[00:00:00]

Cameron: Tony, I’m the chillest person on the planet. Welcome to QAV America. Tony. Episode 20. Uh, Tony’s just laughing

Tony Kynaston: Mm.

Cameron: ”cause I said I don’t have any aggression.

Tony Kynaston: person on the planet,

Cameron: I am the chillest person on the planet. You should know that by now, Tony. Um, uh, well, we’ve, we’re just talking about this in a.

Tony Kynaston: I post, uh, democratic, things on Facebook.

Cameron: You doing your, uh, David Markin impression? Um,

Tony Kynaston: I did

Cameron: uh, we just,

Tony Kynaston: when you started talking politics.

Cameron: yeah. We talked, uh, on our Australian show just now about Donald Trump’s tariffs being declared illegal by a federal appeals court.

Tony Kynaston: Has

Cameron: so no. Well, no, but he, he reckons it’s gonna go to the Supreme Court, but it just fascinates me when governments.

Do [00:01:00] things that they know are illegal. I mean, he must have had somebody in it. I know his administration isn’t necessarily stacked with the finest and the brightest minds, uh, available, but they must have known that, well, we can’t really do this. Let alone the big card that said, these are reciprocal tariffs when they were just made up numbers.

But

Tony Kynaston: Oh, I,

Cameron: must have known that it wasn’t legal.

Tony Kynaston: about that. I think the advice, the legal advice was if you declare an emergency, then you have the power to implement. Well, the executive has the power to implement tariffs and that’s

Cameron: courts are saying no,

Tony Kynaston: Well, this, the and the courts are saying no.

which means the underlying court said yes. it’ll go to the Supreme Court and I’d

Cameron: No, the first court said, no. The first court, the first court said it was illegal. The Trump administration appealed the first court’s ruling, and the apple at court said no. It was the second time it was declared illegal.[00:02:00]

Tony Kynaston: Pesky

Cameron: anyway, we’ve talked a lot about how, you know, and I’ll talk about it again when I do my Paul pork today, how it’s, you know, just throwing everything into disarray and as it turns out, is illegal in the first place.

And the Supreme Court may or may not side, but the president probably will. ’cause they seem to be pretty favorable towards letting him do whatever the hell he wants to do. But if they say no, who knows what happens next. But um.

Tony Kynaston: I will Anyway.

it

Cameron: Yeah,

Tony Kynaston: in the first place.

Cameron: I guess, and, and you’ll probably get Congress to back it, so yes.

Should have been doing that all along. Before I get into my pulpo for the week, Tony, just do an update on our US portfolio. Uh, in the last 30 days, our US portfolio is up 12.5% versus the s and p 500, which is up 3.5%. Year to date though, our portfolio is down 7.5% versus the s and p. That’s up nearly 10%. But [00:03:00] as I pointed out in our last show, that’s because at the end of last year, our portfolio was up.

Uh, I don’t know. Crazy amount. Like 80%.

Tony Kynaston: 80%. Yeah.

Cameron: 80%. And then, uh, the, at the beginning of this year, when Trump’s Liberation Day, et cetera happened, a lot of our stocks gave up a lot of the gains that they’d had. Um, all time though, going back to when we started this portfolio in September, 2023. So two years ago we will be in a couple of weeks.

Our portfolio is up 73% versus the s and p 500, up 45%. So still doing quite well. I also wanted to update you on the performance of the pulled porks that I have done, uh, since we started this show. Uh, just because they’re not all reflected, well, most of them aren’t reflected in our [00:04:00] portfolio. Um, of course the big one being, uh, Zep, the Chinese smartwatch company, which I did on the 11th of July when they were trading at $2 98, they’re now trading at $45.

They went up 19% today.

Tony Kynaston: Really?

Cameron: crazy. They’re, they’re now tr they’re now. Yeah, we talked about this last time. They just signed a bunch of brand deals, uh, not brand deals, ambassador deals, all these, uh, yeah, sporting ambassadors. Uh. Yeah. Um, well that’s why they’ve gone up 14, uh, a hundred percent since, uh, I, I first talked about them.

I dunno what happened today in particular. Um, but, uh, I do have a, there is a site called, um, is it Fin Viz? Yeah. Fin Viz carries all of the Zep news. Let me see what happened today.[00:05:00]

Uh, a Mabb Fit. Oh, that was August 13th. No, there’s been no news in the last couple of weeks, but you know, all of the news articles from early August were a Mabb Fit Partners with, which is one of their brands, partners with female elite trail runners. Croft and Rosala to drive innovation in sports watches.

Before that, it was a Mabb fit announces Ultra Runner Rod F’s new brand ambassador, NFL running back. Derrick Henry joins a Mabb Fit as Athlete Ambassador. Um, so they came out with a bunch of these. Promotional brand ambassador deals. I assume that’s had something to do with it.

They also came out with their unaudited financial results, which said that revenue was up 46% year on year.

So that might’ve helped.

Tony Kynaston: Yeah.

Cameron: Anyway, we covered it just at the right time before they blew up luck more than skill, [00:06:00] but the rest of the stocks are doing okay. Gray media’s up 40% since we did it, uh, early August.

Um,

Tony Kynaston: and said, how can this legacy media company go anywhere from where it is?

Cameron: yeah, right. Um, Python machinery that I covered on the 14th of August is up 5% since then. Kimball Electronics from last week is up 1% since we covered it. But, uh, anyway.

Tony Kynaston: you just, blow my mind talking about gray media. I mean, it’s up 40%. It’s not a Mag seven stock. It doesn’t make semiconductors for AI processing. It’s a, it’s a television network in a dinosaur industry, but it throws off Yeah, but they’re doing a lot of new media stuff. Remember they’re sort of down in Atlanta and they’re getting people in and they’re doing cool stuff. They’ve got ponytails like me, Tony, a lot of guys with ponytails doing,

they’re cool stuff,

Yeah.

Cameron: double [00:07:00] macchiatos. Yeah, the But, but did you say but successful?

Yeah, right.

Just like you, but successful. Oh, right.

Tony Kynaston: I did Did you have Uhhuh? You thought it, but uh, did you have any other, did you have any other, uh, news that you wanted to talk about US related? Before I get into my deep dive, Tony,

I uh.

you.

Cameron: Okay, so unlike some of the dirty businesses I’ve covered recently, like Sasol, this one Suzano, SUZ, is the ticker is kind of clean.

I say kind of. There might be a little bit of greenwashing going on and how clean they make out they are, but cleaner than oil. I guess Ano is a bras

Tony Kynaston: comment.

Cameron: which bit cleaner than oil.

Tony Kynaston: Well, I know you’re gonna talk about this [00:08:00] company and it’s a, it’s a paper manufacturing company, isn’t it? Um, that

Cameron: paper.

Tony Kynaston: on the Australian stock market called Guns, which ran the processing mill in Tasmania. And I, I, you know, it might be different in that I think guns got involved in some old growth for us, but they were certainly also. paper from Plantation Forest, but it involves a lot of chemicals. It’s a very heavy duty plant and it releases a few toxic, I shouldn’t make any allegations here. It can release toxins into the water supply, clean, pristine lakes and rivers. So, yeah, dunno about this company, but the industry hasn’t always been seen as being green

Cameron: Yeah, I’ve, I’ve, as we get into it, I’ve got a lot of the criticisms from different, uh, environmental, uh. C agencies or whatever about these guys and what they’re doing. So we’ll talk about that. But certainly their website, they talk about sustainability a lot. [00:09:00] It’s, uh, all over their website about what a great job that they’re doing.

Maybe that needs to be tempered a little bit. Um, but we’ll get into that later. But it’s interesting particularly,

Tony Kynaston: timber company, they are renewing what they cut down. So that’s a good thing. And hmm.

that’s a good thing. So yeah.

Cameron: Planting trees and then cutting them down. But um, and they’re also only growing on lands that have already been degraded, previously degraded lands or something like that. I think they call it. They’re not like chopping down. Pristine forest. But there, there are other issues about monocultures, et cetera, which I’ll get into, but they are a Brazil based forestry company, a developer of products made from eucalyptus forests and eucalyptus pulp and paper and Latin America Now as Australians, that’s weird, right?

Because we think of eucalyptus as an Australian native tree. You and I were just talking in the last show about [00:10:00] how weird it is when I went to Nicaragua. 10 or 15 years ago to see eucalyptus trees everywhere and go to San Diego and San Francisco and you see eucalyptus trees. It’s always a little bit kind of weird for an Aussie.

But they were the first company in the world to produce pulp and paper using a hundred percent eucalyptus fiber on an industrial scale. Their portfolio includes coated and uncoated printing and writing, paper paperboard tissue paper market pulp and fluff pulp. You know, your fluff pulp from your market.

Pulp Tony.

Tony Kynaston: I do not Tell me about Fluff Poll.

Cameron: I am glad you asked Tony Fluff. Pulp is the kind of pulp that you make sanitary products out of, or nappies out of. It’s fluffy paper. Special manufacturing process, uh, makes it nice and feels nice on your, on your butt, Tony, or anywhere in your near the regions if you need to put paper on [00:11:00] your near the regions.

You want your fluff pulp as, uh.

Tony Kynaston: yeah. Don’t.

Cameron: Is had a look at it. No, don’t get your printer paper and wrap it around and expect it to do much. Uh, the pulp segment of their business is like 80 to 90% of their revenue, the production and commercialization of eucalyptus pulp for the foreign market with surplus, uh, to go to the domestic market in Brazil.

The paper segment is mostly domestic. Apparently paper is big still in Brazil. Um, their roots go back to 1924 when a Ukrainian immigrant, Leon Peffer. Opened a small paper business in Brazil. Now, by the way, uh, Brazil has had eucalyptus since the late 19th century. The first seedlings arrived via Uruguay and botanical gardens, and I looked into, well, how does Australia play in [00:12:00] eucalyptus paper or pulp?

And as it turns out, we don’t really, we don’t really have, uh, big eucalyptus paper or pulp business. We tend to chip. Eucalyptus and send it offshore for processing.

Tony Kynaston: right.

Cameron: We have got a couple of small players in paper here, but nothing large and, and apparently it’s just because of the small scale of the domestic market here and how much it cost, how expensive it is to, you know, move stuff offshore

Tony Kynaston: Well, and uh,

the paper mill in Bell Bay and Tasmania, yeah, that was eucalyptus.

uh,

think so. Yeah. Could have had some old forest in it, but I’m pretty sure there’d be eucalyptus.

Cameron: Right. So most of it’s, uh, done out of Latin America and China these days. So in the early 19 hundreds, uh, an agronomist, Mundo Navarro dire spearheaded large scale [00:13:00] planting of eucalyptus to meet demand for wood in railway construction. That’s why Eucalyptus was big over there because it’s fast growth, right.

Tony Kynaston: Yep.

Cameron: Um, and the climate over there is similar to the climate here, uh, humid temperate climate, so it grows quite well.

Tony Kynaston: It is

Cameron: back to Leon,

Tony Kynaston: because, um,

eucalyptus timbers typically a soft wood like a pine, um, which with it gets damp will warp. So that was interesting that they were using it, um, as sleepers. Usually I thought sleepers were iron bark and you know, more, I guess iron bark’s a, a eucalyptus variety, isn’t it? Maybe there’s some, some of the harder. Varieties of eucalyptus were used. Okay.

Cameron: I cannot answer that, Tony. That’s a, that’s a, a deep dive. I did not go down.

Tony Kynaston: You can tell my father worked in the industry.

Cameron: Which industry? Railway or eucalyptus? [00:14:00] Oh, I thought he was a farmer.

Tony Kynaston: No. No. He’s Do you have cattle? Cows?

that’s

Cameron: that’s your, that’s your, oh, right. Okay. Ffa back to Leon Effer. So he was born in 1902 to a Ukrainian Jewish family in Ukraine, and about 1910, his father was in. Worried about increasing antisemitism in Ukraine and immigrated to Brazil where he worked as a peddler, selling stationary items around Sao Paulo from an ox drawn cart.

In 1920, he had enough money to bring his wife and two sons and two daughters to Brazil. So he was there by himself for 10 years with his little ox drawn cart before he could bring his family out, the immigrant story. And Leon started his first business manufacturing candles. Bad timing because South Paula was just getting electricity at the time.

So [00:15:00] then in 1923, he founded a paper distribution business purchasing imported and domestic paper for sale to local retailers. So he would’ve been 21 when he started that business. By chance, a large domestic paper factory suffered a fire and he was able to purchase a large quantity of paper rolls, which were damaged.

Don’t gimme that smile. It was by chance. I know what you’re thinking.

Tony Kynaston: Yeah. Okay.

Cameron: Ukrainian Jewish stock Take, no, it wasn’t his company. It was, uh, he was able to buy a large quantity of paper rolls that were damaged externally, but were okay internally and enabled him to profit greatly during the Great Depression after Brazil banned imports. Which leads me to a whole story about protectionism in Brazil.

I went down, I did go down that rabbit hole. So World War ii, they [00:16:00] introduced high protectionism, um, for a couple of reasons. One was to save foreign reserves for stuff that was, um, really urgent. So they, they, they banned imports to hold onto stuff they, to hold onto foreign currency they might need for oil or medicine and stuff like that.

Secondly, to try and build up their local industry to force, you know, businesses to build up locally and to protect those businesses, uh, so they could have more industry in Brazil. They still have very high levels of protectionism in Brazil. And I read an article about it in the Wall Street Journal. It’s back from February, I think.

In quotes, uh,

Brazil’s finance minister in the late 1980s and early 1990s, he says, Trump’s ideas on how to strengthen US industry are similar to what we thought in Latin America right after World War ii. The idea that protectionist tariffs would boost domestic industry [00:17:00] spilling over to services in agriculture and make the country rich.

Well, it didn’t work. He says

yes.

Tony Kynaston: Does he No, he did, but I didn’t write it all down here. But yeah, but I mean, there’s a bunch of reasons, but you know, it’s, it’s the classic problem with protectionism. One of the stories is that the. Uh, industry in Brazil hasn’t had to become efficient because they have locked in guarantees of Yeah. Markets.

Cameron: So, um, yeah, it’s like government owned businesses and canoes that we’ve seen in the past. So, yes, uh, a lot of problems. Brazil and the Brazilian economy has a lot of problems too, but I’ll get more into that later on. Back to Leon, he expanded by purchasing a printing press, established a retail [00:18:00] store, built an envelope factory, which became one of the largest in the country in 1939.

He sold everything, including

you would hope so that burn down fell into the swamp. So I built it again one day. Lud. Oh, this will be yours. What? The curtains, not the curtains. Lud, sorry. Um, sorry. For Americans who’ve never seen Monty Python, Phil before, in 1939, he sold everything, including his house, his wife’s jewelry, and his store, and built a paper factory in Sa Paulo.

And used imported pine pulp to produce its paper. Apparently you, he could import pine pulp at that stage. Uh, he had his son Max was studying at the Julliard School of Music at the time, helped him find a local substitute for pine fiber. He was working with biologists at the University of Florida. Max was, this is, and they worked out that [00:19:00] eucalyptus pulp was gonna be a good substitute.

So in 1946, Leon purchased Indu Damani and somehow that involved mixing eucalyptus fiber into its production. 1956 renamed the company Susanna Pappel, eh, cellulose 1960, bought another paper mill, and then by 1961 they were a hundred percent eucalyptus as raw material. Leon died in 1999, age 96, and the Effer family still controls ano today.

David Effer. One of Leon’s grandsons is the CEO. The company is listed on the Novo Mercado in Brazil and on the New York Stock Exchange, and the family owns about 49% of the stock on the Novo Mercado anyway, so very much family owned and run business, uh, a hundred years [00:20:00] later. They are now the world’s largest producer of eucalyptus pulp and supply raw fiber for paper tissue and packaging worldwide.

Run eight industrial plants across Brazil, sell to over 80 countries. And uh, as I said before, pulp is about 80, 90% of revenue. 2018, they merged with one of their biggest rivals, Fria cellulose, and created a pulp behemoth with 10.8 million tons of pulp produced annually, roughly 17% of global market pulp supply.

It was a $14 billion deal. That vaulted Susanna to the number one global pulp spot. I dunno if you’ve ever been, I mean, if you haven’t, if you’ve never been to the global number one global pulp spot, Tony haven’t lived, you gotta go to the global pulp [00:21:00] spot. All the kids are talking about it. They love it.

Brazil has a pretty turbulent economy though, political scandals, recession, external shock inflation, unemployment surges from time to time, although they’ve got pretty low unemployment at the moment, it’s around about 5.8%, which I think is a record low. But Sno has been able to sort of navigate these crisises from hyperinflation to commodity slumps by focusing on efficiency and scale.

They just marked their hundredth anniversary in 2024, and they are. Doing well despite the fact that pulp is in a bit of a slump at the moment. And that’s one of the caveats on this, as I only discovered getting into it, that there is a pulp commodity index, not one that we track in our normal indexes, but it’s currently a, a Josephine for us.

It’s in a, been in a decline for the last couple of years, year and a half, two years. So we wouldn’t actually buy this [00:22:00] today if it was us. ’cause we’d wait for the commodity price to turn around

Tony Kynaston: Mm-hmm.

Cameron: and it, it looks like it’s bottoming out. It does sort of go through cyclical phases, but there are some issues like tariffs at the moment that I’ll get into that may have an impact.

But, uh, it is an export heavy business. They sell into Asia, Europe, and North America. And the. Uncertainty around the tariffs, both in terms of North American tariffs or the US tariffs and China, and the issues with China and tariffs and the impact on China’s economy are having an impact on the paper business and the pulp business as well.

’cause it’s a big market for them. So that aside, these guys are a cash machine. Oh, by the way, if you’re looking at this in. Stock Edia, which is where we get our fundamental data data from. [00:23:00] They do report in the Brazilian real R, not USD. So I had to twiddle the numbers in our spreadsheet and a couple of things changed, but it still came out.

With very good numbers, even after I whittled the figures to accommodate the Royal, they’re, they’re a cashflow engine though, which we like. We like businesses that generate a lot of cash, and these guys generate a ton of cash. Give you an example. Last year the company generated about 16.2 billion or real in cash, which is about 3 billion US dollars.

Its market cap is about 12 billion US dollars, so about 25% of its market cap. It generates in cash every year. That’s a crazy amount of cash.

Tony Kynaston: That’s incredible.

Cameron: Yes, so it’s got a very low, very low prop [00:24:00] caf. Which I’ll get into later on, and this is mostly because it’s one of the world’s lowest cost pulp mills. They’ve just got a, they’ve, they, they spend a lot of money on r and d and innovation. And you, I mean, I don’t know if you’re like me, you think you grow trees, you cut ’em down, you turn ’em into paper.

How much innovation can there be? It turns out they do a lot in terms of trying to drive down cost, and they’ve had a big focus on economies of scale, of course too. They’re very large, so they can do. Good deals with suppliers, good deals with, uh, their ability to get into the markets, but also there, there’s a lot of innovation in terms of getting their unit costs down The.

Cash cost per ton of pulp for them is about 828 real per ton of pulp, which is about $150 US per ton, which is very cheap in terms of global pulp prices. But as I said, pulp [00:25:00] prices are down. I read some analysis, a company called Coface. I did a really good analysis on this. I won’t bore you with all of the details, but basically says demand is down.

China’s about 30% of the market. Tariffs are throwing a lot of uncertainty in the mix, so it’s uh, the craft pulp, if you wanna look it up, bleached eucalyptus craft, pulp Craft with A-K-B-E-K is the code for this is a commodity. And, um, it’s a Josephine, as I said, it, it, it, was up as high. Uh, this is in Chinese Yen, uh, CNY.

It was chi, it was CNY. Is that chi? What’s that? CNY Chinese Yuan, not yen. Yuan, you know, have my yen and my yuan around. It never gets you yet in Yuan. Mixed up. Yeah, it was at the end of 2023. It was up around 7,500 CNY per ton. [00:26:00] It’s now down to about 4,900 something.

So it’s come. Yeah, it’s come back a lot.

I mean, it, it’s, it’s been up and down since then. And, you know, 2024, early 2025, it was up over 6,000. It’s dropped back down, but, um, 2022, it was up around seven and a half thousand, dropped down to where it is today at the end of 22. Back up in 2023 to seven and a half, then back down at the beginning of, sorry, uh, 20 21, 20 22.

Yeah, back down in 2024. So it’s. It has lots of peaks and troughs when you look at, it’s very cyclical, uh, for some reason. But even with pulp prices in the downturn over the last year or so, these guys are still. Generating a lot of money. They recently took a, an accounting loss, but that was mostly due to currency swings on the US dollar debt.

So with that big acquisition they did five or six [00:27:00] years ago, they took on a lot of debt. They’ve done a lot of acquisitions, but that was the biggest one. The merger, they’ve taken a lot of, a lot of debt. They carry a heavy debt load over $10 billion from a variety of acquisitions and expansion projects.

But they manage it well and they’re been de-leveraging their net debt to EBIT DA is down to 2.9 times. They, they score well on, uh, p po petrovsky F score. I’ll get into that shortly. So yes, they’re carrying a lot of debt, but their flow is solid. Free cash flow is about. 20% of yields. So they’re, again, just generating a ton of cash because of the way that they operate.

Uh, part of this is eucalyptus, by the way. Um, apparently because plantations mature in seven years versus 20 years for pines and colder climates, so they’re yielding [00:28:00] more fiber per acre faster, gives them a structural, uh, material advantage. Uh, what else can I tell you? Its newest mill came online in 2024.

It’s, uh, it’s called the, uh, Serato Project. It’s already smashing performance records, ramping up to full capacity in under six months. Expansion, drove their sales up 7% last year, despite it being a down market. And what else? That’s about it. They’re just a very well run business. Now, I did talk about state of the Brazilian economy.

That’s one of the reasons why it might be cheap, apart from the, the, fact the pulp prices are down. Brazil risk. Um, you know, it trades at emerging market valuations. People see a lot of sovereign risk going on in Brazil. A lot of currency volatility, political uncertainty, but the [00:29:00] counter argument is the FFA family is pretty powerful and they have a lot of control and they tend to provide a lot of stability.

Um, which also means that minor minority shareholders have less say in things, but we like a lot of skin in the game from founders and these guys definitely have that. Then there’s the ESG overhang. Uh, as I mentioned before, if you go to their website, it’s, it’s just sustainability everywhere. It’s obviously a big focus of what they’re trying to push, but when you drill down and look at some of the criticisms of it, uh, they get quite a lot of criticism from environmental groups for things like.

They’re huge farms and monocultures, which aren’t great for biodiversity. If you just have one crop everywhere, it tends to be bad for the environment. [00:30:00] Uh, and it’s not a native species either. You know, it’s an an imported species. They’re also linked to water scarcity. They’re plantations, ecosystem drawing, heightened fire risk.

Low job density. Uh, because apparently once you have these things, you know, that that doesn’t take a lot of people to just watch a free grow for seven years. And they’re accused of greenwashing a lot too. Um, making themselves look like a good ESG stock when really if you drill down into it, maybe they’re not so much allegedly, but so, uh.

Yeah, they could, they could get a big whack from an ESG perspective if, uh, a story or bad PR comes out about something involving how they’re running things. But that is probably one of the reasons why it’s discounted. So a combination of reasons. Brazil, sovereign risk, ESG, risk, pulps down [00:31:00] tariffs, uncertainty in the market, all those sorts of things.

Flip side to that is near term catalyst could be pulp prices turn around, which they. Often do. It’s cyclical, as I said before, but also they’ve just announced a couple of really big deals. Uh, a $3.4 billion joint venture with Kimberly Clark to create a global tissue products company. They’ve got a 51 steak ou in.

The this joint venture, basically they’re taking over Kleenexes or Kimberly Clark’s International tissue Assets, 22 tissue mills worldwide producing brands like Kleenex across 70 countries involves 99,000 employees, marketing and selling regional brands, including Kleenex, Scott and White, all in over 70 countries.

So [00:32:00] this is their moving. Down the food chain or up the food chain, depending on how you wanna look at it,

Tony Kynaston: Mm-hmm.

Cameron: a bigger chunk of the profits in finished products. At the moment, as I said, 80 to 90% of their sales is pulp. 10% is domestic paper products. And, and, and. They call graphic paper. So paper that’s used for offices, for printing, for newspapers are all in decline because of digitalization and people using less and less paper on that front.

You know, I remember when we used to go through here at home, um, you know. Thing of printer paper once a month and now we go through maybe one a year. We just never print stuff off, uh, these days. So, uh, there that’s in decline, but there’s a lot of higher margin consumer tissue. Sanitary products, toilet paper, tissue paper, all of that [00:33:00] kinda stuff that they’re gonna get a chunk of that with this joint venture with Kimberly Clark.

So that’s big. Also, last year, 2024, they acquired two paperboard mills in the us, which is gonna get them into packaging in a bigger. In the North American market, so more margin upstream in that as well. So potentially a lot of upside for them in the future if they can execute well on these things. Sort of takes them out of relying on pulp cycles and might earn them a higher valuation multiple as they get more and more involved in integrated value added businesses.

On top of that, they’re doing massive share buybacks. Which you love and dividends. So they’re doing both share buybacks and dividends. They paid out 1.5 billion real in 2024 and bought back 2.8 billion real in stock. So from [00:34:00] an investor’s perspective, best of both worlds buying back stock and giving cash out as dividends.

Tony Kynaston: wow.

Cameron: Keeping everybody happy, keeping Warren happy and keeping if people are looking for dividends, happy. So there’s risks, there’s also upsides, um, just to go through the numbers. Uh, average daily trade is 17 and a half million, so pretty big. The price to operating cash flow is 3.23, so very, very low. We explain this every week, but just for new listeners, one of the key metrics that we look at, price to operating cash flow, basically.

How long would it take the business to pay you back from operating cash flow? And this is a little over three years, so it’s a very short payback cycle, which means low risk. We like that on stock. Edia, they have a quality rank of 70, which we like. We score anything [00:35:00] over 60, so we gave them a score for that.

Don’t score them on stock rank though. The stock rank is 84. We only score over 90. But we do score them on their F score. They got an F score of seven, I think, from memory. Um, so they, we score anything over four and a half. So that’s basically a measure of financial health. We did score them for that.

Their price was not below our IV number one when I redid the numbers, but it is below our IV number two, so I scored them for that. Price is not less than book. Or Book plus 30. So I didn’t score them for those, but they do have a new three point upturn, so I scored them for that book. Value growth is positive.

PE is not less than the yield. Yield is not greater than bank debt. Uh, the forecast IV is greater than twice the current price, just by a margin, but they gotta score for that after I rejig the [00:36:00] numbers. So, all in all, uh. They got a score of 10 out of 14 or 71%, and a QAV score of 0.22. So pretty good score from me.

Although the caveat as I said before, is that the pulp price is a Josephine. So we don’t have any spare capacity in our portfolio, so I’m not looking to buy them. But, uh, even if I were, I would wait until the pulp price. Became a three point buy, I guess. Keep an eye on it.

Tony Kynaston: A very interesting company and another industry to explore, which is great. And heaps of Hmm

Heaps of cash.

Cameron: Heaps of cash

Tony Kynaston: Founding

Cameron: you know,

Tony Kynaston: shareholder. Yeah, all the the paper business. I mean, while the printer paper thing is obviously gone, um, AI’s not gonna replace tissues and toilet paper [00:37:00] and sanitary napkins and nappies. Um, so I think that’s a good business for them to get an increasing chunk of both in terms of supplying the raw pulp and also getting moving into the end products.

Cameron: Dunno how it’ll affect their relationships with their, uh. Customers they sell pulp to if they’re moving more and more into the finished products business themselves. But, um, that’s for them to navigate. I’m sure they will do their best to navigate those waters. Anyway, there you go. Different yet again.

Very, very interesting

business, isn’t it?

Generating a ton of cash, but not, not getting a lot of love from the market.

Tony Kynaston: Yeah. with a few reasons for that, right? It’s based in Brazil, which can have sovereign risk. It’s got terrorists to, to navigate through. At the moment, um, the commodity price is still going down. So that’s, it’s, it’s kind of like, it’s a, a driver of its margin, I would’ve thought. [00:38:00] Um, so yeah, but time to buy that sort of commodity price starts to turn up again, good time to buy.

Cameron: Yeah, I like it as a business. Alright, Tony, I’ll insert after hours in there.

Tony Kynaston: Thank you.

Cameron: Have a great week.

Tony Kynaston: Yep. Happy Nissy.

Cameron: Follow us on TikTok. Look up QAV on TikTok, and follow us on TikTok if you want. Daily updates.

Tony Kynaston: Wasn’t TikTok gonna be sold at some Yeah. Trump sorted that out.

Yeah, well, lucky probably saying, gimme 10%. Gimme 10% and you can stay. Yeah.

Yeah. All right.

Cameron: And don’t, don’t allow videos of the strange marks on my hand. And we’ll, we’re all good. Stop spreading rumors that I’m dead. It’s fake news. All right. Have a good week.

Tony Kynaston: All right, you [00:39:00] too.

Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com.

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Quote for the day: “What have I always told you? Everything must be taken into account. If the fact will not fit the theory—let the theory go.” “The Mysterious Affair at Styles”, Agatha Christie