Cameron: Welcome back to QAV America, Tony, episode 27.

Tony Kynaston: Wow, that’s gone fast.

Cameron: it’s been a couple of weeks since we did a US show. Didn’t have time to do one last week, but, I’ll just start with a bit of a portfolio update, get into some news, and then I’m gonna do a, a special deep dive pulled pork that I prepared just for you. Tony went way down the list to find this one for you.

Tony Kynaston: forward to it.

Cameron: The portfolio has not had a good 30 days. Our US portfolio, it’s down 6% in the last 30 days versus the s and p 500, which is pretty much neutral in the last 30 days. So it hasn’t been doing great too. Um, hold on. Did I say how long it’s down? That’s, let me see what, no. Down, down two and a half percent, not 6%.

Two and a half percent in the last 30 days. Um. So it’s hasn’t been, uh, a great, uh, period for us still tariffs. I think that [00:01:00] just the general US economy is not boating well for our portfolio over there. But that said again, if you look at, uh, since inception, which is. Just a little bit over two years.

September 23, we’re tracking at 53% return versus the s and p 551%. So we’re still beating the index over the last couple of years, but, uh, the year to date we’re down 18% versus the s and p 500, up 14%. So it has been a rough calendar year for our portfolio. For all the reasons I mentioned before, but some of the stocks are still, I mean, everything’s doing quite well.

I mean, everything’s up, everything’s doing well, just not as well as it was doing. So

Tony Kynaston: peak.

Cameron: nothing to complain. Yeah, yeah. Like me, um,

Tony Kynaston: Best days are ahead of you Can.

Cameron: uh, [00:02:00] I keep telling myself that Tony, uh, listen. It been interesting a couple of weeks in the US market. Corporate earnings are surprisingly strong for the third quarter of 2025. Median earnings for the Russell 3000 Index rose about 11% compared to a year ago. Six of the 11 sectors in the s and p 500 reported positive earnings growth up from just two sectors.

In the prior quarter. Big tech industrial energy have been leading consumer facing firms, however, showing more signs of strain according to the Financial Times investment in AI and data centers, though, as we know, is the big driver over there. Microsoft Alphabet meta are projecting total capital expenditures in 2025 of around US $370 billion for data center and infrastructure.

And I was reading an analysis of this in Wide Magazine. They were [00:03:00] saying they’re funding it all from cash to these companies. ’cause they’re sitting on buffet levels of cash

Tony Kynaston: Wow.

Cameron: according to one estimate nearly.

Tony Kynaston: Aren’t they just passing it? around to each other? He,

Cameron: Well, in some cases, yeah, NVIDIA’s just handing it out and getting it back. According to one estimate, nearly all of us GDP growth in H 1 20 25 was accounted for by investment in data centers and software processing tech.

Tony Kynaston: Wow.

Cameron: Since chat, GPT launched in November 20, 22, 3 years ago, AI related stocks have accounted for 75% of s and p 500 returns and 80% of earnings growth according to JP Morgan. So that’s absolutely insane considering, you know, that’s, uh, half a dozen stocks, um, and open AI isn’t even listed.

Tony Kynaston: Yeah.

Cameron: Um, but you know, as we say, each [00:04:00] episode, uh, we are finding tons of value opportunities and, uh, there’s, there’s no, there’s no, um, trouble finding good quality companies that are generating cash that you can buy very, very cheap.

Looking at, you know, price to operating cashflow, looking at their book price, which includes the one I’m gonna talk about today. Not that there aren’t challenges, but you know, plenty of stuff to buy.

Tony Kynaston: Well, as we were just speaking about, if, if a lot of money’s going into the AI sector, the tech sector, there’s not many bids going into you run of the mill industrial company. And that’s, I think, creating value within the rest of the market. in here, in the, in, well more in the us Australia doesn’t really have an AI sector, but um, certainly if the hot sector is, is, uh, is taking inflows away from the general market.

So the general market must be undervalued.

Cameron: There’s this huge sucking sound

Tony Kynaston: [00:05:00] Yeah,

Cameron: as all the money gets pulled into this one zone and um, yeah, it means that everything else is cheap.

Tony Kynaston: pockets.

Cameron: The five pockets. Yeah. Back to the US economy, what is showing cracks is the labor market. And broader participation is weakening. In October one, private sector data tractor reported 9,100 jobs.

Lost. Lost, and planned. Planned layoffs surged to 153,000. I just mentioned on our Australian show, I read, um, uh, some quotes from Jerome Powell in the last week or two where he was saying what they are seeing is a lot of companies saying they’re not. Planning on hiring people because they expect AI to be able to do those jobs, particularly people coming outta university.

It’s being referred to as the great freeze by some economists over there. There’s a freeze on job hiring. We’re seeing it happening here as well, predominantly in the tech sector, but other, other professions as well. You know, with [00:06:00] these junior level clerical. You know where I got my first job was, you know, bank clerical stuff.

I, you know, when I was 17, 18. A lot of those jobs are gonna just be replaced now by AI companies are expecting they will be able to replace them with an AI tool.

Tony Kynaston: And that’s an important point you make there, the expectation, because I’ve seen similar parallels to this happen. In the past where it’s almost dere, you’ve gotta say, we are freezing hiring. If you’re not saying we’re freezing hiring, the analysts are on your, you know, like, like, uh, bees to a honey pot.

Why? Why aren’t you freezing hiring? Everyone else is freezing hiring. So they freeze hiring and then, you know, a couple of quarters time they start hiring again because it, didn’t really apply to them. So it’ll be interesting to see. I’m not saying that. Companies won’t need as many staff because of, the impacts of ai.

Um, but it’s almost becoming clearer to me now that, uh, at [00:07:00] least at this stage, right, I know there’s a lot more to come and a lot more upgrades to, um, to be released. But at this stage, it’s almost like what we’re seeing is an increase in the power of computing that’s brought about by ai. you know, so. We were talking before about, uh, being able to target ads better. It’s, there’s nothing revolutionary in the concept of targeting ads, but if it’s done cheaper and faster, then yeah, people will lose their jobs, in marketing departments or whatever. So I get that. Um. Whether it, it, you know, it’s, it’ll be interesting to watch if it is a great freeze and, and suddenly we have people not going to universities.

That’ll be a big impact on society, I think. But, um, let’s just watch the space and see what happens.

Cameron: Yeah. Why are you gonna spend well in Australia 2030 grand to get a university degree? In the us hundreds of thousands of dollars to get a university degree if there’s very high chance that there won’t be a job for you at the end of it. So then what do those [00:08:00] people do? What, what do they go and do instead of going to university?

Tony Kynaston: Well,

Cameron: Um, do they?

Tony Kynaston: possibly

Cameron: Yep.

Tony Kynaston: the US but in Australia there’s definitely been a tr being a trend towards trades and the trend towards working in sectors like the mining industry. Might be different in the us but yeah, there’s, I think it’s quite legitimate now for someone leaving school to say, well, you know, I can go and make as much money if I get a trade and become a qualified plumber, electrician, contractor, build or whatever. Um, as opposed to spending three plus years at university, getting a degree, and then going into an entry level job. So been

Cameron: Except. The next three to five years, humanoid robots are gonna hit the market all with superpowered AI brains, and a lot of those jobs aren’t gonna be there either. Elon just got his trillion dollar pay package approved and part of that is.

Tony Kynaston: he’s taken that bet that it’s gonna happen.

Cameron: Well, part of that is he has [00:09:00] to ship a million optimist robots in the next 10 years. Now a million doesn’t sound like a lot, but I predict that there will be 5,000 humanoid robot companies coming outta China in the next five to 10 years. That will all be shipping a million robots or more. So

Tony Kynaston: Well, I also

Cameron: yeah.

Tony Kynaston: too, if Elon gets a trillion dollars from shipping a million robots, they’re gonna be like R 2D two. They’re gonna have Kenny Baker in the inside actually working the leavers.

Cameron: you see there was a video doing rounds in the last few days. There was a Chinese car manufacturer called X Pen, I think, that demoed their new humanoid robot called Iron, IRON. And it it, it had. Breasts and a booty. And it was walking on the stage like a model, like a supermodel on a walkway, and people didn’t believe it didn’t have a human in it, so they actually cut it open on live on stage, and showed you that [00:10:00] there was no human in there just to prove they weren’t pulling an E on.

Um, yeah. But, um, so. The top Fed officials, John Williams, who’s the head of the New York Fed warned this week that rising inequality and affordability crisis for lower middle income households pose a real risk to the economy. He flagged the balancing act, the Federal Reserve faces between inflation jobs and growth.

It’s a crazy situation over there at the moment. Some things are booming, some people are doing very well, but generally speaking, a lot of people are struggling and now of course their food stamps have been cut off their air with the, uh, budget shutdown. Flights are being canceled. All sorts of problems over there.

The stock markets starting to look a bit fatigued. The Nasdaq had its worst week this week since April. Tariffs remain a factor. According to Bank of America global research tariffs might be adding 30 to 50 basis points to core inflation via higher consumer costs, and could [00:11:00] continue to put upward pressure on inflation.

And the Fed signaled that rate cuts are not a done deal at the next meeting, some Fed members are reluctant giving inflation remains above target and data as patchy thanks to the government shutdown affecting many metrics. Uh, they’re not exactly sure what the numbers look like moving boards, so

Tony Kynaston: And they, and they complain about China’s stats.

Cameron: yes, yes. So look, it’s, it’s a mixed bag over in the us, um, and. As you know, I’m gonna, the company I’m gonna talk about today, the one I handpicked for you, uh, suffering a little bit as a result of the uncertainty, particularly with tariffs in the us. This company is the, the Ticketer is MODG. The company is currently called, but not for much longer.

Topgolf Callaway Brands Corp. You want to guess how they get MODG out [00:12:00] of Top Golf Callaway Brands.

Tony Kynaston: I, can’t put it together.

Cameron: It stands for Modern Golf Tony, MODG, modern Golf, but they will not be top Golf Callaway for much longer, as we will see. I picked this for you, Tony, because Tony’s a mad golfer and he’d much rather be playing golf right now than talking to me, and I think as soon as we get off of this, he’s gonna go play golf.

Is that right?

Tony Kynaston: No, we’re gonna go and watch a horse run that I own at

Cameron: Oh,

Tony Kynaston: Which

Cameron: it’s race season. That’s right. Then you’ll go play golf,

Tony Kynaston: yesterday

Cameron: right?

Tony Kynaston: do live on a golf course.

Cameron: Tony lives on a golf course and, uh, yes, that’s his, uh, favorite pastime. So. Uh, according to Top Golf Callaway’s website, Tony, you like this. 545 million rounds of golf in the US were played in 2024. It’s a new high for annual rounds. 28% are on course [00:13:00] golfers, uh, sorry, 28% of on course golfers are women.

Another record high for 2024. Over 3 million beginners have taken up the OnCourse game. In each of the past five years, so golf is booming,

Tony Kynaston: It came through COVID very strongly, at least in Australia, because uh, people were allowed to go out into golf courses for exercise during COVID and they couldn’t do, you know, contact sports or soccer or whatever else they were playing normally, but

Cameron: Kung fu.

Tony Kynaston: golf. Kung fu. Yeah. uh, it boomed went through a p before, prior to COVID golf was on its knees and, and. Golf courses and clubs were either shutting or merging or being

Cameron: Really. Wow.

Tony Kynaston: development, for housing, that kind of thing. Yeah.

Cameron: Mm-hmm.

Tony Kynaston: of all of the above. And, uh, then COVID just revitalized it. And I guess it’s also, um, part of the work from home trend. Like I remember even after COVID, I’d be out playing on the golf course and the I’d be paired with someone who’d be on their phone saying, yeah, yeah, boss.

Yeah, I’ll look into [00:14:00] it. And so they’re pretending to be at the office, but they’re really on the golf course as well.

Cameron: Nice. Uh, what else have I got here? Stats, why? Yes. Trends of golf are emerging in fashion, lifestyles, travel, art, music, and more. According to their website, two thirds of today’s OnCourse beginners have some kind of off-course experience, which leads us into the top golf conversation. So. Just what, what do they do for people like me who don’t know anything about golf really, except it’s a ball and a stick and looks really, really boring.

Um, if you don’t, if you can’t get your nose broken, I don’t see the point. But anyway, um, top golf. Uh, they own Topgolf and I have been to a couple of Topgolf uh, venues. Been to the one down at the Gold Coast once or twice. And then the last time I was in Arizona or a few years ago, uh, uh, Chrissy’s brother-in-law, his family owned a [00:15:00] real estate development company and there’s a top golf on some of their land.

So he has like VIP access to a top golf in Phoenix. Um, one of the suburbs of Phoenix. So we went there and played and it was a lot of fun. We had a great time. And uh, the top tracer stuff, which is also part of Topgolf, Callaway is part of that. So they have Topgolf. So for people who don’t anything about golf, it’s like a high end fancy restaurant bar slash driving range.

Is that a fair description of it?

Tony Kynaston: gamified it so the balls have little RFIDs in them that could be tracked and that you hit targets that light up and get points, and it all relays back to a screen to show you what your score is. Yeah.

Cameron: And it’s fun for people who know nothing about golf. You can go and you can have a great time, great night out. They’ll bring food to you. Beer and uh, yeah,

Tony Kynaston: Yeah. And then

Cameron: you know.

Tony Kynaston: people fall off the top,

Cameron: Yeah,

Tony Kynaston: into the

Cameron: people [00:16:00] standing on top platforms, swinging metal sticks and hitting hard balls with beers. What could possibly go wrong with that? And the top tracer stuff is the ball tracing element of that.

So you, you have a little screen and it shows you how far your ball went and how fast it went and all that kind of stuff. So it’s good.

Tony Kynaston: top trace of technology has certainly revolutionized professional golf because, you know, golfers will have a track man beside them on the range. Pro professional golfers will have a track man beside them on the range and they’ll be working on dialing in the exact distances for each club and, you know, um, compression speeds and all that kind of stuff.

So it’s really taken golf’s physics to a new level.

Cameron: And I understand the top tracer stuff came from tv, golf. They would have like overlays and, and they went, went this and they went, oh, that’s, we should.

Tony Kynaston: Well,

Cameron: Do that.

Tony Kynaston: watch golf on TV and you’d say you’d see the guy swing and the camera would pan to the sky and then come down and try and find the

Cameron: Yeah,

Tony Kynaston: And that was how they’d

Cameron: yeah, [00:17:00] yeah. Yeah. I, I’d never be able to see anything. It was just, it’s gone. It’s my problem with playing golf in real life. I can’t see anything anyway, and then they have the Callaway golf equipment clubs, balls, putters, and active lifestyle apparel gear. Travis Matthew, OGIO, and until recently, Jack Wolf skin.

But as we’ll see, they sold that off just recently. So the venues of the crowd pleasers the sticks and shirts. Keep the golf nerds happy. It was founded, and this is a great story. Uh, do you know the story of Callaway Golf? Uh, you’re gonna, you’re gonna love this. It’s a great story. So founded by a golf called Eli Callaway, Jr.

He was the president of the textiles division of a company called Burlington Industries. They were a huge American fabric maker, Berkshire Hathaway esque. Um, founded in 1923, went outta [00:18:00] business, got sold off in 2003, um, but he retired in 1973 and. Um, bought a vineyard in California, had, I think he bought, ended up by owning several vineyards that he, he sort of ran those for 10 years and he was an avid golfer.

No, but he was an avid golfer because, fun fact, his cousin was a guy called Bobby Jones.

Tony Kynaston: Famous golfer.

Cameron: Creator of the US Masters Tournament and co-founder of Augusta National, and apparently he offered Callaway a free membership of Augusta National, and he and Callaway turned it down

Tony Kynaston: Big

Cameron: because they’re only open. For like six months of the year or something.

And he said he’d be spending the rest of, he’d be spending that entire time with friends, ringing him [00:19:00] up, begging him to get him a game. And he was like, yeah, I don’t wanna, I don’t wanna buy into that. But he learned to play golf by watching Bobby Jones, who was like an, uh, an amateur champion, I believe, and he made a series of films about how to play golf and Callaway learned how to play golf by watching his cousin’s films.

Tony Kynaston: Yeah.

Cameron: Anyway, so he was an avid golfer and he was playing golf, and he was in a pro shop one day, picked up a wedge, started swinging it, liked it, and went to visit the guys that made it there. It was a company called Hickory Stick. You ever heard of a Hickory stick?

Tony Kynaston: that’s how golf clubs used to be made. Back in the days when that first started, they had hickory shafts, which is timber.

Cameron: Well, these, these guys put a steel rod through the hickory shaft and so he went and want, and just, you know, did a buffet was like, oh, that’s cool. I’ll go talk to these guys and see what they’re doing. And then at some point [00:20:00] after that, 1982, they were running low on money and he sold his vineyards and bought half of their company.

It was renamed a Callaway Hickory stick, USA. And then in 1983 became the company’s president. They moved the headquarters to Carlsbad, California where he could be found selling clubs out of his Cadillac. And then in 1984, he bought the rest of the company for another $400,000 and it changed its name in 1988 to Callaway.

Tony Kynaston: So he was Callaway selling clubs out of a Cadillac in Carlsbad, California.

Cameron: Yes, somebody should write a song about that, but yeah, I thought you’d love it. ’cause I mean, he. He retired, just started running vineyards and then sold that and bought a golf company. Like what a dream. Dream life, Ryan,

Tony Kynaston: I,

Cameron: and he was in his sixties when he did it too. Like he sold everything and then sunk it all into this golf stick company.

Tony Kynaston: you, you might [00:21:00] cover it in your story, and Callaway was known for its wedges at the start, and then they were known for the first metal drivers, the big ERs. So he’s very much into the technology of golf.

Cameron: So in 1986, he hired a Q Designer, Richard Helmer as a consultant, golf queue designer,

Tony Kynaston: Golf

Cameron: guess.

Tony Kynaston: No. You mean a billion queue,

Cameron: Yeah, sorry. Billion Q, the other stick sport. A billion Q. Yes. Billion Q Designer. Richard Helmstetter Helmstetter was named Chief Club Designer and introduced computer controlled manufacturing machines. And then along with a guy called Glen Schmidt, who was the company’s master tool maker, they developed the original big Bertha Steel clubhead.

Tony Kynaston: Yeah.

Cameron: Arnold Palmer once said that the Big Bertha was one of the most important things that ever happened in the game. The whole idea was to give average golfers an opportunity to [00:22:00] enjoy the game a little more. Uh.

Tony Kynaston: And if you like to the non-golfers out there, um, and I’ve played golf prior to big Birthers coming in and after big Birthers coming in. Uh, and certainly I hadn’t heard of Callaway prior to that. we used to play with persimmon wooden drivers, so they were made of wood they would have, I guess it was a plastic, plastic key type insert in the face and screws.

And so if you hit a good drive, it was said to be hit out of the screws because you, you sort of sweet, your sweet spot on. The persson driver and persimmon drivers, are they probably, they were about the size of a a seven wood. If for, for golfers out there listening, so they’re much smaller than what drivers are today, and they had a very small, sweet spot on them, which was a plastic insert screwed into the face of a wooden driver. And, uh, you know, sometimes you’d play a shot and the wooden, the plastic insert would go flying and sometimes their head would come off and they were very hard to hit long and straight, and they were to failure as well. [00:23:00] And then one day you’d be on the course and the guy standing next to you would have this. Huge thing. Um, and there is a, the rules of golf tell you how big driver can be, and Callaway kind of pushed the rules. ’cause the way they, they tested, or the way the rules are worded are, I think it’s 460 ccs of water can be displaced by the head of a driver. So you dunk the head of a driver in the water and see how much the, so you know, up until then.

Yeah, driver was small. It would f it would get dunked in the water, would pass it easily. then Callaway said, well, what if I displace the water by having a big hollow Um, and so, you know, they probably four, four times the size of the old drivers, still obeyed the rules, but, and displaced the 466 ccs or whatever the number is. But they did it by being big and hollow. And then they kind of said, well, how do I make a big hollow golf club that doesn’t. Doesn’t break and works properly. And they came up with the metal. And so you’d be [00:24:00] standing on a, on a, a tee and the guy beside you would have this, you know, I don’t know how you describe it, like a boot on the end of his club. And the ball would go for miles and it’d be so easy to hit ’cause you had a huge sweet spot. ’cause the thing was big. It had a much bigger sweet spot on the front of the, the club. And they just took over From then on everything was metal and, and large.

Cameron: So yes. In 1996, the company hired Roger Cleveland as chief Club Designer, and then in 2002, launched the Callaway Golf forged wedges constructed from carbon steel with modified U grooved faces. In 1996, they announced the development of new golf ball under the leadership of a guy called. Chuck Yash, the former head of Tailormade Golf.

Callaway Golf Company engineers recruited from DuPont and Boeing used aerodynamic computer programs first used by Boeing in General Electric to evaluate more than 300 dimple [00:25:00] patterns and more than 1000 variations of ball cause boundary layers and cover materials to create the new rule 35 ball. They settled on only two versions of the Rule 35 ball, choosing to develop a complete performance ball rather than separate balls developed for spin control, distance and durability.

Eli Calloway said that their objectives were, we have combined all of the performance benefits into one ball, so players no longer need to sacrifice control for distance or feel or durability. Each rule 35 Ball contains a unique synergy of distance control, spin feel, and durability characteristics. This eliminates confusion and guesswork in trying to identify the golf ball that is right for each individual golfer.

Tony Kynaston: So he was good at marketing as well because there’s certainly a, there’s certainly been a big upgrade in balls and that’s about to get rolled back there, be rollbacks happening golf, um, [00:26:00] to, to stop the pros from hitting it. Too far. So golf balls are actually being descoped in technology. I think it’s starting next year.

Cameron: Wow.

Tony Kynaston: debate in the golf community. I think it only applies to professionals. Um, amateurs like myself can still use top of the range balls, but yeah, certainly in the past you would buy a ball to hit it straight or to, you know. Make sure you didn’t scuff it, it’d be more durable or to stop side spin or to give you side spin. so you know, you buy a long ball or a spinning ball or whatever, and then. I always thought it was the tight list. Pro V one came along and combined all those things, but it could have been the Callaway that came along first. But, you know, as things have gone on, both tight list and Callaway still have soft balls, hard balls, professional balls, um, low spin balls, high spin balls, all that kind of stuff.

So marketing takes over at some point.

Cameron: Do you know why the ball was called a Rule 35 ball?

Tony Kynaston: no.

Cameron: Neither do I. I didn’t look that up. I’m just looking it up [00:27:00] now. Probably, probably a good reason anyway. Who, um, so he resigned a CEO and President in 1996. Remained as chairman of the board, died in 2001, aged 82. And he has a memoir that ca was published posthumously, the Unconquerable Game, my Life in Golf and Business.

Tony Kynaston: Oh, I should

Cameron: You ever read that?

Tony Kynaston: I should

Cameron: Well, probably not. No. Should send it to you as a birthday present.

Tony Kynaston: thank you.

Cameron: Um, so there you go. That’s a bit of the background on Callaway. They went public on the New York Stock Exchange in 1992, and then a couple of big pivots. So in 2020, October, 2020, they announced they would acquire Topgolf for $2 billion.

Um, it happened in 2021. I think that went through. So a COVID [00:28:00] era thing.

Tony Kynaston: Yeah, definitely. Topgolf took off. Mm-hmm.

Cameron: 2022, they rebranded as Top Golf Callaway Brands and that’s when it’s ticket symbol change from ELY for Eli to, uh, MODG. And then they just announced, uh, in recent times that well, they sold off the, um. German clothing company, Jack Wolf’s skin outdoor clothing company. ’cause it wasn’t really working for them, I think.

But they have announced recently that they’re gonna separate into two companies. There’s gonna be Topgolf and everything else. Callaway Top Tracer and Apparel two. Unlock value is, uh, the rationale for it.

Tony Kynaston: I dunno if you’re gonna cover it, but it never went well. That merger, the, the share price tanked and it’s been in the doldrums ever since really.

Cameron: And as we’ll [00:29:00] see when we get into the numbers, they’ve had a lot of write downs of their valuation because of that too.

Tony Kynaston: did find an article in the Wall Street Journal about that from a year ago, and its headline was Topgolf sent Callaway into the rough. And, uh, you, you covered off a lot of the issues, but, um, there is a graph in the article, which, uh, starts from like is baseline is 2021 and the share price for Topgolf Callaway gone down 50%.

And the share price for its major Callaway’s major competitor, a Kush net up, uh, 75%.

Cameron: Oh.

Tony Kynaston: because people thought the top golf. Our analysts thought the Topgolf acquisition, um, wasn’t a good one. And uh, it sounds like Callaway have come to that same conclusion now too, if they’re gonna spin it off.

Cameron: Yeah, in mid 2 20 21, the share price was up around about 37, 38 bucks. It’s trading at about 10

Tony Kynaston: [00:30:00] Whew.

Cameron: so it’s been a rough ride share price wise,

Tony Kynaston: I did know

Cameron: but.

Tony Kynaston: I dunno if it’s, it’s germane. It might be just a small fish, but I know they had to build a, a, a new golf ball, manufacturing plant, or a big plant upgrade. ’cause a large part of their business is also selling golf balls. And that’s kind of the bread and butter because people like me lose them a lot.

So we’re always re restocking golf balls, right? So, um, and Callaway golf. I like Callaway golf balls. They’re good, good balls. There’s one of the golf balls is called the ERC cam. I’ll tell you a story. It’s got a red line, a blue line, and a black line down the middle of it so you can line up where you hit it and where you put it.

And it was taken from aircraft carrier technology, um, where they’d have three lines on the aircraft carrier for the pilot to line up where the hook gets caught. And apparently that that stops any sort of, if you have one line, you can have optical illusions and deviations as you’re moving around. So, they adopted that onto the golf ball as well. made much difference to

Cameron: [00:31:00] Nice,

Tony Kynaston: But, uh, again, it’s, it’s good marketing. But anyway, they had to

Cameron: so

Tony Kynaston: put $55 million for us from memory into a plant last year or the year before because, uh, they had quality issues in their golf balls.

Cameron: Right. Nothing worse than having. Um, quality issues with your balls. Tony, I’ve always said that

Tony Kynaston: it’s, it’s, an interesting, it’s true, but it’s an interesting thing because if you play, what, what they’ve, so

Cameron: I.

Tony Kynaston: been a rise of sort of, um, influences in golf and one of them is called My Golf Spy. And they would really take a part golf, uh, ball manufacturers and I guess clubs too, but particularly balls and put them through rigorous testing.

One of the tests they did was to say, we’ll take a dozen golf balls and see if each one. up to the specs. And what they found with Callaway for a while there is that, like not every ball was, um, measuring up to the specs. And if, if you think about it, if you’re playing golf and you, you know, pull out half a dozen balls and ones rolls a [00:32:00] bit more to the side than the other ones, you think it’s you, you think it’s, oh, having a bad day.

But really it’s the golf ball. So, um, Callaway had to address that concern by, uh, upgrading their, their plant.

Cameron: it’s not you, it’s your ball. Um, their revenue mix is, so Topgolf is was about 41% of their revenue. Uh, this is FY 23 numbers, so a little bit old, but I think it’s basically the same today. Golf equipment, 32%, so that 41% is about 1.76 billion. Golf equipment, 32%, 1.39 billion. And active lifestyle, 26%, 1.14 billion, so about four.

Tony Kynaston: Callaway owned the FootJoy brand, which is a big producer of golf shoes and apparel for golfers.

Cameron: Oh, FootJoy. That didn’t come up in my list

Tony Kynaston: I’m pretty sure it’s

Cameron: possible though. Hmm. [00:33:00] So looking at, um, their financials in stock edia, they’ve, they’ve been losing money the last year or so, but we’ll get into the wise and wherefores on that in a minute. Total revenue CAGR is up about 20% over the last five years, 2019. Total revenue is about 1.7 billion.

2020 1.6, 2021 with the top golf acquisition jumped to 3.1 2022, just under 4 20 23, 4 0.3. And trailing 12 months is about 4.1, uh, and 2026 estimate. It comes in a little bit under four, so it’s coming back off a little bit. But again, I think this is partly due to the potential spinoff of getting rid of the.

Jack Wolf Ski and maybe the spinoff of [00:34:00] Topgolf, but their operating profit has gone from 133 million in 2019 to 257 in 22, 238 in 23 to a loss of 1.275 billion in 2024. But when you break that down, most of it is non-cash impairment charge of 1.45, 2 million or billion, sorry, related to goodwill and intangible assets in the top golf segment.

Uh, without that impairment, the underlying business, non GAAP measures for 2024, full year was about profit of 256 million. So if you take out the impairment, it’s still profitable. Doing okay. Um

Tony Kynaston: can I just interrupt there? I, I’ve just,

Cameron: hmm.

Tony Kynaston: told me that no FootJoy is actually owned by a Cush Net, the competitor to Callaway, so

Cameron: Okay.

Tony Kynaston: Googled it first.

Cameron: Apologies to the

Tony Kynaston: Hmm.

Cameron: fine people at FootJoy [00:35:00] for that confusion. So the golf equipment, the clubs and the balls throws off steadier cash than the venues. It’s a good part of the business. You have your diet in the wall, golf people like yourself that are always buying clubs and balls, and the whatnots.

Top tracer is the toll road. It’s sort of high margin licensing and installs into third party ranges. They’re generating some good cash out of that. Uh, the top golf is the consumer funnel. One of the interesting things about that is it supposedly introduces new people to golf. You go along for a party, uh, and you pick up a golf stick for the first time.

I think that’s a technical term. And uh, you go, oh, this is fun. And then you end up becoming a mad golfer. So that has been part of the. That’s the theory. That’s been the strategy. But, [00:36:00] uh, and, and it might continue to be as they spin it off, how they’re gonna spin it off is uncertain yet, whether it’s a, they sell it, they float it, they whatever they, I think they intend to keep some of it.

I’ll get into that in a second.

Tony Kynaston: um, just looking up, uh, an old article in the Wall Street Journal too. I think Callaway had been an investor in Topgolf right from the start. So,

Cameron: Oh really?

Tony Kynaston: think, uh, in,

Cameron: Hmm.

Tony Kynaston: um, whenever it was 2021 or 2022, they, they upped their position to be a full takeover, but they’ve always had some involvement in it.

Cameron: Right. So one of the reasons why it is cheap at the moment is the venues, uh. Cyclical and traffic sensitive and capital hungry costs a lot of money to build these things. Once you build it, you’ve got your staffing costs and all of your regular costs for running it. So if uh, times are tough and people stop going to play, uh, [00:37:00] whatever it is, how would you like, uh, fun, family golf nights out, whatever.

Tony Kynaston: Yeah.

Cameron: Uh, you know, it’s like running a restaurant and a bar and all those sorts of things. You’ve got a, a fairly solid overhead and things are a little bit tough, as we said earlier on in the United States at the moment. And it’s probably gonna get tougher moving forwards, uh, the way things are going over there for large segments of the population.

So they’re amount of people just going to play, uh. You know, not, not serious golf. What, what’s, I’m trying to think of what you would call that. Like entertainment, golf, social golf, eh, I guess. Yeah. Um, might be a little bit flimsy. Same venue. Sales have been wobbling and venue build, slowdowns have been spooking investors.

Then you’ve got tariffs, wage inflation, and just the complexity of mixing restaurants and sports and retail. And as you said that, that they [00:38:00] haven’t really pulled off the acquisition merger very well. And the tariffs are costing them a surprising amount of money for the full year. 2025. Management is now estimating tariffs are gonna cost ’em around $40 million,

Tony Kynaston: Okay. Is that

Cameron: and it’s a.

Tony Kynaston: import things from China or

Cameron: Yeah. Yeah. They’ve imported goods, equipment, apparel, accessories. It’s all manufactured. I dunno if it’s all in China, but I’m sure big chunk of it is in China. Could be Vietnam, could be different places. India all getting hit by tariffs. And South America too, they get stuff I think made in Mexico. Um, so your margins are getting squeezed unless you can pass those costs on or save elsewhere.

I think they have announced they’re gonna do some layoffs to try and. Save some money, but with this split up, what they’re proposing is two independent companies, Callaway, golf equipment and active lifestyle. Topgolf, venue based golf entertainment, probably a [00:39:00] spinoff of Topgolf to existing shareholders of MODG,

Tony Kynaston: Right?

Cameron: but there could be other options as well.

Could be a, a sale, a combination, retained steak. Not exactly sure yet what that’s gonna look like. So they just came out on November 7th. We’re recording this on November 10th, November 7th. They just came out with their Q3 numbers and they were actually pretty good. Um, Topgolf Callaway, Q3 revenue, GR revenue growth, 3% year on year, which was, doesn’t sound like a lot, but that beat analyst expectations.

Their adjusted EBIT DAF for Q3 beat, the consensus driven by golf equipment and Topgolf segments. Company raises full year 2025 revenue adjusters. EBITDA guidance company raises full year revenue guidance to. 3.9 to 3.94 billion top golf revenue guidance increased to [00:40:00] 1.77 to 1.79 billion and full year adjusted EBITDA guidance increased to four 90 to five 10 million golf equipment.

Demand showed strong demand for golf equipment, drove revenue growth in the golf equipment segment. Top golf venue expansion, addition of six new top golf venues and improved traffic trends led to revenue growth, but then there was the tariff impact as well. So good numbers. Everyone seems to be happy with it.

Tony Kynaston: So why are they, why

Cameron: Uh,

Tony Kynaston: then?

Cameron: well, oh yeah. I mean, it’s good, but it could be better. I think if they split it up. And focus is the theory unlocking value. Tony gotta unlock value.

Tony Kynaston: a love, um, you know, got a lot of management consultants. I guess they were involved somewhere. Got, we’re gonna get synergies

Cameron: Gotta make fees. Yes.

Tony Kynaston: golf in their name. Right. They’re

Cameron: Yeah. Well, I kinda get it, you know?

Tony Kynaston: [00:41:00] And now we’re gonna unlock value by splitting them out again. Yeah,

Cameron: Yeah. And then they’ll have to buy them again. Tony, you gonna buy it? Let it go. Buy it. Let it go. It’s like outsourcing insourcing. Outsourcing insourcing. So, look, um, I’ll, I’ll just, uh,

Tony Kynaston: with an AI company next, I think Cam.

Cameron: oh, AI golf. Perfect. I love it.

Tony Kynaston: traces.

Cameron: I, I might be able to play golf if I can get the robot to do it for me.

Uh, why? It’s on the checklist, Tony. So it’s got a QAV score of 0.10, quite low, but I went down and. Picked it just for you. Um,

Tony Kynaston: enjoyed this.

Cameron: I was like, oh, I gotta talk about this one. That’s crazy. You know, uh, average daily trade’s about 25 million. Price to operating cash flow is 6.26, pretty high by our standards. It’s below our cutoff, but that’s pretty high.

We have a cutoff of seven, so it’s getting up there. So if you want to get in on this, this is your opportunity. Um. Quality rank is only [00:42:00] 40 in stock. Edia, we don’t score it unless it’s uh, 60 or better. So we didn’t score it for that. Stock rank is 85. We don’t score it unless it’s at least 90. The F score is five.

We score anything that’s over 4.5. So that’s, its financial trend is reasonable, not great, but reasonable. Uh, it didn’t score for IV one or I, uh, no, it did Score for IV two, didn’t score for IV one. Shouldn’t have scored for IV two either. What have I got that’s wrong? Didn’t score for either of those because it’s got a negative EPS, um, and a negative future EPS.

Tony Kynaston: Yeah, I was gonna say maybe the, maybe the forecast is for a positive VPS.

Cameron: No, but the current, the last reported EPS was negative eight, and the forecast for next year is negative 0.374. So it’s improving a lot once they get rid of some of this. Uh, again, I said [00:43:00] like a lot of it was this impairment charge, so, but still not getting it into a positive territory next year.

Tony Kynaston: So if I, if I get, if, if I start using Callaway. Golf balls exclusively and get my mates to do the same ’cause

Cameron: Yes.

Tony Kynaston: balls. We might be able to boost

Cameron: Hmm.

Tony Kynaston: back into

Cameron: Yeah.

Tony Kynaston: by the stock

Cameron: Yeah. You should. Yeah.

Tony Kynaston: start

Cameron: And then buy golf balls. Yeah, let me know how that goes. Um.

Tony Kynaston: I think the Wall Street Journal will be selling into the rough.

Cameron: did score for price less. The book, book price is, um, 13.5. The price is 10.6, so the price is less than book. It also scored for price is less than book plus 30. And, uh, uh, my nu uh,

Tony Kynaston: And I just

Cameron: my numbers are all screwed up.

Now,

Tony Kynaston: listening who’s

Cameron: where did I do this?

Tony Kynaston: it could possibly be that price is, uh, the price to net tangible assets is different to the ratio to price the book [00:44:00] because if they’ve had a. If they had write downs, it’s probably because they were carrying goodwill on their balance sheet. Um, you, I haven’t

Cameron: Yes.

Tony Kynaston: to do that, but people can check that, which doesn’t usually worry me. But, um, obviously they take a cash, write down, a non-cash write down, sorry, as an impairment if they, if they carry assets so they, with lots of goodwill on them and it hasn’t worked out.

Cameron: Book value has gone from. 677, sorry, 767 million in 2019, up to 2.4 billion in 2024, but that’s down from 3.9 billion in 2023. There was a big spike there that was part of the top golf merger, um, in a couple of years. But then it looks like that’s been re-estimate. Um, my assumption is

Tony Kynaston: cash writedown, non-cash writedowns being

Cameron: the impairment.

Tony Kynaston: the impairment.

Cameron: Yeah.

Tony Kynaston: [00:45:00] Mm.

Cameron: I think the auditors decided those assets were no longer worth what they thought they were worth a few years ago.

Um, so bottom line is. Interesting business. Doing okay, generating a lot of cash, had that re that write down, but outside of that, if you factor that out, still generating a lot of cash. Seemed to be doing a lot of good work to. Offload things that aren’t working. They seem to be quite nimble in terms of moving things around, are being infected by the tariffs are being affected in some shape, particularly the Topgolf thing with the slowing down of the certain parts of the US economy.

But as you said, as soon as they rebranded as Topgolf ai, um, it’ll probably be worth trillions.

Tony Kynaston: Yeah,

Cameron: The current CEO will get a trillion dollar pay package like Elon.

Tony Kynaston: see a, like a, a fat cat with a cigar sitting in a. at Topgolf saying, Hey, my AR robot’s better at your AR [00:46:00] robot

Cameron: Yeah, maybe that’ll be the next thing. They’ll just,

Tony Kynaston: your robot by,

Cameron: they should be just selling golf robots that’ll go out and play it for you. You can just knock it out of your golf cart, let your robot go and hit the ball on your behalf.

Tony Kynaston: is a golf robot, it’s been around for a while, called I and Mike. It’s, they test clubs, golf clubs with, it’s like a big swinging arm that,

Cameron: Right.

Tony Kynaston: Yeah, the golf, I, I

Cameron: You can’t take it out on the course with you though.

Tony Kynaston: no, can’t take it to the driving

Cameron: You,

Tony Kynaston: it’s in the driving

Cameron: you, you got a, you got a robot, uh, golf caddy for your 60th birthday, didn’t you? A couple of years ago you used that much.

Tony Kynaston: It’s, it’s clocked up over 500 kilometers on the course now.

Cameron: Wow. That’s great. Well, um, when I start my robot company, you’ll be my first customer to buy a golf robot. I’m gonna come and sell you a golf, golf robot that’ll carry your bag for you, carry your clubs, and then hit the ball for you as well. And then go [00:47:00] get the ball

Tony Kynaston: I just wanted to say that’s a great shot, Tony. Well done little golf clap behind.

Cameron: just glazing you. Yeah, just to sit there and go. Ah, Tony, you are such a great golfer.

Tony Kynaston: And they can carry my clubs. Yeah. it up for me.

Cameron: Well, that’s my pick of the week. Tony is, uh, MODG, Mouli, the golf company.

Tony Kynaston: Uh,

Cameron: that

Tony Kynaston: very good.

Cameron: I’ll let you go to the horse races.

Tony Kynaston: you.

Cameron: You got a horse running today?

Tony Kynaston: Chacha Changes

Cameron: Ah,

Tony Kynaston: horse. I named yes. Racing

Cameron: yes. After.

Tony Kynaston: which is closer to where we live than most racetracks. So yeah. And Roddy’s down with me this week, so we’ll jump in the car and go up there and. Have a bit of fun.

Cameron: Well, good luck. I hope your horse runs well and has a win.

Tony Kynaston: Yes. Well, do you think there’ll be robot horses or jockeys at some stage? Sue?

Cameron: Absolutely. Yeah. Uh, it’s a bit like, um, [00:48:00] Mabb, Magnus Carlson says about. Chess, like we have chess software that can play better than any grandma, but no one watches chess. Computers play against chess computers. There’s no fun in that.

Tony Kynaston: Yeah. There’s the thrill of the thrill of the, uh, animal and the jockey’s taking risks and all that kind of thing too.

Cameron: Maybe when AI takes all of the white collar jobs, we’ll all have to become jockeys. Oh, by the way.

Tony Kynaston: the poor horse that I have to ride Well, you know, there has been, um, attempts to computerize horse racing for a while. TAs have a thing called Trackside in there. TAs are betting outlets in Australia, and they have a, a thing called Trackside, which was a kiosk with a horse race. AI simulation, very high quality graphics and I guess some kind of randomized result, but you could bet on it, place a bet and then, know, um, a bit like roulette.

I suppose the way that TBS work in Australia is everyone pulls their bets and the winner takes a percentage lesser commission. So TB didn’t really care which [00:49:00] horse won, but you know, it faded and died, didn’t have the glamor of going to the track.

Cameron: So last week in Australia we had the major horse racing event of the year, the Melbourne Cup, and the, you know, you had given me your tips for it the day before. How did, how did they go?

Tony Kynaston: of the tips got up. It won.

Cameron: It won.

Tony Kynaston: So I gave four tips, um, and one of them, one of them won.

Cameron: Was it your first, your, your, your primary tip? No.

Tony Kynaston: I think it

Cameron: No. Okay.

Tony Kynaston: 12, I think.

Cameron: Right. Okay.

Tony Kynaston: But my second tip did, and that was good.

Cameron: Your second tip one. Oh, well done. Did you have money on it?

Tony Kynaston: did. I won money on it. and I think the odds were about $8 50, so it makes up for the last six years of dud tips in the Melbourne Cup.

Cameron: Oh, well done. Congratulations. Okay. Thank you, tk. Have a good week.

Tony Kynaston: Bye. That was fun. Thank you.

Bernard: Q A V is a checklist-based system of value investing developed by Tony Khighneston over 25 years. To learn [00:50:00] more about how it works and how you can learn the system, visit our website, Q A V Podcast dot com.

This podcast is an information provider and in giving you product information we are not making any suggestion or recommendation about a particular product. The information has been prepared without taking into account your individual investment objectives, financial circumstances or needs. Before you decide whether or not to acquire a particular financial product you should assess whether it is appropriate for you in the light of your own personal circumstances, having regard to your own objectives, financial situation and needs. You may wish to obtain financial advice from a suitably qualified adviser before making any decision to acquire a financial product. Please note that all information about performance returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your [00:51:00] investment may fall as well as rise. The results are general advice only and not personal product advice.

Transparency is important to us. We will always be very open and honest about the stocks we own. We will also always give our audience advance notice when we intend to buy or sell a stock that we are going to talk about on the podcast. This is so we can never be accused of pumping a stock to our own advantage. If we talk about a stock we currently own, we will make it known that we own it.

This email is authorised by Anthony Khighneston Authorised Representative Number zero zero 1 2 9 2 7 1 8 of M F & Co. Asset Management Proprietary Limited (A F S L five 2 zero 4 4 2).
No part of this content may be reproduced in any form without the prior consent of Spacecraft Publishing.