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Cameron: Welcome back to QAV America. This is episode seven. We’re recording this on the 27th of May. My name is Cameron Riley. With me is Tony Kynaston. How are you? Tk?
TK: Very well. Thank you, cam, as the rain. Comes in
Cameron: Raining in
TK: at Cape Shank.
Cameron: who’s
TK: It’s moved, actually. It’s moved on now. It’s very Scottish down here at the moment.
Cameron: Speaking of which, I have a, a Scottish aunt who’s coming to a, or is in Australia actually at the moment, but she’s coming to Brisbane at the end of this week, who I’ve never met before. One of my dad’s sisters, she’s coming to spend a week with us and Brissy. That’ll be nice.
TK: Oh, nice. Yeah.
Cameron: Um.
TK: you all the low down on your dad.
Cameron: Yeah, looking forward to
TK: Yeah.
Cameron: I think she was quite young when he left Scotland, so I don’t think she actually knew him very well at all. So I think ’cause they had like 12 kids in the family and I think, [00:01:00] uh, she’s one of the younger ones and he was the third eldest. So, and he left when he was like 18 or 19 and came to Australia.
So then, yeah, last time they saw him until he went
TK: That’s a.
Cameron: Not a year or so, but a year or two before he died.
TK: That’s a sliding doors moment. You could have wound up anywhere in the world, couldn’t you, but till your father chose Australia.
Cameron: Well, no, my mother was here, so if he’d gone somewhere else, I wouldn’t be, wouldn’t be me. It’d be someone else.
TK: Yeah, true.
Cameron: Anywho,
TK: I.
Cameron: uh, let’s, uh, talk about our US portfolio, Tony. It was down a little bit in the last seven days, down 1.3%, and the benchmark was up. Quite a bit, 9.85%, uh, according to But then when I looked at the charts, that doesn’t make much sense ’cause the
TK: Yeah, it sounds like a lot.
Cameron: down for the week.
me just open up again and see if wrote that down [00:02:00] incorrectly
in the last week. So that’s say May 19th. Yeah. Okay. Now it’s given me a completely, yeah, it’s, uh, it says it was down 1.93%. Okay.
TK: go.
Cameron: There you
TK: We need, we need some, uh, some television hold music while you check things
Cameron: yeah, yeah.
TK: a little, little bit of Herb Albert and a Tijuana Brass or something in the background.
Cameron: I just,
I just, edited out of the show. It’s all right. No one knows
TK: Oh, okay. I’m referring to something which hasn’t happened.
Cameron: Yeah, actually. Okay, so looking at this now, it says we’re down 3.7% for the last seven days, and the s and p 500 was down 2.6% for the last seven days, so we were down a little bit more, but not by that much. So that sounds a lot more reasonable anyway
TK: Yeah,
Cameron: the numbers I got earlier.
TK: sounds with my, uh, mental picture of what’s happened in the US in the last week
Cameron: [00:03:00] Yeah.
TK: stock market. Hmm.
Cameron: But, uh, this Australian Financial year, which is from the 1st of July through to today, our portfolio is up about 25% versus the s and p up about a little bit less than 6%. So. We’re still doing quite a bit better than the benchmark, even though we’ve
TK: Mm-hmm.
Cameron: way since Trump started doing his tariff business.
We’re still comparatively doing quite well and can’t complain.
TK: Yeah, we don’t complain ’cause nobody listens.
Cameron: Speaking of Trump’s tariffs, we talked about this on our Australian show, but he
TK: I.
Cameron: started talking more about throwing tariffs around, uh, willy-nilly this week, 50% to the EU, 25% on apples iPhones, if they’re not made in America. [00:04:00] Uh, you know, and we talked about on the Australian show how it’s mostly, I think just misdirection.
It’s just, uh, maybe a negotiating tactic, but I don’t think so really. I think it’s just misdirection while they’re pushing through the one big beautiful bridge bill uh, trying to rush that through and get a lot of. Project 2025 projects push through while people aren’t paying attention. That’s my take on it, but I know you think it might be an a genuine negotiating tactic.
TK: Oh, I think it’s probably both Cam. It’s uh, it’s getting people to call Trump and start dealing. Um, the only leverage he’s had, he has is to impose a big tariff and then pull it back. I guess if they start to deal. And like training a dog, isn’t it? It’s like, um. beating will stop when you come to heal. Uh, yeah, it is also, uh, because nothing, I don think there’s been any renegotiations of tariffs or much renegotiations of tariffs [00:05:00] yet. It may happen, as you say, there’s been a big bill passed in the, uh.
Cameron: House.
TK: Alex, thank you. I was trying to think of the right term in the American Congress, um, and taken to the Senate, so we’ll see what happens with the big, beautiful bridge Bill. It’s a lovely bridge.
Cameron: a lovely bridge. It’s a beautiful bridge and it’s gonna be
TK: Okay.
Cameron: Don’t gimme those negative waves. Uh, but I just wanna point out for, for new listeners, American listeners, our approach to all of this sort of macroeconomic turbulence that’s going on as we see each say each week in our show is basically to ignore it.
We pay much attention to the noise, which is a Warren Buffet and Charlie Munger rule. Ignore the noise. We just focus on the businesses, looking for businesses that we wanna invest in. know, we spend our time looking for businesses that are generating a lot of cash for good history of generating cash seeing if we can buy them at what we think is a [00:06:00] discount to their intrinsic valuation.
speaking of businesses, I’m gonna talk about one today. I’m gonna do a pulled pork on a company called IHS. one of the things that I love about. Dipping our toes in the American market, as I’ve said over recent episodes, is this. Lots of businesses that we don’t get to see in Australia. Lots of different businesses with different business models in different markets, and I find it really interesting to learn about these businesses and, and what they’re doing and how well they’re doing.
IHS is one of those, ticker is our IHS. It’s IHS Holding is the name of the company. on the New York Stock Exchange. This isn’t your typical sort of Wall Street, darling. It’s a telecom tower powerhouse that focuses on emerging markets, and when you drill into it, there’s a lot of high stakes, big risks, big rewards as well.
[00:07:00] But there’s a lot of stuff going on here. So what does IHS holding do? They’re literally the nuts and bolts of the telecommunication sector in Nigeria, primarily, company’s headquarters are in London, but they are the world’s third largest independent owner and operator of telecom towers. Believe it or not, they have 39,000 sites.
And their focus is predominantly on emerging markets. So Nigeria is about two thirds of their revenue, but there’s also Sub-Saharan and Africa, Latin America, and the Middle East. So of course every time you make a phone call, every time you use a mobile, that signal travels via a tower. IHS own the towers and lease them out to telecommunications companies.
So they, they, they focus on the critical infrastructure. Telecoms [00:08:00] companies, apparently, I didn’t know this, don’t run their own mobile tower infrastructure. Often like IHS. That own them and operate them, and then they lease them out with long-term leases, obviously, to mobile network operators, long-term contracts, and in IH S’s case 95% of their revenue are long-term contracts.
And Nigeria, as I said, is a massive part of their business. About 60% of their revenue, and I don’t know if you know this, but Nigeria has had a little bit of political instability and economic instability in recent years, so that’s all part of. So IH S’S challenges, which I’ll get into. But before I do that, bit of background on the company.
was founded in 2001 in Lagos by a guy called Sam Darwish, who was a telecom [00:09:00] engineer, born in Beirut the Lebanese civil War. Ended up starting his career with MCI Beirut. Then he ended up as the deputy managing director of a company called Moaf Phone, which was Nigeria’s first GSM operator in 1998.
Then when the Nigerian government decided to privatize their telecoms in 2001, he set up IHS, he has been running it for the last 24 years. He’s still the CEO and chairman of the company. So we do like founder run businesses, and this is one of those, or those we’ll see later. He doesn’t actually own a huge amount of stock in it, but it is a founder led business floated on the New York Stock Exchange in 2021, it was the largest IPO.
Of a firm of Amer, of African, sorry, heritage on the New York [00:10:00] Stock Exchange. They’ve come a long way since then. They’ve, as I said, they’ve got operations in Peru, in Wai, well, they did have, but they’ve been pruning those back in the last couple of years because of problems with the Nigerian economy.
Again, I knew nothing about this hadn’t been paying attention, but, uh, there was a big shock to the Naira. N-A-I-R-A, the Nigerian dollar, the Nigerian currency in 2023. Did you hear about this, Tony?
TK: I did not cam no.
Cameron: Well, um, one Naira is divided into a hundred Cobo Tony. want you to pay attention ’cause I’ll be you on this later. February, 2023, there was a major, uh, devaluation of the [00:11:00] Naira, eh, President Bola Tinubu basically floated the dollar, uh, floated the Naira. The Central Bank had been propping it up for.
And basically the officially US dollar was worth 460 but it was limited as to who could access those buying official dollar sources. But you could buy them on the black market for seven or 800 Naira. So there was a lot of black market currency trading on. It was a bit of a joke. And when they basically floated it, everyone rushed in, grabbed it, and the price shot up.
The official price of the Nora shot up from, of the dollar shot up from 469 to over 700 in a single day and kept sliding. And this [00:12:00] had a massive impact IHS, but also on the Nigerian economy. Nigeria earns dollars mostly by selling. Oil hadn’t been pumping much, so the freezer was already half empty ’cause they’ve had a little bit of political trouble over there.
And everyone wanted dollars to buy stuff from abroad, so the cost of everything shot up. Uh, everything that they import, flower fuel, school, books, prices and shops jumped up. Inflation hit 30% January, 2024, which was the worst in nearly 30 years. And companies that. Borrowed US dollars, obviously had a big problem, and IHS was one of those.
They ended up with huge foreign exchange losses. As a result of this, they had been borrowing huge amounts of money of the US to fund their expansion of mobile phone towers across different [00:13:00] geographies they were operating in. And when, when this all happened in 2023, it. Created huge problems for IHS and they, uh, uh, took a bunch of losses.
But before I get onto that, just letting you know that the Central Bank in Nigeria yanked interest rates up to 27% to try and make the Naira more attractive. So for those of us here in Australia or the United States that have thought, we’ve had high interest rates for the last couple of years since COVID.
Take a moment to think about, uh, our friends in Nigeria at the moment. May 20, 25, $1 hovers around 650 to 750 Naira. So roughly four times the old pretend rate of what it was back when they were. Um. [00:14:00] Uh, keeping it, uh, unsustainable low, but the free fall seems to have stopped, uh, mostly because money is super, super expensive to borrow and the government has promised not to fiddle with the rate again.
when it created 70% of 2023 IHS ended up reporting a US $1 billion foreign exchange loss. Which was a, a big issue for them. And they earn about 60% of their revenue in Nigeria, as I said, mostly in Naira, but it reports everything in US dollars. So when the NAIRA crashed, a hundred million NAIRA in Nigerian revenue became worth way less when translated to USD.
Even if their Nigerian towers were still earning the same rents local currency, you report the top [00:15:00] line in USD. It didn’t look anywhere near as impressive. And as I said, they borrowed billions in US dollars. So now all of a sudden their payments in US dollars are gonna be way more expensive and it’s gonna be a big hit to the bottom line.
So they took, uh, they took a lot of hits a couple of years ago, and they’ve done a lot of restructuring since then. But the flip side to that is they have a lot of long-term contracts. the business is still it’s still doing well on one metric. If you just look at its, you look at its pure cash flow in Nigerian dollars, it’s doing okay, but it took this big hit in foreign exchange, the cost of, you know, foreign exchange, uh, translations.
by the way, it has a market cap of about $1.9 billion [00:16:00] and has an average daily trading volume of around 600,000 shares. So it’s pretty liquid. So despite. some of the challenges, they’ve got some compelling strengths. According to Stockopedia, IHS is a stock rank of 99, which is very, very high. Their quality rank is also a solid 72 on Stockopedia. Which is again, pretty high. Their F score is seven, is pretty solid.
Looks at their financial stability and operational efficiency. Their price to operating cash flow is about 2.61, which is quite low. Um, you know, we often say that this is a that if you were getting paid outta their cash flow, it’d take about two and a half years for [00:17:00] the company’s operations to generate enough cash to cover the share price.
So that’s, that’s pretty low risk. The share price, however, is below its book value. that’s because the book value is currently negative 2024, it was, uh, negative 1.36. It was positive up until the foreign exchange crisis in 2023. But the last, uh, year or two, it has been negative. It does have a positive recent upturn, positive market at sentiment.
It’s got a recent upturn. It’s recently gone above its buy list, uh, sorry. It’s recently gone above its buy line and it’s above its second byline after coming back a lot in the last, uh, couple of years, but there’s a lot of industry tailwinds over there. Data traffic in Africa is growing at a compound annual growth of about 30%,
TK: True.
Cameron: Nigeria.
So the, you know, if you [00:18:00] think about these developing countries, a lot of people to get mobile phones. There’s a, there’s a big need for data. A lot of internet being delivered over cellular networks. They’re now a lot of people running their own businesses over cellular phones and mobile internet.
So. uh, a, a booming market that these guys are a significant player in. They’re the number one player in Nigeria. They have about 45% market share, and as I said, they’ve been strategically selling off assets in other geographies in order to fix up their balance sheet. They have a $50 million share buyback program in place.
About 12 million of that has been executed, and the CEO Sam Darwish himself bought $3 million worth of shares on the open market in August, 2024. [00:19:00] Always a good sign when you see the CEO. Uh, picking up stock like that, but I wanna talk about the weaknesses and risks, uh, which go beyond the foreign exchange thing that I mentioned has a negative PE ratio.
Uh, the earnings per share 2024 were negative 4.90. The Altman Z score is a negative two. The measure of bankruptcy. Obviously, uh, you know, we, we don’t really pay a lot of attention to that, but, you know, we do wanna note that when a company is in financial distress that it’s a risk. But as you’ve said recent shows, we have triggers in place if, uh.
Something goes wrong with a company to get out of it. They’ve racked up a couple of years of net losses, uh, in the last couple of years, mostly due to foreign exchange translation losses, lot of depreciation and [00:20:00] amortization, and then the interest expense from all of that debt. their cashflow is strong and it had been growing quite well up until 2023, 2018.
They did 462 million. By 2022, it was up to 907 million, so it doubled in that four year period, but then it came back when the crisis happened in 20 23, 20 24, it was down to 729 million, but really, really good. Very strong business before the financial. Uh, crisis kicked in with the exchange rate. The company doesn’t pay a dividend, so it has no yield.
The share price is, as I said before, below book. It’s all so above our, both of our intrinsic value calculation, so I couldn’t score it on that. the internal, [00:21:00] the external landscape is where things get particularly dicey. The Naira I mentioned has been a big issue for it and. Diesel that’s impacted a lot of underlying issues there as well.
Like diesel prices are up, uh, their power operating expenses are up lot of their underlying. Costs are up, but some of these are being covered by pass through clauses to the people they lease these things out to. So doesn’t all directly hit their bottom line. But there’s trickle through effects, I guess, with the carriers and their ability to then cover all of these that you can.
You can have a 10 year contract in place, but if the carrier starts to have financial issues, uh, and they can’t pay their bills, then that can come back and bite you on the ass. But the other one is regional power instability. I, you know, we’ve seen a bit of this in our Australian show with some [00:22:00] mining companies.
I can’t remember, was it MIUs resources we had, uh, six months ago where the CEO was, uh.
TK: Uh, don’t think it was Elia. It might Uh hmm. Might have been West African Resources
Cameron: That
TK: operates in, in the area. Yeah. So there’s sovereign risk.
Cameron: Might have been region resources, one of those, but we, we had a, I think it was a gold mining company that was operating in
TK: Hmm.
Cameron: and their CEO got held, detained
TK: For discussions,
Cameron: for discussions about how much tax
TK: royalties.
Cameron: Yeah. And it sort of doubled and then he, uh, was released and decided to retire back to London.
TK: Hmm
Cameron: We couldn’t really blame him, you know, there’s, there’s a lot of regional power instability in that area, and there’s called the, the Sahel region. Uh, includes the South as the [00:23:00] Sahara across the West and Central Africa. It’s Mali, Burkina Faso, Niger, Chad Sudan, parts of Nigeria, Cameroon, Morana, and Senegal.
It’s, uh, very poor area, very politically un stable, riddled with ethnic and religious tensions, and there have been six coups in the last four years in that region. Plus a bunch of failed attempts tenses transitions everywhere. You have groups like Boko Haram, ISIS, Al-Qaeda running around in that area.
And of course, you know, this comes with. Issues. Just the general health of the economy with issues about how much, uh, taxes are you paying? Mr. CEO come in and we’d like to throw a banquet in, your Honor. Why don’t you come to our offices and see how it goes?
TK: The ISIS [00:24:00] banquet.
Cameron: Yeah. There are
TK: Hmm.
Cameron: other issues as well though, like obviously security risks to infrastructure.
Towers can get attacked. can have a jihadist group that decides to
TK: Mm-hmm.
Cameron: trouble. They don’t want people talking on the phone so they can blow up your towers. Workers can’t get access to sites because there’s violence in the area. Maintenance can be disrupted. Energy supply gets cut off. IHS, as I said, have 39,000 towers across Africa, and a lot of those are near these hotspots in the Sahel region.
And then you have regime change that comes with contract risk. New military regimes can wanna renegotiate, uh uh, uh, let’s put it nicely, revoke terms. Yeah. You have to assume that even if there’s regime change, the new regime wants the economy to be bustling. They want [00:25:00] people to have access to mobile telephones, and they want them to have access to the internet.
Usually they may have fundamentalist reasons why they. Don’t want people to have access to it. But generally, I imagine if you become the government of a new country, you want money to be flowing in. You need, you need the economy to be churning to a certain extent, but a state owned telcos too could, a lot of them are state owned.
Telcos can suddenly stop paying you if there’s a, a junta that decides that they just don’t wanna. Pay the bills. So there’s a lot of those issues in this, this region, capital flight out of these countries when people get nervous about junta or regime risks. so there are a lot of risks associated with the business, basically.
then internally, they also have some issues. Their largest tenant. Company called MTN, who also [00:26:00] holds 26% of the stock of the company, but is limited to 20% of the voting rights. There’s a dual class share structure in place, there’s been a lot of agitation. I. Between MTN and the company lawsuit threats, of proxy fights.
Uh, MTN walking away from lease renewals, um, or threatening to, there’s been a lot of board churn as a result of that. the company’s got a lot of issues. I just wanna flag that. But drilling down into their financials a little bit, share price, when I looked at it, was at $5 38. The revenue, uh, over the last five years has to grow from 1.2 billion to 2.1 billion, uh, in 2023.
However, as I said it, it dropped a little bit in the last couple of years, [00:27:00] despite this, if you look at the compound annual growth from 2020 to 2024, it’s still 5%. Even with the. Issues coming outta 2023, but it’s losing money, as I said before. Some of that’s got to do with the foreign exchange issues, and it did swing back into a profit in Q4 2024, that was I.
Largely to do with a brief rally in the Naira. I think the, the underlying curr, the underlying currency, free cash flow is still negative. Um, and the, but the company does have a lot of cash. got 500 million in unrestricted cash and a $400 million revolving. Credit facility, which is currently not drawn upon, so it’s got access to funds if it needs it.
[00:28:00] But as I said, you know, very low price to operating cash flow, which we score it well for. from the analysts is actually fairly positive. Despite all of those risks that I’ve mentioned, Um, out of seven analysts covering the stock, six are giving it a buy and one is giving it a hold. So even though it’s had a rough couple of years and there’s a lot of regional issues, seems to be fairly positive prospects, and as I said before, you know, Stockopedia own rankings for it are pretty high, so it has.
A opportunity in a growth industry, telecom infrastructure in these emerging markets. The CEO owns about 3.8% of the stock. The COO owns another percent, but. That’s not 10% that we like to see before we score it on an owner founder, though I tend not to score US companies, because it’s hard to [00:29:00] get those numbers outta Stockopedia, but I did drill down into it.
We wouldn’t score it anyway. It’s a lot of volatility with the foreign exchange, a lot of volatility with the market, but fundamentally, think it’s a really interesting business that has been doing really, really well up until some of these recent issues. It’s high risk, but also potentially pretty high reward.
I think the management has been doing a good job at not only growing the business before the foreign exchange crisis, but at. Uh, you know, doing this strategic review, offloading non-core assets to try and cover some of their foreign exchange issues, to fix their balance sheet problems. And as I said before, if it.
Goes hairy. We have our cell triggers in place to get us out. I see lots of upside for it, but um, this is not financial advice. Do your own due diligence. We don’t own it. [00:30:00] It’s not in our portfolio, but it’s on the buy list that I did a week or two ago I thought it was, uh, an interesting company to take a look at.
So that is IHS. Tony, what do you think?
TK: Very interesting Cam. Thank you. You raised a lot of issues. Um, that, so if anyone wants to buy the stock, they can research, but, um, it reminded me of a couple of years ago, Telstra, the big telco, biggest telco in Australia, does own its po, it’s towers as well. It’s poles and wise, as they call it, was restructured so that they could spin off the. part of the business, the infrastructure part of the business, and it was hungrily by super funds and pension funds because that kind of business is attractive to them because it’s, it’s sometimes called a bond proxy. So it’s basically, you know, you, you borrow money, you build a tower, you have a [00:31:00] contract, there’s a margin, and it just keeps. Rinsing and repeating really, and paying you a sort of steady income stream for that investment, which is what a lot of, um, super funds like, or pension funds like, because it’s, um, it’s generally a assured income. Um, that spinoff didn’t happen, by the way, but it’s still in Telstra. Um, but that’s be my experience with this kind of business.
So what we’re seeing in IHS is that kind of bond proxy. it’s also got growth because it’s, it’s based in the third world and the, the bricks, if you wanna call them that or the third world, are, uh, evolving and becoming. You know, moving up the economic chain from third World to Second World, and then developing middle classes, et cetera, et cetera. And something I’ve known or I’ve heard about in, in these cases is that, um, I think it was particularly the case in India the, [00:32:00] they basically skipped the generation in terms of IT development. So the, you know, I’m talking to you over a laptop, but in a lot of these countries, they don’t have laptops.
They just go straight to their phone. And they use, you know, they use spreadsheets and they use, um, whatever over their phones, et cetera, to do banking and or whatever, um, where you and I would naturally do it on a laptop. So to, to say that’s happening is backing up what you are saying about the telcos growing substantially faster in the third world than they are in. The first world that, that was one of my questions. Why isn’t, why is this company on the third world and it’s because of the growth side of things? I think. So you’re getting a, a steady income stream and it’s growing, which is a dimension that you don’t get, in first world companies like Telstra. But it comes with a price, which we’ve talked about a lot on the Australian QAV show. The risk is sovereign risk. So [00:33:00] something could go wrong, the government could change, the currency could crash, the inflation could. Astronomically go up Um, the question always is then are you being adequately compensated? And it’s when we’ve talked before about Australian mining companies, like a couple we mentioned before, they generally trade on a PE ratio or a price to operating cash flow ratio, which is much lower. Oftentimes half what their Australian counterpart trades at because you’re taking on the risk of something going. Not wrong, but something, the curve ball coming out, um, of where they operate. And, uh, so the, the question is always, are you being compensated for the risk? And that’s often why companies with sovereign risk come onto the QAV checklist because know, the trading on a very low priced operating cash flow to compensate you for the risk of investing in them.
So you’re getting a company which has got [00:34:00] 30% growth. Um. And the sort of stable business model of I borrow money, I build a tower, I get a contract, I make a margin, and I do that again 39,000 times I can keep doing it for another 39,000 times you would’ve thought with the same kind of model. it’s growing at 30% and the margins are good and is, can I buy it cheap enough that it compensates me for the risk of operating in these kinds of, geopolitical areas. I. I’d have to do a deep dive to that, whether that’s a, adequate buffer, but the fact that it’s been going for 24 years. These kinds of issues aren’t new in Nigeria or in Sub-Saharan Africa or in a lot of third world countries. So the company is quite used to handling this risk. So I think that’s a tick. The fact that it’s been around for a long time, fact that they’ve been able to make it work through eight ES a year or whatever, the regime [00:35:00] changes in that area of the world and all the risks that go with that, um, suggest to me that they have found a way of. Mitigating those kinds of disruptions that, um, that what they’re selling is quite valued. Even though the regimes change, they still keep the telephone. I. Powers, uh, towers operating, for whatever reason. Uh, and, um, it’s a, it’s a reasonably robust business model. So, yeah, I quite like it. Cam, I haven’t done any sort of due diligence on it, but it’s a bond proxy with growth. It’s trading on a low price, operating cash flow to mitigate the risk.
And, um, it’s, it’s. Getting some attention again at shares are going, are getting momentum, which is something I like to see as well before we buy. Um, got a it you said before it doesn’t have an owner founder, but did you know what class of shares you were measuring? The percentage test? Because it had less than 10% of the shares, but [00:36:00] maybe they have extra voting rights and so might be the equivalent of having control of more than 10% of the company, in which case it would scare score for us.
Cameron: Yeah.
no, I didn’t drill down that deep. And interestingly in Stockopedia, when I go into major shareholders, it has nothing. I
TK: I saw that.
Cameron: I had to go looking for another source to drill down on that. But I, I didn’t go as deep as finding out what, you know, kind of power these two guys have. I mean, he is an owner, founder, he is been running it.
24 years. So, and he’s got a lot of money wrapped up in the company, uh, through those shares. So, um,
TK: He is gonna want control of some sort.
Cameron: yeah.
TK: Yeah. So I might, might, might score for us on the owner founder if we have a look at what the class of shares are on their voting rights. But in all, it’s a very interesting company and I, I think it’s worth, I. out further.
Cameron: You know, we were talking about this a week or two ago. I was [00:37:00] talking about some of these companies that when I drill into the risks that the businesses face, I’m like, oh my God, there’s like a lot of
TK: Yeah.
Cameron: on, you kind of reminded me that we have, I. Get out mechanisms in if things go horribly wrong.
So it’s, if it seems to be a relatively well run business, uh, with good track record management, know what they’re doing, they’ve been generating cash, um, I’m more inclined now that they’ll continue to do the right thing. And if they don’t, we’ll get out.
TK: And let’s put it in perspective. We’re, we’re talking about sovereign risk in Sub-Saharan Africa and Nigeria. There’s been a lot of sovereign risk going on in the US in the last few months as well,
Cameron: Good
TK: and fluctuations, uh, due to the government. So, you know, let’s, let’s not be the popcorn, the kettle black here, be honest.
Cameron: Yeah, good point. Alright, well, as I said, do your own due diligence, [00:38:00] but if you’re looking for a value investment, have a look at IHS. It’s an interesting business.
TK: Thanks, cam.
Cameron: Well, that’s QAV America for this week, Tony. Have a great week. We’ll be back next week.
TK: Thank you. Look forward to it. Happy MYSE. 

Cameron: [00:00:00] Welcome to QAV America, episode six. Tony Kynaston.

TK: I like the

Cameron: How are you?

TK: QAV America, it’s like, like a campaign ad.

Cameron: You like that?

TK: it’s morning in America. It’s, it’s QAV in America.

Cameron: Yeah, we are not in America. uh, if you are listening to this in America, hello. Welcome. Thank you for joining us.

TK: our tariffs.

Cameron: things? Yeah, we need the money. Pay our tariffs. We don’t get the money, but paid anyway. Well. Tony, um, I’m gonna do a pulled pork today, but, uh, a couple of things I wanted to cover off before we get into that. a couple of, well, we don’t need to talk about Joe Biden’s prostate cancer, although that’s something that I’m sure are talking about. One of the things that we track on QAV [00:01:00] for people that are new listeners, who I assume most of you are. One of the things that we do each week when I do my buy lists is we look at the commodity prices and we, because the number of particularly in Australia that are quite often in their buy lists, that have an uh, are tied to commodities.

They’re mining companies or their agriculture companies or

else do we have? Mostly mining and wheat

are the ones that we tend to look at

TK: coal. Yep.

Cameron: exactly. Um, So uh, one of the things that we’ve noticed in our uh, commodity

this week is that iron ore has just become a buy again. When we say it, it’s become a buy.

We track these commodities

the same way we track stocks. We put them on

a five year,

monthly chart, and then we draw three point trend lines to

determine the. Buy [00:02:00] trendline

is, and the sell trendline is, and we determine whether or not the commodities are in a buyer or a sell state from our perspective. and then if

we have a stock, say a mining company

let’s say a company that mines iron ore. If the iron ore itself, the commodity itself is in a sell state, we won’t

buy the stock regardless of what we think about where the. Companies financials are at, and whether or not it’s in a buy state. Because what we’ve learned over the years is that. the share price of these mining companies

lags, but it tends to follow the state of

the commodity, the underlying commodity. So with that in

mind, iron ore has just become a buyer again after being in a sell state for

a couple of years, more or less, I would hazard a guess.

TK: Yeah, at least a

Cameron: it’s been falling, I think. Okay. I could look it up ’cause I do track it, but I can’t be bothered right now. [00:03:00] And wheat has just become a buyer as well. Now in Australia, we have a pretty close, uh. Pretty, pretty good understanding. Let me say of which companies affects in the US market, I don’t as much so, but the way it plays out usually is if we hold stocks in our portfolios that are tied to these underlying commodities, when one of them becomes a

sell, we will sell the stock. And if we have. If we’re looking at stocks to buy on our buy list and one of them is tied

to an underlying commodity, it can determine whether or not We will or will not buy that stock. All else being equal. So just shouting that out for No, I, I didn’t come across anything in my recent US buy list that would be

affected by this.

I don’t really know who the big on iron ore or wheat players are in the us but if there is one on your buy list, [00:04:00] um, you might wanna take note

of the fact that iron ore is now a buy and

wheat is now a buy from our perspective. Anyway,

TK: Wheat wheat’s

Cameron: I.

TK: a big thing for the us. For big companies like ConAgra, I’m guessing, well, I’m not that familiar with ConAgra and big. Farm based companies like that. So that might come onto our bio list. I, I, or I don’t think a lot of that’s mined in the us. Um, but the other thing I’ll say about mining companies is they often base themselves on the Toronto Stock Exchange, which is, um, a resource based country in the same way Australia is.

So oftentimes US companies may list there because it’s a, it’s a market which is more used to valuing. Mining stocks, um, the US market, but there there’ll still be commodity stocks on the US so your point’s valid. Um, you might want to edit this next bit out cam, but, and I’m not sure if it applies to, to wheat and iron ore, but, uh, we may have to, the grass we are using a might [00:05:00] be in Australian dollars and b might relate to Australian markets.

So I don’t know if iron ore is, has a different graph if it’s sold from the US or not, is I guess what I’m saying.

Cameron: Yeah, I, I, some of the stocks that I track are us. I know I do. I look at a US gold

TK: Right.

Cameron: price. Um, I’m not sure about the others, but it’s a good point. I just asked GPT, it said there are some publicly listed iron ore mining companies in the us. I. Although it’s relatively limited, uh, compared to Australia, there’s Cleveland Cliffs, which is ticket code CLF. There’s the United States Steel Corporation, which has the ticket code x. I wonder how much Musk, uh, Elon Musk has offered him for that. I bet you he’s, uh, may he, he might take over United States Steel, which reminds me that line in the Godfather, part two, when Hyman Roth says to Michael Coone, Michael. We are bigger than US Steel, you know, I’m sure [00:06:00] Elon can say that now. And, uh, he might buy US Steel just to, just to get the, uh, share the ticket code. And it says, uh, Mesabi Trust Ticket code MSB is a royalty trust that receives income from iron ore mining operations. US Steel owns and operates the mintech and TAC mines in Minnesota, producing iron ore pellets, primarily for its own steel making operations. With some companies and US Steel is probably one of those, I suspect would, would be involved in a number of different commodities that we would probably look at. And then we tend to look at how much of their revenue is derived from each of the commodities and work out, you know, if one commodity’s in a buy state and one’s in a sell state, which is the most relevant for that company, et cetera, et cetera.

So as we go forward with the series, um, we will no doubt have specific examples that we’ll be able to dive down into. Well, one of the other things that I wanted to talk about today, [00:07:00] we just done this on our Australian show, and I’m gonna, uh, throw it in here, um, is, uh, play some clips from an interview that was recently on Tobias Carlisle’s podcast

So, I don’t know, uh, for folks out there, uh, who Dunno, Tobias Carlisle, these are. I was gonna say former Australian, still an Australian, he’s lived in America for a long time, a couple of funds, wrote a great book on value investing. He’s been on our show once or twice, is coming back on soon as I can lock him down. And he does a podcast called The Acquirers Podcast. It’s a value investing podcast. It’s really great and I was listening to it. I don’t listen to it very often, but, ’cause I don’t listen to podcasts very often. Too busy making the bloody things to listen to them. But I was listening to one recently, uh, recent episode, and he had a guy called Rich PZENA, uh, uh, is the founder and chief investment officer of PZENA Investment Management, a New York [00:08:00] based deep value investment firm with $34.9 billion in assets under management. And he got started in the early eighties. Uh, people may recall, uh, people may know of Joel Greenblatt. I’m sure we’ve talked about him from time to time.

I think I actually did reach out to him at one point, tried to get him on the show, but he is written a number of great books, uh, about investing, like the little book that beats the market and, uh, a bunch of others. Common sense, uh, the investors, something, something, something. He’s a successful value investor over there. Uh, so he and Rich went to, I think it was Wharton, together School. And in 1981 they wrote a research paper how the small investor can beat the market. It was their master’s thesis and they were trying to examine the performance of securities that were trading at or below [00:09:00] liquidation value during the period of 7 19 72 to 1978 in the us. Uh, I think they were kind of trying to update, uh, you know, the premise of Benjamin Graham and, you know, trying to do some academic analysis. Obviously, value investing wasn’t that popular back then. Um, as it is still not that popular now. Really, I don’t think. But they,

TK: isn’t it?

Cameron: yeah. Yes. Although there were, I don’t know how many tens of thousands of people at the, uh, Berkshire Hathaway, a GM the other day, but, uh, they, they wanted to, you know, put to test the theory that stocks that were trading. Below their liquid at or below their liquidation value with a low price to earnings ratio would whether or not they had outperformed the rest of the market. So they ran that, and funnily enough, they decided that it did, they did on average, [00:10:00] beat the rest of the market. So it was a, um, study that verified the basic premise that if they have a low price to earnings and they’re trading around their intrinsic value that they tend to outperform.

TK: Does that

Cameron: So

TK: and I can go to Wharton Business School with the dummy portfolio and gain some MBAs?

Cameron: you, I think, uh, me, not so much unless I get an, I get,

TK: crib.

Cameron: it’s like I, the, uh, the, the award that Markham gave me in, in ino, my, my Napoleonic award, it was for not doing any actual research about Napoleon, just talking about other people’s research about That was all I got my, uh, Napoleonic medal for talking about other people’s hard work. Uh, so anyway, I wanted to play, I’m gonna steal from this show, a couple of clips ’cause I was listening to the whole thing going, oh, I wish Tony was here.

I wish I could tell, see what Tony thinks about that. And I thought, bugger it. I’ll just steal it. With full credit to Tobias Carlisle, he’s i’ll, I’ll confess to it when he comes on the [00:11:00] show uh, to Rich Panna. Um, hopefully these guys don’t get mind. I mean, it’s out there, it’s in the public. Oh, it’s not a premium podcast or anything.

It’s freely available on their YouTube. uh, let me play this first clip and I can’t remember what this is about, but, uh, we’ll work it out as we go.

So I’ll tell you my, my story from 1999. um, we had started in our business in 96 and we had a good first couple years got to a break even and we were feeling good and then we went through this 10 straight quarters of massive under underperformance compared to the broad market, and I had a. Client who came in, sat in our conference room and she walks in the door and says to me, my grandmother’s a better investor than you are, and all you have to do is buy Cisco. [00:12:00] Everybody in the world has figured this out except for you, and you’re just stubborn. Try to go through with her, with her. And I said, you realize that Cisco is now at a half a trillion dollar valuation first company to ever achieve that mark. Um, and you’re, you’re used to double digit returns. You, you, you would be unsatisfied with anything less than 15% a year. So if you bought that whole company for $500 billion, they would have to earn $75 billion a year for you to get your 15% return. And they earn one. don’t you think there’s something wrong with that? And she just looked at me and said, you don’t get it, do you? To which I agree. I didn’t get it. You’re right. I don’t get it. Um, and, you know, that was gonna be the backbone of the internet. It was all just as exciting as, as it is today with artificial intelligence. Mm-hmm. Um, and so, was that a very [00:13:00] painful time for you, or was it like, it you just kind of recognize that, you know what, this is just craziness and I know that the world will get back to reality at some point. No, I mean, when you’re, when you’re a struggling business that just treat profitability and now you, clients are telling you you’re an idiot and they start clicking their accounts, we, we, um, weren’t sure we were gonna make it. And it, and in fact, Joel Greenblatt, who, who you mentioned earlier, that was my partner at Wharton in the, in our, in our little research project. Um, he was a backer, my backer in, in getting going in this business. And, um, we went in the red and I, and we got an offer from another firm to buy us. Mm-hmm. It would’ve gotten all of us a job. Here was the deal. Joel could get his money back and we would all have a job. And I said, Joel, it sounds like a really good deal. should take it. Um, and [00:14:00] Joel said, way. you need to make it through this period, um, you have a blank check. Wow. That’s pretty much what he said. Incredible. Um, and he didn’t ask for any incremental equity in exchange for that. Now he must have really prescient. ’cause that was in February of 2000 when that happened. And 9th it turned around and he never had to put another penny. He never had to put a penny in.

I thought that was a great story. Like, uh, know, just reminds me, I was talking to somebody the other day, one of our QAV club members who got started in early 2022 just as everything crashed with interest rate rises in Ukraine and you know, trade wars and all that kind of stuff. And um, and I was saying, yeah, look, from my limited experience with this, but also looking at [00:15:00] Tony’s numbers and listen, reading buffet stuff over the years. Um. it works with QAV, I think, tell me if you disagree, but we have once every five to 10 years, have one really, really good year where we massively outperform the market. And then we have maybe another year that’s pretty good, but not as big as that one. Not like two, three times the market performance. three times, four times the market performance. And then the rest of the time it’s sort of a little bit better, little bit worse kind of, you know, averages. Uh, average performance, but you’ve gotta be around for that one or two really good years in the decade where the system really outperforms and the rest of the time it’s sort of, you know, tracks along and, you know, doesn’t revert to the meme, but goes back, that’s where the average 20% comes from. [00:16:00] Like in the six years we’ve been doing this, whatever it is, we had that one really good year, uh, during Covid really kicked the numbers up. And since then it’s been okay, like this year we’re up like, I don’t know, 30, 40% on the market. Couple, you know, last couple of years it’s been touch and go a little bit above, a little bit below, that one really good year has put us in a good position for the long haul. it’s good. I, I like it when I hear guys like that are, they’re very successful, that had a couple of really, really bad years, but they just stuck to the strategy and you know, luckily in their case, they didn’t have to bail out green blatt. Back, Tim. Hard to say. Green Blat back back. Can you say green blatt back three times fast. You probably can. ’cause you’re,

TK: black back three times fast.

Cameron: oh yeah. Very good. Yeah. Very clever.

TK: uh, yeah, no, I, I dunno if I’ve ever thought about it that way. I just think of it as being volatile. Um, if you’re a value investor, you’ve got huge [00:17:00] tailwinds. ’cause the, well, basically the way I look at it is the market tends to back growth stocks that’s when we tend to, sometimes underperform or, or, i, I outperform a little bit, but it’s when the market goes, oh, okay, growth can’t go on forever.

That’s when the value investors have a really good run. So, yeah. Um, I dunno if it’s every five years or six years, or two years or 10 years or whatever, but, um, it’s more around things like the.com bubbly bursting when, when the market wakes up to itself and comes to its senses, as, as Buffet used to say, when the tide goes out, can see who’s, you know, been swimming naked basically.

So it’s, it’s, that’s the. It’s it’s title. It’s like, it’s when the,

Cameron: Idol. Yeah,

TK: when the, when the tide goes out, when people say, hang on, you can’t, as that chap said on the, on the video, then you can’t, you can’t have a market cap of half a trillion dollars and make $1 billion [00:18:00] year. That’s a very high price to earnings ratio.

May, may have been acceptable while you’re growing, but as soon as you stop growing, the market cap drops dramatically to meet the earnings.

Cameron: I hadn’t, I hadn’t thought about Cisco in years, but I can remember when Cisco was the golden child of the tech industry. I had friends who were working there, people who would leave Microsoft and go to Cisco, and they were paying everyone through the nose, salaries and stock options, and it was insane.

TK: I remember. Do you, you just reminded me. I remember being at a dinner party once around that time

Cameron: I.

TK: people at a friend’s house, but they had their, some of their other friends there. I didn’t know the people, but one of them worked at, a couple of them worked at Cisco and uh, I, I remember leaving a dinner party thinking, how do they even get a job?

We’re just that bad.

Cameron: Yeah,

TK: Yeah. Anyway, so,

Cameron: I’m just,

TK: agreed

Cameron: looking, sorry. At [00:19:00] looking at Cisco’s share price. August, 2000, it was trading at $68. Then by February, 2001, it had dropped to $23 and it stayed there until, 2017. We got up to 37 and it’s now back up to 63 60 $4. But, uh, it’s taken 25 years to get back to where it was in August, 2000.

TK: And

Cameron: So congratulations to those people who are never sell investors.

TK: hopefully they got paid dividends along the way, but probably not. Hey, we should, I don’t know if we have it on our coffee cup. I don’t have it handy, but we should add, you don’t get it to our list of, uh, this time it’s different quotes.

Cameron: You don’t get it. That’s right. He actually, I’m not sure if [00:20:00] I’ve got it in my list of clips to play, but he does talk about volatility at one point in this interview where he says, yeah, volatility as value, investors volatility is our friend,

TK: Ooh.

Cameron: is something I’ve heard you say. He goes, I like volatility.

You know, doesn’t bother me. It’s what it, what creates opportunities for us as volatility, right.

TK: Yeah.

Cameron: people they talked to at one point, and maybe in my clip, so I’ll just shut up and I’ll skip to the next clip,

We’re, we’re looking at are the metric we use one metric price compared to normalized earnings and normalized earnings. It, it’s a concept, but it’s not a complex concept. it’s what should the business earn over a long, over a full economic cycle.

Not the peak, not the trough, on average, what’s the earnings power of this business? Um, and you know, it’s informed by the history of the business. It’s informed by the competitive positioning. You know, if you look at, if you talk about stories of things that you’ve invested in that the, we were [00:21:00] talking about the internet bubble. Well, COVID was another opportunity to buy things at, at crazy prices. And I will, and, and I’ll, we can save this for a little bit later, but I don’t think we have the same opportunities today. um, but Covid we did, and our, we, our biggest holding became in by the end of the second quarter of 2020. Um, you can’t imagine a worse business than ma building jet engines, um, during covid. and it’s not only that travel was down, the number of takeoffs and la and landings were down 60%. The volume of GEs business was down more than that because first of all, nobody was built buying new airplanes, most of their revenues came from the repair and remodel, the repair side of the business, the spare parts business, [00:22:00] um, ’cause that’s the high margin business.

And, and so if you were parking airplanes, you would operate your, what, the ones you weren’t parked until they had an overhaul date. And then you would park it and pull another one out and you would spend no money on maintenance. So their revenues were down 70%, seven, something like that. And imagine a giant manufacturing operation with an r and d operation with a 70% revenue decline, had had 20% margins before that, or 22% margins. That’s real operating leverage you start to see there, right? Yes. So they were, they’re, they’re their free cash flow rate. If I get my, if I’m remembering my numbers correctly, and I think I’m pretty accurate. Was at negative $7 billion a year. Um, and the stock went down to $5 a share. And this was a stock that used to be the biggest company in the s and p 520 years earlier, what at $70 a share. So you’re buying it [00:23:00] down 90% from its high. Now granted, a lot of stuff happened in the interim, but when you visited the company, don’t, they didn’t know what was gonna happen. All they knew was that, that they had to be focused on costs and survival and liquidity. if you have $7 billion negative run rate, better do something about it. Um, they also, I mean, what made us comfortable is they had 50 billion of liquidity of cash and credit availability. meant they had seven years to fix the problem. Hmm. And, and their. CEO was telling us that were gonna go 14,000 people and they were gonna get the costs down so that they could at least be break even without a revenue increase. And, and as we calculated it doing, I mean, I, without inside data, just trying to [00:24:00] get a sense of what this company would earn permanently, travel never recovered. And that was our downside case. Um, and we are arithmetic and you can find flaw with it. It, but, but, but it was around cents a share of earnings, from a negative $7 billion run rate to a positive, whatever that was, that created 75 cents a share and the stock was five. So I said, so I could, I could, if the world doesn’t recover. I can lock in a 15% annual return. And if you listen to, um, the new guy who had this history of running industrial companies 30 plus percent margins, he said, this should be one of those. That’s what he was telling us. This should be one of those.

It shouldn’t have been a 20% margin business. We’re gonna run it at 30%. When we [00:25:00] get back to normal and 30% margin, would’ve had, something like $2 of earnings on a $5 stock. So you sort of say, wow, the downside cases, I make 15% a year, and the upside cases I make 40% a year. What am I missing? Um, and that was the kind of opportunity.

Now that was one of the extreme ones admittedly, but that was the kind of opportunity that was available.

Yeah. And I assume he’s talking about GE Aerospace there, this doc with the ticket, ge, I can’t find it back in 2020 at $5, but I see it around about $30 a share. It’s now trading at, uh, a share. Um, but it might be another company. I gonna, but just, I, I just like the, the basic idea of that in terms of, you know, opportunities, right?

That which is, as you say, title [00:26:00] cyclical, great business went through a really tough time for reasons of its control the share price collapsed. ’cause no one knew what was gonna happen, but they came in and thought, no, no, this is a good business and the numbers made sense to them. So it’s that kind of cyclical being, it’s like it gets back to what Buffet was saying, um, and who, whoever was it. Greg, I think, um, in the last a GM about they do a lot of work, to be ready to move quickly when the right opportunity comes across their table.

TK: Well that is classic buffet, isn’t it? He’s, he’s a, greedy when others are fearful. He’s buying blood on the streets. I mean, it, he’s that same sort of paradigm that was just described in that clip is what Buffet’s been doing. His whole investing career. There was the oil scandal at DERs Club and cetera, et cetera, et cetera.

And just, he, he, you know, uh, he thought Coke was over depreciating its assets and would write it [00:27:00] back. He just. know, with that same kind of insightful analysis, the, this is a, he calls it the moat. This is a company ge, which is probably gonna withstand some big shocks ’cause they’ve got a lot of cash.

It’s a well-known brand. It’s a big company. It’s when things are normal. It operates at 20% plus margins he buys it when it’s ridiculously cheaper and wasted for it to get back to normal.

Cameron: All right, so then I guess I can get into, my pulled pork on, unless you’ve got something else

TK: I

Cameron: so the deep dive I’m gonna do this week, Tony is a company I never expected would be on, uh, our value buy list, but in retrospect, it makes perfect sense. It’s on our value buy list. this is Ford Motor Company, uh, who has the ticker f just almost as cool as United.

TK: Comes,

Cameron: United States Steel, uh, X. This one’s f

TK: us. [00:28:00] Steel in the alphabet. Maybe they’re bigger than, they’re bigger than US Steel.

Cameron: Yeah. So, you know, it, it, it’s obviously a very old, very large company. We don’t need to explain, uh, who Ford Motor Company is. I used to work for Ford Motor Company. Uh, one of the first jobs I had in my late teens was working for Ford Credit.

TK: right.

Cameron: is, it turns out, one of the more profitable parts of the Ford Motor Company today. In fact, when I was doing my analysis on it, I had to. Decide whether or not I should be, um, uh, looking at the revenues and the profits, uh, of Ford Moog Company and setting aside Ford credit or not. But I decided not to. And one of the reasons I wanted to do this today is that I got the heebie-jeebies a little bit about this, as I often do, particularly when I’m looking at US companies.

And after you talked me out of all of my heebies last week. [00:29:00] all of ’em, except for the one where the CEO suddenly resigned. Um, I thought, all right, well, I’ll just throw this one out there and see what Tony thinks after we’ve talked about it a bit. Is it a value buyer or a value trap, is the question I was asking because a, it’s obviously a very large company, but it also has a lot of problems, a lot of challenges.

There’s a lot of risks, there’s a lot of issues. And speaking, when I am investing using the QAV system, I don’t. Pay much attention to any of those things because just looking at the numbers. I’m not looking really at the macro or micro level stories of these companies as, as long as they’re not, you know, in deep doodoo or anything like that, I, I pay, I look at ’em to a very, very high level and make sure there’s nothing I should be aware of, but I’m, I don’t get unlike buffet. [00:30:00] Uh, we don’t get deep into the weeds of these companies. We, we, you know, we are not full-time professional. Got nothing better to do than sit around reading financial reports, sorts of investors we’re, get in, get out uh, get double market returns with as little effort as possible. Value investors.

TK: Yeah,

Cameron: Is that fair?

TK: won’t have experienced the high levels of my laziness ’cause if they haven’t listened to the Australian show for the last five years, but

Cameron: Tony who developed this system is extremely, I won’t say lazy, golf over everything else. Tony doesn’t want to. He’s not buffet, he doesn’t wanna sit around reading annual reports are day long. Doesn’t even wanna reply to my emails. Most of the time. My text messages. I sent Tony an email about a week ago about Wikipedia’s price to operating cash flow calculations.

He probably [00:31:00] hasn’t even looked at it yet

TK: have looked at

Cameron: ’cause he’s okay. He’s got better things to do.

TK: That’s also

Cameron: But that’s, look for most people listening to this, unless you’re a full-time professional investor, you’ve got a life, you’ve got a job, you’ve got a business that you’re running, you’ve got a family, you’ve gotta go to kung fu 10 hours a week.

If you’re like me, you’ve got other things to and QAV is designed to get you. The best possible return with the lowest amount of effort and risk really, uh, outside of maybe buying an ETF, you get better returns, but with slightly more effort, but not that much effort.

TK: Correct.

Cameron: So Ford Motor Company. So when I do drill down into these businesses. When I, I’m not, I go, oh shit, I dunno if I wanna buy this. This is, this has got some big challenges. Like maybe I should be of this, but then[00:32:00]

TK: Classic sign

Cameron: not.

TK: of a value stock. Isn’t it just like that

Cameron: Well,

TK: about,

Cameron: rich. Yeah. Yeah. Well maybe it is. But see, here’s the thing. Rich is very, very smart. Um, I’m not, so he’s able to assess. Whether or not, and all of his analysts who work for him, et cetera, able to assess whether or not this is a good risk or a bad risk. I’m not that smart. so I just rely on the numbers and the system, QAV to give me a score and a result.

And you know, at the end of the day, what I usually figure is. If it’s made it through the process of QAV and it’s on the buy list and there’s no, no flashing red lights, when I look at it at a high level, it’s probably good enough. And if it’s not and it goes wrong, then I sell it. ’cause our cell triggers will get triggered and I get out.

So really,

TK: I just wanna

Cameron: worst case [00:33:00] scenario, I sell it. Yeah. Sorry.

TK: I just wanna add to that the Qav is kind of designed to automate the process that we spoke about before, which is basically saying he’s finding a company which is very solid, has lots of cash to weather through the bad times, debt or little debt, has been operating consistently over a period of time and has hit the skids for whatever reason.

Economic, like it did macro. Side of things or, something’s happened within the company, which is, um. You know, cause the share price to drop for whatever reason, and we have our red flags, like you alluded to before, the, the CEO resigns unexpectedly, or the CFO or an independent director, then we don’t like that and we don’t buy it.

And if that’s caused the stock to the press, then we’ll pass. But if it’s the fact, and I, I, not foreshadowing your forward analysis here, but if it’s the fact that it’s a big company that’s been around for a [00:34:00] long time, throws off lots of cash. And people are unsure about its future, we’re gonna take, the numbers are gonna tell us you can buy this at a reasonably cheap enough price that you get paid back quickly from its, um, cash flows.

so you’re taking as little risk as possible. Below our threshold for risk tolerance, I guess is one way to put it. um, yeah. The way we mitigate risk in the QIV system is we get paid back quickly, um, by

Cameron: Hmm.

TK: cash flow. Uh, and, um, you know, as the gentleman in the clip before said he could buy GE when it was during covid and people weren’t getting their engines maintained on the aircraft that they serviced, he knew that if things reverted back to the mean that he would be handsomely rewarded.

At the price he was paying and that came to pass and it, it’s, it’s entirely possible that Ford could fall over, fall over. Um, I think it’s highly unlikely, but it’s [00:35:00] possible. And so we’re taking some risk, but at the price we’re paying, it’s an acceptable risk, um, based on history of risk.

Cameron: Well said. let me get into it. Obviously, uh, as I said before, huge company, uh, 185 US billion dollars in total revenue for 24, which is the calendar year ending 31st of December, 2024, as Americans will know. for any Australians listening to this, just reminding you of that. Average daily trade of $1.1 billion.

So almost big enough for you to, uh, take a share in Tony. Uh, and it scores really well on the QAV checklist. Uh, I, do wanna point out, this is a checklist I did last week. I haven’t done one this week. So anyone’s considering buying it, uh, do your own analysis, do your own research on it. was on our checklist last week. The, uh, [00:36:00] price to operating cash flow is 2.34, which is one of the reasons it’s doing really well. So for new listeners, uh, one of the reasons we look at price to operating cash flow as opposed to price to earnings PE ratio, which is what a lot of investors look at, is Tony believes that. CEOs and CFOs have become a little bit clever about, uh, I won’t say fudging, I’ll say manipulating. Price to earnings. Your earnings, there’s a lot of stuff that can be pulled in and out of earnings, and it can be hard to get a clear picture of what’s going on unless you wanna do a buffet and into the nitty gries of their numbers. cashflow is a little bit harder to manipulate. It’s a cleaner number, and so we tend to focus on. as a metric, and it’s probably [00:37:00] based on our regression testing. The most important metric out of all of the metrics that we score on is that, do you disagree with anything I just said? Tk?

TK: I just want to, um, say a kind word to the CEOs of US corporate

Cameron: I don’t.

TK: when I don’t believe that they willingly manipulate, um, balance sheets and p and ls to their advantage, but. They are able to do that. And so we guard against that by going to the top of the statements, which is operating cash flow.

That can still be manipulated. And when I say manipulate, what I’m really saying is that there are a lot of that have to be made by management and putting those, uh, numbers together. it would be lovely if all I did was go around to all the cash registers, count the cash at on 31st of December, it in the bank, and then say.

here’s our payroll and lease payments. 31st of December and take one from the other. But there’s a [00:38:00] whole heap of and there’s all the accounting rules have grown up to try and guide them on those assessments. But you know, how, how do you value your stock in the warehouse on the 31st of December?

Is it the last in or first out? Who’s it the first in or last in, you know, what is it the average value? Um, you know, how do you value the deliveries you’ve made? You haven’t been paid for. There’s a whole. How do you, you know, um, provide for doubtful debts, all that kind of thing. So there’s a whole heap of adjustments or assessments that management have to make the financial statements to be able to draw a line under the business on the 31st of December last year and say, this is what our business looked like.

Here’s a, here’s a financial snapshot at that time. The, that sort of leeway allows. Bad management to assessments that look good for them, although that tends to be a short term game, but they can’t keep doing [00:39:00] it forever. And there are some signs to look at when you start seeing companies report normalized earnings over time.

It’s because they haven’t been able to get away with the earnings. They’ve, they’ve tried to, um, declare or hide over time. but anyway, uh, bad management can, can fudge the figures, as you say. Bad management can also make bad decisions about those numbers and they’ve just provided the wrong amount for doubtful debt collection or value the stock in the warehouse incorrectly.

that puts sand in the oils of the financial statements and in the gear, sorry, the financial statement. And that can, cause the numbering

come to the wrong result. So. I’ve just found over time that going to the top of the financial statements, which is a very simple operating cash flow, which is very simply, here’s the revenue we gathered and here’s the cost of collecting it and take one from the other, and that’s your operating cash flow.

And then you start worrying about [00:40:00] inventory. You start worrying about debtors. You start worrying about provisions. You start worrying about all the things of how much you have to depreciate things, how much you have to capitalize. Put aside for replacement capital in the future, how much you have to take as goodwill, whether the goodwill on your balance sheet is still accurate, or whether it needs to be revalued, et cetera, et cetera, et cetera. Um, all of those things are assessments and all of those things, um, can be, you know, they’re a coin toss. I can go one way or the other, but if it’s not done properly, and if it’s not done with integrity, then they can be misrepresented at the, at the very bottom of the. P and l, which is where they calculate price to earnings ratios.

And, and I’ve just, and we’ll see it in our, in our buy list, that we’ll have stocks with really good price to operate in cash flow and reasonably high PE ratios. That’s not a bad thing. It’s management’s being a bit conservative along the way, we focus on cash flow ’cause it’s, it’s the purest that we can get for to, to value [00:41:00] companies. And I know that listeners to this will go, what about, what about, what about with the operating cash flow? all I’ll say is that there are a lot more What abouts about the PE roha than there are about the operating cash flow.

Cameron: Yeah, well said.

So.

back to Ford 2.34 is its price to operating cash flow, which is

quite low, and, uh, trickles through to the rest of our numbers

now.

One of the tricky things here, but,

this is true with a lot of big companies in the US, is they’ve suspended their

guidance. They suspended it on May 5th,

that with the tariffs in place, uh, made it impossible for them to figure out what was gonna happen.

This year,

has been a number in one of their presentations, I saw that they.

I

believe that it would cost the company about two and a half billion dollars in adjusted earnings before interest and taxes this year.

But it’s such a moving playing [00:42:00] field

no one knows what’s going on.

TK: Yeah.

Cameron: So a lot of their numbers are kind of up in the air.

Uh, so

a lot, some of our scoring is based on projected numbers.

A lot of it’s based on historical, but some of it is like forward

forecast, EPS and things like that. So

that’s one of the caveats here

as it is with any US company right now, is the numbers are all a little bit in flux as the tariff situation.

Is clarified.

but

yeah, you wanna say

TK: I was just gonna say that’s the I that again, that comes back to risk. We’re paying, we’ll get paid back for our, the current purchase price of Ford within two years of it based on its operating cash flow, um, based on that price to operating cash flow. So that’s, to me, that’s taking, um, some risk, but it’s taking minimal risk.

And if, it go bad for Ford and it takes [00:43:00] four or five years for them to repay our purchase price. may be okay, if things get sorted out in the, next six months or 12 months, um, and four goes back to where it was, then we get paid back handsomely. that’s the

risk and reward using price, operating cash flow.

as a way of measuring it.

Cameron: Yes. I mean, that’s on the theoretical basis that we were getting paid all of the money from the operating cash flow for each share that we bought. Per share amount, which

obviously doesn’t

happen. We don’t get all of that as a dividend

TK: No, what I say getting, uh, well, what I mean is that we are paying a price and the company generates the cash to cover that price in two years, which is,

Cameron: Yes.

TK: Really. Um, if we own that company a hundred percent, we could decide to pay ourselves a dividend and of a hundred percent of the profits.

And in two years we’ve got our money back.

Cameron: Yes, but as investors buying shares in it, we don’t know that that means that the share price is gonna go up that much in that amount of time. It’s, or that [00:44:00] we’re gonna get a dividend to n neutralize the cost or any of those sorts of

TK: No, but what it does mean is that the markets, know, traditionally I’m sure the price to operating cashflow is much higher for Ford. Um, and So it’s discounted now ’cause of all the risk.

And um, if it regresses back to the mean, then the share price. should follow. As you know, as Ben Graham said, the market in the short term is a voting machine in the long term.

It’s a weighing machine. Do we think Ford’s gonna go under? Well, it’s a, it’s a risk, I think. I think it’s got some smart people, with smart contacts. Contacts who will probably ensure it doesn’t go under.

Cameron: I don’t think the issue is whether or not it’s gonna go under, but whether or not it’s gonna bleed money and how much money it could possibly bleed and what that could do to its financial prospects, its business. But anyway, I’ll take you through where the business is at, sort of the good. Let’s start with the good.

Um, their trucks and vans. So they obviously, what does [00:45:00] Ford do? They make cars and trucks and vans, and they have the credit arm. As I said before,

what’s doing well at the moment seems to be the F-Series, the Bronco and the Maverick, what they call the Ford Blue Bucket,

ran at about 7% EBIT margin in 2024.

the Ford Pro commercial arm grew revenue at 13%

posted an 11.6% margin last quarter,

that’s where most of the cash is coming from with Ford is trucks and

trucks and vans.

They’re doing very well. They’ve got a

brand, obviously a

very loyal customer base.

Probably a lot of fleets that are running them as well,

so they’re, they’re doing very well in that cash flow is.

juicy.

Consolidated. Operating cash flow was 15.4 billion in 2024,

about $3 90 per share, so

share price Today is [00:46:00] about $10 80.

You’re paying, as I said before, roughly.

2.3, two and a half times,

um, operating cash flow.

even if you strip out the finance arm, the Ford credit arm, it only goes up to about six times.

So still with, we have a cutoff of seven.

So even if you strip out the finance stuff, and a reason I say that is ’cause it’s.

As we know,

finance businesses, their

cashflow

can be hard to track. It’s sort of

with, uh,

where, where the credit is and how the credit is managed and that sort of stuff.

So it’s a little bit sort of, um.

A little bit hard to factor in necessarily where the operating cash flow from the finance arm is versus the,

the, the trucks and cars and traditional side of the business.

But again, at the end of the day, it’s all money coming into the

TK: Hmm. Mm-hmm.

Cameron: Uh, the dividend looks [00:47:00] pretty good.

Uh, they have a four to 5% dividend that they pay, and they’ve got free cash flow.

That seems high enough. I think

after CapEx, it ran about 5 billion, so they should continue to pay a dividend, which is one of the things that we. Um, score them on. We like the fact if they’re paying a nice high dividend,

particularly if the yield is higher than the mortgage rate, which it isn’t in this case, but we like companies that pay a dividend,

not because we necessarily want the dividend, but we believe it’s one of the things that a lot of investors look at, and it tends to

provide a little bit of, um,

uh, of a headwind for stocks if they’re paying a healthy dividend.

At least that’s true in Australia.

Tailwind, not a headwind.

TK: Yeah, Slightly different than Australia. So Australia, we get franking credits on our dividend, so that’s preferred. tend to not value the dividend as much and prefer to see the money reinvested back in the company, [00:48:00] but I. the, the principle overall I think is that if you get paid, if the company pays a dividend, loathed to cut it because they only have to cut, they cut it in bad times to try and preserve capital.

So the company’s paying a dividend, it’s a vote of confidence in the fact that the board sees the company is being able to continue to operate profitably going forward.

Cameron: So that’s the good news. The bad news is.

EV

division is bleeding

really badly. It’s called the Model

and the Model E Unit lost $5.1 billion in 2024,

and.

Management of forecasting it’s gonna lose another five to five and a half billion dollars this year.

Kinda reminds me

from that, that line in

Citizen Kane

where Aon Wells says to his trust fund [00:49:00] manager from when he was a kid,

you’re right, I did lose a million dollars

last year and I’m going to lose a million dollars this year.

And you know what?

probably use a lose a million dollars next year and at the rate, if I keep going at that rate, I’ll be out of money

in 50 years.

Uh, yeah, so

a little bit of detail on this. Um,

so they did $3.9 billion of EV revenue in 2024 and lost $5.1 billion.

So it’s roughly about $50,000.

for every Mustang mark E or F-150 Lightning that they sell,

um, their

EBIT margin ran at negative 195% on,

so not going well. So the cash that they’re making, they’re generating from the [00:50:00] sale of trucks and vans, et cetera, is just being torched

by the Model E Division.

And they’ve gone through like Tesla, several rounds of.

Price cuts. There’s this price cut death spiral.

They keep dr. They keep cutting the prices on the mark E by seven to $8,000.

uh, lower sticker price obviously means lower margins,

the resale values.

a punch too. So it’s, it’s kind of this

losing negative spiral that they haven’t been able to turn around yet.

Uh, I don’t really understand the reasons for that, but I know Tesla’s bleeding as well. Tariffs probably aren’t helping that.

so I dunno what’s going on with the

EVs in the us but, um,

TK: Have you seen the front, front page of today’s Wall Street Journal today being the 20th of

Cameron: because I couldn’t subscribe to it.

They wouldn’t take my money when I tried to subscribe to it.

TK: Really,

Cameron: it say?

Yeah, I told you that [00:51:00] story a few weeks ago

TK: uh, GM pushed EVs, but now aims to pull the plug on California Rule is the headline on the front page. General Motors went all in on electric cars. Now it is racing to reverse the nation’s most. Aggressive EV mandate. We need your help. GM said in an email, it recently sent to thousands of its white collar employees standards that are not aligned with market realities pose a serious threat to our business by undermining consumer choice and vehicle affordability. So they’re basically taking issue with the California measure, which will ban the sale of petrol cars and trucks by the end of 2035, they’re asking their employees to lobby there. Congress people to get that overturned?

Cameron: What’s that got to do with EV cells though? Isn’t that a good thing for EV cells?

TK: Well, it’s basically they’re saying, well, a California rulers, but it’s basically saying that DM doesn’t believe they’re gonna sell enough EVs, but when the mandate comes in, [00:52:00] um, they can do it profitably.

Cameron: Mm,

well, well back to Ford. Uh, labor costs are going up too. Apparently the UAW just locked in, uh,

2023, locked in a 25% wage rise over four years.

Um, and apparently some of Ford’s rivals and I think that. It means Tesla don’t have similar sort of issues. So they’ve got some problems there. They’ve got some legal problems from the National Highway Traffic Safety Administration, the N-H-T-S-A.

They’ve got some problems with, um, their blue crews. They had a couple of

fatal mark e crashes.

And they might have to do a recall of all of those, and I saw in the news yesterday

they’re recalling 273,789 vehicles due to a loss of brake function.

is in the [00:53:00] 2022 2024 Model Navigator and expedition

TK: Does, does the recall say, drive it to your local dealer, but don’t come in hot?

Cameron: luck.

Yeah.

Yeah, brake fluid in the affected vehicles may leak due to the front

brake lines

coming in contact with the engine air cleaner outlet pipe and getting damaged

and exploding. Now, it doesn’t say that, but it’s uh, not good when you brake fuel

pipeline is leaking.

But that’s like, I looked at the numbers of that.

It’s kind of a mosquito bite,

TK: Yeah.

Cameron: cost him like 20 million bucks maybe for a recall and something like that. Not a big deal.

Um, but then of course there’s the tariffs. Um, and it’s, you know, it it, as we know,

a lot of these cars, I think we talked about this, I’m not sure if it was on this show, the Australian show, where we were talking about [00:54:00] decoupling from China, which apparently the Trump administration and the uh, CCP now agree they don’t want it decouple

from their recent meetings.

They said no one wants to decouple.

We don’t wanna decouple, we wanna keep trading. We want everything to be great.

all of your decoupling fantasies are gone. Tony.

um, they, but we know that

automobile manufacturers like everyone else,

are sourcing

components from hundreds of different suppliers,

which are coming from all,

all over the world.

a lot of them coming from

TK: Mm-hmm.

Cameron: and the sort of tariffs that were being talked about are still being talked about. Even with the reduction, there’s still massive impact on making things like cars. So

how that’s gonna impact on,

you know, steel and aluminum

and, uh, loan rates, et cetera.[00:55:00]

No one can really see

TK: I think I saw.

Cameron: with that kinda stuff

TK: I think I saw a presentation which said that a, Ford vehicle traverse the Canadian border 18 times during its construction. So he would attract tariffs on each of those crossings for the parts that were in place at the time. So, I, I think it was Ford, um, scratching their head saying, how do we even account for all the tariffs given we’ve got plants across the whole of North America.

Cameron: Yeah.

TK: Hmm.

Cameron: Kind of insanity. But,

uh, you know, it’s, it’s kind of an interesting from a value play, right? So

TK: Yeah.

Cameron: um, it’s struggling, it’s got some issues, but, um,

still making a lot of

TK: Mm-hmm.

Cameron: when you look at the, um, impact of the, the,

um.

E

series problems.

[00:56:00] Um, if they can fix the model E losses or if battery prices keep falling, which could affect their margins there,

that could go straight to the bottom line.

Um, you know, whether or not

1. They can compete with a Tesla or A BYD or any other of the, um,

EVs that are hitting the market,

you know what the pricing of those is gonna be, you know,

with tariffs and all that sort of stuff. No one knows how that’s gonna play out, but I think we all.

Assume, at least I do, that

are gonna have a big future.

But again, it’s a bit like ai. We dunno who’s gonna own that future and who’s gonna make the money outta that future. And

so whether or not it’s Ford, but they’ve been around a long time, they’re a big company. A lot of smart people who work there, chances are that they’ll play a role in it. Whether or not they dominate it or not, who knows,

TK: When I was, just as an aside, when I was traveling last week down the south coast of New South Wales, there [00:57:00] was a park with EV charges being put in. I think there’s about six EV charging stations. And I said to my mate, what are those big. Green boxes besides the EV charging stations they’re putting in. Turns out they’re diesel generators to power the EV charger. And I’m like, uh, that negate the benefit of an EV putting diesel onto the generator to charge the car?

Cameron: And I don’t think it does. No,

TK: No,

Cameron: mean, no. I mean, look, the

EVs aren’t, uh, completely, um, carbon neutral or fossil fuel free. It’s about reducing the carbon footprint, not completely eliminating

the

carbon footprint. I mean, everyone knows, and

I get

Facebook.

sent by people all the time

about all of the fossil fuels that are used in the

TK: Hmm.

Cameron: You to make steel and aluminum and, you know, to make the batteries and the, the, the wiring and the [00:58:00] seats.

There are still

fossil fuels. There’s still,

uh, carbon footprint to make all of that, but

there’s been tons of studies done on it. You’re still.

in with a massively smaller

footprint if you drive an EV

than you have, if you are driving a fossil fuel based car, massive like, like I don’t, I don’t remember the numbers, but it’s enormous, but it’s not completely

carbon neutral

or fossil fuel free, let’s say.

TK: Especially if you charge it a diesel generator.

Cameron: Oh, Tony. Tony. Tony.

So look, if Ford, um, does look like a classic deep value play, great cash generator in an old business, sort of an ugly story,

but a new shiny one in there, um, somewhere as well.

the bleeding can stop before the balance sheet does, you’re getting [00:59:00] paid.

To, uh, buy in early and let them fix that.

If not, sometimes cheap is cheap for a reason and hence it’s a value trap.

But if I look at, um, I’ll go through some of the numbers

and show you where it comes out in the system.

TK: Ford have, by the way, just looking at stock. Edia Ford have $35 billion worth of cash

Cameron: Yes.

TK: sitting on the balance sheet, so it’s a long time before they bleed out.

Cameron: Yeah, and like Rich was saying about GE when they bought into that, and Covid a lot of cash,

buys you a lot of

TK: Mm-hmm.

Cameron: problems, right?

TK: And to, and to pay politicians to lobby for all the EV mandates to change

Cameron: Well, yes. Um, or tariff things to

TK: Yes. Or tariff. Things to change, yeah.

Cameron: can change. Yeah.

TK: Hmm.

Cameron: So.

in, uh, stock

[01:00:00] edia, they have a quality rank of 50. So not up in the higher echelons, but not terrible either.

Value score of 95.

Telling us what we already know,

a momentum score of 64 and a stock rank of 85, which isn’t

terrible, but we don’t, not high enough for us to score it on that

PE ratio of 9.5

earnings per share, growth of forecast of, um, negative

30%.

So no one’s thinking it’s gonna be a.

A great upcoming year for them for all of the reasons that we’ve mentioned.

Um,

but

let me go down to my next, um,

sheet here.

So they’ve got an F score of six out of nine. That’s the health trend [01:01:00] in stock. Edia, which is pretty good. Financial health, pretty strong.

Um, so we do like the look of that.

Their total revenue

has, has been going up. If you go back, so 2019, their total revenue was 155 billion,

dropped in 2020 and 2021 for obvious reasons. I. Back up to 158 in 2022. 176 billion in 2023. 184 billion in 2024, the forecast for this financial year is 182 billion. Or down 163. There’s sort of, um, couple of different numbers.

The TTM is 182, but the 2025 forecast earnings is 163, which would be a drop back by a couple of years. But again, obvious things going on that are outside of their control, outside of the EV stuff, all of the tariff issues, which [01:02:00] is going. Um, take a, yeah, make them take a hit, et cetera. Operating profit is an interesting one.

I dunno what happened in 2019, but it was 519 million in 2019, dropped to

four and a half billion in 2020. Again, for obvious reasons, I. Rebounded to 2.8 billion in 2021. 6 billion in 20 22, 5 and a half in 23, 5 0.2 in 24. TTM is 4.3. So, uh, operating profit and the net profit, uh, kind of tracks similar to that, although in 2021 their net profit coming from a loss in the covid year 2021, their net profit was billion.

Drop to negative two in 2022, up to 4.3 in 20 23, 5 0.8 in 2024.

Their TTM this year is 5 billion. In the

[01:03:00] forecast for 2025 is $4.2 billion.

In net profit.

So, uh, obviously a lot of volatility in their profit there over a couple of years during and just after Covid.

I, but, uh, they’re making a ton of money,

sitting on a lot of cash, as you said, generating a lot of cash.

So, um,

you know.

You’re generating a lot of cash. There’s a lot of, a lot of moves you have to make. It’s, it is kind of business that we like to see,

TK: Yeah.

Cameron: a lot of cash and you can, you can get it cheap.

TK: Mm-hmm.

Cameron: Um,

TK: and to be fair, like the quality score in Wikipedia was, was good, but not great. Um, so this is more at the value end of QAV rather than the quality end of QAV, but the fact that it has so much cash on the balance sheet and can generate cash in a sort of steady state. Process, even though there’s lots, all those issues you talk about, you flick back through [01:04:00] the annual reports we’re probably going on in almost every year that Ford has been in business recalls and, new, new product

development and all those kinds of things. Um, so it kind of is in steady state at the moment, just a little bit volatile and tariffs. So, um,

yeah, we, we are buying it cheaply to compensate for that risk.

Cameron: And yeah, as I said, it’s generating a lot of cash. Uh, it’s a, an old boring business in some ways that’s trying to get into the new age with the and is struggling, uh, sitting on a lot of cash, is generating a lot of cash has a bit of runway to. Work itself out and try and survive the, uh, turmoil of the current years.

TK: And it’s not alone in, in grappling with EVs as a legacy brand. I mean, um,

Cameron: Hmm.

TK: one of the big companies will crack it, whether it’s Ford or GM or [01:05:00] or Daimler in Europe or Volvo seems to be doing a good, I. Making a good fist of their Polestar range. But I know that from reading articles about Mercedes-Benz, they, they’re taking a bath on their EV range, so it’s up, up and down for them all.

And of the reasons is China seems to be doing very well through Brad’s like BYD, um. And you know, that’s, I think it was BYDI could have that wrong. Uh, the CEO came out and said, we can charge an electric vehicle now in under five minutes. And if that’s true, and if that gets rolled out, then that gives ’em a massive advantage in, in the market.

Cameron: Does it? Does he require a gasoline generator?

TK: Yeah. Big, big diesel generator. Yeah.

Cameron: have to buy one with

TK: You tow it, you tow it, tow it into the service station, filled up with diesel and drive it around, then charge the car. It’s a, it’s a, it’s a hybrid camp. [01:06:00]

Cameron: Before, before I get into the numbers, this how we scored it. I did see this article that just came out. Uh, today. Ford’s, CEO, has a strong take on tariffs.

TK: I bet.

Cameron: Uh, yeah, Jim Farley is his name.

TK: Any relation to Chris?

Cameron: Yes, he looks just

TK: Oh.

Cameron: He’s, uh, Chris’s, uh, younger brother maybe, or older brother.

Um,

earlier this month, the company suspended its guidance for the year due to uncertainty around tariffs, despite its public.

Championing them of them, champion

championing of them.

Ford says it supports the administration’s goal to strengthen the US economy by growing manufacturing.

However, it also said it expects tariffs to eat one and a half billion of its EBITDA this year

with an overall two and a half billion dollar headwind.

One of the reasons Ford supports the tariffs is that it already has a much stronger domestic production [01:07:00] base than even its domestic competitors. Last year we assembled over. 300,000 more vehicles in the US than our closest competitor.

That includes 100% of our full-size trucks. CEO Jim Farley said during the company’s last earnings call,

this new environment, automakers with the largest US footprint will have a big advantage.

And boy is that true for Ford. He added.

puts us in the poll position.

In March, the audio industry became the first major industry to get some relief from the tariffs. When the White House announced an exemption for vehicles covered by the United States, Mexico, Canada Agreement,

et cetera, et cetera, et cetera.

Farley has been very effusive about tariffs. Ford truly believes in US manufacturing, and if extra tariffs on foreign built vehicles will help achieve that outcome, then so be it.

So they’re all for the tariffs apparently. Because have US based manufacturing.

TK: Okay.

Cameron: So anyway, if the tariffs Go [01:08:00] ahead, uh uh uh, could, you know, they stick to some of them

TK: So, so they’re all for the TA tariffs, but they’ve suspended guidance on how tariffs will affect them,

Cameron: yeah. All for

TK: Yeah.

Cameron: but

TK: And,

Cameron: in the

their planning into a little bit of a ray.

TK: and, and the other benefit of we don’t have to guide the market on our profit going

Cameron: good. So I’m just gonna run through our scoring, uh, just quickly. Uh, so quality rank of 51 on stock edia. As I said, we only give them a score if they’re

equal, uh, or above 60, so they don’t get a score for that. Stock rank is less than 90. I think I said it was 80, 85, something like that. So we don’t score them on that either.

They do get a score for the F score being, uh, equal to or above four and a half. don’t get a score for the Zed score. Uh, the price is above both of our intrinsic value [01:09:00] calculations, so we don’t score them on that. However, it is below book price and of course also below Book plus 30 only. Just though I think the book price is about 11 bucks something.

The price today is about. $10 80. It was about $10 50 when I did the analysis last week. But at $10 80, it’s still below book and book plus 30. It has a three point uptrend, but it also has a new three point uptrend, so it gets a score for that. Uh, the growth over PE is not greater than 1.5, so we actually give it a negative score for that.

Um, book value growth is not positive. PE is not less than the yield. The yield is not greater than the bank debt.

The, um,

IV

is not greater than twice the price. It’s not even current. IV is not greater than the, the forecast not greater than the current price. um, doesn’t get scores for any of those.

So it ends up [01:10:00] with. Seven OUTTA 15 gets a quality score on our end of 47%, is interesting because that’s pretty to what it gets on. Uh, Wikipedia’s quality rate too. They gave it a quality of 50. We gave it a quality of 47, so we’re pretty much on track with them. Uh, but it gets a QAV score of, uh, 0.2, so.

Again, as I said, uh, at least when I did the analysis last week, and I don’t think anything would’ve changed since then because the share price is only $10 80. As I said, it’s on our buy list and, uh. Interesting. Yeah, an interesting sort of classic, classic sort of a value play. I think really big companies like that we usually don’t expect to see on on QAV, but, uh, in this case, big company generates a lot of [01:11:00] cash and has some struggles and the market isn’t, uh, giving a lot of, uh, love right now.

TK: Did you give any consideration to the Ford family ownership in terms of exploring it as an owner, founder at all?

Cameron: I don’t, because as I said before, I’ve told you earlier episodes, Wikipedia doesn’t let me download that in my spreadsheet.

TK: know.

Cameron: So yeah, I don’t go back and rescore

TK: okay.

Cameron: manually afterwards. I could, but know. But looked at it, have you looked at it

TK: So Stock Edia don’t show the Ford family ownership, but if I Googled it

it said members of the Ford Family own Class B shares in Ford, which grant them significant voting power. Uh, even though the Ford family’s ownership stake in the company decreased over time, they use these Class B shares to control 40%. the company’s board of directors, while the remaining 60% are elected by holders [01:12:00] of publicly traded class A shares, this ensures the family retains operational control despite owning less than 50% of the company’s equity. So they still have control. I.

Cameron: And, um, so from your perspective, is that a good thing for us or a bad thing?

TK: A good thing?

I think. I mean, it’s not, obviously it’s not Henry Ford still there, but members of the Ford family is still there and they would have a lot of experience in manufacturing.

Cameron: So there you go. to look at. We don’t hold it in our US portfolio. Um, but uh, it’s some, something to look at. If you’re out there and you’re looking for a value, buy, have a look at Ford,

TK: Interesting one. Thanks, cam. It’s not often we see big, big corporations that have been around for a long time on the value buy list.

Cameron: Hmm. That’s what I thought too. All right. Well, um, [01:13:00] after hours, Tony.

TK: Yes, cam.

Cameron: So for, uh, new listeners, after we get through talking about investing, Tony and I usually will do what we call after hours where we just get to talk about what we’ve been doing lately, what we’ve watched, what we’ve listened to.

Tony has,

uh, very good taste in TV and film and music in books.

he has a lot of time to watch and read and listen and play golf.

’cause that’s all he does.

Unlike some of us that work for a living.

Tony tried that. Didn’t take, he goes, eh,

TK: No, it did take, I.

just got through it quickly.

Cameron: compressed

TK: Yeah. 20 years. Yeah, Correct.

Cameron: Yeah,

TK: Yeah.

Cameron: We’re into after hours. Tony, we skipped it last week. Got anything good for me this week? Got any tips? Got any recommendations?

TK: Well, haven’t watched much ’cause I’ve been traveling and playing golf and some fantastic golf courses in Southern Coast of New South Wales. [01:14:00] people go and play Mollymook and Naru golf courses if you haven’t. Uh, they’re very good na rumor in particular, right on the, um, right on the coast on cliffs.

You shoot over cliffs on at least one of the holes, which is, which is fun. but when I got back on the weekend, I watched a couple of episodes of Mob Bland, caught up with that, it’s, it really is standout. I highly recommend Mob Bland to

Cameron: I gotta check that out. Mob Land?

TK: uh, Pierce Brosnan and Helen Miran. All fantastic.

Cameron: Hmm. Okay. I do love a bit of Helen Maren.

TK: Ooh. She seems to be in everything at the moment, doesn’t she? She’s in, um, she’s in, coming out in the, what’s it called, the Thursday Detectives Murder Club, or whatever it is. The books that Richard Osmond write, um, in, is 1823, the prequel to the prequel to, uh, Yellowstone. she’s in this, she must be in her seventies.

I mean, she’s, she’s

Cameron: Mm.

TK: [01:15:00] very active and doing great.

Cameron: But she will never be in anything better than Caligula. Caligula chef’s kiss.

TK: Oh, Really?

Cameron: Yeah. Oh yeah. The fact that she was mostly naked running around and it’s got nothing to do with it. But yeah. One of my favorite films, ULA love it. Love it. It’s a masterpiece. It’s bonkers. Completely bonkers. But, uh, that was kind of the point, right?

TK: All right.

Cameron: They’re trying, trying to depict near a, uh, not near a caligula’s reign as bonkers, which it’s probably unfair to Coagula. I think he’s been, uh, badly treated by history. But, um. She was in her absolute prime in the early seventies. Dunno how old she was, but probably about the same age as uh, what’s his face?

Who was in it with her? Um,

TK: Malcolm McDowell.

Cameron: yeah,

TK: Malcolm McDowell. Anyway. McDowell?

Cameron: Malcolm McDowell would’ve both been in there sort of mid to late twenties, I guess.

TK: Mm. [01:16:00] And Pierce?

Cameron: Uh,

TK: too. In mob land. Just he’s reverted back to his Irish accent. Doesn’t use anymore. Yeah.

Cameron: Right,

TK: Just that. Just the mob boss? The patriarch of the family. Oh, Cameron, I told you I had to do that. You didn’t do it when I told you you’ll do it now.

Cameron: because he still got the beard. He had to grow the beard to get away from bond. I think

TK: Oh, okay. Oh, I can’t recall. I don’t think so. Maybe. Can’t recall.

Cameron: every time I’ve seen him on chat shows he’s had beards.

TK: Okay.

Cameron: Well, I’ve been watching, uh, a, a Black Mirror. I watched the first episode of the New Season of Black Mirror. Have you seen that yet?

TK: No, still through the old ones.

Cameron: Oh, right this one. First episode of this one. Absolutely. Gut wrenching, terrifying. Um, Chrissy and I watched it the other night. She was like, well, that was not the good thing to watch before I went to bed. That was horrible.

TK: I may

Cameron: Um, yeah. [01:17:00] No, it’s good. I mean, it’s terrifying. It’s basically about corporations, uh, getting in. Yeah, I know. That’s, that’s what keeps you awake at night.

TK: Terrifying.

Cameron: I. Yeah, should just be a Black Mirror episode elbow taxing, unrealized gains One day in the future. started watching total when I was cleaning the kitchen last night.

TK: you can’t do that. You gotta listen to me

Cameron: I started watching the, uh, the, the schwartzenegger version of total recall from 1990. could have been a Philip take Philip k Dick. Short story, like one day in the future, governments will come for unrealized gains the most dys. That’s your version of a dystopian

TK: k Dick’s short story.

Cameron: coming for unrealized gains.

TK: No, no. I can remember. We can remember it for you wholesale. That was the

Cameron: Yeah, I’m saying that that could have been another book that Dick wrote was, in a dystopian [01:18:00] future, they come for your unrealized gains.

TK: the coalition is split, the government will come for your unrealized gains and there’s no,

Cameron: I’m also. I’m also halfway through watching Rashon for the first time. I’ve never seen Rashon before.

TK: have I.

Cameron: Haven’t seen it. Hmm

TK: No,

Cameron: uh, good, really good.

TK: the same or the same incidents repeated by different recollections,

Cameron: How do you know that if you’ve never seen it?

TK: Oh, it’s part of the movie Folklore. And it was the basis for, what was the Ridley Scott movie I recommended last year or the year before? I think it was on Netflix with Matt Damon and Ben Affleck and, uh,

Cameron: Long as it wasn’t Napoleon?

TK: well, no, the lady from Killing Eve.

It was prior to Napoleon. based on Rima.

Cameron: Uh

TK: stories of a rape, uh, as to, as

Cameron: oh.

TK: it.

Cameron: So rape ’em on? No.[01:19:00]

TK: She got a rash.

Cameron: Yeah, like it’s, it’s true. I mean, I’m halfway through it and I couldn’t watch it while I was cleaning the kitchen because it’s all subtitled. So I needed to pay, need to pay attention to it. So what I watch when I get home from kung fu, my body hurts and I have to lie there and stretch and massage my muscles out. Um, oh, Fox had his kung fu grading on the weekend. He got a new belt. Um, so he got his fourth belt. It’s his fourth grading, no third grading, fourth belt. ’cause he starts with a belt. Um, he did really well. I was really proud of him. He’s, he.

TK: color belt’s that.

Cameron: Uh, this is the middle blue belt. So it’s the, there’s three blues.

It’s the second the three blues, and it’s, it’s a, there’s not many kids, that get that level belt. You know, out of all the kids that we’ve seen in the four years that we’ve been there, many stick around long enough to get that. He’s been going three years now. So it’s, uh, not, not many kids last three years at kung fu, you know, [01:20:00] 10% maybe.

So, um, he’s doing really well and it’s interesting to watch him slowly getting more serious about it. You know, as he gets better and he starts to realize that he’s actually getting pretty good sparring. He sparred with the adults afterwards. On Saturday, he gets in and joins our sparring matches, and he holds his own man.

Like he’s, he’s got the, he’s got the instinct for it a lot of people, even adults in, in sparring, I mean, we got easy with the sparring, like no one’s trying to hurt each other. It’s got gloves on or whatever, mouth guards. But a lot of people, you throw a punch at them and they’ll turn their head, you know, an instinctive blink or shut their eyes.

Turn their head. Not fox man. He just comes in and starts, gets underneath it and starts hitting me in the ribs and hitting me in the kidneys. And he’s in the groin?

TK: You might, you might live to regret all this camp.

Cameron: Yeah. Probably. Or not live to regret it ’cause he kills me in my sleep.

TK: bedroom for a [01:21:00] diary. I almost got dad at kung fu this week. I’m getting

Cameron: Yeah.

TK: now.

Cameron: Yeah. Countdown.

TK: Yeah.

Cameron: Um, I’ve got.

TK: the last jewel was the Ridley Scott movie based on Rman.

Cameron: Oh, I’ve seen the last Jewel. No, not the last Jewel. No. I’m thinking of his, Earl, his first film. What was his first one? The, the Dualist? Yeah, yeah, yeah. No, you remember you telling me about this. Okay. Oh, Ridley. I can’t watch Ridley anymore. Ridley’s broke, broke my Heart with the Napoleon film. Um, I’m reading Tinker Taylor, soldier Spy,

TK: Yeah.

Good on you. Good book.

Cameron: it.

Yeah, I’m halfway through it or third of the way through it. Enjoying that.

TK: There’s a great, version of it that came out 10 years ago or so with all the great British actors in it.

Cameron: Gary Alban in that one as Smiley.

TK: Yep.

Cameron: And then all [01:22:00] Guinness I think did played Smiley in the seventies version. I. Oh, cvs. Yeah. Right. I haven’t seen any of those. So it’s all, the story’s all new to me, but I’m enjoying it. And, um, I’ve got a band for you if you’ve never heard of them. Tinder Sticks.

TK: Did you mention that last week? Is that the girl band?

Cameron: No, that was Teen Jesus in the Gene Teasers Eases

TK: Oh, I saw a clip recently too, of, uh, Amal and the Sniffers on, uh, one of the Tonight shows.

Cameron: ballon or something. I haven’t, I haven’t seen that yet, but I’ve seen it promoted. I really wanna dig it up and watch it. I’m so happy for them.

TK: Yeah.

Cameron: So happy for them to be getting this sort of US coverage. Such a great Australian export.

TK: Fallon, right? It’s

Cameron: Yeah.

TK: all these Midwestern farmers in New York going to Jimmy Fallon, whooping and hollering, and then this white girl from Australia gets up and jumps up around into a punk band. It’s fantastic.

Cameron: I guess it wasn’t one of the songs where she [01:23:00] swears a lot in it unless they just bleep the whole thing.

TK: saying, so

Cameron: Oh, right. Oh, I love Amil and the sniffers just so much fun. Like I just, I’ve seen a couple of their concerts on YouTube and I just had this huge grin on my face through the whole thing. It’s just so, the joy of Eve in watching them, it is just, it’s so great. No Tinder sticks I just discovered this morning and it came through a Spotify recommendation based on, you know, you can say, you know, like a radio thing. It was based on Dirty three. I’d been listening to Dirty Three, created Dirty Three Radio and Tint Sticks came on. Tint Sticks is sort of a cross between Dirty Three and Nick Cave and Leonard Cohen, UK Trio started in the mid nineties, drums and violin. But you know, where Nick does his sort of meowy ballady stuff in the last 20 years, it’s kind of very much like that.

TK: Okay.

Cameron: lush, lot of strings, lot of piano. And the vocalist [01:24:00] is very Nicky in his mellow. know, older, sort of, kind of Nick era.

TK: Yeah. Right.

Cameron: papa won’t leave you. Henry, Nick and not the birthday party Nick, but version four, Nick, whatever it is. Uh, but I’ve been listening to it while I was working. It’s beautiful sort of atmospheric, ambient kind of going on. It has lyrics, but it’s um, yeah. Nice. Chrissy liked it too. I played it too in the car on the way to Kung Fu. So there you go. Tinder sticks.

TK: Actually, I had

Cameron: my music tip.

TK: wrote down a couple of weeks ago to recommend to you on in that similar vein, the veils, have you heard them?

Cameron: No,

TK: track called Sit Down by the Fire, which just, it could have been Nick Cave singing at it’s a, a Ballard like that too in that

Cameron: V-E-I-L-S. Oh yeah.

TK: right.

Cameron: English New Zealand Indie rock band. According to [01:25:00] Wikipedia.

TK: And sit down by the fire is the song I recommend of these.

Cameron: Sit down by the fire. Alright, well, there’s my listening for tonight. Thank you, tk.

TK: Yeah. Good.

Thanks Cam. have a good week.

Cameron: Thank you Tony. You too.