AUDIO of QAV U.S. 10

 [00:00:00]

Cameron: Welcome back to QAV America, Tony QAV America, episode 10. This is got some big news. Uh, Tony,

Tony Kynaston: Ooh,

Cameron: broken, just popped up on my news alert. The Trump family’s next venture, a gold, smartphone and mobile phone service. So there you go. Get your,

Tony Kynaston: fantastic.

Cameron: in for one of those. Gonna be all made in America and sell for 500 bucks. So, uh.

Tony Kynaston: Really.

Cameron: Can’t wait to see that.

Tony Kynaston: did you see the, uh, the return that showed that, uh, Don had made 70 upping million dollars out of his meme? Coin,

Cameron: How much? 17 million.

Tony Kynaston: I think it was 79 million from memory.

Cameron: Oh, right. Oh, I thought he would’ve made a lot more than that. There you go. It’s a bit of a bit of a [00:01:00] shame. Feel sad for him now. That’s all he made. Thought it would’ve been billions.

Tony Kynaston: And, he left the G seven conference without meeting our prime minister.

Cameron: Yeah, of course.

Tony Kynaston: meant to meet our prime Minister, but he ducked off, he ducked our Prime Minister

Cameron: Listen, if you, if you had a good reason to avoid meeting with our prime minister, wouldn’t you take it?

Tony Kynaston: That’s right. Well done Donald.

Cameron: Yeah. Yeah, yeah. Uh, well, Tony, um, we’re gonna talk, I’ve gotta pull pork or a deep dive to do on another American listed stock today. we get into that, I thought I should do the, uh, portfolio report.

Tony Kynaston: Mm-hmm.

Please.

Cameron: Um, the US portfolio, the QAV US portfolio. When I did my weekly newsletter this morning for the last 30 days, it was up 3.3% versus the s and p 500, up [00:02:00] 1.25%. Over the last 12 months, our portfolio was up 34% versus the s and p 500 up 11, which you said on the last show was about 11. I thought it was much more than that, but it, you’re right, it was only 11.

Um, the s and p 500 in the last 12 months, and since inception September, 2023, our portfolio is up 55% versus the s and p 500, up 35%. That’s probably the number I was thinking of.

Tony Kynaston: Yeah. Right.

Cameron: So, uh, that’s how we’re tracking. Pretty good still, despite being the best, uh, year, like last couple of months has not been the best for our US portfolio.

But, uh, this month it’s doing pretty, pretty good. No complaints. Um. Have you got anything to talk about in [00:03:00] terms of US stuff? Before I get into the deep dive today, Tony,

Tony Kynaston: no, I don’t. I, um, I have been reading the Wall

Cameron: I.

Tony Kynaston: but uh, none of our stocks have appeared in the Wall Street Journal, so I can’t really comment on, uh, on stock specific news this week. I.

Cameron: Well, one thing we can mention is that crude oil is a buy again. Um, as we’ve talked about on the show before. W you know, when we are looking at investments in companies that, uh, tied to underlying commodities, uh, we, we tend to not buy them if the underlying commodity is in a sell state. Judging by Street Point trendline, crude oil had been a sell for quite some time.

And, uh, there was just a little thing people, people probably haven’t. Seen it on the news, but um, uh, Israel and Iran started missiles at each other. I don’t know if anyone caught that in the news [00:04:00] in the last week, but, uh, that has caused the oil price to spike quite a lot. It became a buy again, so we’ve been able to look at buying or adding some more oil stocks.

I added an Australian oil stock to one of our portfolios yesterday. Funnily enough, when I was looking through our US buy list to find a company to talk about today, almost every company I looked at either a shipping company or a financial services company on our buy list that I ran last week. And I was so sick about talking about, uh, shipping companies or financial services companies. That I had to go quite a, quite a way down on the list to find one, which is actually a financial services company

Tony Kynaston: it’s, it’s a,

Cameron: more or less,

Tony Kynaston: no,

Cameron: a little bit different

Tony Kynaston: no less.

Cameron: [00:05:00] well, it’s a conglomerate. It’s a bit like Berkshire Hathaway, you could say. Berkshire Hathaway is essentially insurance company. Geico, yeah.

Yeah.

Tony Kynaston: Yeah,

Cameron: it’s also a lot of other things, and so is the company I’m gonna talk about today, which is Orix Corp on the New York Stock Exchange. Its ticker is IX, the number nine

Tony Kynaston: Number

Cameron: in Roman numerals.

Tony Kynaston: Number nine.

Cameron: It’s listed on the Tokyo Stock Exchange as 8 5 9 1 is its code in Japan.

Tony Kynaston: Isn’t eight eight’s the good luck number in? Is that, that’s China? Sorry. It might be the same in Japanese. I don’t know.

Cameron: Uh, threes, nines, I think get a, uh, a lot of good luck. Uh, do you know why they have numbers in? Uh,

Tony Kynaston: no.

Cameron: ah, well, I am here to,

Tony Kynaston: good

Cameron: to enlighten you about numbers. Yeah. [00:06:00] Japanese.

Tony Kynaston: kanji? They can’t, uh, they can’t put the alpha numeric or the alpha characters into the stock exchange. Okay.

Cameron: This is why you used to win all of those. Uh, I was gonna say charity, not charity. shows. Yes. Um,

Tony Kynaston: my days mansplaining to ai.

Cameron: yeah,

Tony Kynaston: It’s, gonna, that’s gonna be the title of my autobiography,

Cameron: I

Tony Kynaston: mansplaining to ai.

Cameron: I’m, I’m, I’m, I’m, I’m gonna do an investigative journalism, documentary that will, I, I think, uncover that behind all of the ais. It’s just somebody’s calling you and asking you to answer all the questions and

Tony Kynaston: Phone the friend.

Cameron: yeah.

Tony Kynaston: gonna launch an AI called Phone The Friend.

Cameron: Phone, Tony.

Tony Kynaston: Yeah.

Cameron: When Japan’s exchanges modernized after World War ii, they needed a code.

Every broker could punch into the [00:07:00] Western built ticket tape machines of the 1950s kanji wouldn’t fit. And the Roman alphabet wasn’t in common domestic use in Japan. So what they had was numbers and uh, everything ended up with a number and that’s, or a security code. So ones a food and textiles, twos a chemical.

Uh, you know, numbers starting with two are chemicals and pharmaceuticals. Threes, steel and machinery. are electrical and precision fives are it, and electronic. Hardware except for Sony, which is 6, 7, 5, 8, um, services. A consumer like Orix is a, well, they’re usually six, but Orix  isn’t because it’s financial services.

So it’s an eight. Um, sevens, a transport equipment. Uh, Toyota is 7 2 0 3. Orix , uh, Fin eights are financials and real estate. Orix  gets an eight because of that, and [00:08:00] nines are utilities and telecoms. So there you go. That’s what you need to know. know, right?

Tony Kynaston: for that.

Cameron: Hey.

Tony Kynaston: riding on the Japanese subway and being totally fascinated by watching people use mobile phones and texting. And if you can think about it, there’s, you know, we have. 26 letters, plus 10 alphas and a few other characters on our Kanji is almost limitless, I would think. Certainly there are some common characters, but yeah, they, they would have sure the shortcuts on their phones and then call up a screen and tap a screen, and it was just amazing to watch them use their

Cameron: Yeah.

Tony Kynaston: to send texts. It was incredible.

Cameron: So we’re gonna talk about Orix . Um, and as I’ve told you offline, uh, it was interesting to me for a number of reasons. is a conglomerate, it’s been around a long time. I dunno much about [00:09:00] or Japanese businesses. So that was interesting to me. But I also picked up some issues with our checklist on this one due to currency reporting in stocked. It, it, it came out with a positive score anyway. And I’ll explain how and why as we, when we get into the numbers, but it, I just wanna highlight for anyone using our checklist uh, and using Stockopedia for the underlying numbers. Be careful when it comes to, uh, companies like this, that, which are an A DR.

So they’re listed in another country. They have an A DR in the US ’cause the reporting in Wikipedia is a little bit confusing and some of the numbers may not work. But I’ll get into that in a level. So who on earth is Orix ? Uh, Australians will probably be familiar with Orix because, uh, we, they’re quite big here.

They have quite a big operation here. They have quite a, they have big operations everywhere as it turns out. But they also had a bit of a bribery scandal in Australia about 10 years [00:10:00] ago. Are you across this, Tony?

Tony Kynaston: No, it doesn’t ring a bell. Sorry.

Cameron: Ah,

Tony Kynaston: Bri. Scandal.

Cameron: yes. So the timeline,

Tony Kynaston: a fleet, leasing company.

Cameron: yeah.

Tony Kynaston: Oryx. Yeah,

Cameron: That’s their primary business here. So in 2015, the Australian CEO, John Carter and another Australian exec, George Giorgio, were arrested by the New South Wales fraud squad charged with four counts, each of paying corrupt commissions and money laundering to. Coca-Cola am Till’s Fleet procurement boss Brian Perera. Um, they were allegedly paying him large amounts of money and giving him five star holidays, Mercedes-Benz other benefits worth [00:11:00] millions in return for CCA steering tens of millions of vehicle leasing business to Um.

Tony Kynaston: think? If it, if it happened, how did they think they were gonna get away? With what? Like the guy turns up to Coca-Cola when a new Mercedes fresh from his trip to The Bahamas. It’s like,

Cameron: No, no, but um, the guy from Coca-Cola, Amel Perera, pled guilty. He got, uh, six years, year non parole period. The judge branded it systematic commercial corruption, but the prosecution. Unexpectedly withdrew all charges against the two guys from Orix . Never really explained why they both walked away free.

No fines. Levied on Orix . they were, uh, dismissed from Orix  or [00:12:00] suspended or something. But, um, interestingly, they both ran up very large legal bills. Carter, the CEO sued or X’s and o insurer, Chubb for legal fee reimbursement. Directors and officers liability insurance wanted Chubb to pay their legal bills. Chubb said, bribery is an excluded act, uh, from your director’s insurance. And the judge agreed. So, uh, Carter had to pay for his own legal fund, uh, but it made Orix , um, tighten up global compliance. Sandy, uh, uh, go through anti bribery training, strict third party payment controls, uh, et cetera, et cetera. So.

Tony Kynaston: And John Carter went back to Mars. Did he?

Cameron: Yes. Yeah, yeah, yeah. You’re familiar with that book and film?

Tony Kynaston: And the movie. Yeah,

Cameron: Yeah.

Tony Kynaston: Books were used to read ’em when I was a kid.

Cameron: Who wrote the [00:13:00] books? Um,

Tony Kynaston: Boroughs.

Cameron: Sango wrote Tarzan, right? Was it Same guy? Yeah. I never read

Tony Kynaston: in, I think he, I think he lived in Tarzana. Tarzana, isn’t it? The suburb in LA after his books.

Cameron: Really? Wow. Yeah. There you go. Look at you. Mr. Show. Quiz show. Eson. I’m just gonna call you from now on. So, who on earth is Oryx? Well, um, they’re, they’re kind of a financial handyman. Started in 1964, leasing office equipment, photocopiers and forklift forklifts, anything companies didn’t wanna buy outright.

You could, uh, lease from Orix . I’ve been around ever since and they’ve bolted on lots of different lines of business, real estate projects, life insurance, arm, small bank, private equity investments, renewable energy farms. They even own a baseball team. The Osaka buffaloes and they earn money from all sorts of things.

[00:14:00] Rents interest. Go Buffaloes. Yeah, because I, I don’t know about you. Well, I think Japan, I think buffaloes, that’s the first

Tony Kynaston: Mm-hmm.

Cameron: that comes to mind when I think Japan Baseball and Buffaloes, uh, yeah. All sorts of businesses. Plain leasing, you name it, they probably are in it. Um.

Tony Kynaston: from the limited research I did on the company, were kind of pioneering in that equipment leasing space as well, worldwide. I mean, it wasn’t. wasn’t a done thing much before them to, to able to easily go out and say, Hey, I wanna expand my business. I don’t wanna afford, can’t afford to buy 50 forklifts.

Is there a better way of doing it? uh, you know, they found a solution. Yeah, sure. Lease it to You

Cameron: Yeah.

Tony Kynaston: pay for the whole lot. We will. We’ll make a margin over time. You’ll be happy. We will do a deal. It’s a, it’s a very innovative [00:15:00] change to business that happened in the, I think the seventies from memory.

Cameron: Yeah. Fascinating to think that that wasn’t always around, right?

Tony Kynaston: Hmm.

Cameron: It was a, it was a new thing, a new idea. Uh, speaking of new ideas, ADRs, I’m, I’m not that familiar with ADRs. Um, I don’t know. Many of our Australian listeners may not be our American listeners. May or may not be, but I thought I’d just explain what an A DR is for anyone who’s not.

Uh, a DR stands for American Depository Receipt. Uh, it’s, it’s, it’s like a rapper. Basically for foreign for shares in a foreign company, the way it tends to work is a big bank like a JP Morgan, buys actual shares in the company’s home market. In this case, Japan. Parks them in a custody account overseas. Then issues, receipts that represent those shares that can then trade on [00:16:00] the New York Stock Exchange or, or the Nasdaq. Just like any other US stock, the bank handles all of the, the paperwork, all of the complexities with that. Um, and Americans get to participate in trading in that company when there are. Dividends, those sorts of things. The bank works it all out. They it all into American dollars and pay it, et cetera, et cetera. Um, they can be quite confusing though. Um, one a DR doesn’t always equal one. Common share. And in fact, that was the case with Oryx for a long time. I think it was five 80 s equalled one share and then there was a consolidation and it became two 80 s equal one share. At the moment, in Ory X’s case 180 R does equal one Japanese share, but it’s not always the case. [00:17:00] So, um, I won’t go too much more into it, but that’s how ADRs work if anyone is interested. So the company Oryx, has only really had two bosses in its entire history, which makes it interesting. The founder ran the place until about 2014. He’s still around. He’s the honorary chairman now. He’s basically the, the Warren Buffet, I guess, of, uh, ORIX .

Tony Kynaston: Throws

Cameron: Uh.

Tony Kynaston: for the Osaka buffaloes.

Cameron: Yes, probably. And eats a lot of Japanese candy, um, drinks. Japanese, Coca-Cola. I don’t know, maybe they’re,

Tony Kynaston: the end.

Cameron: I was gonna say

Tony Kynaston: He’s moved to

Cameron: she’s moved to Japanese Pepsi. Yeah. Um. He is an interesting character. He received his BA from Quai University in 1958 and then went [00:18:00] to Chrissy’s alma mater, the University of Washington in Seattle do his MBA in 1960.

He. He his MBA returned to Japan, and in 1964, joined a little startup called Orient Leasing Company helped pioneer finance leasing and then became the president and CEO of Orix  in 1980. Then the chairman of C and CEO in 2000 before becoming the senior chairman, honorary chairman of 2014, his, uh, replacement. As CEO, he was his longtime lieutenant. Koto in Newey took over. He’s only been with the company since 1975, so he’s the new boy at the company. late bloomer and the president’s, COO, who’s the new, new boy is Hidetake [00:19:00] Takahashi. He was born in 1971, so fun fact, he was three years old when the current CEO took over the firm, or no, joined the firm. He’s been there since April, 1993. So he’s the new, new boy. But I joke, but they’ve been around a long time. These guys, the guys running the company.

Tony Kynaston: are you being served when young Mr. Grace comes down

Cameron: Yeah,

Tony Kynaston: and he’s like

Cameron: that’s right. 90.

Tony Kynaston: cane? Yeah.

Cameron: Americans will have no, I Most Australians have no idea what you’re talking about. Are you being served? Yeah. Or don’t, it’s, uh, yeah. What, what were the catch prizes?

Tony Kynaston: Are you

Cameron: I’m free. That’s right.

Tony Kynaston: Are you free, Mr. Humphrey?

Cameron: This was a British sitcom that was popular in the early 1970s. Tony and I are both old enough to remember it fondly when it was one of the

Tony Kynaston: [00:20:00] base humour.

Cameron: wow. But yes, very raunchy for its time would be seen as very lame today by today’s standards. But at the time it was very raunchy.

A lot of, a lot of horns.

Tony Kynaston: Mm-hmm.

Cameron: Um,

Tony Kynaston: Which very obvious. They weren’t really double.

Cameron: No.

Tony Kynaston: out there,

Cameron: How to make, how to make sexual jokes that could get through the senses, I think was the

Tony Kynaston: Yeah.

Cameron: at the time.

Tony Kynaston: Mm-hmm.

Cameron: so that’s the management. Been around a long time, um, and have been running successful business, albeit scandal or there, but who hasn’t had a scandal if you’re around long enough where the money

Tony Kynaston: too. It wasn’t like it was a,

Cameron: Yeah.

Tony Kynaston: Osaka buffaloes or anything

Cameron: No, no,

Tony Kynaston: Hmm

Cameron: and like in its entire history, nothing has ever gone wrong in Japan’s history. They’ve got a flawless clean history. Um, where the money comes [00:21:00] from. So last fiscal year, which ended March, 2025, ORIX  booked about us, $19 billion of revenue and a record profit of about a. 2.3 US billion dollars. Roughly a quarter of that came from leasing cars, trucks and IT gear. Another chunk came from its life insurance arm, some from building and managing properties, and the rest from overseas lending, private equity deals, green energy projects, et cetera, et cetera. No single line dominates their revenues, is interesting because they tend to smooth the ride out.

If one of them has a bad year, the others smooth them out. But the earnings look a bit funny and a bit lumpy, which I think is one of the reasons why it’s, from our perspective discounted. It’s got a fairly low prop calf. we know. Prop calf is of, uh, debatable how [00:22:00] useful it is in a financial services company because it’s so lumpy. But e this, these guys even more so, because on a fairly regular basis, I think they sell something, sell a business or a piece of real estate and book a one time gain, which gives them a bump. Uh, for example, it sold a bunch of private equity stakes in 2022, and the, the headline profit jumped by 192 billion yen or about 1.4 US billion dollars. And investors know that that kinda windfall isn’t gonna repeat every year. So they tend to strip it out and just look at the underlying revenues, which are a lot more mundane, um, and predictable. said, ORIX  tends to sell stuff on a fairly regular basis, so they have a number of these. Bumps that come along, you know, whether or not it’s, uh, a deliberate part of their strategy or they’re just [00:23:00] opportunistic, uh, or they do it to drive up profits here and there.

I don’t know. But, um, they, they tend to do it on a fairly regular basis.

Tony Kynaston: a big, it’s a big conglomerate. It’s gonna, it’s gonna have a transaction going on somewhere at some time. Isn’t it really?

Cameron: Yeah. me a little bit about the, um, mobile company I did, uh, a week or two ago. You know, they’re exiting this line, getting in that line, you know, they’re, they’re navigating and moving things and they’re, um, like, like Berkshire Hathaway, you know, they’re, they’re actively buying into sectors, exiting other sectors moving around. There’s another interesting thing though with financial stocks in Japan. Apparently financial stocks in Japan often trade below book value. As we know. For decades, Japan had near zero interest rates and fairly sluggish growth. Banks, insurers and conglomerates like this one could only squeeze out moderate [00:24:00] returns.

Uh, so investors tended to only. Assess them on net asset value, um, on the balance sheet, because they weren’t showing a lot of growth. They basically weren’t willing to pay anything over book value basically for these companies. Even now, half the companies on the Tokyo Stock Exchange still change hands at less than the paper value of their assets.

Tony Kynaston: Mm.

Cameron: Which from a value investing perspective is interesting. Right?

Tony Kynaston: Yeah, that’s fantastic.

Cameron: Wasn’t Charlie big on JA

Tony Kynaston: Yeah, I was gonna say.

Cameron: Yeah.

Tony Kynaston: still is too.

Cameron: Yeah. Um, or X’s Shares in Japan go for about 0.9 times book value. that gives you a, idea of what we’re talking about here. Uh, it’s normal in Japan, although it looks, looks cheap to us based on what we’re used to seeing. [00:25:00] There’s another issue with them in terms of the ADRs though, it’s because they’re are PFIC. PFIC In the US, the IRS labels, companies like Oryx, A-P-F-I-C, a passive Foreign Investment company. This is a company that earns lots of interests and holds big securities portfolios, and apparently the IRS them in a way that. Is, um, a bit of a pain in their butt for American investors. You got any fam uh, any familiarity with PFICs?

Tony Kynaston: I don’t. But I’ll be interested to hear if anyone in the of our, any of our listeners can enlighten us on them.

Cameron: Well, I can enlighten you on it, Tony, because I, I, I, I did research on it, so if you, if you’re in a.

Tony Kynaston: a rhetorical question.

Cameron: It was, well, it wasn’t rhetorical in that. I was just wondering if you knew, but I, I was gonna [00:26:00] prepared for the fact that you probably wouldn’t because you don’t deal in the US market much.

Tony Kynaston: hmm.

Cameron: if you hold A-P-F-I-C, you have to file a nasty IRS form.

It’s an 8 6 2, 1 form every year. And you either need to pa.

Tony Kynaston: us, the u, the IRS doesn’t work. It uses KG, so it has to have

Cameron: Yeah,

Tony Kynaston: return. Yeah.

Cameron: yeah, yeah, yeah. And you have to fi fill out the entire reporting kgi, uh, just to make it more difficult in triplicate.

Tony Kynaston: origin for the, uh, holding. Right.

Cameron: No, you need, you need to pay either pay tax on phantom mark to market gains for the stock. Every year or you elect something called A QEF treatment, which is where you have to do it for every year when you finally sell it. it’s, it’s basically you’re paying tax on [00:27:00] phantom profits without having sold it.

Right.

Tony Kynaston: gains. That’s

Cameron: gains.

Tony Kynaston: Mm.

Cameron: Um, and so a lot of wealth managers in the US tend to blacklist PS ’cause it’s just. Uh, uh, very troublesome. you know, a lot of paperwork, um, according to the US tax code. And, um, yeah, I mean, I’ve got a whole breakdown on the QEF is qualified electing fund. You basically, um, have to issue A-P-F-I-C annual information statement.

The company has to in order to let you do that. Orix doesn’t. Produce one of those. So you can’t even do that as an option for, uh, if you’re an American investor. So it’s a, a, a, form runs eight parts. The one that you have to file, the 8 6 2 1 asks for daily share counts basis [00:28:00] elections, prior year adjustments, and interest computations, and. If you miss a form, the statute of limitations just stays open forever. It’s just a compliance nightmare. Yeah. Warren would probably love it because he, you know, I’m sure he loves filling out paperwork.

Tony Kynaston: another, reason why the stock trade’s cheap, I suppose, is it’s a headache.

Cameron: It is, yeah.

Tony Kynaston: I, I guess the question is, I know that I, I’m not giving tax advice and I don’t think people should do this, but, you know, chuck it into ai, fill out, I. Fill out whatever you think, send it in.

Um, if you, if, if it’s hard for you to calculate, it’s gonna be even harder for the IRS to calculate. if they come back and say, Hey, you’re wrong. Just say what? Just keep doing that. Throw in any numbers and wait for them to calculate it for you properly, and you save

Cameron: Yeah, yeah,

Tony Kynaston: and hassle of doing

Cameron: yeah. You ever dealt with the IRS, Tony?

Tony Kynaston: No.

Cameron: I.

Tony Kynaston: Wonderful I hear.

Cameron: [00:29:00] I don’t, yeah, I don’t think they’re the kind of people you wanna mess with. I think they’ll just throw you in jail and say, we will let you out when you fill in the correct form. When you are numbers agree with our numbers. Uh, but you do make a good point.

I do think AI is gonna make completing these things a lot easier. So maybe that hurdle will. Start to go away in the future anyway, it’s just something to be aware of. If you’re an American and you’re thinking about investing in UH, PFIC, earnings quality, um. Versus the headline numbers are interesting.

Now, when you hear Oryx made 2.3 US billion last year, remember about million of that was one-off gains from selling assets. So you take that away and the core business still earned roughly 1.8 US billion, but it, it trims its return on equity from about 9% to something closer than 7%. [00:30:00] So analysts tend to, as I said before, tend to base their valuation on the lower figures. From my perspective, though, the company is still generating lots of cash it’s been around a long time. The guys running it have been around a long time. They seem to know what they’re doing. Um, if you look at their long term share price, there’s not a lot of growth in it though. So that’s the flip side to that argument because of this. Issue with Japanese share prices. As I mentioned before, there’s also an issue, uh, which is interesting if you value each part of the business separately. Like if you break life insurance and asset management and all of these different parts up, and then you value them individually, you get about 31 to 33 billion US to GPTs.

Some of the parts valuation. did go through its calculation. bore you with it here, but the stock market values the whole group at [00:31:00] roughly us $21 billion. So there’s like a 30% gap of what’s called a conglomerate discount. By in between what the Gordon Gecko, some of the parts thing would be if you broke it all up and sold it off bl like blue. Blue. What was it? Blue.

Tony Kynaston: Um, uh, Anaconda likes blue something. Steel.

Cameron: Yeah. Yeah. God damn, I’ve gotta watch the movie again. Um, versus what it actually gets valued at. Um, it’s also some of the, some of the risks. There’s a lot of big projects. I mentioned that it does a lot of crazy stuff. So Oryx and MGM are thinking about 10 US billion dollars into Japan’s first casino resort in Osaka. Not gonna open until 2030. So the cash flows from that are years away, but. You know, who doesn’t want to go to a Japanese casino resort? Um, that sounds like fun [00:32:00] right from the get

Tony Kynaston: hometown of the buffaloes too.

Cameron: they’ve also recently bought a, a, um, cosmetics company. DHC in the us, um, a distressed asset firm, Hilco Global. So, you know, they’re, as I said at the beginning, a bit like Berkshire. They’re building stuff, they’re buying stuff. They’ve got this venture, that venture. of them are dubious, some of them are risky. Some of them are like cash flows that are years away. So I think, um, the markets are a little bit shy on those things as well. But again, fascinating business.

Tony Kynaston: there is a school of market of fund manager who says, I won’t own a conglomerate because you know, I might like the leasing part of Orix, but I don’t like the casino part of Orix. And if I want to. Hold a [00:33:00] portfolio that includes both. I’ll buy a leasing stock and I’ll buy a casino stock.

So

Cameron: Yeah.

Tony Kynaston: that’s one of the reasons why

Cameron: I.

Tony Kynaston: a discount. Um, I mean, I, I’m not sure I subscribe to that, but that’s, that’s the, that is at least a fairly large number of fund managers will think that way.

Cameron: They’re gonna, when somebody is focused on something rather than

Tony Kynaston: Hmm.

Cameron: spread thinly, they also have an airport, um, that they have a. Like a, a joint venture in, I mentioned the cosmetics company, Panasonic projector. They’re gonna own, 80% of Panasonic’s Connect Pro projector and display unit business.

Panasonic’s keeping 20%. Um. renewables and storage pipeline. They’ve got a wind farm that they’re bu building utility scale batteries. mean, all sorts of really interesting projects, but, you know, uh, aren’t finance [00:34:00] leasing,

Tony Kynaston: Hmm,

Cameron: um. They’re now, they’re paying a dividend yield of about 1.6%. That’s after the a DR fees and currency, um, transaction, foreign exchange stuff.

Adjustments are done. Yeah, also authorized a buyback of about 3.5% this year, uh, buying back the stock below book value. So um, probably good for shareholders over the long term. Bottom line, uh, is that it? It’s a well run diversified conglomerate finance group slash whatever takes our interest this year and looks cheap.

Tony Kynaston: baseball team

Cameron: It.

Tony Kynaston: and you can buy it for 90 cents in a dollar.

Cameron: Yeah, and it looks cheap to us because as I said, Japanese financials start life below. Book US tax rules scare off a big chunk of US [00:35:00] investor market and the headline profits jump, jump around depending on when they’re selling an asset or when they’re not. So it’s complicated. But if management keeps canceling stock through buybacks on some of these projects like the Osaka Resort, um, et cetera, et cetera, you know, it, it’s a good, good little business well run. Um, and it’s cheap, but, and it scores well. But, um, I’ll take you through the, the QAV scoring and, uh, explain some of the complexities here. So. As I mentioned at the outset, the price to operating cash flow is quite low. It’s 2.68. But again, as we’ve said, you’re looking at financial services companies and particularly companies like this that sell things one off, um, can be lumpy. you know, my other school of thought is it is what it is right now, right? This is, this is a [00:36:00] business that’s making cash and is well run. So the, if you can buy it. At a discount or not a discount, but at a cheap, uh, multiple to its operating cash flow, that’s what you’re doing, right?

Tony Kynaston: Hmm.

Cameron: Um, it has a fairly low quality rank on Stockopedia.

It’s got a 39, so we don’t score it for, that has to be 60 or better for us to give it a score for that. It’s also got a low stock rank. Edia, it’s on a 61. We only score it if it’s equal or better than 90. So I’m not scoring it for either of those. it’s F score is good. What?

Tony Kynaston: sorry. I was just gonna say, we’ve seen this before with finance companies, that they get a low quality rating in. Wikipedia,

Cameron: Yeah.

Tony Kynaston: and I know this is a conglomerate, but I wonder if that’s got something to do with it, because I think because they hold lots of debt, which if you’re a finance company, it’s not a bad thing.

It means you’ll, as long as you’re lending it out with a margin, it’s a great thing if the debt’s growing. [00:37:00] So yeah, there’s, we’ve seen this before with Stockopedia, so I’m not all that worried about a low quality ranking in Stockopedia for this company.

Cameron: Yeah, me either. And you talk about debt, their f score, their financial score is actually pretty good. It’s a, it’s a five, is on the low end of good. But it’s above four and a half. We, we will give them a score if they’re equal to or greater than four and a half. Um, so it gets a score for F score and F score, know, the financial health of the business is the main one that I’m interested in.

And, um, it, it, it’s doing okay from that perspective, doesn’t have a Zed score, uh, because that doesn’t work for financial companies. As we’ve learned before, the Altman model needs. capital over total assets and sales over total assets to be calculated doesn’t really work. But here’s where we get into some issues.

So the um, QAV IV number one, uh, is tricky. So. When I ran the checklist, it [00:38:00] gave it an IV number one of $1,711. The share price is currently $21,

Tony Kynaston: Fantastic.

Cameron: so that is a very good IV one. the price is less than the IV number one, but that’s when I worked out that Wikipedia is reporting the EPS. So for new listeners, our um, IV number one, we, you know. We don’t use, um, a classic IV calculation. Tony’s developed a quick and dirty iv, uh, calculation, which is current.

Tony Kynaston: from the Warren Buffet workbook, so it wasn’t, wasn’t mine, but I picked

Cameron: Oh, was it? Oh,

Tony Kynaston: Yeah.

Cameron: I thought you, I thought you had, I thought there’s your hack. Yeah, so it’s current, current EPS over a hurdle rate, and our hurdle rate is 19.5%. Um, but if you, if you look at the EPS in stock Edia, it’s 333 [00:39:00] yen and the prices in US dollars when we’re looking at the, um, a DR price. So why it comes out at 1700. Um. Dollars in our thing. So when I convert the EPS from Yen into USD, which is about 155 yen, uh, at the moment, it brings the. 3 33 EPS down to $2 15, which makes the IV number one $11, which is less than the current share price. So I, I backed that out of our scoring, gave it a zero instead of a one for, is it less than the IV one? Um, but IV two actually. It’s still scored for. So IV two. Intrinsic value number two in our calculation is future EPS over the market hurdle rate. As I said last time, I’m currently using a [00:40:00] market hurdle rate of about 10.33%. The future EPS forecast. One year in stock, EDIA for Oryx is 355 yen. If I convert that to USD, it’s $2 29. So future EPS over the market hurdle rate $22 16, which is higher than $21, the current share price. So it’s still got a score for that. Even when I. Calculated it in USD? Uh,

Tony Kynaston: question on

Cameron: yeah,

Tony Kynaston: Are you using the US rate

Cameron: I am. Yeah.

Tony Kynaston: Yeah.

Cameron: I’m using 4.33%, which is, I get from, uh, I can’t remember now, some US site. Um. Price to book is also problematic because book is reported in Yen. again, when I did the [00:41:00] calculation for that, um, it still worked out well. The book was about $23. USD price is $21, so said earlier, still buying it for when we said 90 cents on the dollar, more or

Tony Kynaston: Yeah.

Cameron: Yeah. So, um, price less than book. Yes. Price less than book plus 30. Yes. So it got scores for both of those. Um, growth over pe. Um. It is got a zero for that, um, both in Yen, but it’s still got a zero for that Value growth over three years is positive though, so I could score it for that. PE is not less than the yield.

Yield is not less than the back debt. Um, the last one here is, uh, forecast than two times the. Share price. Again, the forecast IV [00:42:00] was messed up ’cause it was in yen. So my scoring initially checklist gave it a yes. I backed it out, gave it a no. So when I. Reversed the wrong scores and entered the right scores into the checklist. of items were 14. Got a score of nine quality score from our perspective of 64%, a lot higher than Stockopedia’s quality score, and it got a QAV score at the end of the day of 0.24. So.

Tony Kynaston: That’s good.

Cameron: Even when I it, it still came out with a good score. We don’t own it. It’s not in our portfolio, but based on everything that you now know about ix, Tony, if, uh, we were looking to add a score, a stock to our US portfolio, what would you say?

Yay or nay?

Tony Kynaston: Oh, yay. I love it. Sounds great. I know, and it’s a dummy portfolio, so we don’t need to do the [00:43:00] tax reporting, but,

Cameron: Right.

Tony Kynaston: that, that might be a, a deal breaker for. Lot of our listeners in the States, but, um, no, it’s a, sounds very, very interesting and promising.

Cameron: As I said though earlier, if I look at the share price history in stock, EDIA it, you know, it’s had a bit of growth, but not a lot. But you know, I never used

Tony Kynaston: was

Cameron: price history as a guide. Yeah. I.

Tony Kynaston: I was using the bread later anyway, and if you go back five years ago and it was worth $10 80 and now it’s $21, so it’s doubled in five years. So that’s CAGR of, you know, nearly 15%, which is good.

Cameron: Yeah. Yeah.

Tony Kynaston: uh, it’s a recent upturn, so there’s a, I’m not sure what the reason was for kicking it up above our byline, but something’s happened recently, probably the latest results.

Uh, and yeah, so it’s in, you know, do you think it’s in a good space?

Cameron: Yeah.

And, and you know, I was gonna finish by saying like, long term price histories isn’t [00:44:00] something that I take into my calculations. Um. Looking at the quality of the business today. Is it generating cash? Is it well run? Can we get it at a good price? And it certainly checks all those boxes for me, and I like the fact that it’s messy, and difficult for American. Funds to buy and analysts who analyze. that’s a, that’s a win because if, if we think something’s a good bargain, even if everyone else doesn’t ’cause it’s too complicated or messy, then we might be right and they might be wrong. I.

Tony Kynaston: I do wonder and I, I have no knowledge of this. I open my mouth, but I do wonder if someone’s offering a product to be able to invest in this kind of company without going through that tax reporting process. You, you do see it in some cases that, you know, some Wall Street banker has put together a fund that it does all the paperwork for you and you invest in the fund, so kind of [00:45:00] backs the back to performance.

I’m not aware of it in this case, but again, if someone out there is listening and knows of a, a hack around the. Tax reporting and it’d be great to to hear

Cameron: I like, I like your hack. Just get GPT to do it.

Tony Kynaston: Yeah.

Cameron: All right. Well, um, that’s, that’s ix I found it again, like really interesting and so out of, um, I mean, I, I’ve got a lot more research on all the businesses that they own and they’re buying and, you know, it’s, I, I, I could go on for hours, but, uh, check it out. Interesting, interesting company.

Tony Kynaston: Thanks,

Cameron: Well with that, um, stay safe.

America. My son’s back in LA now. Um, I couldn’t talk him into staying, so he flew back to LA on Saturday and, um, I saw there were millions of people out on the streets, um, et cetera, et cetera. So, um. A few casualties in that process, [00:46:00] so sadly, anyway, stay safe wherever you are, Australia, America, listening to this.

Have a good week, happy NYSE, and uh, we’ll talk to you next week. I

Tony Kynaston: Happy NYSE. Thanks, Cam.

Cameron: thank you, Tony.

[00:47:00]