway, market’s down a quarter of 1% in Australia now. Not [00:46:00] quite much as Wall Street, but, uh, it’s reversed where it was going before we started recording. Cameron: It’s funny because I didn’t read the Fin story that I had in my notes, but it was market widely expects an RBA rate cut except these five economists, Tony Kynaston: they all Cameron: traders, and economists. No, but, uh, it was guys at Citi Beta shares, Morgan’s Financial and Macroeconomics Advisory said they expect, oh, bank of America was the fifth, said that they thought. They would hold. So there you go. Good day to be one of those five economists. Tony Kynaston: can our US listeners get Donald Trump to write a tweet? Too slow? Too slow. The dumb Cameron: Yeah. Tony Kynaston: he’s Cameron: Fire the oak. Do you think Australia Tri? I know Trump can’t fire the US Reserve Bank Governor. Can he fire the Australian Reserve Bank Governor. Tony Kynaston: No, but it could double our tariffs until she goes. Cameron: Ah, there you go. Sorry, [00:47:00] Michelle. All right. Thank you, Tony. Tony Kynaston: Cam. Grace: This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular stock. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular stock you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a stock. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. Free Podcast Archives 

Jul 11, 2025

47m
4

QAV America 12.2 – Self-Coups and Steel Stocks

Cam and Tony dive deep into the performance of the QAV USA portfolio, which beat the S&P 500 handsomely with a 28.5% return over the last 12 months. The highlight of the episode is a rich and surprisingly wild pulled pork on Korean steel giant POSCO (PKX), including its transformation from a state-owned dinosaur into a cash-gushing, lithium-investing modern behemoth. Cam throws in a history lesson on South Korea’s postwar dictatorship, self-coups, and assassinations, making this one of the more cinematic episodes yet. They also discuss the removal of the Z-score from the checklist, U.S. tariffs, Trump’s fluctuating relationship with Elon Musk, and why lithium is flashing a buy signal.   ### **🕒 Timestamps & Key Topics** – **[00:00] Portfolio Update** – QAV USA beats S&P 500: 28.5% vs. 13.6%. – **[01:50] Z-score Removal** – Why the bankruptcy Z-score is out of the checklist. – **[04:00] U.S. News Roundup** – 90-day tariff pause, Elon’s political party, Trump’s Neuralink drama. – **[08:00] Currency Talk** – USD’s worst start to a year since 1973. – **[09:00] Pulled Pork: POSCO (PKX)** Transcription   [00:00:00] Cameron: Welcome back to QAV America tk. This is episode 12 of QAV America. It’s been, uh, it’s been the end of the financial year in Australia. Tony. I know Americans probably won’t appreciate this, but for us it’s the beginning of a new financial year. We’re recording this on the 1st of July, 2025. And, uh, now Australian show that we just finished, I did talk about our US portfolio. So Tony Kynaston: Mm-hmm. Cameron: List, it’s just the last 12 months. You don’t have to think about it as a financial year, but. It closed up about 28.5% for the last 12 months versus the s and p 500, which was up about 13.6%. So good year for our US portfolio. Not as good as it was months ago pre-Trump when we were up about 60% for the year already. But you know, I’m not gonna [00:01:00] turn my nose up at a 28% for the year. So. Tony Kynaston: Correct. What would Bill, what would baby, what would Baby Billy say about that Cam? Cameron: say, come on now. now, baby Billy from the Righteous Gemstones. If you haven’t watched that TV show, uh, Danny McBride show. Love it. Just finished. Great show. Um, Tony, uh, also on our Australian show, I mentioned the Z score. And we, we talked a lot about Stockopedia in the Zed score and whether or not we want to keep it in our checklist or not, we decided to rip it out that, uh, it is gonna come up in the pulled pork I’m gonna do today on Korean Steelmaker, or posco. uh, just for any US listeners that are using our checklist. I’ll have a new version up this week where I’m gonna rip out the Zed score. It’s, uh, ZED scores, the ZED scores for manufacturing, the [00:02:00] ZED scores for non-manufacturing, and they don’t apply for financials. And it’s very busy and it’s very messy. And we just decided we have enough other financial metrics that we’re using to assess these companies. And we have our sell triggers if they start to go south, both for the commodities and also for the. Business itself, its share price. So we think we’re pretty well protected. We don’t need the extra layer of protection of the Z bankruptcy So we’re gonna be removing that and you can get a new version of our checklist if you’re using it sometime after this episode comes out. Tony Kynaston: I just, just one thing to add. Um. I mean, you did reconcile the Zed scores to the Australian checklist that we were using from a different source, and they were a bit all over the place, but the F score was a much better match for what we had been used to for the last five years. So I’m, you know, confident that the fco, uh, fine. And there’s nothing wrong with the Zed score, but we just couldn’t get it to [00:03:00] correlate with what we were seeing from the other data sources we’d used before. Cameron: And partly as we said on the Australian show, partly that’s because the original Z score, which was developed in the sixties was looking at manufacturing companies and we don’t have a lot of manufacturing companies end up on our checklist in Australia. Tony Kynaston: Mm-hmm. Cameron: a lot of manufacturing companies ending up in our buy list. In the US that are based in the US either, I mean. I dunno if we could maybe say Ford as a manufacturing business, I guess, but probably not. one I’m gonna do today is based actually in Korea. It’s just got an a DR on the, uh, New York Stock Exchange. So, um. But it is, but there’s just too many messy variations of it for our purposes, and I don’t think it’s worth the effort and trouble it would take to reconcile all of them for all of the different stocks that we have in terms of us, uh, market news, Tony. Um. You know, it’s this [00:04:00] sort of the 90 day tariff pause is coming to an end. Supposedly lots of countries are trying to sign deals with the us whether or not those deals are much different to the deals they already had in place before Liberation Day. We’ll find out when we know more, but the big beautiful bill is still yet to pass through the Senate. Our old friend Elon Musk, has become a little bit vocal again in the last few days against the bill. I’m not sure if he had the Neuralink chip taken out or put back in or rebooted or upgraded, I think it was glitching for a few Tony Kynaston: Right. He walked past a big magnet. Yeah. Cameron: Yeah. Um, oh, I gotta, so you, this is completely got nothing to do with investing, but, um, do you know who Bob Ezrin [00:05:00] is? Tony Kynaston: I do not. Cameron: One of the greatest record producers of all time, uh, in the seventies. was the producer behind some of Lou Reed’s best albums. Alice Cooper’s Best albums, Kiss’s Best Albums, uh, was one of the great record producers of the seventies, but he also produced. The wall for Pink Floyd, and I was watching a bit of an interview with him the other day talking about the production value of the wall. And you still, you put it on E listen today, something like comfortably numb and it’s just magnificent, the sound and the ambiance and everything. And he was going into great detail in this talk, talking about magnetic tape, and he said when they recorded the Drummond bass. Four comfortably numb. He said, we, we, we made one copy of it, which was a mono copy to put in on our 24 track. He said, we recorded it on a 16 track, we put it in a safe and locked it away [00:06:00] for months and months and months and didn’t listen to it. He said, because every time you pass a magnetic tape over a tape head, Tony Kynaston: All right. Cameron: It’s deteriorating, it’s pulling atoms, shredding atoms off of the tape, which lessens the quality. So we had this really dinky mono version of it on our 24 track that we were using as the backing track. then right at the end, they’d used all the other tracks on the 24 track They, and so they had to delete the drum and bass. Backing track and pull this one out of the safe and put it in. So it was had this pristine quality to it, but he was like so deeply passionate about talking about. Magnetic tape and atoms and all of the stuff to get this quality. I really, I dug it. It was really, really cool. Anyway, back to Elon. Yeah. Elon Elon’s, chip Malfunctional, he took more ketamine, less ketamine. I dunno what’s going on. But, uh, anyway, he’s saying, he’s now saying in the New York Times today is covering this, that [00:07:00] he is promising a new political party if the G-O-B-G-O-P bill passes his new America party. That will challenge Republicans. Um, so it’s back on Trump 2.0, 3.0, whatever 0.0 this is, I’m not sure how many iterations of their relationship we’ve had in the last year. They hated each other, then they were best friends, then they hated each other. Then they’re okay again, and now they’re gonna war again. So watch this space. Tony Kynaston: And meanwhile, the share market just chugs along, doesn’t it? Cameron: Share market does, but the dollar’s not too great. The dollar’s had its worst start to a year since 1973. Continues to slide. Even as President Trump has backed down from his tariff threats and the US stock market has recovered from its losses. According to the New York’s Times, United States currency is weakened more than 10% over the past six months when compared with a basket of currencies from the country’s major trading partners. [00:08:00] The last time the dollar weakened so much at the start of the year was 1973 after the United States had made a seismic shift that had ended the linking of the dollar to the price of gold. So not a good thing for the US economy. Tony Kynaston: Well, yes and no. It’s not a good thing if you are buying overseas items and you’re living in the us but if you’re exporting them, it’s a good thing they become cheaper to your customers. So, um, depends how you look at it. Cameron: that’s right. There’s always two sides of the Tony Kynaston: Mm-hmm. Cameron: the FX coin. Well, speaking of which, unless you’ve got any other US news, I’ll get into my pulled pork. Tony Kynaston: No, please do I, I do. Cameron: Well, this is another, uh, foreign company, as I said, and a fascinating one. Uh, again, I really learned a lot of stuff about businesses I didn’t know and countries that I didn’t know. And I’m gonna gonna take us down a couple of [00:09:00] rabbit holes, historical rabbit holes. I hope everyone’s got their. Um, comfy pants on ’cause we’re gonna, gonna do a Cameron pull pork, which is a lot of completely irrelevant, slightly connected historical dive. I said, this company’s called Posco POSCO Holdings. A DR Outta Korea on the New York Stock Exchange. We talked about ADRs a bit last week. There a behemoth Korea’s steel behemoth cranking out roughly 40 million tons of crude steel a year out of the pong and guang yang mills. Plus they have diversified now into battery materials, LNG, and a construction business, but 75% of their revenue still comes from churning at steel. one of the battery side of things is an interesting lithium processing plant. Uh, [00:10:00] in, you know, taking brine and converting it into lithium in Argentina, which they’re, uh, about to, I think it’s about to go into production this year. Got more on that. Later on. They’ve got some green hydrogen projects like our friend Fortescue Metals. they’re doing a lot of, um, green steel, green energy stuff as well as steel production. Quite diversified, but mostly steel. Steel according to their website, and I did confirm this in other sources, they have been voted World Steel Dynamics, WSD. The world’s most competitive steel maker for the last 15 years. Running 15 consecutive years is the world’s most competitive steel maker. Tony Kynaston: What does that mean? Cameron: that was the question I had. What does that mean? Do they have like relay races and Tony Kynaston: Yeah, Cameron: out there? High jump [00:11:00] swimming, triathlon? What do they do? Tony Kynaston: yeah. Steal Olympics. Cameron: It looks at a bunch of different things. It looks at, uh, yeah, how much they produce and dollar cost and all sorts of different things that I’m not gonna go into ’cause it’s really boring. But apparently it means that they’re very, very good at making steel or is really what it means. They also run the world’s largest integrated steelworks in Guang Young in Korea. And they are the world’s seventh largest steel producer. whether or not they will still be that when Nip on Steel buys US Steel, I’m not sure if that makes them Tony Kynaston: Mm-hmm. Cameron: or eighth or somewhere in that vicinity. I’m not sure how that’ll break out, but that’ll, up there. They’re not the biggest producer in terms of output, but they’re, um, one of the biggest in the world. In 2020, they became the first [00:12:00] Asian steel maker to commit to net zero by 2050. So they’re really pushing hard on low carbon steel making with their hydrogen iron making process, et cetera, et cetera. They’ve got a technology called hix, uh, which is a hydrogen reduction iron making technology. They’ve also got a thing called fine X, fine X and Um, but the background of the company is interesting. So they started off as a state owned company, 1968, when the dictator of South Korea hun, was sort of revolutionizing the Korean economy, the economic miracle of South Korea. Uh, basically he realized they needed to have, uh, independence in terms of steel, something that [00:13:00] the Chinese were trying to do. At the same time, uh, they were relying too much on foreign imports. They needed to have their own, uh, manufacturing capability. So they borrowed money from the us, from the IMF, from Japan. They got in a bunch of engineers from the us, US Steel Engineers. And built their own steel manufacturing capability. Uh, according to company legend, when they were about to get ready to roll their first steel, there was this, um, foreign exchange crunch that was happening in South Korea. They’d basically run out of USD to pay for imports. They were importing so much the founder of. What was then known as PO Hang, iron and Steel, park Jun, uh, who was hand selected by Pshe to run this. They were old ex-military buddies. He had to, uh, pawn [00:14:00] his own medals from the Korean War order to. Meet the payroll and then they got them back somehow. And legend says the workers melted them into the first steel pour out of the factory. Can’t really back that up, but, uh, that’s the, some of the mythology behind the company. Tony Kynaston: So, so, so he poured these metals, got them back, and then the worker said, Hey, give us the metals we’ve gotta use for them. Yeah. Cameron: yeah, Tony Kynaston: Yeah. Cameron: gonna melt it. We, we, we just, we we’re short for the first pour just by of grams of metal. Tony Kynaston: Right. Cameron: Uh, but I wanted to just drill down on the story of Park Chiney be and his dictatorship of, ’cause I’m, I dunno how many people listening to this are aware of South Korean history. But because I’ve done a lot of history episodes on. The Korean War on my Cold War show, I know a little bit about this, mostly forties in the fifties, but a little bit into the sixties in the seventies. [00:15:00] So Chuck, uh, chuge was the third president of Korea, but he seized power in a military coup in 1961. It’s known as the five 16, um, military coup as the 16th of May, 1961. And then he basically ran a military junta for a couple of years, and then was elected president in 1963 and stayed there until he was assassinated in 1979. I think a lot of people in the West think of South Korea as the good, nice, happy. Uh, Gangam style, K-pop band, Korea and North Korea is the one run by military dictators. When South Korea was run by military dictators up until very, very recently, and then when it became a democracy, I. It, uh, uh, has put nearly every president into jail that it’s had, they’ve either committed suicide or they’ve been put in jail since [00:16:00] the, Tony Kynaston: I dunno. Cameron: when they sort of tried to clean up their act, including Park Hay’s daughter. I’ll get to that. So I. Um, he, he ran South Korea in this period, in the sixties and seventies when it really did explode as an economic miracle. He was very, very tight with the us, a lot of us money in there, a lot of Japanese money in there. it was also the era where they saw the, the foundation of the. Uh, cha Balls, the run firms that include these days. Hyundai, lg, Samsung, the, the Korean version of the, um, Japanese ISU companies. Right? Um, he was a general in the South Korean army, uh, when he did the coup in 61. Then. W became whether he had elections again a couple of years later, was the president until the early seventies when there started to be some serious political opposition. Then he did a self coup. It was my favorite kind of coup is the self Tony Kynaston: A self food Cameron: Self [00:17:00] coup. Yeah. You ever heard of a self coup? Tony Kynaston: I have. Uh, is that like a suicide squad? Like Cameron: no. Well, Tony Kynaston: No. Okay. Cameron: everyone else in the government except yourself. So, um, he was the Tony Kynaston: That’s just cleaning house for a dictator though, isn’t it? Cameron: Well, yes, but he had been elected president. Supposedly they had, it was a democracy. They had the third Republic, I think it was called at the time. But uh, then he was like, you know what? To hell with all this republic nonsense and just turned it into a dictatorship again. So it became a dictatorship. He declared martial law ruled as a dictator. I think Trump’s been studying his biography pretty, pretty closely, and then he was assassinated by his close friend. Kim Ja, in 1979, he was the director of the Korean CIA. Uh, he’d been put into p Power by the president or the, the dictator as he was then, and, [00:18:00] um, they sort of had a falling out. The, the president had appointed the, this other guy called Kim, who was the, uh, also called Kim, who was the head of his like security service, like the. Presidential Security service and he and the head of the CIA, um, hated each other and there was a banquet. the president used to throw lots of banquets. He threw like 10 banquets a month. ’cause you know it’s good to be the king. And they were at this banquet and, and the president and the head of his security service were both just insulting the head of the CIA, the Korean CIA. And, um, he just, he left the room, went out to his guys and said, all right, we’re doing it. And he went in. the president, killed the head of the security detail, his guys outside the room killed the bodyguards, killed the presidential chauffeur and tried to get away with it, but they didn’t, and they all got arrested. [00:19:00] The guys, the head of the CIA was executed by hanging, uh, in 1980, but the park’s daughter, the president’s daughter, uh. Ended up being the 11th president of South Korea 2013 until she was impeached and convicted of corruption charges in 2017. Sentenced to 32 years in jail, uh, but then got, uh, given a pardon and released a few years later by the incoming president in 2021. So she was released in 2022. But, um, a couple of months after her dad did the coup, he, um, assigned Park Jun as the chief Secretary the National Reconstruction Council and then him in charge of building the steel [00:20:00] business. So that’s how it was the dictator. it was a military junta at the time who put this guy who’s an old army buddy of his in control of building what is now posco, the steel business, the friendly, environmentally friendly steel business. So that’s my South Korean history lesson for the day. Tony Kynaston: Oh, thank you. Cameron: self COOs, assassinations, corruption for daughters. remember when that case was going on. It was bonkers. Like all the, if, if you want a fun, read one weekend, just look up the history of all the South Korean presidents in the last 20 years. just mad. All the Tony Kynaston: Okay. Cameron: and suicides and, uh, all of it’s dirty. Tony Kynaston: Haven’t they, they had a replay of some of that recently with the, uh, didn’t someone declare martial law and then get removed and Cameron: yeah, Tony Kynaston: back in? Yeah. Cameron: yeah, yeah, yeah. It’s going on all the time. It’s completely Tony Kynaston: Hmm. Cameron: Anyway, [00:21:00] um, company just grew really, really quickly, uh, in the seventies. Did really, really well. I. Ended up struggling in the late nineties when the Asian debt crisis hit Tony Kynaston: Mm-hmm. Cameron: and they ended up being privatized by the South Korean government. That’s when they listed an A DR on the New York Stock Exchange fully pri uh, for early stage of it the, uh, of the privatization. The Korean government still owned some stock and it was fully privatized. Eventually, I think Tony Kynaston: Right. Cameron: something like that. Then in 2022, it spun into Poco Holdings and they pledged that Non-steel profits would hit 50% of group earnings by 2030 they would triple the market cap. currently about 25% non steel, so they’re getting there, still is still three quarters of it. As I said earlier. They’ve had a [00:22:00] few issues, uh, over the last couple of years. If you look at their share price, it’s taken a big hit in the last couple of years, largely down to two things as far as I could tell. One was finer demand. they’re a bit like, I think over 30% of their exports go to China. A lot of it goes into domestic stuff, but, um. Good chunk of it. Third of it goes to China. And in Australia we know that when, uh, China’s manufacturing slows down or their construction slows down, how it impacts like iron ore in this country, in uranium to a lesser extent, but mostly iron ore. And same with these guys. Whenever China’s, uh, puts a bit of a halt on these sorts of things, it impacts their business. But then there was a massive typhoon. That hit South Korea in 2022 and their mills were basically flooded shut. of the main, uh, places mills up [00:23:00] for 76 days. So in 2022, combination of China and that their operating profit fell 46%. Half of that was due to the flood shutdown. They took a 1.3 trillion one impairment sweep in 2024. Korean W for people wondering what a w is. And Tony Kynaston: Well, how much, what’s a one worth? Cameron: what do, do you want? Uh, it’s, uh, God, ask me that. I have Tony Kynaston: I will look it up, or you keep going. You keep going. I’ll look it up Cameron: Uh, I’ve got my, yeah, I did have, I had to do the bloody calculation Tony Kynaston: and a bit. Cameron: like last week’s it, um, threw some of my numbers out. Hold on, let me open my spreadsheet. I should have those numbers in front of me Anyway. Tony Kynaston: Ooh, 0.00074 US dollar is one South Korean wine, Cameron: [00:24:00] That’s it. Yeah. Tony Kynaston: so one US dollar is about 1,350 Korean wine. I. Cameron: don’t have to talk trillions. So, uh, let me see. Where am I? So they, they’ve had a rough couple of years. Um, Tony Kynaston: it’s pretty hard to operate a steel furnace when the place is flooded, isn’t it? It’s. Cameron: look, I don’t know that much about steel manufacturing Tony, but one would think could be, could be tricky. I wanna talk about some of their other lines of business though, ’cause some, some interesting stuff going on. Um, I mentioned they’ve got infrastructure, which is energy trading, and there’s also a construction arm there, Battery materials is interesting too. We’re gonna talk about lithium a bit. Lithium, by the way, mentioned on the last show is a buy on our commodity, uh, tracker. So it means that we, if we had lithium [00:25:00] stocks in our checklist, which we don’t in the in Australia, but if we did. could buy them. These guys wouldn’t be a lithium buy for us ’cause majority of their revenue is still coming outta steel. But steel is also a sell, as you pointed out in our last show. So we wouldn’t actually buy these guys at the moment. We would wait for steel to become a buy again. But, uh, I’m talking about ’em anyway because why not? ’cause it’s hard to find things to. Talk about on our US buy list that aren’t shipping companies, or financial services companies, which were the first two that I looked at again this week were financial services and shipping. And I was like, no, not going there. Again, they own a bunch of gas fields. They’ve got this full LNG chain. They go upstream, gas fields, Myanmar in Australia, a place called Cenex, and in Malaysia, the Lion Basin. They pipe the gas to Inchon and Guan Yang terminals, they sell it via its trading desks and [00:26:00] um, you know, keep some of it to burning in, uh, South Korea. But basically they own a whole bunch of LNG related business, which is starting to do quite well and is growing. is seven. M-T-P-A-L-N-G turnover in 2000 and by 2027 MEGATON per annum. I think. Don’t ask me what MT stands for, but it’s a lot. They also have, uh, a trading arm. They trade steel non-ferrous metals, grain motor core parts to over 80 countries. sales were roughly 23,000,000,000,001. Quickly convert that to USD for me, Tony. Tony Kynaston: Divide by 1300. Cameron: I dunno, Tony Kynaston: Dunno. Cameron: but, uh, it contributed about 55% of, [00:27:00] uh, no, sorry, energy contributed about 55% of the operating profit for this division this year. I. Last year, Um, volumes were good in Myanmar and its first full year liftings from Cenex Australia. Were good, which offset the weaker commodity prices. know what LNG is like. It’s up and down like a bride’s 90 at the moment. As is crude, as are of Tony Kynaston: Mm-hmm. Cameron: To be honest, the world’s commodity markets are kind of shaky at the moment. So, but they’ve got this Malaysian thing coming online too this year. They’ve also got this, um, they’re like construction business. Uh, they design and build steel mills, coke ovens, both internally and for external clients. Lithium cathode plants, l and g tanks, power plants, domestic high rise apartments and civil works. So it’s a whole other arm [00:28:00] of the company that’s doing quite well. Uh, although the amount of work that they have apparently swings pretty violently. But um, you know, that’s the nature of large construction projects. I guess. You win them and they have a big ramp up time and you’re locked in for a couple of years. Why it’s working and why it’s cheap. So despite all of the issues that I mentioned earlier with in China, et cetera, they’re pulling in a ton of cash. So they, in 2024, they pulled in 7.2 trillion one of operating cash, which is roughly 5.3 billion US dollars. And they have a price to operating cashflow of about 2.6 times, which is Tony Kynaston: Wow. Cameron: buy list. So Tony Kynaston: Hmm Cameron: cheap from a cashflow perspective. Tony Kynaston: hmm. Cameron: And [00:29:00] they’ve got a couple of, I dunno if these are moats, but a couple of significant edges that may not be being taken into account in terms of their valuation. I mentioned the Guan Young Meal. It’s number, it’s the world, the, sorry, lemme start again. The Guan Young number three mill. They’ve got a couple. There is the world’s largest single blast furnace, and the scale of it enables them to underprice most of their competitors, which maybe is why they win their most competitive steelworks. um, title that were mentioned earlier by 20 to 30 US dollars a ton. despite what my wife told me, size does matter. Tony, when it comes to steel plants. uh, they have the proprietary low carbon tech that they’re pushing hard on, which means that. [00:30:00] They can, um, compete in low carbon. Projects where you know, people are insisting that you Tony Kynaston: Mm-hmm. Cameron: carbon solution for your manufacturing or delivering steel, and they’re also of an iconic company in. South Korea. So the fact that they’re not state owned anymore doesn’t mean that they’re not sort of protected, as I understand it by the, um, Korean government. If they get into sticky times, commonly believed that the South Korean government would probably give them a cozy bailout if anything really, really bad happened. So despite having a relatively low Z one score about 1.8. Whether or not they’re an actual bankruptcy risk is debatable. I mean, they could take a big hit. We know [00:31:00] that when governments come in to bail out, it’s not necessarily a good thing for shareholders, but we have, we have our for getting out of things before they Tony Kynaston: Yeah. Cameron: it’s happens overnight and you, you know, can’t get out, that’s always a risk. Um, why it might be wearing a discount? Uh, China is apparently over capacity at the Tony Kynaston: Right. Cameron: steel and construction, all those sorts of things. At the moment. The lithium price collapsed, but as I said, it’s just starting to turn around again Tony Kynaston: Mm-hmm. Cameron: You know, we’re, um, tracking that steel is still a sell though. to reiterate that. And the 2024 impairment, san operating profit by 38%, the Altman ratio, as I said, probably scares some of the quants off, but it, it’s also got, you know, some, it’s got the volatility of the US tariff staff. Big tariffs Tony Kynaston: Mm-hmm. Cameron: like 50% nip on steel buying US steel, what that’s gonna mean for them [00:32:00] to be able to export to the US market, although they do have some plays in that, which I’ll get to in a minute. I just wanted to talk, uh, a little bit about the lithium play. So there’s this place in Argentina that they’ve bought called Sal Dior. It’s brine. Now I know nothing about this, uh, about how lithium is produced, but basically you can take salty water and turn it into lithium. Um, apparently it’s how it works. They aim to produce, I. 23,000 tons per year of lithium carbonate starting in 2025. 2026, they have a goal to get a total production capacity of a hundred thousand tons per year of both lithium carbonate and lithium hydroxide. And that’s apparently a big deal. So basically you take, so there’s lithium in salt water. You got GPT to gimme a breakdown on this. I’m not gonna go over it in too much detail, but essentially [00:33:00] water, a lot of lithium that’s come out of. You know, hard rock substrates over millions of years and it, um, can get processed. Basically, you, you process all of the elements out of the salty water, rid of all of the stuff you don’t want, which you probably sell borax and things like that, but you can end up refining it down to lithium. So that’s what they’re doing happens in wa in Australia, Western Australia, our lithium, um, salt water. Plant or operations there, mines there uh, these guys have been doing one in Argentina. The other thing to note with these guys is they’ve got a 100 billion, one buyback program where they’re buying back 6% of stock by 2027. So that’s a big chunk, 6% Tony Kynaston: Mm-hmm. Cameron: In terms of the risks though, um, I just wanted to go into [00:34:00] more detail about the tariffs. So Korean steel shipments to the United States fell more than 16% in May from the previous year, export prices were down over 9%. As a result of, uh, Trump’s tariffs, to remind people, the US government began imposing a 25% tariff on all steel and aluminum imports in March, and then doubled the rate a couple of weeks ago to 50%. Whether or not it’s a taco tariff or not, we don’t know yet. We’ll see what happens. But Korean steel exports to the US dropped. 16% to 327 million in May from 390 million a year earlier. Um, but in March Hyundai, Hyundai Steel announced plans to invest 5.8 billion to build an integrated electric arc furnace based [00:35:00] steel mill in Louisiana by 2029. And POSCO is investing in that. So. They may have a US option a few years from now, but that’s not gonna really help them in the next four years. And people may have heard, I mentioned it earlier, the Trump administration seems to have given some sort of green light to nip on steel outta Tony Kynaston: Mm-hmm. Cameron: US steel. I’m not sure the, the, the details of the deal have really been released yet, but, uh, is expected that that is going to provide some more competition for, you know, that’ll be obviously generating it out. It’ll be a domestic production as US Steel already is, it’ll have more money beefing up domestic production outta the us, which will make it harder for these guys to compete. So they’re struggling in the us. They’ve got some challenges in China. [00:36:00] Um, you know, it’s, it’s, it’s messy, but don’t predict the future. We don’t predict how these things are gonna play out. We are looking at the numbers as they are, and to drill into some of the numbers as they are, as I mentioned, price to operating cash flow 2.6 times, it’s pretty cheap. From our perspective. The dividend yield is 3.86%, which is. too bad. Uh, the Petrovsky F score is five out of nine, so it’s above our hurdle for Petrovsky. I’ll get into the scoring in a minute. The Zed score, as I mentioned, it’s a Z one because it’s manufacturing. It’s a 1.8, which is kind of a warning level. It’s not Tony Kynaston: Hmm. Cameron: level, it’s warning, but again, we kind of ignore that. Price to book is 0.34 times. Tony Kynaston: Ooh. Cameron: really, really cheap on a price to Tony Kynaston: Hmm. Cameron: as well. You’re basically buying hard assets. Mills, lithium [00:37:00] brine, LNG steaks at about one third of the book price. Tony Kynaston: Hmm. Cameron: You know, from our perspective, it looks like a crazy deal. You know, Mr. Market could be a whole bunch of things like tariffs in China and further impairment costs that haven’t hit the books yet that we don’t know about, but. From what I can see with the numbers as they sit today, it looks like a well run business that’s throwing off tons of cash that we can buy pretty cheaply, and I don’t see it disappearing overnight for all the Tony Kynaston: Right. Cameron: earlier. Tony Kynaston: if I can just throw my 2 cents worth in, and I dunno a whole heap about international steel markets, but I have owned BlueScope Steel in the past, which is an Australian steel company and. It strikes me that tariffs are kind of just another version of what’s happened [00:38:00] internationally in steel markets For a long time, uh, it, uh, tariffs kind of went away, but then I know in Australia, for example, they’ve relied on anti-dumping legislation that the, at, um, various international courts to try and stop. Companies from overseas dumping steel into Australia, which is kind, not exactly a tariff, but it’s kind of equivalent. It’s trying to, you know, um, favor the local producer over someone who can do it cheaper from overseas. So, you know, I, I imagine that a company who’s been playing in this market for a long time has experience with dealing with tariffs and dealing with international issues. So, um, even though, you know, as you said, their sales are down to the us, they’re. They probably gained different scenarios to take that into account and, and you know, maybe diversification to lithium’s one of them. But, um, it, it, I guess my point is tariffs aren’t the new thing for them [00:39:00] and they’re still standing and as you said, they’re throwing off lots of cash that’ll probably keep standing. Cameron: I think the big question is how much Trump coin have they bought? Um, that’ll probably be the deciding factor I think, of how they’re treated. Yeah. So, uh, basically cheap cash gushing steel dinosaur mutating into a battery materials Phoenix. yes, ChatGPT did write that for me. Um, it’s, it’s, it, it’s, it’s an interesting play. Um, but again, red flags China. Uh, war could chop it in half too. If China starts making their steel cheaper, uh, both domestically and internationally. Tariffs, fx, blowups, all sorts of things could go wrong Tony Kynaston: Mm-hmm. Cameron: it, we don’t [00:40:00] predict the future. Um, if I go through the numbers, oh, by the way, it has. Uh, it has a kind of a three point upturn, which I Tony Kynaston: Mm-hmm. Cameron: didn’t score for it because when I look at the ator for new listeners, that’s our charting tool. It, um, it looks like it actually breached the byline just before their March results came out. But effectively it was just, uh, you know, it’s, it’s sort of line ball. So I would score it for, if I was gonna manually score it, I would score it for that. So it’s score what, it’d be even better than it is I had to, it. It also scored better before I had to factor in the W to USD conversion for our intrinsic values. Um, but it still came out quite positive. So if I run through the scores one by one, yes, it’s got a. Positive, uh, sentiment. Average daily trade, by the way, [00:41:00] is uh, uh, 16 million. I think that’s, that’d be USD, so it’s pretty big. Um, price operating cash price. Operating cash flow 2.64. Quality rank in stock. Edia is, uh, 68. So we did score it for that. It’s above our cutoff of 60. Stock rank is only 74 below 90, so I didn’t score it for that. score, as I said before, is, uh, good. It’s uh, five, so it’s above our cutoff of 4.5 gets a score for that. It doesn’t score for Zed. Score doesn’t score for TK IV number one or IV number two. Uh, because when I recalculated those, they were below the share price. I think IV one is $32, IV two is $54, the price is currently around about $48. [00:42:00] Um. Well that is less than 52, isn’t it? 50 foot, Tony Kynaston: Mm-hmm. Cameron: for that one. Sorry. My mistake. Should get a score for that. Um, price is less than, book price is less than book plus 30. Uh, it didn’t score for new three point upturn, but I would give it one, two, if I was doing it manually. Growth over pe, growth over PE is not greater than 1.5. value growth is positive. PE is not less than the yield, couldn’t score it for that. Yield is than the bank debt, couldn’t score it for that mortgage rate. Um, the IV number two is not greater than two times the current share price, so it wouldn’t score for that. All in all, when I did it, it had a score of, uh, 10 outta 16, but. would probably have 12 outta 16 [00:43:00] if I was gonna redo it manually as it was. It got a quality score of about 62 and a QAV score of 2324, so Tony Kynaston: That’s pretty good. Yeah. Cameron: one of these ones that, you know, yeah, it has all sorts of problems and all Tony Kynaston: Mm-hmm. Cameron: be a problem, but at the end of the day, very old business throwing off a ton of cash. Seems to be very well run. And really cheap by our metrics. So I like it. Except steel is a not in a buy state at the moment. You can buy it anyway if you don’t give a, don’t give a shit about steel commodities, but you know, commodity price. But we would tend to wait until Tony Kynaston: Mm-hmm. Cameron: turned back up and became a buy again. But, um, check it out, have a look at it. Keep an eye on it. I think it’s a good one. Tony Kynaston: I think you can. It’s interesting to learn about Korean steel makers and Korean chabos and Korean dictators. [00:44:00] Very good. Cameron: and assassinations and self cos Tony Kynaston: Yes. Cameron: you learn about self. Cos today. Tony. Tony Kynaston: Mm-hmm. Cameron: Alright, well can hear my doorbell going. That’s weird. Uh, that’s all for the. QAV America Show today, Tony. Um, we’ll be back next week with a see what happens in the new financial year in our US portfolio. Tony Kynaston: Yeah, have a good week. Cameron: Thank you, Tony. You too. Tony Kynaston: All right. Cheers. Bernard: This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular stock. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular [00:45:00] stock you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a stock. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise.   Free Podcast Archives 

Jul 10, 2025

45m
3

QAV America 11 – The Tesla of Oil Rigs

In this episode of QAV America, Cameron gives a pulled pork on Precision Drilling Corp. (PDS) — a Canadian oil services company building high-tech, remotely operated, even walking oil rigs. Think Tesla, but for shale fields. They cover the company’s innovative rig tech, impressive cash generation, and resilience through past oil busts, while also addressing its debt risks and why the market might still be gun-shy. Plus: updates on the QAV dummy portfolio (up 33% YoY), a breakdown of top performers like Willis Lease Finance (WLFC) and Foreign Trade Bank of Latin America (BLX), and a Tesla sticker that sums up the state of modern car ownership.— ### **🕒 Timestamps & Key Topics** – **[00:00:00]** – U.S. bombs Iran again; NYT suddenly finds common ground with Trump – **[00:02:30]** – Portfolio update: US dummy portfolio up 6.89% in 30 days, YoY up 33.3% – **[00:05:00]** – Intro to **PDS (Precision Drilling Corp)** pulled pork – **[00:33:00]** – Final checklist score: QAV score of **0.29** – **[00:39:00]** – Landman (TV show) shoutout and sci-fi-worthy oil rig tech Transcription   Cameron: [00:00:00] Welcome back to QAV America, Tony. I think this is episode 11. It’s been a big week. Tony, since we last talked, people. Yeah. Bombing America’s Back doing what it loves best bombing. Other countries love a good bombing. Uh, it’s funny, you know, I read the New York Times every day, as you know, and you know, most of their articles, uh, are negative towards Trump and the Trump administration. As soon as he starts bombing somewhere. It’s been interesting to see how the New York Times started to rally around the, [00:01:00] you know, say what you want about Trump, but, uh, he’s doing the right thing here. This is, yeah. He got a bomb. Iran. This is good. This is good. Trump Trump’s finally doing something. We agree with bombing, bombing another country. Anyway, it’s obviously been an interesting time for the Yes. Tony Kynaston: It, its effect on the, on the oil market. sure it’s had an effect on the stock market yet Too much. Cameron: No, uh, it’s the stock market. Well, it did, it dipped. Uh, when people thought, whoa, I don’t know, maybe oil is gonna, maybe they’re gonna. Block the Straits of Hormuz, but, uh, nah. Then it sort of rebounded. After that, everything dipped for a day and then they got over it. They decided it was, uh, TACO bombing and, uh, they, they, they, they recovered. Tony Kynaston: Uh, Cameron: the latest news. Tony Kynaston: Trump declared a truce, a cease one Cameron: Trump. Trump said that there was a truce and then Iran and [00:02:00] Israel came out and said, what? Uh, what? We’re not aware of that, but um, I. Yeah, market got on the front foot, and I thought I would start this with just reviewing our portfolio. So in the last 30 days, our US portfolio is up 6.89% versus the s and p 500, up 3.83%. So been a good month for us vis-a-vis that. Year to date though, our portfolio is still down 17.4% versus the s and p 500, up 2.4%. Um, but over the last 12 months, we’re up 33.3% versus the s and p up. 10.2%. So we’re still doing three [00:03:00] times the market over the last 12 months, which I’m not gonna complain about. It’s pretty good. The big winners in our portfolio. Well, let’s do, I don’t think Wikipedia. Yeah, it doesn’t change when I change the timeframe. Let me big gains, uh, Willis Lease Finance is still our biggest, it’s, uh, up 199% since we bought it. What’s next? BLX Foreign Trade. Bank of Latin America is up 68% in Nova, internationally and VA is up 67%. Euro Cs up 65 gas GASS, which is stealth gas up 33. Optimum Bank Holdings, OPHC is up 32%. Kt your initials backwards up 28% regional management. Up 20 Sarcos Energy navigation, another shipping company up 16, uh, [00:04:00] EOS Greek, another Greek shipping company up 6.84 UBS up about 1% since we added them. And The Big Loser is the one that I did the Paul Pork on a few weeks ago. NL Chile, the company that builds mobile phone towers everywhere from memory. Uh, they’re down 10% since we bought them, so haven’t looked into that. Not sure what’s going on there, but, uh, all in all portfolio is doing pretty, pretty good in a very frothy market. And we don’t own any of the MAGA seven still. Tony Kynaston: no all value stocks. Um, and, you know, just to prove that they can grow as as the mag seven or the growth stocks. Cameron: Not the sure as they’re doing as well as the MAGA seven stocks, but they’re doing okay. I saw a Tesla, I was out, uh, going out to dinner last night in Brisbane, and I [00:05:00] saw a Tesla parked in front of me that had a sticker on the back that said, I bought this before I knew Elon was crazy. So, uh. Please don’t key my car, I guess is the, uh, thing I said to Chrissy just the day before that we saw a Tesla, I was like, I wonder how many Teslas get keyed these days. I wonder how many people walk around keying Teslas not the Tesla owner’s fault. Any who? Um, I have a pulled pork to do on a company called PDS or Precision Drilling. Ticker. PDS today, Tony Canadian Company. Do you have anything about the American market you want to talk about before I get into that? Tony Kynaston: No, I mean, we just touched on the fact that the oil prices is swinging. Uh, it’s quite volatile. It, it’s, uh, was a buy last week. It’s, it’s back below its buy price now. Um, it did drop after ceasefire was announced today, and people weren’t as worried about the straits of Hormuz being closed. And so [00:06:00] that’s kind of the pre oil price again, but who knows where it’s gonna go to from here. So, Cameron: Yeah. Tony Kynaston: a lot of our all stocks have come off. Today. Today they were bolstered by the rise oil last week. Um, so we’ll see what happens. Do we have any, I don’t think we have any oil stocks in the US dummy portfolio, do we? Cameron: No, we’ve got a lot of, got a lot of shipping companies that are shipping oil, but uh, not oil companies per se. And the one I’m gonna talk about today, precision Drilling is a Canadian company that makes oil rigs. I. There are specialists in making and running oil rigs that they contract out. And it was really interesting, as I say, every week, ’cause I know nothing about any of these businesses. And uh, it was just really interesting to learn about what’s going on with state of the, a, state of the art, uh, oil rigs, uh, lean, mean, technologically advanced, [00:07:00] uh, oil rigs, which is what these guys do. But, um, couple of caveats before I do it. So I haven’t run a, a new checklist since the one I did at the beginning of June. Their share price when I ran this analysis was about $47 78. Today it’s $48 oh three, so it’s up a little bit, but I reran the scores. It didn’t change the scores. The other caveat though, is like the Japanese one I did last week, ORX. In Wikipedia, the reporting for this isn’t in USD, it’s in Canadian dollars, but the prices is in USD, so a lot of, not a lot, but a few of the scores that we have in our checklist. I assume that they’re all in the same currency. They’re not. So I had to go in and, uh, fix a couple of the scores. Didn’t change it dramatically. Um, but I’ll get into that later on when I do the scoring. [00:08:00] But just again, for any listeners out there who are using the spreadsheet that I built for Stockopedia for stocks on the New York Stock Exchange, just be aware of the currency difference and check it. If you’re looking at buying something, just check it. Check the currency that it’s reporting in, in Stockopedia, and, um, adjust your numbers. Uh, so far, as I said, it hasn’t made a great deal of difference, but it, you know, you don’t wanna get caught out for reference. One Canadian, a dollar at the moment is worth 72.9, uh, US cents. Tony Kynaston: So it’ll Cameron: So. Tony Kynaston: becomes a 51st state of the us. We’ll Cameron: Yeah. Yeah. I’m, I’m pushing for that, um, for that, for just to make my life easier. Yeah, yeah, yeah. Get it, get it done. Trump, don’t tar it. Um, so a little bit about precision drilling. [00:09:00] They build own and crew land rigs that punch holes in the ground for oil and gas producers. Then they rent. Out the rigs, camps, tool packages and keep the wells flowing. So they’re like, uh, the landlord and handyman rolled into one for shale and oil sands operators. There’s, you know, we will bring in the rig, maintain the rig, and uh, get the whole thing up and running for you. Which is kind of seems weird to me that all of that side of it is outsourced. You know, I kind of think of oil companies as doing it all, you know, sort of soup to nuts. But like everything these days like that, like the mobile phone operators, we talked about the, the mobile phone companies, the telephony companies don’t actually own the mobile phone towers. [00:10:00] In some cases, somebody else come. These guys are basically the oil rig version of. Um, NL NL that I talked about a couple of weeks ago. You don’t have to, you don’t have to worry about the oil rigs. We’ll take care of the oil rigs. We’ll, Mabb, we’ll, we’ll build them. We’ll run all the tech, we’ll maintain them, you know, drop ’em on your land, run the whole thing, and you don’t have to worry about it. So, yeah, the. Tony Kynaston: the old buying picks and shovels in a gold brush, isn’t it? So you’re getting a, uh, a company supporting the gold brush. You don’t have to care about where they dig for gold or oil. In this case, you just, um, are happy that people are gonna rent the picks and shovels from you to do it. Cameron: Yeah, launched in 1951 when two. Entrepreneurs in Calgary bought a single wooden Derrick for 25,000 Canadian dollars and nicknamed it old number one. And then there was a post-war drilling boom in Alberta at the time. They ended up [00:11:00] having. 10 rigs by the end of the 1950s and earned a reputation for being fast and furious to get rigs out there and get oil out of the ground. 1987, they were taken over by a company called Cyprus Drilling, and the end of the floated on the Toronto Stock Exchange gave it a lot of money to go and start rolling up. Competition and they set up a buy the fleet, keep the cruise playbook that drove 40 boltons through the 1990s supercycle. Um, buy the fleet, keep the cruise. Just basically means they walk, you know, walk up to a mom and pop drilling operation, cut a check for the rig and keep everybody on staff basically. Keep ’em, keep ’em all part of the operation. [00:12:00] So they did a, a lot of rollups over the years. They survived the 2015 2016 oil crash by parking half of their rigs, slashing their overheads by 45%. And then they did a lot of refinancing in 2020 at pretty high rates. They issued a lot of bonds at like six, 7% high sixes, low seven percents, which is, uh, they’ve been buying out with their cash, um, doing early cash outs with those of those to reduce their debt. But I’ll talk about that a little bit more later on. But a lot of their peers. In the US got chapter 11, uh, during the sort of oil crash, but these guys managed to finance their way out of it, cut their costs and refinance their way through it. One of the biggest, um, [00:13:00] things that they’ve got going for them, which isn’t unique, but is one of the key. Interesting things about them as an operator is in 2017, they launched a series of what they’re called super series rigs, the super single and the super triple. These are pad walking, a powered, high torque units designed for North American stale laterals, and it’s now 72% of their active fleet. So let me break all that down. If anyone listening to this, like me knows nothing about oil rigs. So these are like, uh, the EVs of oil rigs, basically. Um, super loaded with high tech. Oil rigs. A super single is a compact trailer mounted unit with one pump set [00:14:00] and a high torque top drive. It drills shallower horizontals and runs off a single. Motor can be hauled down a highway behind two prime movers. You roll you, you roll it in, level the pad, flip up the telescoping mast, and start making holes before lunch. With this thing. It’s uh, crazy. It’s all full of touchscreen, Tesla, like tech. Um, I saw, I watched some YouTube’s guys sort of running these whole things. It’s all, yeah, it’s like super high tech stuff. Then they have the super triple, which is the beefed up Big brother. This has three pump sets. Um, that you can use for getting down into Permian laterals, same AC engines, but double the volume stronger, Ryan. And they can rip down 7,000 feet per day, which I believe [00:15:00] is two Empire State Buildings top to tail in a day. It can drill down. So, and then one of the other cool things is I said, pad walking feet. They have hydraulic shoes. That can crawl 30 feet sideways in an hour. So you basically set up an oil rig. Don’t like where it is, move it down. 30 feet, drill again. Don’t like that. Move it down 30 feet. Next day drill again. So, um, yeah, it’s like walking oil rigs and they have this thing called, uh, this system called Alpha automation Sensors and software that stab pipe manage weight on bit and cycle mud pumps. Sounds like one of those, uh, fake tech videos where they just make up, you know, names. Tony Kynaston: Sounds like an AI nightmare when the, the computers take over these walking drilling machines. uh, gonna Cameron: Yeah, yeah, yeah. [00:16:00] They’re gonna be, they’re gonna be marching on the humans. Somebody, I was on a, a Reddit thread the other day. Somebody was complaining about the way that AI today will glaze you. They were like, you, you say you did something like I, I’ll say that I. Brought in my calories for the day under 2000. They’re like, that’s not just dieting, that’s you’re rewriting the book on calorie management. They’re always like telling you, you’re an absolute. And people were complaining about this tendency, and I’m like, I dunno what you’re complaining about. A few years from now, you’ll be looking back on the days when AI used to. Tell you how great you were when they’re hunting you down. Instead, maybe with movable oil rigs hunting you down, trying to punch a seven foot thousand hole through you. Um, so basically this alpha automation system, one driller. In a control room in Houston, can babysit three rigs, manage the whole thing remotely. You can, you [00:17:00] still need a, an onsite crew, but it reduces it from 22 headcount to 14 headcount. They also have a battery hybrid evergreen system. It’s basically a, a battery hybrid pack. It charges while drilling and then discharges while tripping. Diesel engines, idle noise drops. CO2 shrinks and the rig passes the newer emission caps. The places like Colorado and Canada have. So these are like. Um, sustainable, environmentally friendly oil rigs that have a lot less diesel usage and, yeah. Tony Kynaston: when you, so when you drill the oil out of the ground Cameron: Mm-hmm. Tony Kynaston: to produce the carbon, you do it Cameron: Yeah. Tony Kynaston: Good, Good, Cameron: Don’t. Tony Kynaston: up with that legislation. Cameron: Don’t think too much about it. Tony, you do your head in. [00:18:00] No, no, it’s all good. It’s all, it’s all green. Look, you know it’s green because they used it in the name Evergreen. Tony, what do you, what? You know, evergreen. You know, it’s good. Um, they’ve got other stuff too, technically. Quick rig, Mabb system. No cranes, no 12 hour rig ups. Fewer hands crushed by monkey Board slips. You just whip these things up and off you go. So anyway, bottom line is. Same hole in the ground, but half the time, fewer bodies, less diesel, more day rate. Bonus, it’s about speed, uh, and high tech remote management. And if the, you know, when the next oil crash happens, um, you’ve got. Lower costs. Uh, you can shut these things down, get them up and running faster when the oil price, the shale oil price, as we know, we’ve talked about it on our shows over the years, shale oil operators, um, run up and shut down [00:19:00] depending on where the oil price is, whether or not they could be profitable or not. So anyway, that’s the bottom line of what they do. They’ve been doing a lot of deals. Um, they’re, they’re buying lots of stuff. Um. They’re, they’ve got a lot of contracts. There’s a big contract, um, coming up in Canada, which I’ll get to in a minute, but they’ve, they’ve got operations not just in Canada, but uh, different parts of the world. Canada’s about 58% of their business, though the US is about 31% Q eight Mexico, Panama, together make up about 11%. I think they’ve got some stuff even in Australia, but that’s the majority of it. International rigs. They’ll get a 40% higher day rate and they, uh, they have deals usually three year take or pay contracts. Uh, they’re locked in, so even if it doesn’t go ahead, they still get some money out of it. The headquarters are still in Calgary, but they’ve got a second hub in [00:20:00] Houston where they’re, um, working a lot of stuff in the US and they’re listing on the New York Stock Exchange. Gives them access to cheaper debt in the us. Apparently head count sits at about four and a half thousand people today, roughly half what it was pre COVID. But also the alpha automation and all of the rig sharing stuff that they do lets them operate on much lower operating costs and with lower, lower people. I guess, you know, part of the ai, uh, job revolution, but hitting more blue collar guys, why it’s working and why it’s cheap for us. Uh, they’re generating a lot of cash. Um, operating cash was US 480 million on, uh, 640. $7 million market cap. Their price to operating cash flow is about 1.8 times. So from [00:21:00] our perspective, really cheap. Um, two year payback on a Pr/OpCaf basis, I. And trying to work out why it’s cheap, uh, is interesting, like because the oil price comes and goes, I think it scares off a lot of institution investment. In the US they, they’re also carrying a lot of, uh, debt, as I said, from this refinancing that they did in 2020, but they’ve also been slashing it. They’ve slashed 750 million debt since 2018, and another a hundred million of high coupon notes a callable in October 25th, 2025, which they’re gonna. Buy off or buy down with their cash. So, um, they’re spending cash to cut their debt rate and [00:22:00] refinance at much lower rates, so they’re doing a good job of that. But the market, apparently, from what I can tell, looking at some of the analysts comments, the market still suffers from PTSD, from the collapse in. The, like 10 years ago, uh, 8, 9, 10 years ago, when there was a lot of wipe outs, a lot of companies went belly up. So they’re a bit shy of this, but from our perspective, it looks pretty good. Depends on the price of oil and natural gas. Depends on the rates that they can get, those sorts of things. But even as they are, they’re generating a lot of cash in their, their prices. Quite cheap. They’ve got this project in Canada that I mentioned. Canada’s got a project called the LNG Canada Project goes live roundabout now scheduled to go live mid 2025. It’s a [00:23:00] $40 billion export terminal for Canadian dollars. That is in a place called Kitty. Matt. Do you know where Kitty Matt is? Tony Tony Kynaston: of it. Yeah. It’s, um, Northeast, from Memory Cameron: Northwest coast of British Columbia. Tony Kynaston: Bridge Columbia. Cameron: The other east, Tony Kynaston: thank you. Cameron: reverse the polarity. It’s on the other side. Yeah. Yeah. So as I understand it, um, most of the gas that Canada has traditionally has been bottled up and sold into the US Midwest. But what they’re gonna be able to do with this new export terminal is chill it down to a negative 162 degrees Celsius, and then turn it into liquid, load it onto tankers bound for Asia, and coming straight out of this new, um, export terminal in British Columbia. It’s gonna [00:24:00] cut the, uh, amount of time it takes to get it to. Asia compared with Gulf Coast Roots, and they’re gonna be able to get much higher prices. Uh, in Asia than they get in the US for this LNG apparently. So big deal for Canada Precision already has 16 alpha rigs contracted on a three year take or pay deals as part of this whole thing. So their, uh, they’ve got some big deals coming up. You know, if everything goes well, they should have a good few years at the very least. So, um. Yeah. What else can I tell you about these guys? Um, there’s a lot of work they have also with the big, uh, super majors as they’re known. The Permian Super majors in the us, Exxon Pioneer and Chevron Hess. That apparently there was a [00:25:00] bunch of mergers there. Exxon bought Pioneer National Resources for 60 billion US dollars last year, and Chevron is buying Hess Corp for 53 billion US dollars. So they’re, they’re now the super majors. These guys, uh, precision had got some good deals with them as well. So, uh, what else can I tell you about them? Um. The stock was slumping, uh, recently, but then it beat the street’s. Forecasts in Q1 25 managed to turn around a little bit. It doesn’t have a dividend, so that keeps the income funds away, but the, it’s been doing a couple of buybacks. As well as getting rid of debt buybacks, retired 7% of shares in the last 18 months, and then they’ve, there’s something to do in Canada called the NCIB [00:26:00] Normal course. Issuer bid basically says they’re allowed to buy back up to 10% of their public float over 12 months, and, uh, PDS have announced that they’re taking up that option for this year, that they’re gonna buy back another 10% of their stock. They re-upped the permit as that says. So they’re taking shares off the market, which, um, is good for shareholders. Um, I know Warren prefers that to dividends, right? Tony Kynaston: Correct? Yep. Cameron: Buybacks, Tony Kynaston: get a Cameron: I. Tony Kynaston: get, more share of the profit. So the price should rerate. Cameron: Yeah. Bottom line from our perspective is a lot of cash, uh, coming out. Uh, it’s the, you know, their rigs are getting smarter and smarter. They’re getting rid of their debt, um, and the market’s steering clear of them. For I, from what I can tell, just because oil-filled services are, uh. You know, [00:27:00] sort of touch and go. of them have gone bust. Tony Kynaston: um, we have similar companies in Australia. very well this year. a drilling company in Australia and um. Uh, sure they’re cyclical. If the oil price drops, there’ll be less drilling for oil. That’s pretty obvious. And one of the key metrics that people should look out for in a company like this is the utilization rate. So they might own a hundred drilling platforms, but how many are being rented out at any one time is the important thing. And for how long? So, um. I, I dunno if you came across a utilization rate, but you’d want it to be very high a company like this. So that’s one thing to watch if you’re gonna invest in this company. But I imagine moment the, your price price is getting up there. So the utilization rate should be pretty good, I would’ve thought. Cameron: At the moment, their US utilization rate is only 55%. Um, which means. Tony Kynaston: Why the stock isn’t being bought then [00:28:00] properly. Cameron: Yeah, but they’ve also means they’ve got a lot of upside. the shell price goes back up, Ron, the oil price goes back up, which it did. Tony Kynaston: lots of cash now with half the rigs in the US sitting idle, that’s a, that’s actually a good sign. I think Cameron: Yeah. Maybe. So anyway, uh, let me go through the numbers. Their PE is 10.5, uh, which, you know, is, is pretty low I think, compared to some of their peers. Price to operating cash flow, as I said, is 10.8, which, uh, sorry, 1.8, not 10.8. 1.8. So, uh, that’s very, very. Uh, cheap. From our perspective, free cl free cash flow yield is sitting around 40%, so if you strip out their maintenance CapEx. They still have about [00:29:00] 259 US million dollars a year, and if you look at their valuation of about 647 US million, you’re banking about 40 cents on the dollar, which is pretty good. Return on equity is 6.6%, which is pretty low, but the rigs are fixed cost so. The more utilization they can get out of them, or if the day rates can get jacked up by a little bit. The profit balloons, you know, the fixed costs that they’ve already bought and paid for, really. So they, they have a little bit of manpower, but the, the, these high tech rigs, uh, you know, not as requiring of, um, manpower and they can also jack up the day rates. I said if, if. There’s suddenly a big bump in oil prices. Tony Kynaston: much about, uh, this company, but I imagine if they’re [00:30:00] high tech rigs, they’re, they’re asking a higher price than some of their other competitors too, which might be an issue for them. If. If, if the oil companies are sensing that or they’re doing it tough, they might go for the cheaper option. I’m not sure. Cameron: Well, my take on it is these are the cheaper option because they require, they’re, they’re, they’re faster and they require less manpower, and they, they, they’re not unique in this. There are a lot of, not a lot, there are other competitors producing similar sort of high tech, highly automated things. They’re not alone in this, but it’s not a hugely crowded space. Either, and they’re one of the, one of the guys on the cutting edge on this. Tony Kynaston: Yeah, I mean that, that whole of business approach is the right, right way to look at it. But I ha you know, experience says that people will still take a cheaper option if they’re squeezed and if they’ve got, you know, staff sitting around, they can utilize, they might, they might happily not [00:31:00] maximize their profit overall just to save some short-term costs. Cameron: As I, well, what I gather from this is they don’t have staff, you know? Um, these guys, I think crew, a lot of the rigs as well, Tony Kynaston: Right. Cameron: the, it’s optional, but I think they provide a lot of the crew as well. So you, you just, yeah, yeah, yeah. Soup to nuts. You just buy the thing, you know, you just bring these guys in and they run the operation for you. You just. Do whatever else there is to be done, I guess take the oil and refine it or distribute it or, you know, probably outsource all of that as well. I don’t know. The price to book is 0.52, so it’s, uh, very, very low on the negative side. Their Altman Z score is 0.18. So we tend to ignore the Z-score, but it is in classic distress territory means that, uh, if anything goes wrong, [00:32:00] they could go and they can’t pay their debt. They could go belly up very quick, but that’s why they’re paying off the debt. I guess. They’re trying to pay down their debt as quickly as they can, which will lift their Z-score over time. That said, the, uh, health score, the F score is six above our hurdle. So we like that stock rank in the quality rank are all pretty middle of the road. Stock ranks 54, quality ranks 49, so not rated high in that respect, but um. Our, our quality score is a little bit higher. Dividend yield is nothing, as I said before, not really paying a dividend, but the, um, operating cash flow per share is, uh, pretty good. Anyway, let me, oh, by the way, the, uh, Pr/OpCaf, not the prop calf, the um. A DT is about $6 million a day, so a lot of liquidity in it. Um, lemme run through the numbers. [00:33:00] Um, what haven’t I told you about? Um, prop calf we did, gets a score for that quality rank. It doesn’t score for it’s below 60 stock rank. It doesn’t score for, does get a score for the f, doesn’t score for the z. Um, price is, as I said about 48. The IV one is $32, so the price isn’t lower than our intrinsic value number one. Um. It’s also does not score for IV number two. Let me just check that these, I had to redo the numbers on these to adjust for the currency. Uh, let me see. Yeah, Tony Kynaston: for Cameron: IV number. Yeah, IV number two when I recalculated it was $40 and the price again is at [00:34:00] 48, so it’s doesn’t get a score for that. It did get a score for that. Um, in the original run, but I had to back that out. Um, does have a new three point upturn as well as a positive three point trend. Uh, growth over PE doesn’t score for that price less. Oh, what just happened? Just. I broke my notes Price over book. Uh, yes it does score for that. And the checklist is all currency converted for that, so that one is good. The other one I had to check was Forecast IV greater than two times. Price and Forecast IV is. 23 do. Hold on. That’s not right. What’s the forecast IV again? Forecast IV is [00:35:00] $40 B 13. That’s when did I get, no, that’s IV one. You dummy forecast IV is. $40. All right. Um, two times the share price would be $95, so it doesn’t score for that either. Uh, what else have I got? Book value growth. It does get a score for book value growth. Um, book value growth has been good. Um. Uh, PE is not less than the yield ’cause the yield is zero. Um, the yield is not greater than bank debt ’cause the yield is zero. So, all told I, when I redid all of the numbers, we gave it a quality score of [00:36:00] 53%. Not terrific, not shooting the lights out, but a QAV score because of the very low prop calf of 0.29. So still, still came out good, but yeah, it’s like, it’s one of those ones that, yeah, there are some risks there, but it’s generating a lot of cash and it has some potential upside, been around a long time. Seems to be really well managed. As I said, they, you know, I was impressed with the way they got through the, um, shale crash in, um. 2000 16, 2 17, cut their costs refinanced. Now they’re paying off the debt, um, getting back on a solid footing. And we have cell mechanisms in place if we get it wrong and they go belly up like nl, which is down 10%. So you talked about it, but, uh, yeah. Anyway, so that’s, uh, precision drilling. The, [00:37:00] the, the Tesla or the BYD of, uh, the oil, the land oil rig business. Tony Kynaston: Yeah. Well, should, you should go and watch Landman now about the, the land rig business. Yeah. What they do there, they don’t have, uh, oil rigs, anything like you are describing, but they do have a company that sends crews out to, to work the rigs and check on them, et cetera, et cetera, and they battle off car, they battle with cartels who don’t like to be interrupted in their businesses and yeah, it’s show. Cameron: What was that again? It’s a TV show that’s on SBS or something you watch. Tony Kynaston: No, that’s on, uh, paramount Cameron: Oh, oh, right. Land. It’s, and it’s a, oh, it’s a, it’s a, it’s a dramatic series. Oh yeah. Right. Yeah. You told me about that. Landman. Tony Kynaston: Hmm. Cameron: Okay. Tony Kynaston: Good Cameron: Anyway, we don’t own PDS, it’s not in our portfolio. ’cause [00:38:00] I haven’t had to sell anything and buy anything recently and we are fully invested. But, um, I would, you know, I kinda liked it. I was in, I was impressed with, uh, with all of that operation. It was, uh, cool. Not that I think oil is great, but, uh, for the moment it seems to be. Part of the energy mix, whether we like it or not. Tony Kynaston: No, I agree. Now, if you don’t like All Ords, then don’t buy the stock. But, uh, you for that. It was very interesting. And Cameron: Hmm Tony Kynaston: to my oil industry. Cameron: hmm. And I can highly recommend go jump on YouTube and watch some of these videos about these automated oil rigs and see how they run. Like it’s crazy. I mean, in my head I think oil rigs are dirty and guys out there with. Pumps and levers and you know, these guys are like, beep, beep, beep, beep, beep. And it’s all happening and it’s uh, yeah, as I said, running oil rigs from Houston, you know? Yeah, Tony Kynaston: couldn’t an [00:39:00] all rigg worker in Calgary. It’s a very cold place up Cameron: yeah. Right. Tony Kynaston: Fin the ski fields in Alberta and all that. Yeah. Which is where Shell was based in Alberta. I had a, a boss who, who had come back from Calgary working for Shell, and uh, regularly said it got to minus 45 degrees and everyone pretty much lived underground, so didn’t Cameron: Wow. Tony Kynaston: sunny, is in Australia, but anyway. Cameron: Hmm. Yeah, no, and like the whole walking, um, oil rigs thing blew my mind. Like I. It’s like something outta Star Wars. It’s like, uh, you know, huge machines that can get up and move. It’s cool. Anyway, well, that’s all for QAV America this week. Tony. Good luck to everyone in America. Happy bombing. Um, hope you’ve taken a break and you’re bombing for a while. Tony Kynaston: Happy Cameron: Yeah. Happy [00:40:00] Nissy. Valerie: : This podcast is an information provider and in giving you stock information we are not making any suggestion or recommendation about a particular stock. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular stock you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal advice. [00:41:00] Free Podcast Archives 

Jun 27, 2025

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Guaranteed Returns (FG): QAV America #60

KSS Me, Darling – QAV America #59

The Bunker, the Billionaire, and the Bank That Cared (CARE): QAV America #58

AERO: The Mexican Airline

Tobias Carlisle, Soldier Of Fortune: QAV America #56

Anchored Down in Anchorage: NRIM – QAV America #55

Straw Mattress to Steel Bumper (MGA): QAV America #54

The Gas That Moves the World: BWLP – QAV America #53

PUMP AND DUMP – QAV America #52

THE HAUSBANK THAT CAME IN FROM THE COLD (DB) – QAV America #51

The $3.6 Billion Illusion (MRP) – QAV America #50

Subprime Time: Lending to America’s Underbanked at 36% APR – QAV America #49

Not Tom Selic (PAGS) – QAV America #48

Truck Sausage (CVGI) – QAV America #47

Profiting from Chaos – QAV America 46

We Press the Button on KODK – QAV America #45

The Crude and the Ruthless (GPRK) – QAV AMERICA 44

Viagra for Value Investors (MUR) – QAV AMERICA 43

Drilling for Value (NBR) – QAV AMERICA 42

(Fixed Audio) Breaking Bread (BFH) – QAV AMERICA 41

Breaking Bread (BFH) – QAV AMERICA 41

SHG – The Seoul of Value: QAV AMERICA 40

TUSK – The Cobra’s Bite – QAV AMERICA 39

EC: Pump and Dump – QAV AMERICA 38

CHRD: The Williston Whale – QAV AMERICA 37

AMTD: The Murky SpiderNet – QAV AMERICA 36

Flying at Bus Prices: Volaris (VLRS) – QAV AMERICA 35

Picking Through the Wreckage of XPLR Infrastructure (XIFR) – QAV AMERICA 34

The Walking Dead Investment: AMC Networks – QAV AMERICA #33

Ziff Davis: The Internet’s Invisible Toll Booth – QAV America #32

Vale – The World’s Largest Iron Ore Producer – QAV America #31

Leasing the Sky: AER – QAV America #30 (fixed)

KEP: Korea’s Cash-Gushing Nuclear Giant – QAV America #29

PCG – PG&E: Leading With Love – QAV America #28

MODG (Topgolf Callaway Brands) – QAV America #27

Flying on Points: American Airlines (AAL) – QAV America #26

Keep CALM and Trade On – QAV America #25

QAV America 24 – The Beauty of Boring: American Axle (AXL)

QAV America 23 – For-Profit Healthcare: CYH

QAV America 21 – MEOH: Diving Deep into the Methanol Market

QAV America 20 – From Fluff Pulp to Fortune: SUZ

QAV America 19 – From Pianos to Profits (KE)

QAV America 18 – Tractors and Ten-Baggers (TITN)

QAV America 17 – Gray Gold: Finding Value in America’s Forgotten TV Empire (GTN)

QAV America 16 – Seneca Foods – A Classic Value Buy

QAV America 15 – BHC – Dirty Drugs, Deeper Discount

QAV America 14 – Sasol: The Value of Dirty Money

QAV America 13 – Smartwatches, Smart Valuation

QAV America 12.2 – Self-Coups and Steel Stocks

QAV America 11 – The Tesla of Oil Rigs

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