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Cameron: Welcome back to QAV America, Tony, episode 13, timestamp. Tuesday, the 8th of July in Australia, about 2:30 PM in the afternoon. It’s a Tuesday. Uh, we’ve just done an Australian show where we talked about President Trump’s uh. Nobel Peace Prize nomination and congratulations to him on that. And uh, sure that’ll go great.

And, um, more tariffs that he announced yesterday that he’s gonna hit Japan and South Korea with, if they don’t. Give him a call and pledge allegiance and, uh, the US markets fell, the Australian market fell and then woke up and went, what are we doing? And recovered. So

Tony Kynaston: A, uh. Was that the

Cameron: Kramer,

Tony Kynaston: by the American? Uh, the Australian [00:01:00] market.

Cameron: yeah.

Tony Kynaston: it follows Wall Street up or down and it didn’t, it started to and it turned around today. But we do have

Cameron: Started,

Tony Kynaston: reserve bank meeting going on now, which may drop interest rates.

Cameron: I think they had a cup of coffee, all of our traders, and realized that Trump will tar it. And so they went, what are we? Why are we doing this? Let’s just assume he’s gonna tar it and get back to business. Oh, I dunno what they did.

Tony Kynaston: knows. Anyway, freedom Day number two. Coming up on Monday,

Cameron: Yes, just volatility all over the place, still in the US markets. Um, we, we are fortunate that because we have a system that ignores noise, most of what’s going on, we just go, yeah, yeah, whatever. And we focus on the fundamentals.

Tony Kynaston: And, and make a bit of fun of it too, usually.

Cameron: Yes, you do. You

Tony Kynaston: Hmm.

Cameron: will just stick to our knitting. And so today I’m going to, for people that are [00:02:00] listening for the first time, um, QAV is a value based investing system that Tony has developed over the last 30 years, continues to develop and refine, uh, we call it QAV.

It’s quality at value. So we’re looking for. Stocks in quality companies, basically companies that seem to be well run and are making money, uh, when we can get them at a discount to their intrinsic valuation. And we have a number of metrics that we look at. And so what I do in these US shows is I generate a buy list using our checklist that we have that scores companies based on whole range of fundamental metrics.

I’ll pick one somewhat at random from that’s on the buy list. That’s getting a positive score. It comes up as a buy and then we’ll break it down and look at it. Tony and I are boast based in Australia, based in Australia. Dunno a lot about the companies that are on the US markets. New York Stock Exchange or the nasdaq, [00:03:00] and a lot of them are very different.

Sorts of businesses to what we’re used to trading with in Australia. So we pull ’em apart and have a think about ’em and try and figure out, well, why is this showing up in our buy list and what do we think of it as an investment? If you know we do run a US portfolio, it’s doing very well. We actually don’t have any cash left to invest.

So we’re not buying the company that I’m talking about today at this stage. But I will ask Tony the question at the end of this, if we had cash to buy, what do you think about this one? And these aren’t necessarily recommendations. We’re not financial advisors. See a financial advisor before you make any investing decisions.

We’re just talking about companies that look interesting, uh, based on our analysis. And today’s company is one called Zep Health. I immediately liked it because I thought of Zeppo Marx.

Tony Kynaston: did too.

Cameron: Uh, yeah. My favorite of all the Marx brothers. Most underrated of all the Marx Brothers. Hey, he just, [00:04:00] he, he. He, he was, he was the good looking one.

The good looking Marx brother.

Tony Kynaston: didn’t

Cameron: That’s what I think of.

Tony Kynaston: though,

Cameron: No, no. He was too good looking. Too good looking. That was his problem. Yeah. Yeah. Um, he was a DEI hire DEI. Diversity

Tony Kynaston: The Nepo. Marks

Cameron: the Nepo. zPo. The Nepo. Yeah.

Tony Kynaston: The Nepo,

Cameron: Um, ZEPP is the name of the company Z. That’s their ticket code as well.

Tony Kynaston: ZEPP. This is the US

Cameron: Z, sorry. ZEPP. Yeah. My American wife would, uh, have corrected me on that as well. Uh, but growing up watching Sesame Street, I should have known that. Anyway, uh, now I will, I. Just highlight the fact that if you’re looking at this in stock, EDIA, ’cause uh, that’s what our checklist is designed for.

This is one of those stocks that we’ve been talking about lately [00:05:00] that does not report in USD. It reports in Remi, BRMB. Uh, for reasons that I’ll explain soon, so you’re gonna have to do a little bit of jiggling with the numbers. My other thing to let you know is that I did after our show last week when we decided to remove the Altman Zed score from our checklist.

I did do that this morning, the score. Thank you, Tony.

Although in Pulp Fiction, Bruce Willis says, Z’s dead baby.

Tony Kynaston: Z’s dead.

Cameron: Z’s dead.

Tony Kynaston: Could never work that out.

Cameron: Well, ’cause she’s French, I guess. Who is Zed? She sees the keys. Who is Zed Z’s Dead baby. Z’s dead and Z’s dead. Baby doesn’t, doesn’t work. So Tarantino? No. Near the alliteration there. Is that alliteration? No. What’s that? It’s just rhyming.

Tony Kynaston: just rhyme. Yeah.

Cameron: Anywho, yeah. Uh, so this is this, uh, company. I had to, I had to redo the [00:06:00] numbers. Um, the score wasn’t as good. When I redid it, the quality score wasn’t as good, but it still came out positive and still was on the buy list. The reason I picked this one is it wasn’t a shipping company and it wasn’t a financial services company, so, um, which is what most of them.

Still. Uh, so I, I did a new buy list yesterday. I hadn’t done one for about a month for the US market, so I did do a new one. Pretty much all the same companies that have been on there for the last six months, which is fascinating.

Tony Kynaston: Mm.

Cameron: Even though our portfolio holds a lot of them and our portfolio is up 40% in the last year or something like that, um, those companies are still showing up anyway.

What does this company do? Well, they design and wholesale smart watches, fitness bands and health earbuds odds. They are. They trade under a couple of brands. Now, AMA a Mabb Fit, but it’s no E in the Amaze, so it’s [00:07:00] M-A-Z-F-I,

Tony Kynaston: Fit.

Cameron: TMAs Fit, which they sell through Amazon

Tony Kynaston: Um.

Cameron: but are not associated with Amazon. But it kind of, when you look at it, you think, oh, this is like Amazon’s.

House brand smart watches. No. And they also have their own brand, Zep. They also do some trading through Zomi. Z-I-A-O-M-I, big Chinese. I think they’re Chinese. Yeah. Chinese hardware company who I think now have rockets and you know, pretty much everything that can be built OMI have these days. Um, but these guys are on the low end of the smartwatch.

Business. So you’ve got your Apple watches and you’ve got your Garmins, and then you’ve got, and your, your your top end, I guess, Android type brands. Then you’ve got all of the low end stuff, which is the majority of it. They’re [00:08:00] selling roughly sub $200 USD for a lot of the same functionality that you would get.

From an Apple watch, they look like an Apple watch in a lot of cases. Um, but they’re, I don’t know what Apple watches sell for in the US probably 800 US I guess. So they sell for a quarter of the price of an Apple watch. These guys, uh, have their own. Software. They have an OS called zep. They have their own chip set huangshan, and they’re making big investments in ai, which is one of the reasons I think they’re an interesting business.

I’ll talk about that a little bit more later. They do sleep tracking, heart rate analytics. They have, uh, all sorts of sport coaching and tracking and all of that kind of stuff, which Apple pushes really hard on their, do you have an Apple watch, Tony?

Tony Kynaston: I do not, no,

Cameron: Right.

Tony Kynaston: no. I don’t need to [00:09:00] track my sleep or

Cameron: I have an Apple watch. I bought it when I started having heart issues years ago because I thought if I have a heart attack,

Tony Kynaston: it.

Cameron: I thought if I had a heart attack, uh, I, you know, I wanted the notification thing that it gives off.

Tony Kynaston: you’ll know before your watch tells you if you.

Cameron: You laugh, but that’s not necessarily the case. And also, um, if I fall over, actually I was passing out a lot then I was, I was on blood pressure, blood pressure meds that were making me have a lot of, actually, the real reason I bought it, I, they were giving me lots of, I. You’d stand up and you’d get brownouts.

And I thought if I’m home alone and I brown out, or even if I’m in my office and Christy’s somewhere else and this, and I brown out and hit the wall and hit my head,

Tony Kynaston: Mm-hmm.

Cameron: um, you know, somebody needs to know that I’ve, I’ve fallen down, you know, if, if I lie there by [00:10:00] myself for 12 hours, it could not be good.

Tony Kynaston: Have you actually tested that?

Cameron: Uh, well, yeah, I’m fine now.

Tony Kynaston: Jenny. Jenny bought an Apple watch for the same reason, because she’s had

Cameron: Alright.

Tony Kynaston: a couple of similar episodes. It wasn’t quite bad. Um, and then she wore it and had another episode, didn’t get a ping or a text or whatever to say it had happened. So, uh, I’m not sure of the veracity of having an Apple watch for that function.

Cameron: Well, I think there’s, there’s plenty of anecdotal evidence out there that it has worked for lots of people. I know my mom has one. We bought my mom one for the same reason, and hers has gone off when she’s fallen out of trees and done stuff like that. I. But also when she’s just fallen over it, it goes off, it’s over sensitive.

If anything, mine has gone off a bunch of times if I’ve been bumped or hit or there’s a shock to it or something like that. But fortunately I haven’t had to fall over. [00:11:00] I don’t have that problem, Mel. ’cause I’m off the blood pressure medication now. This is pre kung fu now post kungfu. Uh, I, I, I, do you want me to show you my abs?

Do you wanna see the current state of my abs? Y you do you wanna see it? I, I took a photo and sent it to my.

Tony Kynaston: you. can show me, your Apple watch if you like, but that’s as far as I’ll go.

Cameron: I took a photo, a shirtless photo, and sent it to my boys the other day and I’m like, just look at this. This is ridiculous. Look at this. It’s insane how shredded I am.

Tony Kynaston: you know, you know, they,

Cameron: I

Tony Kynaston: they catch people with porn on their computers like that.

Cameron: 54-year-old white man porn sending to his 25-year-old sons. Um.

Tony Kynaston: Grooming, I think they call it grooming, don’t they?

Cameron: Anyway,

Tony Kynaston: Anyway,

Cameron: back to Apple watches. Um,

Tony Kynaston: or

Cameron: so these guys cheap knockoffs. Yeah. Um, the, the founding story of this is, um, the founder, [00:12:00] Wayne Huang was a Hawaii I. Uh, Hawaii engineer and he supposedly hacked a cheap pedometer to a phone battery in 2013 because he kept forgetting to stand up during marathon coding sessions and, uh, he was showing off the contraption at some fair and Shenzhen.

Some guy from Xiaomi wrote him a 10 million US dollar check and they launched the business. It was originally called ami, um, which meant smart rice. And now then they changed it to Zep. So. Uh, zPo Marks, it’s named after, I’m pretty sure big fans of the, uh, less appreciated Marks brother. So interesting business.

They’ve had a lot of problems. Why?

Tony Kynaston: Swordfish

Cameron: I, yeah,

Tony Kynaston: in the Marx Brothers [00:13:00] film, swordfish.

Cameron: there was a password to what I.

Tony Kynaston: To the speakeasy. Great

Cameron: Oh, okay.

Tony Kynaston: uh,

Cameron: Right.

Tony Kynaston: inside opens the door in the, the door, and

Cameron: Yeah. Slot. Yeah.

Tony Kynaston: let me in. gotta have the password. I. the password? I can’t tell you. Anyway, they go through a, a bit where he says, I can’t tell you.

It’s a swordfish. Is it swordfish? Yeah. Come in. And then, and then Harper. Harper goes up to the front door and knocks. And of course he can’t speak the, the, the password. So I ask him what the password is and he opens his jacket and pulls out a swordfish and they go, oh, come here.

Cameron: Oh,

Tony Kynaston: I love the Marx

Cameron: let’s go.

Tony Kynaston: seen

Cameron: too. I, I keep trying to get Fox to sit down and watch ’em with me and he won’t yet. One day. One day. Okay. So they’ve had a few problems. These guys. Um. COVID [00:14:00] closed down gyms, um, but drove record shipments for their devices in 2020, but there were chip shortages, lockdowns in China, which sort of ended up halving their revenues.

By 2023 management Acts, 15% of staff moved their final assembly to Vietnam. To, uh, uh, I, I think partly to, uh, reduce costs and also to help try and avoid Trump’s tariffs stuff. They also switched focus from contracts they had with X Me, where they had pretty much no margins to higher margin, amaze Fit and Zep brands.

They’re trying to climb up the. Value chain, taking their own brand out there, which is what a lot of these Chinese manufac electronics manufacturers do. They, you know, they start off [00:15:00] building it for a bigger brand and then they launch their own and try and build that up. Um, they sold off a unit to Alibaba in 2022 and they’ve moved their headquarters to the Netherlands for I think a, a bunch of reasons.

I’ll talk about that more in a moment. But smart wearables are still the biggest part of their revenue mix. The amount of money that they make off the OMI contract is now only about 6% of revenue. Um, self branded gear is now 94% of revenue. So they’ve really switched the business around in the last couple of years, and as I said before, a lot more margin in the self branded gear.

Um. Uh, but, uh, they’re still relatively small. Revenue is about 181 million in FY 24. Their FY numbers I think are coming out, no, their quarterly numbers are coming out in August. [00:16:00] We’ll see where they’re at, but they’re, they’re recently started turning it around. Their numbers in the last quarterly report was a big turnaround from previous years where they’ve been losing money.

Uh, still not profitable, net profit, as you pointed out, off air. But, uh, gross profit is positive. They’re just spending a lot of money on r and d and moving stuff around to different countries and it’s, and, and the big AI division, big play on ai, which I’ll get to a bit later. So they recently moved their headquarters to Gorham or Goran.

Kem. It’s pronounced both ways apparently in the Netherlands. Uh, I think for a number of reasons, from what I can understand, reading some of the paperwork and some of the analysis of it, uh, easier to get regulatory approval for medical devices in the EU if they’re based in the Netherlands, than it is if they’re based in China.

[00:17:00] It also gives some distance between them and China, us tug of wars with tariffs and bans and all that kinda stuff. If they can say, oh, whoa, whoa, whoa. We’re not a Chinese company. We’re a Dutch company. Thank you very much. Look at the postal address. Also makes it easy to get EU funded r and d grant applications.

The Netherlands also have some pretty good tax deals that they do for foreign firms. 25.8% headline rate that can actually be reduced down to single digits once you, you know, do a bunch of innovation. Um, applications and participation exemptions and this kind of stuff. So hundreds of tech multinationals apparently over the last 10 years have moved to the Netherlands to take advantage of these sort of tax schemes that they’re offering up.

Bit like Ireland was doing. 20 years ago. Rotterdam [00:18:00] also is Europe’s biggest port. So good way to be able to get your stuff out and shipped, uh, pretty quickly through there. So, anyway, and, and there’s also, you know, you know, I guess they’re maybe reading the, the tea leaves with the TikTok ban in the us There’s not a big step from TikTok is.

Spying on us to Chinese smart watches and Chinese smartphones are spying on us. They’re already done. The Chinese, uh, solar panels are spying on us, and Chinese wifi routers are spying on us. And so there’s this whole, you know, China’s built back doors into chip sets because the CCP has made them do it kind of thing.

And who knows? Could be true. Anyway, so moving themselves outside of China, it might be a little bit of a defensive mechanism for that too. Anyway, you wanna hear a fun historical story about Gorham, where they’ve moved [00:19:00] to

Tony Kynaston: Of course I do. Sure.

Cameron: in 1572, around about the same time Monta was writing hearkening back to our last show.

When I said, I’m reading Monte’s essays in Goku. The Calvinists hanged 19 Franciscan Friars. Uh, not guys working in a, uh, you know, low end eatery,

Tony Kynaston: Right.

Cameron: but uh, Franciscan

Tony Kynaston: Fast

Cameron: Catholic

Tony Kynaston: And when you say hang, they weren’t sort of put on the, they weren’t painters, they weren’t artists. And they were put on the,

Cameron: No,

Tony Kynaston: No. Okay.

Cameron: no, They were hung for their belief in the transubstantiation. Tony, you were raised a good Catholic boy. Explain to everybody who wasn’t what transubstantiation is.

Tony Kynaston: holy Communion. The conversion of the wafer into the body of Christ.

Cameron: The bread becomes the literal body of Jesus that you then literally eat

Tony Kynaston: Mm-hmm.

Cameron: [00:20:00] in an act of cannibalism. And they were, they were told to, uh, reject that belief and they refuse to do it, so they were hung

Tony Kynaston: Why do they pick

Cameron: because

Tony Kynaston: and not any

Cameron: nothing is.

Tony Kynaston: beliefs that

Cameron: Eh, eh, eh, Protestants are funny. There’s nothing more fun than Christian on Christian violence because, you know, it’s the religion of peace and love, Tony.

Tony Kynaston: I

Cameron: So, uh, you, you, there’s nothing that says nothing that says peace and love more than hanging other Christians. Any who that’s gorham for you. Um, maybe that’s why they moved there. Um. They’re like, yeah, that’s so cool. Didn’t actually get hung. They got hung at a place called Brielle, but um, anyway, they were from Gorham just up the road.

So the cheap end of the digital, what market is interesting, it’s insanely crowded. And the more I read about these, I’m like, why, why did I buy [00:21:00] an Apple watch? I mean, I dunno. I, I should just buy one of these things. I dunno if they were as, they’re not as good as you would expect. But for a quarter of the price, they seem to be pretty good.

I looked at the Amazon reviews for these amaze fits and there’s some models that aren’t as good, but some of the models have really high, like 4.5 outta five star reviews from thousands of reviews. Like they’re, they seem to be very well liked by their customers. They have a 10 day battery life. I have to charge my Apple watch.

Once or twice a day, which is no big deal. Like I, you know, on the power chargers that come with it, they charge, you get a full charge in like. Half an hour. So I go to bed at night, I plug it on the charger when I lie down and then I read and half an hour later I take it off the charger and put it on my wrist for the night.

And usually when I’m at my desk in the morning, I put it on the charger on my desk even for another half an hour and it fully charges [00:22:00] again. And so it’s always fully charged. So for me it’s not a big deal ’cause I’m always near a charger. But if I was, when I travel. Like when I was in the US a couple of years ago and you’re traveling for 24 hours on planes, trains, and automobiles with John Candy, it’s, it is a little bit of a hassle, right?

You have to put it on low power mode and all that kinda stuff. So these things stay charged for 10 days apparently, which is pretty good. But they don’t have the functionality of an Apple watch. It is huge. Yeah. Yeah.

Tony Kynaston: I’ll tell you Michael, watch

Cameron: So.

Tony Kynaston: my friend who had one and we went to Mabb, the masters, the golf tournament in the US a couple of years ago. And uh, you’re not supposed to take phones or cameras into the masters. Um, ’cause they control what images that get broadcast We’re at the, the first, uh, green and everyone’s quiet while someone’s putting, and then my friend’s, my mate’s phone goes off, his Apple watch goes off because he’s got a sim card in it. And like, because he’s the only phone going off on [00:23:00] the course is really loud. Everyone just turns and looks at him had to, you know, sort of dash into the bushes and turn it off.

Cameron: Wow.

Tony Kynaston: Yeah.

Cameron: Dash into the bushes to turn it off could have just, you just put your hand over it like that. Turns it off.

Tony Kynaston: that first. But everyone’s looking at him you know, thinking about throwing

Cameron: dashing,

Tony Kynaston: yeah.

Cameron: dashing into the bushes is a good look.

Tony Kynaston: Yeah.

Cameron: Did he come out dressed as Superman?

Tony Kynaston: no.

Cameron: Okay. Disappointing,

Tony Kynaston: off.

Cameron: disappointing into that story. Um, IDC clocks, 45.6 million wrist wearables were shipped in Q1 of 2025 alone.

Tony Kynaston: Wow.

Cameron: Apple QAV and shall me. Chew up about 46% of that,

Tony Kynaston: Mm-hmm.

Cameron: leaving 24 million units spread across all of the smaller brands, [00:24:00] including zPo.

So, uh, you’ve got three brands that are about 50% and then hundreds of low-end brands chewing up the other 50%. But this is obviously why they’re trying to get themselves up to having some of the more high-end, uh, units. But cheapest chips is, is now the biggest slice. Um, anything under 200 US dollars is called a, a basic watch when the analysts are breaking down this.

Um, size, uh, this part of the market. So there’s also the, just the fitness bands. These, this company has the fitness bands as well. So no screen, it’s just an app on your phone that tells you what your heart rate is and you wear it when you go for a jog and that sort of thing. Or a swim, or et cetera, et cetera.

Um. So if you go into Amazon and I did this and you do a quick search for cheap smartwatch, it returns over 30,000 results [00:25:00] and a maze fit. If you type in smartwatch a maze fit, you get 2000 plus results in Amazon. So that’s before you filter for color, for strap for models. It’s incredible. Like it’s a huge, huge space and it’s all lookalike hardware, right?

So you’ve got the rectangular apple watch models, which Chinese manufacturers, you know, are just churning out by the millions. Then you’ve got the ones that look more like a, a round. Um, whatever you like, A seko kind of a or a high-end thing. These guys have those too. And it’s really interesting, like if you look at the photos of them, you think it is a mechanical watch, but it’s not.

They just have a face that looks like a mechanical watch. You can do that on the Apple watch too, with some third party tools. Apple doesn’t really, and they have got some simplistic ones, but these look [00:26:00] like really rugged, um, mechanical watch interfaces, but. It’s all touchscreen. The bill of materials for one of these is about between 18 and 28 US dollars.

Tony Kynaston: wow.

Cameron: That’s the kind of margins that we’re talking about. To build one of these things, get an os, throw an OS into it, build a watch, throw in an os, and it can be in Amazon in six weeks. I mean, there’s really no barrier to entry for these things at a base level. I am amazed that like it’s not, you know when when you’re doing a marketing spend and you’re getting tote bags and pens and that kinda stuff, people could be doing their own smart.

Yeah. We’ll just give you a smart watch. Yeah, take a smart watch. Actually, that reminds me of what Sam Altman said on a podcast re recently. He’s looking forward to the day when they can give away a humanoid robot for the house. With your open AI subscription. Said, we’ll just send you a robot. Just have a robot here.

Have a robot on us. [00:27:00] And a smartphone. ’cause they’re coming out with their own device soon too. Anyway, um. So you’ve got all of these low end, it’s sort of a race to the bottom with all of this kind of stuff. Some bands go for like 35, 40 US dollars, really low end stuff. So everything from that up to a couple of hundred dollars with a screen interfaces, the low end.

So that’s the space that they’re playing in. Why are they so cheap? So. Them, their operating cash flow is about 35 US million. Um, kind of flat unit volumes recently though, but their price to operating cash flow is about 1.2, so dirt. Cheap from a, you know, priced operating cash flow perspective. The battery life is very good, as I said.

Um, in fact, they’re just the band. If you have just [00:28:00] the fitness band, they, they have a 24 day battery life versus the Fitbit, which has six days.

Tony Kynaston: why isn’t Apple just buying the batteries from this company to put in the Apple watch?

Cameron: It’s about functionality, so the apple. Has way more functionality in it, you know, and much higher degrees of accurate, see on heart rate measurement and all the, there’s a bunch of YouTubes. I watched a couple where people will wear six watches of major and, and lower in brands for a month and do a, do a lot of bike rides and swimming and sleep and then show you.

All the, the tracking and how they different, and these guys, some of their models have aren’t as good, honestly, and I, I don’t even know how much I trust the Apple one. And some of these are a lot less reliable, right. But they’re all getting better every [00:29:00] year. And, and AI is gonna be a big part of this, and this is what I’m getting to with these guys.

So, um, they’ve verticalized these guys so they have custom silicon anyway, that, that keeps their battery. Uh, life long. They have a vertical firmware stack, so they avoid paying royalties to people like Google and their bill of materials can be quite low. They also have a China supply. Cluster for the basic part of the manufacturing.

They do the, the finish in Vietnam, but some of the lower end stuff is done in China and it’s all nearby where their, uh, main manufacturing plant is based. So all of their parts suppliers next door, right.

Tony Kynaston: Right.

Cameron: They also have a fairly tiny, um, a DT. Uh, I think I worked it out. It’s about $75,000 as the a DT. So it’s small cap [00:30:00] stock from our perspective.

Tiny free float too. About 6 million us. Um. So it’s not of interest to big funds, too small for big players. Um, but might be interesting to, you know, people that are on the lower end of an a DT spent. You know, if you’re looking at a 10, $15,000 parcel size, these guys might be in the sweet spot. Uh. So, what else have I got here?

A lot of their money is still going into r and d. So I mentioned before that gross profit is positive. Net profit is negative. Spending a lot of money on r and d head office overhead, moving their head office to the Netherlands, moving their final stage manufacturing to Vietnam. A lot of marketing to drive their high-end brands.

The AMA Fit and the Zep get away from the. [00:31:00] Low margin business. So they’ve been sinking a lot of stuff into that over the last couple of years. Big question is, do they survive, uh, and make it and to bigger volumes at bigger margins, or do they get squeezed out? Do they get acquired? What happens to them?

We dunno, it’s, it’s one of these businesses that quite frankly could go either way. But if we look at some of the numbers that. Really matter. As I said, prop calf is very, very low. 1.2, 1.23. No dividend. Their F score is five, so it’s a, you know, middle of the road, slightly above middle of the road F score.

But. The book value is really interesting. Book Value per share is US $15 90. The share price is $2 [00:32:00] 98. I.

You’re muted. So I didn’t hear that, but I saw the Owen Wilson. Wow. I just saw your lips move. Wow. Yeah.

Tony Kynaston: I’ve turned my phone, my mic off when, uh, you are talking because it’s very windy here. There’s probably some leakage going on.

Cameron: No, I can’t hear it. Not unless you are creating the wind. It’s gonna be far away enough from the mic that we won’t hear it. Some leakage.

Unless you’re the one with the leakage, don’t worry about it. Uh, the directors, uh, the CEO and the CFO own about 6%, blow the 10%, so I didn’t score them for that, but they do have some skin in the game, just, uh, not enough for us to score it. Um, so positive cash flow gadget maker trading at about one fifth of book, getting rid of its worst business line.

They’ve made a lot of pretty interesting management decisions recently, getting rid of staff moving, et cetera, et cetera, but. [00:33:00] The AI thing is what I wanna, uh, talk about. So they’ve massively increased the amount of people on their AI team. The CEO, uh, Wayne Huang is really focused on this idea of LLM in a watch.

He sees that as the future. And I think this is the smart play, honestly. I mean, we know that Apple is really struggling to come up with an AI offering that works at their most recent, um. Announcement day, they had, can’t even remember what they call them anymore. A couple of weeks ago, uh, they basically fell on their sword over their big AI announcements that they’d made a, a year earlier.

They were like, yeah, we, we couldn’t deliver on any of that. Uh, we thought we could and we couldn’t. So the rumors in the industry is that they’re looking to buy one of the. [00:34:00] Top tier players that aren’t open AI or Google or Anthropic, they might buy perplexity is the rumor at the moment. Uh, and just sort of integrate it into their thing.

But there’s gonna be a huge opportunity, like the, the next version of wearable devices is an onboard AI that is. Listening to everything that happens, tracking everything. Um, basically your go-to personal assistant that, um, is on your wrist or in your ear or on your eyes, and there are gonna be the top tier, like there’s already meta glasses and.

As I said before, OpenAI bought Johnny i’s business for $6 billion, uh, recently, and they’re gonna come out with, um, a device. They haven’t said what all of they, all they’ve said is it’s not a phone, but it’s gonna be some sort of wearable carry around always on AI device. But it’ll be [00:35:00] expensive too, I imagine until they give it.

Unless they give it away with one of their top tier subscriptions. These guys are going for the low. Hmm.

Tony Kynaston: you see the review and the Fin Review this weekend about, um, just such a. Device. It’s a broach, it’s got a magnetic clip. It’s about the size of an apple eag, and you clip it onto your shirt or your dress or whatever, and, uh, it, it listens in records. it seemed to be really just used for you dictating notes.

Like if you have a thought, you just say it out loud and then come back with an AI version of what you’ve said, tidy basically.

Cameron: I’ve seen a number of those have come out over the last year. Most of them have failed, like gone outta business because they just can’t sell ’em. ’cause usually they don’t work very well. They’re flaky, but I, I dunno, this one you’re talking about, maybe they’ve nailed it, but you know, there’s gonna be like, there’s a million low-end smart watches in the next few [00:36:00] years.

There’ll be a million low-end devices that do that kind of thing. And I. Look, I find it incredibly useful. Like I’m talking to AI all day long, so is Chrissy. We both live Fox too. We all talk to ChatGPT about everything all day long and uh, I know you’re giving me that skeptical look, but most people will be doing the same thing in the next few years.

Tony Kynaston: not what, that’s not what I’m doing. find it

Cameron: I know, I know. But most people will be doing it in the next few years. Um, using it for note taking and reminders, but also just basic questions about things that you wanna know. I. I guess simple stuff. I was doing notes on for our last show about gold companies, and I couldn’t remember the name of the gold company where the CEO was arrested in Africa, and I went through my notes and I couldn’t find it quickly.

I just said to Chae, Hey. About a year ago, there was an [00:37:00] Australian mining company operating in Africa. The CEO got arrested, held for a week or so, and then was released ’cause they wanted to squeeze more tax out of him. Who was that? And it was like, well, that was Resolute Mining and the CEO and it was in Mali.

And I was like, yeah, that was him. Thanks. Like, why am I wasting my time going through my notes? I just asked AI who it was, and it’ll tell me. I’m like, yeah, yeah, that’s who it was. Yeah, yeah, yeah, yeah. That kind of stuff, right? I mean, just sitting stuff that you might have Googled 10 years ago. You don’t Google anymore, you ask cha.

Anyway, these, these guys, I think he’s just increased his AI team from 80 people up to 120 people. And you know, we’ve seen these Chinese companies like Deep Seek, um, and Quinn, there’s a, there’s a ton of AI startups coming out of China these days that are, if not as good as the leading US companies, almost as good, but they’re doing it on.

1000th of the, uh, investment and the smaller teams, [00:38:00] and they’re, they’re lean and mean and doing a good enough job. Um, and they’re free. And, you know, they don’t have the same sort of limitations that some of the top tier US models do. So I think this is where these guys are headed over the next, um, few years.

The, and you know, but I, we’re not gonna forecast, we’re not gonna invest based on predictions and forecasts, but I. You know, they meet some of the metrics as it is, and then they’re pushing hard into this stuff. Not only from in terms of the other stuff that I talked about, but a lot of health based stuff, like more accurate health readings because the AI is able to do a much better job of analyzing the data, generative AI workout plans.

Um, you know, uh, have a camera on your device that you take a photo of your meal and it does your calorie counts and, you know, pretty much my entire weight loss, um, success in the last year is based [00:39:00] on cha EPT, I mean, using cha EPT to guide and monitor and track the whole thing the whole way along. I couldn’t have done it without ai.

So we’re at the very early stages. It. Yeah, it was a combination. I did kung fu for years without losing weight, and then I said to GPT, okay, I’m doing a lot of Kung Fu, I’m not losing weight. He goes, well, you’re probably eating too much. I’m like, okay, let’s start to track my calories. I. More and let’s, let’s cut my calories by 500 calories a day.

What should I eat? How should I eat it? When should I eat it? You know, how do I do that? How do I cut my calorie account but still keep my new nutritional levels correct? Get enough protein, enough fiber, enough nutrients, you know, it’s guided me through that whole process Anyway, um. Let me just, uh, go through the raw numbers for you.

As I said, price, price is less than book. We scored it for that. Plus of course, less than book plus 30. Price is, uh, price to operating Cashflow is less than seven. Petrovsky [00:40:00] score is greater than four and a half. Um, what it failed on was the IVs. It, it did pass. Um. IV number two, greater than double the price the first time around until I rejigged it for RMB, and then it failed the IV metrics.

It fails quality rank, it fails stock rank. Um, quality rank is 40 and stock edia stock rank is 60. Um, yield doesn’t have one, so it’s not greater than the bank debt Growth over pe um, is not getting a score because there is no pe. Um, so it, it, um, fails on a lot of those basic metrics, but. It’s making money, even though it’s spending a lot on r and d and those other sorts of things.

And it’s, you know, making a lot of good strategic decisions. It’s building a, you know, it’s investing in this ai, it’s investing in building up its primary, [00:41:00] core, high margin business. Um. Whether or not it survives. If it doesn’t survive, it might get taken private or it might get, Xiaomi does have an option to buy it back.

I think it’s got some sort of an exclusive pact, which lapses next year. So they might scoop it up, uh, at some sort of a premium, um, or, you know, or, uh, one of these EU med tech firms like Philip or ResMed might scoop it up or it could just go outta business. All sorts of things could happen here, but. On paper.

I thought, yeah, I like this. I like the play, I like it. I like what they’re doing. They seem to be doing their best to handle some of the challenges of the last few years, and I think it’s cool. So that is Zep. Tony, what do you think?

Tony Kynaston: Yeah. Thank you. I love the valuation of buying it so cheaply. It to me. That’s always how you, how you work out, whether the risk is worth taking and it’s, um, [00:42:00] in the price, isn’t it? If you get paid back within a year or pay back within two years, then takes sort of the risk off the tables. The company’s only gotta survive for another year to get your money back.

So, yeah, I think it, I think it’s, uh, looks, I’ve got no opinion on whether. Low cost, smart watches are the way to go, or AI is gonna be a thing. But um, yeah, something for

Cameron: Actually

Tony Kynaston: at one times cash flow, it seems like almost a no brainer for

Cameron: one up.

Tony Kynaston: all the risk off the table.

Cameron: I didn’t mention too, like they have 45 million customers. I mean, they’re not a startup that hasn’t done anything. They’ve, they’ve been around since 2013, right? They’ve been around for over a decade, 43 million customers. You know, they’re being sold in millions of millions of countries being sold all over the world.

Um. You know there we were talking off air, you said We don’t often see in Australia, we don’t often see businesses like this that are not [00:43:00] making a profit. So it is a technology business that’s been around for a long time, is making money. Although it’s reinvesting all of that back into the business. But is also low Pr/OpCaf, like a lot of tech.

If there are tech businesses in Australia that are growing fast and not making a profit, but seeing, and they have a great story, we’re gonna have a billion customers and we’re gonna take over this and take over that. They usually, their PEs are insane and their valuations are insane, and we won’t even look at them because.

They’re nowhere close to being a, a value buy for us. These guys are, you know, sort of the best of both worlds. They are a tech business. There is a potential growth story there. They’re not a cigar butt stock that’s, you know, they’re not Berkshire Hathaway with bloody whatever the original business was when Warren bought it.

What was it like cotton mills?

Tony Kynaston: Yeah.

Cameron: not a [00:44:00] dying industry here. It’s uh. Exploding industry with a lot of competition. Yes. But it’s an exploding industry, but it’s also really, really cheap, um, for us. So anyway, that’s,

Tony Kynaston: I think the, interesting

Cameron: yeah.

Tony Kynaston: that there’s not big free float for a large company. So that’s the interesting thing. It

Cameron: Yeah.

Tony Kynaston: of, uh, as you said, large funds or any funds outta the market for it, allows us to buy in. But it can be good and bad because, um, if there is a takeover for the company and the founders agree to it, it’ll be at a premium, a large premium, which means the minor shareholders will make out really well. Usually, but it can go the other way too. If there’s a profit downgrade or whatever, then, um, yeah, and there’s not, not much trade. It’s thinly traded, so the price can move a lot, is what I’m getting at. Really. Uh,

Cameron: Yeah.

Tony Kynaston: a leverage price move. Yeah.

Cameron: I didn’t, I didn’t actually talk about their recurring revenues too. They have a [00:45:00] subscription based sleep and coaching service that’s

Tony Kynaston: Mm-hmm.

Cameron: got much higher margins than the hardware. Um, I. So, yeah, and they’ve got 200 million devices that, um, are sitting on recurring data plus a training pipe because they collect data from all those devices too and feed them back into their ai.

Anyway, that’s zep. So not a recommendation. Do your own research, do your own work, but on the surface of it, I think it’s worth a look.

Tony Kynaston: Yeah. Thanks Cam. Very interesting company.

Cameron: That is QAV America for this week.

Tony Kynaston: And if there are any Australian listeners out there, the RBA has kept rates on hold.

Cameron: Whoa.

Tony Kynaston: Mm.

Cameron: Beers are on Tony tonight.

Tony Kynaston: No, no. I I want them to cut so they’re, uh,

Cameron: I know, that’s what I’m saying. You got it wrong. You gotta buy the beers.

Tony Kynaston: Ah, Anyway, market’s down a quarter of 1% in Australia now. Not [00:46:00] quite much as Wall Street, but, uh, it’s reversed where it was going before we started recording.

Cameron: It’s funny because I didn’t read the Fin story that I had in my notes, but it was market widely expects an RBA rate cut except these five economists,

Tony Kynaston: they all

Cameron: traders, and economists. No, but, uh, it was guys at Citi Beta shares, Morgan’s Financial and Macroeconomics Advisory said they expect, oh, bank of America was the fifth, said that they thought.

They would hold. So there you go. Good day to be one of those five economists.

Tony Kynaston: can our US listeners get Donald Trump to write a tweet? Too slow? Too slow. The dumb

Cameron: Yeah.

Tony Kynaston: he’s

Cameron: Fire the oak. Do you think Australia Tri? I know Trump can’t fire the US Reserve Bank Governor. Can he fire the Australian Reserve Bank Governor.

Tony Kynaston: No, but it could double our tariffs until she goes.

Cameron: Ah, there you go. Sorry, [00:47:00] Michelle. All right. Thank you, Tony.

Tony Kynaston: Cam.

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