While Cameron is travelling, we invited two special guest hosts to provide a quick overview of the basic concepts behind QAV, taken directly from the QAV Bible as a refresher course.

We discuss the latest U.S. economic slowdown, then pivot to a detailed portfolio update (US portfolio vs S&P 500). After a rapid recap of recent stock picks — from ZEPP to ZIM — we dive into a comprehensive analysis of Methanex (MEOH): its global footprint, methanol market dynamics, e-methanol shipping prospects, the Geismar 3 outage governance risk, and key valuation metrics.

[00:00:00]

Cameron: Welcome back to QAV America, Tony. This is episode 21. How are you?

Tony Kynaston: I am well, thank you. Father’s Day celebrated

Cameron: good.

Tony Kynaston: Hope everyone out there did the same.

Cameron: No, they’re Americans, Tony, they celebrate Father’s Day in a completely different time of year to us. Mm.

Tony Kynaston: did. Anyway. I was gonna segue that into hope they all got their small packages, but, um, can’t

Cameron: They’re small packages,

Tony Kynaston: Day gifts from Australia, which have been held up.

Cameron: Oh, that’s a reference to the fact that Australia Post has stopped shipping packages to the United States because of the de minimis ch rule changes. Uh, we were just talking on our Australian podcast about the, uh, state of the economy in the US second lot of weak jobs, job numbers has just come through, and as I pointed out in the last episode, all of the reasons that we’ve been [00:01:00] talking about.

Over the last, uh, six months or so on this show, according to the failing New York Times, as the president likes to refer to it, analysts offered a variety of explanations for the slowdown the president’s tariffs on nearly all imports have driven up, driven up costs for companies and prices for consumers.

Mr. Trump’s immigration crackdown has made it harder for many businesses to find workers while, while simultaneously reducing the need for them because they now have fewer customers. The federal government has cut jobs directly and canceled grants and contracts that have bled into the private sector.

The uncertainty surrounding Mr. Trump’s ever shifting policies has made corporate executives more cautious about hiring and investing. So. You know, who would’ve guessed that, uh, putting Donald Trump back in the White House would lead to chaos and uncertainty? Tony? No, certainly not me. I, that was not on my bingo list.

I thought, here’s a man who’s calm and [00:02:00] most stable genius I’ve ever seen. So it’s deeply surprising to me. What about you?

Tony Kynaston: Yeah, surprising, surprising to all the Republicans, I would’ve thought. Who, uh, Um, yeah, but I, well first of all, I didn’t access the New York Times ’cause it’s a paywall and I’m not gonna sign up to the New York Times. with the Wall Street Journal,

Cameron: What do they have to say?

Tony Kynaston: probably the

Cameron: Right?

Tony Kynaston: Reprinted, uh, anyway.

Cameron: uh, as I, I’m gonna do a pulled pork this week on an interesting company, meo. They’re a, uh, methanol, well, they’re the 800 pound gorilla in the methanol space, which is interesting ’cause I know or new before this. Nothing about methanol. But before I do that, I just want to. Give a portfolio, uh, performance update.

Our US portfolio is up about 7.6% in the last 30 days versus the s and p 500, which is up [00:03:00] 1.65%. Uh, since inception, which is, uh, September, 2023, our US portfolio is up 70. 4% versus the s and p 500, up 46%. Year to date though we are still struggling. We’re down 7.2% year to date calendar, year to date versus 10.43 for the s and p because of some of Mr.

Trump’s policies that tanked our portfolio at the beginning of the year, but over a one year timeframe. We are up 31% versus 20% for the s and p 500. So despite having a rough start to the year, uh, we’re still looking pretty. Um, I, I’ll also just, uh, mention the companies that I’ve done pulled Porks on over the last, uh, 20 episodes on this show.

Um. Zap in order of best stories, [00:04:00] zap the smart Chinese smartwatch company that I covered on the 11th of July is now up 1511% since then. It’s just not slowing down. It is down 4% today. Um, but it’s just not slowing down. Gray media is up 40%. Titan machinery is up 11% since we talked about it. Precision Drilling is up 18%.

Orx Corporation up 27 IHS holding up 37. Ford is up eight since we talked about it. Chemex is up, uh, 68%. Dan aos is up 16 Canadian. Imperial Bank of Commerce is up 23%. Jackson Financial, up 16%. Costco’s up five. Sasol is up 43% since I talked about it in July.

I said they were a dirty, dirty, dirty business they were in and they’re up 43%. Bausch Health Companies is up [00:05:00] 16%. Seneca Foods is up nine. Kimball Electronics is up seven Sno that I talked about last week though is down 2% since last week. So there you go. Then there’s also Zim, uh, which is down 26% since we talked about it back in March and, and now Chile is down 10%, but the rest of them doing quite well.

Well, with that out of the way, let me, let me talk to you a tale of Meow, Tony. Meow, MEOH. There’s the ticket code for Methanex. I’m calling it Meow though. We’re talking about the world’s biggest methanol producer. That’s who these guys are. Headquarters in Vancouver. Plants all over the map. Louisiana, Canada, Chile, New Zealand, Trinidad, and [00:06:00] Egypt.

But I’m gonna preface this as I did last week by saying that the underlying commodity for Metanx, which is methanol, is a Josephine. So for new listeners, we chart underlying commodities on a three point trend line, looking at month end prices over a five year graph, and when a. Price has been in decline.

We classify it as a Josephine. It could also be a cell, but this isn’t a cell. It’s not below its cell line. It’s above the cell line below the byline, so it’s a Josephine, so we wouldn’t, what that means is, regardless of the numbers, I’m gonna talk you through with Methanex today. We wouldn’t buy it. We’re not, we, we don’t have any room in our portfolio anyway, but if, if, if we did, we wouldn’t buy it until the underlying commodity gets back into a buy territory.

Because we’ve learned from experience that prices tend to follow the underlying commodity price, which makes sense.

Tony Kynaston: [00:07:00] methanol used for? Cam,

Cameron: Tony, I’m glad you asked. Thank you for asking. Tony

Tony Kynaston: you are

Cameron: Methanol’s used for pretty much everything. It’s the Lego of the chemical world. It’s used in millions and millions of different things, including making crystal meth as we all learned from breaking bad. Um, it’s precursor to methyl a methyl lamine.

Methyl lamine, I think is what they had to hijack trucks, uh, or trains in the desert, uh, in wherever they were. New, New Mexico, new something. Anyway, it methanol is the simplest alcohol, CH three. Ohh. It’s a clear liquid. It burns cleanly, mixes with almost anything mostly made from natural gas methane. Then you catalyze it into.

Methanol. It’s used in plastics, paints, adhesives, resins. It’s blended into fuels, biodiesel, [00:08:00] gasoline, and the big future for it is something called e methanol, which is formed from CO2 and green hydrogen, and it’s a low carbon marine fuel. All those tankers moving. Well, you know, but based on President Trump’s tariffs, we won’t have to worry about shipping stuff around countries anymore ’cause it’ll all be made in America by, not by immigrants though, by good, good Americans, we’ll be working factories for $1 a day and happy.

That they have a job that hasn’t been taken by a robot or AI yet. But basically this is the, it’s the Lego brick of the chemical world. Cheap, versatile, snaps into more complex stuff, and.

Tony Kynaston: bare feet.

Cameron: And Well, I was gonna say, light Legos. Don’t eat it because it’s highly, highly toxic and can kill you. So [00:09:00] don’t get it in your eyes.

Don’t breathe it in, don’t get anywhere near it in its raw state, and that’s one of the problems as we’ll see. But methane X-M-E-O-H is the world’s largest methanol producer, as I said. They not only produce it, they run their own fleet of tankers, which is good bit of vertical integration, probably also why they want to have their, uh, own shipping product, fuel product, marine product, and it.

It also means they can shift supply to whichever region is paying best, uh, at a fairly low cost. And these guys run a really efficient, low cost operations. One of the reasons why they’re on our buy list, they go back to a company called Ocelot Industries, which was like a oil and gas company. 1968 in Calgary, pivoted to methanol in the 1980s, became Methanex.

And they’ve survived despite the government policies [00:10:00] around the world regarding methanol being pretty volatile, as is methanol over the last, uh, 50 years, which I’ll talk about. But first of all, I wanna talk a little bit about the methanol market. It’s global, it’s priced in USD. The big markets are China, Europe, south America, Korea.

22% of the market is in China. They use it for fuel blending and plastics feed stock. Dunno if you know this Tony, but a lot of plastic stuff gets made in China. They use a lot of methanol. Um. Europe and the US use it for chemical intermediates and some energy. South American Korea use it for a whole bunch of different things.

The basic price drivers for the methanol market are natural gas costs, oil and NAPFA spreads the competition for fuel and regulat. Both in terms of what you can put in your [00:11:00] fuel and also rules around what can be used and when it can be used in like marine rules and those sorts of things. Bottom line is the prices swing hard.

There’s a lot of inputs, a lot of variables, and it’s a fairly choppy market. That you have to have deep pockets to be able to navigate successfully year in and year out, which these guys seem to have done a good job doing over decades. They have massive scale, so they have massive price influence. Their posted price often sets the market for North America and Asia.

They’re market makers effectively. They also have a low cost gas advantage. They have this site called GeMar in Louisiana. They just recently opened G three GEMA three. Third plant there, but it is world class, cheap supply, a lot of, lot of methane in Louisiana. [00:12:00] Tony, I guess, uh, a lot of swamps. Lot of, uh, yeah, a lot of, lot of swamp.

Uh, I’m thinking Tony, what’s his name? Uh, to who is, who’s the swamp blues guy? We on little Louisiana where the alligators grow so green. There was a girl who I swear to the world, made the alligators look tame. Poke salad. Annie a gator. Got your granny no

Tony Kynaston: the

Cameron: Annie.

Tony Kynaston: who sang it. Yeah, yeah,

Cameron: Well, Elvis covered it. Poke salad.

Annie originally sung by and written by Tony, Joe White. Yeah, I think he passed away. Recent, uh, not that long ago. Yeah. Oh, 2018 nicknamed The Swap Fox. Best known for his hits poke salad, Annie, 1969 and Rainy Night in Georgia, which he wrote, but which was first made popular by [00:13:00] Brooke Benton in 1970. There you go.

Tony Kynaston: Okay.

Cameron: also wrote songs for Tina Turner, Elvis Presley, Tom Jones. There you go. Uh, I love me a bit of Tony, Joe White, the swamp Fox. Go check him out on Spotify after this, if you haven’t heard, like, just had that sort of what you’d expect, somebody called the swamp Fox’s voice would be wait on in Louisiana, where the alligators.

Anyway, back to back to methanol. Um. So, uh, don’t have time. Got a kung fu class I gotta get to. So, um, although I, I hurt my back last week. Um, my hip spin out, I went to my physio on Saturday. She said my hip’s out, my should’s out, my right ankle was out. So that’s, uh, that’s kung fu for you. But she put my hip back in.

But I, I, I. I left it too late and I tweaked it like, you know, [00:14:00] and it sort of, it would’ve been compensating on the side that was Yeah. It’s, anyway, yeah. Hurts any who? Um. As I said, they, they have a diversified footprint, so if Egypt runs short of gas, they can move their production around to other plants.

They’ve got a very large, very sophisticated operation. They’ve got this new capacity, as I said, just came online in mid 2024, GeMar three. They also have done a bunch of acquisitions in Texas, something called the High Fuels Platform. Basically they’ve got scale and they’re positioning their manufacturing as well as their output to a low carbon future.

There’s this whole idea of low carbon, um, methanol, which is as far as I can tell, isn’t, is. Very realistic today. I think I saw something like 0.2% of methanol production is low [00:15:00] carbon at the moment, but there is some promise that it’ll be low carbon in the future. but some of the risks.

Tony Kynaston: is of, um, carbon, uh, emission. So. This is a big, a big, uh, carbon offender, I guess if it’s methanol.

Cameron: Well, if you are capturing it and processing it, it burns cleanly, I think is the deal here. So we always hear about. Cow farts and methane being a big contributor to climate change. But if you can capture the methane and synthesize, catalyze it. Synthesize it into methanol, it burns cleanly, I believe, but.

Tony Kynaston: Really? Okay.

Cameron: Yeah, that’s what, uh, my notes here say clear liquid burns cleanly. I’m not gonna, I’m not gonna stand trial on that if it goes to court, but that’s what my [00:16:00] research said. But the risks with these guys are some and many, uh, varied. Methanol prices fall as they have been falling and they get stuck in the commodity cycle risk.

Uh, there’s supply is a little bit shaky in places like Trinidad and Egypt. Um, policy swings. So methanol and fuels have been banned and restricted before because of toxicity. If you. Get anywhere near methane, it becomes incredibly poisonous as it turns out. I, I did an earlier version of my notes did have.

Some numbers on this, but it’s been removed in various, uh, different iterations, but it’s like a small amount will make you go blind. A slight, like I think [00:17:00] 30 mils will, is potentially fatal. 10 mils I think will make you go blind. And I remember talking about this on my, one of my podcasts, I think it was my War on drug series on the bullshit filter years ago, talking about prohibition.

So one of the things that the US government in its wisdom did during prohibition, you know, there was still industrial alcohol available in the US for industrial processes and bootleggers were grabbing that and turning it into. You know, drinkable alcohol and selling it. So they started mixing it with methanol, became methylated spirits, didn’t affect the industrial uses, but if you drank it, it would kill you.

And bootleggers grabbed it and sold it anyway. And. Thousands of people died from drinking this, uh, methylated alcohol, [00:18:00] which the government did. The government didn’t sell it to them and force ’em to drink it, but they were mixing it in and didn’t warn people effectively that if you drink this stuff, you will die.

And people drank it and died. Thousands of people. So anyway, it is very toxic as opposed to ethanol, which. Nice green hippie stuff. Everyone loves ethanol. Methanol, not so good. So that gets caught in this whole ethanol, methanol war. Ethanol has a very positive public perception. Methanol has a very scary public perception.

So there were some trials in the US in the 1990s, in the two thousands. For something called MTBE, methanol based gasoline basically, or gasoline additive, and they got banned because of groundwater contamination. That was a big issue. China also [00:19:00] trialed, uh, some methanol based fuel additives, but then pulled back partly because of safety concerns, partly because state oil giants got upset and, uh, lobbied the Chinese government to stop doing it ’cause it was affecting their revenues.

This in the 2000 and tens and then China pivoted EVs and so that market sort of collapsed. But I. There’s still a big market for methanol, but it, it, you know, it can get caught up in some of the, the politics of it being toxic. Um, I’ve got some notes on the chemistry here. Me, ethanol has two carbons is what makes it different, and is drinkable.

Methanol has one carbon and is toxic, so there you go. Ethanol comes from crops, methanol comes from gas or coal, or CO2. Ethanol is widely blended into petrol E 10, E 85, et cetera. Methanol blends exist [00:20:00] but are niche due to toxicity and compatibility industry use, though ethanol is narrower. Methanol is the global industrial building block.

For all of those things I mentioned before, paints, plastics. Basically industrial chemistry where safety is less of a concern. ’cause you’re not drinking your paint unless it’s a big night. Well, it’s a big night then. Okay. Eventually you end up on the paint. But you know, my dad used to tell me that the alcoholics in my hometown would just buy methylated spirits and pour it through a loaf of white bread.

Not sure that actually

Tony Kynaston: was, it was terrible out in Alice Springs, um, where the service stations would have metho and white bread in the fridge

Cameron: Right.

Tony Kynaston: to sell to people. I’d

Cameron: Keep the,

Tony Kynaston: that

Cameron: the, the meth. The meth was in the fridge. The meth, methylated spirits was in the fridge too, so it was cold. Wow. [00:21:00] Wow.

Tony Kynaston: It

Cameron: Yeah.

Tony Kynaston: they didn’t do

Cameron: Convenient.

Tony Kynaston: with, out slices.

Cameron: Wow.

Tony Kynaston: Hmm.

Cameron: So the, the, the basic bottom line is ethanol is politically popular biofuel, methanol is industrial poison plus future shipping fuel, but still a huge market for it. But there could be a bigger market for it because of the shipping stuff. I think that’s the big upside for these guys if they can get this right.

Today’s marine fuel is very dirty. There are a lot of demands for. A replacement for marine fuel. Obviously a, a large chunk of the carbon emissions that the world generates comes from shipping and transport in general in terms of international transport, planes, boats, and the boats part of it is big. And [00:22:00] as, um, ah, who’s that guy who’s written the books on Energy I read a couple of years ago.

I can’t remember his name. A guy that

Tony Kynaston: telling me about him?

Cameron: Bill Gates put me onto him, not personally, but talks about him a lot. No, but he, uh, but this guy’s book was saying, you know, all of this stuff about green energy is great, but you’re not gonna run ships and planes on batteries in the near future. It’s just, or electrical.

You’re not gonna have electrical planes, you’re not gonna have electrical ships in any foreseeable timeline. Too heavy. Yeah. And just not enough power to, you know, last the sort of duration that you need. You can’t recharge them midair, well, I guess maybe you could in the middle of the ocean anyway. Um, an alternative is needed that is less destructive and low carbon, methanol, biom, methanol, or e [00:23:00] methanol.

Biom methanol from biomass m, methanol from CO2 and and green hydrogen, as I said before. Is one possible solution. It’s liquid at room temperature. Easy to store. It’s easy to retrofit, sorry, retrofit engines, and it’s a cleaner burn, so there are already some people adopting it. Mabb have 25 plus ships that are using it.

Costco, C-M-A-C-G-M, Hyundai Shipyards Ports Worldwide. A building. Bunkering systems for this. So it’s, uh, it’s happening. If it happens in an even bigger way, a lot of upside for, uh, methodex. Some issues though, I mean, supply gap is gonna be one. Mask alone need five to 6 million tons a year by 2030. It’s a little bit higher cost.

The whole green hydrogen plus the methane capture side of it is expensive. They’re gonna need lots of huge new [00:24:00] plants that’ll need to be built. So it’s not without its issues, but Methane X’S Angler, they’re the world’s biggest producer. They own waterfront shipping with methanol powered tankers. They can integrate these high hydrogen fuels, high fuels from their OCI acquisition recently.

So it could be a multi-decade demand kicker for these guys if they get it right and it all comes to fruition. But that’s forecasting and we don’t like to base anything on forecasting.

Tony Kynaston: sorts of things could happen if, if methane does become a fuel, you know, why wouldn’t Shell and bp and. All Ords get into it as well.

Cameron: Sure. They’ve also got some big problems that I’ll talk about, uh, including a securities fraud cloud that they’re in the middle of at the moment. Um, actually I’ll talk about that first. So in February, March of this year, their new plant, GeMar three, had an [00:25:00] outage and they didn’t really disclose it until March 9th and the stock dropped 13% in a day.

Now there are a handful of law firms that are. Investigating why there was this delayed disclosure on behalf of shareholders. No lawsuits or regular regulator action yet, but it could be big and it could be messy if it turns out that they knew something that they didn’t disclose. The plant restarted in May, 2025 operations and.

Back to normal, but there’s this possible litigation, overhang, governance, credibility is at stake. Potential settlement costs could be in the hundreds of millions of dollars. We don’t really know, but there you go. So they’ve got some problems on that side of things as well. That might be why it’s at a bit of a discount, apart from also the methanol price being in the doldrums at the moment.

Tony Kynaston: [00:26:00] because of governance?

Cameron: Oh, well we would, if they were an Australian company, wouldn’t we? Yeah, we would red flag them. Yeah. Good point. Okay. I’m red flagging them.

Tony Kynaston: just run through the issue again. So they had a plant closure, which they didn’t disclose. Is there any reason for that?

Cameron: Yeah, look, it said that needed maintenance, but they didn’t give advance warning about the fact that this plant that had just come online, um, nine months earlier was gonna be shut down for a couple of months. The reasons behind, it’s not clear. Um, so there’s, there are lawyers looking into it, trying to figure out what’s really went on and why.

Obviously they didn’t give the market advanced notice. I think the share price was pumping because this new plant had just come online, which is, you know, Maxim, you know, increasing their capacity, et cetera, et [00:27:00] cetera. Then all of a sudden it shut down for a few months. So yeah, we should probably flag them for governance, although we don’t know the reason.

Uh, we never know the reasons behind it. Do we? Well, anyway, let me talk about the, yeah, I mean, they did put out something, um. Let me pull up my notes here on the notes not listed in my notes. Yeah, there was, there was something in an earlier version of my notes about what their story was, but it, it was sufficiently vague that, um, oh, here we go.

Due to issues with its automal reformer. I mean, I’ve, I’ve. Not about you, but I’ve had lots of issues with my automal reformer, Tony. The automal reformer. You, you never really, you, you never really be sure of those.

Tony Kynaston: When was

Cameron: Yeah.

Tony Kynaston: was the date?

Cameron: [00:28:00] late February, they experienced an unplanned outage

Tony Kynaston: Okay.

Cameron: stem from issues with the plant’s.

Automal reformer. Yeah.

Tony Kynaston: so they will have reduced, they will have released new numbers since then. So the market can digest that. So it’s probably okay not to red flag it.

Cameron: Okay, no red flag. Then talking about the numbers though, um, I mean the big one of course for us as always is price to operating cash flow, which is 2.76 times. Dividend yield is 1.9%. Petrovsky F score is a seven out of nine. Book value growth is 7.5% cagr, and the price to book is 1.14 times so cheap on a lot of our metrics.

The price is above our IV hurdles though, but I’ll run through the, I’ll run through the numbers. [00:29:00] Um. Average daily trade, 2120 2 million. So pretty big quality rank on. Stock Edia is a 68. We give it a score. If it’s over 60, the stock rank is below 90 though, so we don’t score it on that. Stock rank is 77. F Score, though, as I said, is a seven.

We score it if it’s over 4.5, so financial health score is quite good. Prices above our IV one and our IV two. Um, it is however below book plus 30. It’s above book, just slightly as I said, but um, very close to book. It’s below Book plus 30. Doesn’t have a new three point upturn, but the book value growth is positive.

Uh, what else have I got it scored on? That’s about it. The forecast IV is not greater than twice the share [00:30:00] price. The yield is, uh, not greater than the bank debt. PE is not less than the yield. All in all, I scored at eight outta 1260 7% for our quality score on a QAV score of 0.24, which is a pretty good score for us.

Fundamentals are good. Market caps around about 3 billion US share price just for the record. Closed at about $38 61. The. But, um, yeah, the major problem I would have with it right now is the methanol price is still pretty low. It’s just above its cell line, actually. So we would wanna see the methanol price get back into a positive territory before we added it to a portfolio.

I’ll put it in my, um, tracker though, just to keep an eye on it, just for shits and giggles.

Tony Kynaston: [00:31:00] on the Australian show that the, um, oil prices down and OPEC are thinking of increasing supply. So if that’s a big feed into this methanol conversion, which is sounds like it is, their input price. To what they produce will go down, which mean their margin should go up.

Cameron: Yeah, I, I, I dunno though. I think that. As a fuel methanol and oil might be competitors.

Tony Kynaston: I thought you said before they were taking oil and then converting it into methanol. What’s their base crude stock?

Cameron: Well, it’s methane. Which is a gas, I mean, they need oil to run their plants and everything. I’m sure. it’s a component of operations, but I’m not sure.

Tony Kynaston: was an So where does methane come from? Is it from natural gas? Are they fracking? Natural gas? [00:32:00] Uh.

Cameron: Well, yeah, I mean, I’m not exactly sure if they’re fracking it, but they’re getting natural gas out of somewhere from all of these plants, all of these operations.

Tony Kynaston: tend to in lockstep with the oil price, or at least has some kind of relationship to the oil price.

Cameron: Yeah, I think. Oil is a component of their supply chain, but I think it’s also a competitor in terms of, um, end fuel products to an extent. So, uh, if the oil price comes down that may make methane based fuels more attractive, um, might also be a competitor In terms of some of the chemical ingredients that are used for producing plastics and paints, I’m not sure.

That’s outta my depth, Tony,

 but um, yeah. Anyway, there you go. That’s meow. [00:33:00] Methanol producer, of course, crystal meth too, I’m sure is a big market. So not sure where the crystal meth market Donald Trump cracks down on Mexican and Venezuelan drug imports into the United States. Maybe there’s a big market for domestic crystal meth production.

Uh, maybe that’s, maybe he’s putting tariffs on crystal meth coming in over the border.

Tony Kynaston: ‘ cause it’s a Canadian based company, there’d be, there’d be tariffs on their production into the US if they were doing it in Canada,

Cameron: Yeah.

Tony Kynaston: them.

Cameron: Yeah, but the Louisiana plants are all in the us. I’m not exactly sure. I mean, how it breaks down, I’m sure they’ve got some complicated mathematic algorithms to work out their tariffs. But yeah, anywho, that is methodex. Keep an eye on it and, uh, see what you think. Folks do your own research. Not a recommendation, but uh, an interesting business that is, [00:34:00] seems to be fairly priced at the moment.

Tony Kynaston: And as we say, very different to businesses in Australia. We wouldn’t have talked about a methane producer at all.

Cameron: And I gotta tell you, I did a new, a new us buy list yesterday to prepare for this. And it was enormous. Like there were. Hundreds of things to look at. Most of them were shipping and financials companies. Still, if I, I’m just opening up my buy list, my US buy list, and I’ll tell you, I.

Tony Kynaston: are doing it tough ’cause of the tariffs, I would’ve thought.

Cameron: Yeah, but well, shipping companies have been on our US buy list since, well before the Trump administration. I mean, I know there was some tariffs left over from the first time around. Um, and there was a whole bunch of. COVID related issues and global [00:35:00] supply chains and wars and all sorts of stuff. But, um, yeah, shipping companies and financial services companies galore on the US buy list for some reason.

But I look for different things to talk about.

Tony Kynaston: the reporting season in the US so maybe the new figures are triggering extra stocks on the buy list. I’m not sure.

Cameron: the new numbers may have an effect, but here we, like, lemme tell you this, like, hold on, lemme look at this. There were, 205. Companies, and that’s just the ones with a score greater than 0.1, which is an arbitrary cutoff that we come up with. Um, it’s really, there’s just value everywhere popping up. Gray media is still the top of the buy list, by the way. QAV score of 1.12, even though the price is up 40% since I talked about it a month ago, it’s still at the top of the buy list with a quality score of 85%.[00:36:00]

So there you go. No. Anyway. Thank you, Tony. Gotta go to kung fu. See how my back goes?

Yeah.

Tony Kynaston: better at

Cameron: tk.

Tony Kynaston: right.

Cameron: Right. Okay. Cheers.

Tony Kynaston: Cheers. Have a good week.

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 of the day:

“Hope of gain Lessens pain.” “Poor Richard’s Almanack”, Benjamin Franklin

[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

In this episode, Cameron and Tony dive deep into the US market’s latest moves following Jerome Powell’s comments at Jackson Hole, the surprising resilience of investor sentiment, and a look at how the QAV US portfolio continues to beat the S&P 500. They track the extraordinary rise of ZEPP (up 1,200% since Cameron’s July deep dive) and review other stocks they’ve covered, from Titan Machinery to Sasol. Cameron then takes us through a fascinating pulled pork on Kimball Electronics (KE), tracing its history from pianos and pipe organs to becoming a global contract electronics manufacturer. Along the way, Tony and Cameron unpack value investing lessons, the quirks of US versus Australian markets, and finish with a colourful chat about The Who, Leonard Cohen, Rip Torn, and China’s unique economic model.

Cameron: [00:00:00] Welcome to QAV America. Tony, how you doing?

Tony Kynaston: I’m doing well. I’ve just had a week off and it has been lovely and, played golf up in Yarra Wonga on the Murray,

Cameron: let’s talk about US market. Um, j Powell. Jerome h Powell said The balance of risks across the economy had started to shift raising the odds. The central bank lowers borrowing costs at its next meeting in September. After, uh, he was at Jay Hole.

Jay Powell was at Jay Hole. Um, you would think that when the Chairman of the Fed says The economy’s not going well, the market would react negatively to that. On the contrary market, thought that was the best news. Say Dad. Oh, week awake.

Tony Kynaston: Uh, it’s, we’re through the looking glass, aren’t we? Cam? I mean, that’s just, yeah. Own. Powell came out and said that he thought there could be a decline in employment, which would, uh, [00:01:00] cause a slowdown in the economy and the market. She, and went up one and a half percent the day

Cameron: Yeah.

Tony Kynaston: Mm-hmm.

Cameron: times. Good times. Well, speaking of good times, uh, we just talked about our US portfolio, so for new listeners, hi, welcome. Yes. We’re two Australians talking about value investing in the United States. We’ve been doing a podcast, uh, about value investing in Australia for five or six years, and, uh, we’ve got a US portfolio that I started back in September, 2023 following our QAV methodology that Tony’s been developing over 30 odd years.

Quality at value is what that stands for in case you’re wondering. And that portfolio since inception is up about 74% versus the s and p 500, up about 45% over that period of time. In the last 30 days, our portfolio is up [00:02:00] 8.6% versus the s and p 500, up about 0.8%. So in the last week, some of the stocks that have done particularly well for us are RM regional Management up 8.5% gas ga a s, stealth gas up seven point a 5%.

Enva, ENVA and Nova International up about 6.2% overall, our best stock, uh, has and continues to be. Willis Lease Finance, WLFC. It’s up 223% since we bought it, although it hasn’t had a good year. It’s down from about 300%. At some point it was. But generally speaking, our portfolio is doing well in the us Tony, and, um, as I did, uh, last time we did an episode, I’ve got, I’ve been keeping a list of the stocks that I’ve been doing deep dives on this [00:03:00] show.

1218% since then.

Tony Kynaston: Wow. They should send you a cheap watch.

Cameron: Price was $2 98 when I talked about it. It’s currently $39 29. I like somebody, somebody on TikTok, when I posted a story about that last week, said, yeah, but it’s not gonna last. It’ll come back down

Tony Kynaston: Nice.

Cameron: it probably will, but yeah, up [00:04:00] 1218%, that’s insanity. And um, I think last time we spoke, I said I didn’t know why.

I do know why they have, they hadn’t come out with new results since then, but they have come out with celebrity endorsements for their products. So, um, they, I mean, celebrities that mean nothing to me because I’m an Australian, but, uh, they have come out with news about, uh, various celebrities that are doing, uh, you know, something, something, something promoting their products, which is apparently as good.

So, um, yeah, that’s good for them. Uh, dunno if that’s everything that’s got to do with their price rise of 1200%, you’d think that there’d be more than a couple of celebrity endorsements to do that. But no new [00:05:00] financials have come out that I can see, so unless it was just me talking nicely about them. Um, I don’t know.

So, uh, what else? Let’s see. Um, the last one I did Titan Machinery. I did that a couple of weeks ago. They’re up 8% gray media that I talked about. 7th of August. They’re up 37%. GTN Sasol, the dirty, dirty company, oil company that I talked about are up 40% since we talked about ’em in the middle of July.

Tony Kynaston: Interestingly

Cameron: say something.

Tony Kynaston: GTN. Yeah, I, I meant to mention this on the Australian show that, uh, I forgot to, I’ve noticed on, on our buy list, we’ve had, um, legacy media companies like Seven News and Seven Western News that’s called, Southern Cross Entertainment. So their TV networks in Australia, and uh, they’ve been on [00:06:00] our buy list on and off for a long time.

They’ve all kicked up and since reporting. Results in the last week or so in Australia. Some, I, I, I think Southern Cross was up like 30% on the day of its results announcement. So, um, I’m wondering whether that’s, uh, a theme that’s going on in the market at the moment that Legacy Media, which has been much unlocked. Because, uh, streamers are, are taking over. you know, when they, I’ve seen this before. When an industry goes through a phase where it’s unloved, it becomes a value stock. And if the underlying business still has good assets, um, eventually they become so cheap that they get bought, um,

Cameron: Mm

Tony Kynaston: could be the case with GTM.

Cameron: mm mm Well, yeah, a lot of, uh, I don’t know, but a lot of our stocks have been doing well that we’ve covered on this. Couple haven’t, Zim integrated shipping that I did back in March is down 21% since I talked about it. N now Chile that I covered in May is down [00:07:00] 13%, but the rest are very much. In the, uh, black.

So

Tony Kynaston: a good point

Cameron: yeah,

Tony Kynaston: um, you know, as we know from our experience in Australia, we don’t get every call Right. Or every stock that we analyze goes up. It’s, it’s the fact that we get, you know, probably six out of 10 right? And they do well and they, um, us to cover the four out of 10 that, that don’t do as well.

Cameron: and we have rules in place for when to sell things. So the things that don’t go well, we get rid of them. When the time is right and replace ’em. Yeah. So the company that I’m gonna talk about today, Tony, is Kimble Electronics. KE is the ticket code. I do wanna point out though, that uh, I’m using an analysis that I did on August 8th when the price was $19.

Since then, they came out with new financials on August 14th, and the price is now $28. [00:08:00] So, um. This would’ve been a much more impressive pulled pork if I’d done ’em a couple of weeks ago. I haven’t run the new numbers,

um, but they probably look good because the share price went up.

50%. I, I did run the new price.

I put the new price into our checklist and it didn’t change the scoring a great deal. But, um, I think price to book is the only one that it did score for, and now it doesn’t score for, because the new price is above the book price, but it still came out well, assuming the rest of the numbers are just as strong.

I do because of how the share price reacted to their, uh, results. Anyway, as I often say when I do these, um, obviously do your own research. This isn’t a recommendation. It did turn up on our buy list a few weeks ago. I think it’s an interesting story, but the more interesting I. Thing that for me when I’m doing [00:09:00] these, is the kinds of businesses that are available to invest in, in the United States that I’ve never heard of.

They’re not the kind of businesses that we see in Australia on our buy list. It’s a different market, much bigger market, much broader scope for investments, but it’s just to point out that there are lots of, when you’re turning over rocks. Us. There are lots of gems under these rocks. Is that what you find under a rock, or do you find

Tony Kynaston: Inside the

Cameron: Yeah, inside the rock. Okay. Picking up the rock. Cracking it open. Yeah. Okay.

Tony Kynaston: Well, it’s, and the US market has different characteristics to the Australian market too, which is the other interesting thing. Far

Cameron: Yes,

Tony Kynaston: companies in the US than there are, in Australia, which is dominated by banks and miners, um, and market.

Yeah.

Cameron: just a little bit on their new financials. Um, Kimball Electronics Q4 sales Beat Estimates Q4 net sales were up 2% [00:10:00] sequentially, beating analyst expectations adjusted EPS for Q4 beat estimates. Uh, the company repurchased 162,000 shares you mentioned on the last show that you’re looking for to add buybacks into our checklist if we can figure out how to get those into our system.

Um, but my numbers, as I said, are out of date, so do your own research. So who are they? Well. Interesting company with an interesting story and background. Essentially, this company, Kimball Electronics, is a contract electronics manufacturer. They don’t sell flashy consumer stuff. Uh, they build and assemble the electronic guts inside of other companies products.

So think of. Circuit boards and control modules in car safety systems or medical devices or industrial machines. If you are a manufacturer of one of those things and you’re looking for somebody to make some of the core electronic innards, you go to [00:11:00] Kimball. They’ve been doing it for a long time. They build it for you, and they’ve got a very long track record and very good reputation for quality control and delivery and all that kind of stuff.

They’re very, um, they, they have a great reputation for being ultra reliable, for building durable electronic components, is their thing. With a great culture as well. They’re very big on their human culture. So everything from printed circuit board assemblies to finished, uh, electronic devices for clients, even non-electronic parts in some cases like precision plastic components.

But if an automaker needs a brake control unit, built a spec or a medical firm needs a potential patient monitor, assembled Kimball is one of the go-to behind the scenes manufacturers of all of that kind of stuff. The roots of it though. Go back to pianos. The roots of Kimball [00:12:00] Electronics goes back to 1961, but the parent company, WW Kimble and Company was for much of the late 19th and 20th centuries, the world’s largest manufacturer of pianos and organs.

The company started as a piano dealership in Chicago in 1857 as WW Kimble and Company started by a guy called William Wallace Kimble. He died in 1904, but, um, was a, just a kind of a legendary guy actually. I read that. He in his company at the time, he got rid of punch cards, which were the thing at the time, and just built the culture around trust.

I trust that you’re at work when you say you’re at work and I’ll pay you. So he really built a strong culture [00:13:00] that was built around trusting his employees and they built on that later on. Actually, one of the other guys built on that who ran the company. Um, the pipe organ division that he built was also large.

They, they built permanent pipe organs, including one for the Mormon Tabernacle Choir, which was installed in 1901. And I have a family connection to that because one of Chrissy’s sisters, Tanya sings in the Mormon Tabernacle Choir, so she might be singing along to one of dub dub Kimble’s creations. I’m not sure if it’s the original that’s there, but probably I, I, I don’t think pipe organs, if they’re well maintained.

Get replaced that often. Um, used to, used to know a guy had a listener of my podcast years ago whose father was the maintenance guy for the pipe organ at the Sydney Opera House.

He’s like the only guy in Australia, I think, or maybe one of [00:14:00] two people in Australia who still knew how to maintain in tune.

Pipe organs. Uh, good gig. Yeah. Now they need to see you like once, once a year, but you probably charge a lot when you go in. Um, so back, uh, in the 20th century, Kimball International. Which became built an electronics division to build electronic organs. Uh, the Hammond B three and stuff like that, you’d get in churches, which ended up as part of blues music.

I dunno if they actually built the bit for the Hammond B three, but,

Tony Kynaston: okay.

Cameron: but they built electronic organs. They said they went from pianos to pipe organs, from pipe organs to electronics organs. And then they went broke, and then they were bought by a company called the Jasper Corporation, which was founded in 1950 in Jasper, Indiana, where it’s still hit, still headquartered by [00:15:00] Mr.

Arnold Hub Big. They started off making television cabinets and other cabinets and furniture. He, he has a great story. He spent 20 years with Jasper Wood products company. Started as janitor, became plant manager, then became the mem, a member of the board of directors, and then launched the Jasper Corporation.

And, uh, his own business came out of Jasper. But, you know, built his way up from nothing. This guy,

real American, you know, bootstrapping sort of story. And, uh, obviously a good time to be building television cabinets ’cause television sets were booming in the, the fifties. Then he started sort of doing this vertical integration thing and bought WW Kimble and Company as a subsidiary in 1959.

It, it had gone broke. It was nearly insolvent. For some reason, I guess the electronic [00:16:00] church organ business wasn’t really kicking it. But by 1969, they were again, the world’s largest piano manufacturer. And in 74, Jasper Corporation changed its name to Kimball International 1976. They floated on the NASDAQ and as the head of Kimball so big operated a profit sharing system for company employees and a scholarship program to fund nearly $2 million of his employees children’s college educations.

Good time.

Tony Kynaston: Yeah,

Cameron: Good guys in this story. Yeah. So there you go. Um, we got some other story,

Tony Kynaston: he restarted the piano manufacturing business when it went broke originally.

Cameron: I think. Yeah. He must have, he, he, I don’t know. Yeah. Figured out how to fix it.

Tony Kynaston: Yeah.

Cameron: I think they’d made some Mabb, some bad investments, different places, as has Kimball [00:17:00] along the way. Um, uh, since then, you know, things don’t always work and you sell bits off and keep the core business. Apple was nearly broke when Steve Jobs came back in 1997 or eight, whenever it was.

Did okay. Turned that around. Um, what else? Oh, in as part of the 1984 Summer Olympics opening ceremony in Los Angeles, 84 Kimball pianos were played. There you go. Fast forward to 2014, the Kimball Electronics business was spun off as an independent public company, separated from the furniture business to focus purely on electronics manufacturing, but it’s still headquartered in Jasper, Indiana.

So, um, they’ve had a few speed bumps along the way. 2016, they acquired a small firm called Meditative Technologies for about about $8 million trying to get deeper into medical devices. [00:18:00] Um, then they bought global equipment systems in Silicon Valley for $50 million A few years later, it’s specialized in automation and test equipment for semiconductor manufacturing.

Didn’t go quite as well, turned out to be a bit of an odd fit. They, uh, in 2024, they decided to sell off the entire GES division, which was referred to at that stage as the automation test and me, uh, measurement business to a, to another company, label them to focus on their bread and butter, which is contract electronics for auto, medical, and industrial clients.

And, uh. The business has done well since then. Just getting rid of that bad division and refocusing. So now they operate globally with manufacturing facilities in the us, Mexico, Poland, Romania, China, and Thailand. About 48% of its revenues comes from the automotive sector, 25% from medical devices and 27% from [00:19:00] industrial applications.

So about half of the business comes from cars, uh, making stuff for cars, steering and braking control units, and the rest is split between the other sectors. You know that, that means they, they’re diversified. So if there’s a slow down in auto production, they’ve got some buffers in the medical side of things.

And, you know, as you can imagine, medical devices with an aging population, and particularly with ai, uh, helping us do figure out new things and figure out new ways to do things should be a pretty healthy business. I think in the next 10 years we’re gonna be using AI to figure out how to make people live.

Longer and healthier lives. Hopefully. I note that OpenAI have announced today that they’ve just launched a new, um, uh, scientific genetics biology division with another company where they’re trying to follow in deep Google deepminds footsteps. Google DeepMind won the Nobel Prize for [00:20:00] biology this year.

Um, for, yeah. The work that they did with, um, protein folding, they, they figured out how to, I think up until that point in time, humans had figured out something like the structures of 10,000 proteins. They did about a million in like a month or something after they build a neural network to figure out protein folding.

Um, which is a huge thing for, for medicine biology. Uh, they generate about $1.7 billion in annual sales in FY 24. Uh, they’ve got about 24 million shares out there. Market cap. Market cap is in the few hundred million dollars range. Um, what else can I tell you here? Um, what’s working and why it’s cheap. So one thing that works is it generates a lot of cash relative to its [00:21:00] size.

Last year pulled in about $154 million in operating cash flow and has had positive operating cash flow for six quarters in a row. They, they’ve done a lot of good stuff in terms of their capital management. They slashed inventory by $23 million in one quarter, which was a 25% reduction, freed up a ton of cash.

And, uh, you know, they’re just one of these businesses that’s been well run for a long time, been around for a long time and knows what it’s doing. It’s just generating a ton of cash and the prop calf is really low, but I’ll get to that bit later. In terms of a moat, uh, it’s got a pretty good competitive edge.

It seems like this isn’t. The kind of business where you’re getting the cheapest possible componentry for the low end of the market out of China. I mean, they do manufacture in China, but they’re obviously, you know, doing the quality control, that kind of thing. [00:22:00] Stuff’s going into braking systems and steering systems and medical devices.

You want it done by a company that has a good reputation for quality control. And these guys are tier one, uh, suppliers for both the. Auto industry in the, the medical industry, and they have been for over 25 years. They’ve got a golden track record. Um, very, very good relationships with the big manufacturers in medical and automotive.

Very, very rigorous, uh, quality standards. They’re known for delivering on time and on budget. Same with medical devices. So there are pretty high switching costs for those. Industries, so that’s kind of a pretty good moat. And they have a global footprint. So they build in Mexico for US customers, Poland and Romania for European clients.

Um, sort of a, not a just in time, but a sort of a build it closer to home [00:23:00] kind of model. Quicker, faster shipping. Doesn’t have to go on a ship from one side of the world to the other. I guess when, uh, manufacturing ramps up or slows down, it’s better on, um, inventory levels. Um. It’s not the biggest EMS player electronics manufacturing service player out there, but it, its motors really built around being highly dependable and highly reliable and having deep, long relationships.

But despite that, uh, the market has been discounting it. Possibly because growth has been fairly tepid recently. Uh, revenue is actually declining slightly this year or was expected to management, uh, projecting a two to 9% drop in sales for the upcoming year. Profitability also took a hit in FY 24. Their net income plunged EPS fell from about $2 22 to about 81 cents.

A lot of that was due to one-time charges, like a Goodwill write down and an asset [00:24:00] impairment related to the business they sold. But on the surface of it, you know, it, it doesn’t look great for some investors. They also don’t pay a dividend, so some investors aren’t really interested in it. They hadn’t done big share buybacks until the one that they announced recently, so.

Being sort of a smaller mid cap stock for 500 million, um, in a low margin industry, it’s kind of not really a target for big institutional investors. There’s also some fear, I think, about customer concentration risk. In FY 24, 2 customers both in automated automotive made up nearly 30% of their sales. So if they lose one of those, could be a big blow to their business.

But that said, um, so far they’re doing well. In terms of near term catalysts, there’s a couple of things [00:25:00] that could go well for them. The CEO recently noted that they had a record number of wins for future business in the pipeline. Dunno the details on that, but seems to suggest they’ve got a lot of new contracts or programs that haven’t hit the revenue line that could be kicking in over the next couple of years.

Sales could get a They’re intensifying their focus on medical devices positioning itself as a medical CMO contract manufacturing organization, usually higher margins in medical than in automotive. And it’s a bit of a stickier business. I understand. So more growth there could improve their overall profitability.

And then the sale of the GS division that I mentioned before, they use that to pay down debt and buy back the shares. So they’ve been using that money, uh, wisely to attract investors, I think, and also just to shore up their, their business situation. Lowering debt means lower interest [00:26:00] expenses, helps earnings share buybacks means future earnings are split among fewer shares, boost the EPS, et cetera, et cetera.

So they’re trying to boost shareholder value. They’ve got a new CEOI think he started last year in the, I read in the last, um, financial report. So I gather he came in to, you know, make some cuts, make some changes, you know, clean it up a little bit, getting cutting costs and doing a bit of a Tim Cook on the inventory situation.

Um, so let’s look at some of the numbers. The price to operating cash flow is three. So for new listeners, that means that the stock is trading about three times. Its recent operating cash flow. The, the way that we always talk about it is if you, if you bought a, a business, like a coffee shop is our go-to analogy that had a price to operate in cash flow of three years.

It may, [00:27:00] it would mean that it would. Feasibly pay you back in three years, which is a fairly short timeframe, um, for a business to pay you back. So that’s, that’s pretty cheap. It’s one of the most important indicators that we look at in terms of valuation. Um, dividend is zero, as I said, the Petrovsky F score, financial health score from that Wikipedia use is a seven out of nine, so that’s pretty good.

Generally, a seven indicates a company with strong financial health for a value stock. Suggests that despite a low stock price, its financial fundamentals checkout positively on most fronts. Uh, positive earnings, positive cash flow, no increase in debt. Uh, other improvements over recent years reduces the risk of there being a value trap.

Uh, [00:28:00] book Value per share is, was when I did my numbers about 22 do dollars 98. The share price was about $19. As I said, the share price is now $28, so it’s above the pb. Uh, but I haven’t rerun the PB numbers with the new financials, so I’m not exactly sure how that would stare up. So I, I don’t wanna talk too much about that one, but at the time I did the it was positive.

So, uh, why it’s on the checklist, you know, it’s a classic value play from my perspective. Solid financials, solid cash flow trading at a bargain basement valuation, had some short term issues. It seems to have done some restructuring in the last year or two. Uh, that’s put it in a better situation, but it’s not a sexy business.

It’s not doing ai, it’s not doing, I don’t know, smart watches like Zep. It’s not, uh, it’s not a company you’re probably gonna [00:29:00] read about in Forbes Magazine or the Wall Street Journal any day now. Quite little business behind the scenes contract manufacturer to other businesses. A lot of upsides. Um, as I said before, you know the, the medical business, if they can build that, uh, segment up, it could be good for them.

If automotive production picks up after tariff and supply chain issues get sorted out, if they ever get sorted out, that could be good for them. I also looked a little bit at what their tariff exposure is. It, it, you know, it’s, who knows? It’s lick your finger and hold it up to the wind. You know, the CEO says, you know, they’re factoring it in and they’re working on it, but he, like, every American CEO is like, who knows what the hell’s gonna happen tomorrow?

So, will there be another pause? Will there not be a pause? Will they go up? Will they go down? Nobody knows. So all we can do is just play it day by [00:30:00] day. There are red flags, of course, cyclical risk as I mentioned. Um, if the economy slows orders for cars and other equipment can slow, their business line can dry up.

They’ve already seen a bit of a sales dip over the last year or two. If, um, J Pals recession or job slow down or whatever it is, he is predicting picks in and the economy stumbles even further in the us, uh, that could have an impact on him. If they have pretty thin margins in the car sector, as I so not a lot of room for error if they get something wrong there.

Customer concentration, as I mentioned too, could be a problem. But again, these are all predictions and we, we can’t predict what’s gonna happen in the future. I just look at it where it is today. The punchline is they’re sort of an ugly duckling stock. I think fundamentally decent business well run. Um, market doesn’t seem to like it for whatever reason.

It’s kind of being ignored. [00:31:00] But, uh, the, the, they’re making money and they seem to be well entrenched in the businesses that they’re in, and they have some room for growth in the medical services thing. Um. Doesn’t necessarily mean the, the, the company is gonna double in size. But, um, you know, from an investing perspective, I think they’re undervalued and there could be all sorts of opportunities around that.

In terms of how they scored on our checklist, um, they have a good average daily trade. As I mentioned, um, recent financials were good. Uh, even the ones that I haven’t checked look good. The price to operating cash flow is low. Uh, quality rank is a 79 in stock. Edia, we score anything equal or above 60.

Stock rank is a 99. We score equal or above 90. Petrosky score was a seven. We score equal or above four or five. Uh, they [00:32:00] failed both our intrinsic value, number one and intrinsic value Number two, when I did an intrinsic value, number one was $5 78. Intrinsic value number two was $9 and three for new listeners.

Um, we don’t live or die on our intrinsic value calculations. They’re. Two metrics across a whole heat map that we look at, but it did fail on both of those. It also failed on the future, IV being, uh, greater than twice the price. Um. It failed. Well, it, when I first did it past book, uh, price less than book value, it would fail it today, but it would still, assuming the book value hasn’t changed dramatically, it would still pass price being less than, uh, wise, uh, book value plus 30%.

’cause book value plus 30% is $29 87, so it’s slightly below that. It’s a positive book value growth over three [00:33:00] years. Um, does not get a score for growth over pe. Um, does have a new uptrend, does have a positive three point trend, but the. Dividend yield is not high in the bank rank ’cause they don’t have a dividend yield.

So when I scored it, it got a 10 outta 14 or a 71% score for our quality score. When I reran it with the new price, it was, uh, about the same and, had a QAV score of, 0.24. So pretty, pretty strong.

Tony Kynaston: Yep.

Cameron: Yeah. But great little, great little business. Something a little bit different yet again, Tony.

Tony Kynaston: And I was looking at, uh, looking at its numbers in Wikipedia while you were talking then, you know, the question I always ask myself if is it’s a good business, why is it not being bought? from the fact the share price has gone up since the results came out, [00:34:00] and I, I think it comes down to. F I think the forecast EPS growth was negative, uh, at least at the last results. Um, I know it’s now forecasting to grow the future, but, um, the market’s so focused on growth, it can lose sight of the fact that it’s still a very good quality company, um, with lots of cash coming in. And, uh, that’s a good thing.

Cameron: Yeah, I mean, like, yeah, I guess there are, there are different ways of looking at companies like this from ans perspective. I mean. Okay. What’s gonna make the share price go up in the future? Yes. More growth, more money that’s gonna be doled out as dividends or used as buybacks. Um, you are looking for, um, a business that’s doing well and that’s gonna be reflected in some way, shape, or form in terms of the interest that the market has in it, but.

Also [00:35:00] just ugly duckling stocks that there’s a lot of value in it, and the market’s just not reflecting that accurately today, right?

Tony Kynaston: Yeah, correct.

Cameron: Because they become targets for acquisitions or they have cash, they can go and buy things, and they take advantage of opportunities out there that you know, that there’s lots of different ways that it can become a good.

Uh, good for an investor if it’s a well run business with a lot of cash flow opportunities.

Tony Kynaston: that’s the key. I mean, you know, if this business didn’t have the cash flow, you could say, okay, well we need to mark it down, um, on growth. And then how’s it gonna get growth? Well, probably needs to raise capital from shareholders, which is another good thing. You get dilution. But a company that has some growth, speed bumps at the moment, and

I’m, I’m saying gross speed bumps.

If you look forward, the two year projection in the stock edia is to get large earnings per share growth, just not in the next half. So, [00:36:00] You know, you’re better off having a company throwing off lots of cash and then using that cash wisely to get back into growth, either through acquisitions or retooling factories or whatever.

I can imagine this, this particular industry is quite capital intensive. if you’re building clean rooms to build, um. the integrated circuits, et cetera, it’s gonna be capital intensive, but they’ve got the cash to fund that. So in a good position from an investment point of view. You’ve got, um, you’re not paying much for the growth that’s coming, um, but there’s lots of cash to, to interest you along the way.

Cameron: Yeah, honey, if you look at their numbers going back over the last five years. Their, um, operating cashflow per share has gone from negative 25 cents, um, to cents dollars. What’s that gonna be? Negative operating cashflow per share dollars, yeah. Negative 25 cents. I guess that’s just in dollars to, um, [00:37:00] $6 18 today.

It’s gone up and down over the last five years, but the, the TTM is $6 18. Um, you look at their free cash flow. Per share, negative $1.25 in 2020 up to $4 85 today. Their, um, total revenue one point. One 8 billion in 2020 to TTM as 1.5. It was as high as 1.8 in 20 24, 1 0.7 in 2025. But it’s, so it’s gone down a little bit, but it’s still good growth over that.

It’s like a CAGR of 7.72 over five years, which is nothing to snort at. Not double digit, but it’s pretty good. So, yeah, uh, you know, if I had a business like that, I’d be pretty happy.

Tony Kynaston: I agree.

Cameron: Growing at seven 8% a year on average. So that’s timber electronics. So I’ll add it to my little spreadsheet here and we’ll track it and see how it does.

But um, [00:38:00] you know, I just like to see these different kind of companies learn a little bit about what’s out there.

Tony Kynaston: Yeah. We wouldn’t have a nice, an integrated circuit board manufacturer in Australia. So it’s a new, whole new industry for us that we’re seeing in the us.

Cameron: Uh, and as we said in the Australian show though, interestingly I mentioned that our US portfolio is up about 22% in the last 12 months. Our Australian portfolio is up 30% in the last 12 months. So despite all of the wackadoodle numbers like Zep being up 1200%, and lots of crazy stuff happening in the US market, the Australian market’s doing fine without these sorts of companies

Tony Kynaston: Yeah,

Cameron: for some reason.

Yeah. As I said in the last show, somebody asked me at my kung fu class today, wh which is the better market to invest in the US or Australia? And I was like, eh, doesn’t matter. As long as you have a system that you’re following, I think it’s pretty much the same. Right.

That’s QAV America.[00:39:00]

Yeah.

Tony Kynaston: sure.

Cameron: Thank you Tony. Any, any other, any last comments before we go?

Tony Kynaston: Known a little interesting company though. Thanks for outlining it.

Cameron: If anyone is listening to this and you’ve got questions about QAV or you’d like me to take a look at a company that you think is a good value investment, uh, shoot me an email. Uh, cameron at QAV america.com or cr at QAV america.com is probably easier and, um, I’ll have a look at it. We can talk about it on the show or answer your questions on the next episode.

after hours then, Tony,

Tell us what you’ve been doing.

Tony Kynaston: Oh. Went away. Had a vacation up at, uh, Yarra. Wonga on the Murray. I was gonna save it for after hours, but that’s fine. It was a lovely, lovely week away with, uh, ruddy and my brother-in-law, Wal playing golf. We stayed in the most, just a fantastic Airbnb in y Wonga, a couple of streets from the main dre, a couple of streets from the [00:40:00] lake. uh, it was just, it was a really nice house and, and super cheap. Stayed in this kind of, uh, Victorian, well, wouldn’t call it a mansion, I suppose, but it was very, um, flash and spacious and we had a great time. good fun.

Cameron: That’s nice. I’m glad it was super cheap because I wouldn’t want you to be, uh, financially burdened with your, uh, golfing vacation.

Tony Kynaston: No, well, wouldn’t have worried me, but, um, I wasn’t the only one staying there.

We had a horse run on Sunday Lake Forest, which missed the start, so it didn’t do too well. Um,

Cameron: What’s that mean? What does miss the start mean?

Tony Kynaston: uh,

Cameron: turned up late. Got stuck in traffic. No one.

Tony Kynaston: played up in the barrier. and then when all the horses jumped, it didn’t, that was a,

Cameron: Oh,

Tony Kynaston: came

Cameron: really?

Tony Kynaston: from the

Cameron: You’ve got one job. Horse.

Tony Kynaston: Well, jockey.

Cameron: it the, is it the jockey’s fault? Like, who gets the blame for that?

Tony Kynaston: Uh, it can be the jockey’s fault, but I think in this case, if it played up in the barriers, it was just bad timing. The start is supposed, is supposed to keep an eye on the horses and, and not [00:41:00] start the race until all the horses have settled and to go. But if, um, if

Cameron: Right?

Tony Kynaston: in the barrier then the barrier doors open, we, um, we missed it

Cameron: The horse is just like, not, not feeling it today. Don’t wanna, don’t wanna be here. Don’t wanna be in this thing. Why have you got me locked into this little booth?

Tony Kynaston: could

Cameron: out.

Tony Kynaston: could be

Cameron: Let.

Tony Kynaston: of reasons. Could be, know, got a bit of an niggling injury. Could be that it’s just overexcited doesn’t want the jockey on board, who knows, gets excited like it’s ready for competition and starts to rear and buck and all sorts of things. You know, I’ve, we ask them and they never tell us. That’s a

Cameron: Give AI a few more years.

Tony Kynaston: line.

Cameron: Oh really? Okay.

Tony Kynaston: Why did the horse run so slow? You know, well, I asked it and never told me.

Cameron: Nice.

Tony Kynaston: Uh, been listening to your catch up with David Markham, which was really nice on the bullshit

Cameron: [00:42:00] It was nice

Tony Kynaston: Hmm.

Cameron: and I’m hoping you’ll come on this week. Uh, he said he’ll come back and Ray and I are supposed to do a bullshit filter this week, so I’m hoping David will be able to come back on and we can do more politics stuff, but it was really lovely to catch up and have a chat with him. Haven’t spoken to him for a couple of years.

Tony Kynaston: but I, um, I haven’t listened to the whole thing yet ’cause it’s about, goes for about an hour and a half. But, um, I had a chuckle to myself I think probably in the first 10 minutes you said about two words. And, and David nonstop. So it was a very different cadence to interviews with David, which took me back to the onic times.

Cameron: That, that was where my podcasting started. Just ask David a question and then sit back and relax for an hour or two.

Tony Kynaston: Yeah. But I

Cameron: Yeah,

Tony Kynaston: It’s great to hear, uh, hear the catch up.

Cameron: I like, he’s doing well. He is, as he said, he turns 80 in December. And speaking of people who turn 80 or are 80, oh man, the who a touring at the moment. What’s left of them? Pete and Roger. [00:43:00] I, I read an interview with him in the New York Times yesterday, which was talking about, you know, this is the 15th time they’ve done it.

This is our last tour. Tour and whether or not they’re gonna work again and all this kinda stuff. Then I saw on YouTube, people have filmed the entire concert. So I went and had a look at one. It was in Newark, just like from, I don’t know, a few days ago. Sensational, like Roger Daltry is 81 and he hits every note.

You know, I expected him to do what McCartney does, which is pull down a register occasionally when you’ve got a really high note. No, no. He goes up, he, he pushes it further than he did when he was 35. His voice is amazing, and Pete on guitar is just as amazing as he ever was. He’s not, as, you know, his windmill arm isn’t wind bill as us and Roger twirling the mic.

He starts at the beginning and kind of flubs it, but, and then he has a chuckle to the audience. But in terms of performance, unbelievable for men in [00:44:00] their eighties. Unbelievable. They are the new rock gods. I mean, the Stones are probably hitting that as well. And you know, as far as I know, they’re still kicking it.

But Mick love Mick, but Mick’s not adultery. Like Mick doesn’t, you know, I’m a midnight ram. He does a bit of a Bob Dylan, and you can’t always get what, it’s not like singing Who are You or Pinball Wizard or, you know, any of those tracks. Like Dory really had to sing. And he can still do it. It’s his sta he reminds me of Russell May from Sparks, who’s, I think he’s 76 or 77, and he still hits really high notes.

Everything, like his vocal performance is insanely good. His brother Ron is 80, like they’re up there as well. Those guys still doing two hour co show shows every night. Russell’s bouncing all over the stage, hitting every note. That’s, ah, [00:45:00] man, like this generation of rockers that has been going for 50, 60 years in the who’s case.

60, 64. 64, I think, uh, their first album came out.

Tony Kynaston: I went to the WHO turns 50 concept when I was living in Toronto. That would’ve been probably 10 years ago. yeah.

Cameron: So Ed Whistle would’ve been gone by then?

Tony Kynaston: Oh,

Cameron: Yeah, I think he,

Tony Kynaston: in the nineties.

Cameron: Really? Oh, okay. Right.

Tony Kynaston: He was about 50 years of age when he went. Uh, did you notice if, uh, Zach Starkey was still playing on drums? Because I know he was sacked, but I thought there

Cameron: No.

Tony Kynaston: talk he was gonna be reinstated.

Cameron: They sacked him. They reinstated him, and then they sacked him again. That was part of the New York Times article. They’re like, what’s going on? And actually Pete had a good line. He goes, he was never, he was never my favorite drummer. In fact, none of our drummers have been my favorite drummers. I didn’t even like Moon.

I didn’t like Moon as a drummer. I’m like, who doesn’t? Nick couldn’t like Moon.

Tony Kynaston: really? Go. Uh, if you get a chance, go and watch the [00:46:00] Is of White concert. Um, it’ll be on YouTube. It’s probably only about half an hour when the, who are playing. But, um, something happens, I think it’s might be whistles, amp blows and so there’s just Moon and Pete left and they start goes on for like, I don’t know how long, five, 10 minutes, where Pete will play something on guitar and Moon echo out in the drums, and then Moon will play something on the drums and Pete echo out the guitar and they just had this amazing rapport going back and forwards.

Cameron: Oh, fantastic.

Tony Kynaston: it’s incredible. Yeah.

Cameron: I had a, a friend over, uh, one of Fox’s school friend dad’s, who’s a heavy model rock guy. And we, I, I, I have his kid comes over from school. Chrissy brings him home on a Thursday afternoon. I look after the boys. He get, he finishes work late and comes and picks his kid up. And by the time he’s gone on, I’ve always got something on YouTube usually, and it was like the Aussie tribute concert, or I’m watching something and he and I sit there and, or it’s a Go betweens [00:47:00] documentary or something like that.

We’re always talking about music and I had, um. Who concerted on from like the seventies. And we got talking about it and I said, have you, have you seen the video, the official video for Who are you? I think it’s Who are you? He goes, no. I goes, oh, my gotta see this. Keith, like just Keith in the official video, he’s got his headphones gaffer taped to his head as he often did, but just the faces that he’s pulling, like the camera’s really up close and he’s doing his drum solo or whatever he is doing.

And you know, a after the, you know, in, uh, who guess who are you? When it sort of breaks down, the song breaks down and the synth comes in. And then he and Keith comes back in

Tony Kynaston: Boom.

Cameron: and it starts building up and yeah. And then he’s just like, he’s, he’s like, he’s just going nuts, pulling monkey faces and, oh, so entertaining.

So entertaining.

Tony Kynaston: Yeah.

Cameron: love moonie.

Tony Kynaston: That was when the kids were all [00:48:00] right, wasn’t it? And he’s there rolling his

Cameron: Yeah. Yeah,

Tony Kynaston: Yeah.

Cameron: he does that in this too, when they’re all singing around a mic, doing the,

Tony Kynaston: that’s from

Cameron: yeah.

Tony Kynaston: the kids are All right.

Cameron: Oh, okay.

Tony Kynaston: Yeah. Great, great documentary. I,

Cameron: Uh, after we spoke a couple of weeks ago, I watched The Man Who Fell to Earth on SBS

Tony Kynaston: good.

Cameron: and I’m now reading the book that it was based on. I didn’t know this, but the guy who wrote that book also wrote the book that the Queen’s Gambit was based on the Netflix series that blew up a few years ago.

He also wrote the book that, what’s the, uh, the Hustler was based on

Tony Kynaston: Oh,

Cameron: the Paul Newman film and the sequel, the Color of Money. He wrote those books as well, so he was quite a prolific. Science fiction slash apparently he was a major drug addict and gambler gambling addict. And so he wrote books about what he knew and the, the [00:49:00] manfield work is quite good.

Um, but yeah, the film really held up well and I’d forgotten Rip Torn was in it.

Tony Kynaston: Hmm.

Cameron: And I love Rip Torn. He’s like, he was like one of my all time favorite American actors and, uh, seeing here a young rip torn in a, well, kind of middle aged rip torn I guess. But before all of the stuff that he did in the latter part of his career.

Gar Larry Shandler, Larry Sandler, the Gary Sling Show, and you know, Larry Sanders show Gary Ling and, um, men in Black and 30 Rock. And he had a great late part of his career. But I remember I saw him not long ago. He was in, um, Steve McQueen film where he’s. The, the poker play, the, the Cincinnati kid

Tony Kynaston: All

Cameron: Rip Torn is sort of the number one guy that he needs to play in that, uh, he’s like some Texan with his drawl and whatever.

Yeah, great actor. Anyway, so thanks for telling me that was on SBS. That was great. I really enjoyed it.

Tony Kynaston: Yeah.

Cameron: And then I saw a, I saw a Leonard Cohen documentary on SBS after that [00:50:00] too, which was fantastic. It’s all about Hallelujah, the song, hallelujah.

Tony Kynaston: Mm-hmm.

Cameron: And how the album that he wrote that for, you know, he famously wrote like 180 verses for that song over 10 years, and the final version had five or six verses and, um, then he did it, he’d do it live and he’d do different verses.

But the album that, that was on the label. Um, can’t remember which label it was. Columbia Records, I think, um, refused to put the album out. They said it was, the album was terrible. They hated it. There weren’t any good songs on it, and they refused to put it out e even though they paid for it to be recorded.

So it ended up coming out on some little two bit label and didn’t sell. No one bought it, and that was it. It just, LL Leonard thought he was done, thought his career was over, and he was in his sixties at this point. And [00:51:00] then they talk about how that song, um, um. Somebody did a tribute album to Leonard Cohen and John Kale picked that song and did a version of it.

And then one of the women who was the producers of the Shrek film loved the John Kale version and wanted to put that in the film. They actually had it rerecorded by some younger dude, but the John Cal version ended up in the film anyway. And then, um, Buckley,

Tony Kynaston: Mm-hmm.

Cameron: his name was, Jeff Buckley.

Tony Kynaston: Yep.

Cameron: He, before he was anyone, he was playing in this little club in New York and somebody said, um, he was looking for songs to play and it was kinda like, you know, just throw songs out.

And somebody said he didn’t know the Leonard Con conversion. Somebody gave him the, it’s on kale version. [00:52:00] He did his own version of that. Everyone loved it. It was on the album. He died before it came out. Then it became a huge hit and then everyone on every American talent show like America’s Got Talent, whatever.

There was always somebody doing the Jeff Buckley version of Hallelujah. And it blew at one point, three versions of it were in the top 20 in the US There was some America’s Got Talent star who had done it, the Jeff Buckley version. They were number one and two, and then Leonard’s version was like number 20 or number 18 or something.

Tony Kynaston: Lan covered it too. I

Cameron: I saw her.

Tony Kynaston: Yeah.

Cameron: Oh, I saw her do it in a tribute concert to him after he died too, which was great. It actually, the film finishes with her doing it live, which was a stunning performance. Um, yeah, so they’re just talking about how this song, the label hated it, wouldn’t even put the album out. And then it just got this massive life and, and then they [00:53:00] talk about Leonard’s career.

I mean, the whole thing’s about Leonard’s whole career and how the last chapter of his life was just amazing, you know? He was so beloved and, um, yeah, it’s amazing. Really great, really great documentary.

Tony Kynaston: I’ll look it up. Thanks.

Cameron: Mm, goes on SBS. Yeah. Yeah. So thanks for, thanks for putting me on sb s. Lot of good stuff. Yeah. And I’ve been reading a good book.

Uh, I’ve been reading, uh, Jiang Hui Hui. He’s a Chinese scholar at Udan University, um, on China. He’s got a couple of books on China’s economic and political model is the first one from 2012 I’m reading, is called the China Wave, uh, where his sort of breakdown on the China model, similar to the one that I read by the Canadian Scholar, Daniel A.

Bell a few years ago. But it’s him sort of breaking down. And this guy’s like, he’s an advisor to Xi Jinping and he was a, I think he was an interpreter for Dong Xiaoping when he was younger. So he’s [00:54:00] been in the upper circles of the CCP for most of his life. But he has a great way of just explaining why China does it, the way that China does it, and why it works, in his opinion, why it has worked so well, why it continues to work, you know, and why the West doesn’t understand China’s model.

It’s like, listen, we’ve been doing things our own way for 3000 years. You guys come along and think you know how to do things. We, we, you know, we’ve been doing this for a long time. We’ve just integrated the best of all the things that China’s been doing for 3000 years. And, you know, we’re back on top baby and we know how to make this this work.

So just sit back and watch. So, um,

Tony Kynaston: I saw a

Cameron: yeah, it’s,

Tony Kynaston: Um, it

Cameron: hmm.

Tony Kynaston: in the review of a book, uh, about, about China and comparing it to the US by a, a China, a Chinese person who had spent a lot of time in China, but then was studying in the US and spent time there too. Uh, but the quote was great. It said that the difference between China and [00:55:00] America is at the heart of the Chinese economy are engineers and at the heart of the US economy are lawyers. I thought that was a

Cameron: Interesting.

Tony Kynaston: Mm-hmm.

Cameron: Yeah. But he just talks about, you know, the, the political model, the social model, and the business model and the economic model and, and how they work in China and how, as we’ve talked about before, you know, you’re allowed to be a billionaire, but you’re not allowed, as a billionaire, you’re not allowed to have any control over the political system.

Um, we’ll let you be a billionaire, but don’t think you’re gonna have any say in what happens politically. And as soon as you get too big for your boots, you get taken to a little room and reeducated about

Tony Kynaston: It sounds

Cameron: how things work.

Tony Kynaston: the moment.

Cameron: Yeah, it does actually. Yeah, very much so.

Tony Kynaston: Thanks. Alright, you too. Bye.

[00:56:00]

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.

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 [00:57:00] returns is historical. Past performance should not be relied upon as an indicator of future performance; unit prices and the value of your investment may fall as well as rise. The results are general advice only and not personal product advice.

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“And then you might see what the life of the good man is like—someone content with what nature assigns him, and satisfied with being just and kind himself.” “Meditations.” Marcus Aurelius

[00:00:00]

Cameron: Welcome to QAV America. Welcome back to QAV America, Tony, episode 18. Uh, we are recording this on the 12th of August, 2025. Well, Tony, it’s, it’s been a big week in America. Markets are kind of booming, kind of crazy, just, uh, the regular going on over there.

Any US news stories that, uh, pique your interest this week?

Tony Kynaston: Uh, a lot of us news stories picked my interest this week, not the least of which was the gold price movements on Friday afternoon, US time when, uh, Switzerland, which has had lots of tariffs put on it. Um. Somehow I, I’m not sure of the full detail of this, but somehow gold bars being transferred from Switzerland to the US attracted a tariff and that threw the gold market into a tier.

And the government came out and said they didn’t mean that to happen. And so it’s all up in the air at the moment. But yeah, the gold price [00:01:00] vacillated quite a bit on Friday, and since then, um, settled down little bit. Um. But, uh, yeah, just a lot of on the fly decision making going on. So it’s, it’s dynamic, entrepreneurial it’s, it’s, uh, causing a few splashes here and there as well.

Cameron: Yes. Lots of craziness. Well, I am gonna do a deep dive on another company that I think you’re gonna like today. This is, uh, Titan Machinery Inc. TITN is the ticker. And we’ll get into that in a little bit. Before we get into that, for new listeners welcome. I wanna explain what you’re listening to. Uh, yes. We are two Australian value investors.

We’ve been doing a podcast, uh, on value investing for five or six years. Tony’s been a value investor for. 25, 30 years, and he built a system that we call QAV Quality add value buying shares in quality companies when you can get them at the right [00:02:00] discount to their intrinsic valuation. And we’ve developed a methodology, or Tony’s developed a methodology for doing that.

It’s a spreadsheet checklist that we run companies through. We teach how to do that on this podcast. We’ve got. Big membership in Australia that we teach, uh, the system to every week. And a few months ago, we decided to start looking at the US market and applying QAV to that. And it’s been going quite well.

In fact, we’ve got a US portfolio that I started using our system in September of 23. No, September. Yeah, September 23. Uh, over that period of time, coming up two years, it’s up 63, nearly 64% since then versus the s and p 500, which we use as a benchmark, which is up about [00:03:00] 43% over the same period of time. So it’s outperforming the s and p, and that’s kind of what we look at as our benchmark.

Uh, and in the last, um, week. It is had some interesting results. GTN uh, TV stock that I talked about on our show last week. I did a deep dive on GTN and I actually had added it to our portfolio because I had to sell something and replace it. It’s up 23% today, Tony, today.

Tony Kynaston: Okay. I can’t explain that. I was gonna mention that, um, their quarterly results were out, uh, and that revenue was down 7%, but it was above analyst expectations they had paid, I think it was 170 million to buy another network. Um, but those announcements were last week, so I’m not sure why that’s fuelling today’s stock [00:04:00] price rise.

Cameron: I don’t know either, but it’s only up about 8% net since I added to the portfolio. ’cause it dropped a little bit after I added it. But I guess it’s probably, um, our episode coming out, which is probably responsible for, you know, we, I. Did talk about it on Reddit. I posted it to the value investing subreddit, and I’m sure everyone on that, uh, took my words of wisdom and, and jumped into the market.

So I’ll say that’s the QAV factor unless people prove me wrong.

Tony Kynaston: Well done.

Cameron: Yeah, it’s the, the burden of proof is on people to prove me wrong. Uh, one of the stocks that I did a pulled pork on about a month ago, Chinese smartwatch manufacturer, Zep, ZE double P, is now up 964% since I talked about it a month ago. Again, I’m putting that down to the QAV factor. Um, that’s [00:05:00] pretty crazy stuff.

Tony. 964% in a month

Tony Kynaston: out there want us to

Cameron: I.

Tony Kynaston: pulled pork or want you to do a pulled pork on their company, they know where to contact you.

Cameron: That’s right. I did a, I did the, uh, deep dive the Paul Pork on the 11th of July. Uh, it was at trading at $2 98. It’s now trading at $31 80. And there haven’t really been any announcements, uh, come out since then. So I do. I think it’s, uh, maybe an acquisition target. It might be what’s going on. But, um, anyway, that’s been a, and unfortunately I didn’t add it to our portfolio at the time because we were full.

We didn’t have any room in the portfolio. We were fully invested. Damn shame that, uh, looking, looking through some of the other stocks that I’ve done deep dives on over the last, uh, few months. [00:06:00] Uh, Cemex CX is up 53% since we talked about it at the end of March. Uh, IHS holdings is up 25% since we talked about it at the end of May.

Orix Corporation is up 20% since we talked about it in the middle of June. Yeah, most things have been doing really well. Poco is up 13%. Precision Drilling Corporation is up 14%. Jackson Financial, which I just added to our portfolio by the way, that’s up 10%. So I did wanna mention that I have done some trading in our portfolio since, uh, our last episode.

I had to sell OPHC Optimum Bank Holdings on the 8th of August, the top. The stock tanked roughly 10 to 11% in a single day, became a three point trend line sell, but it, we sold it at a 2320 3% profit over the 18 months that we held it from November, 2023. So [00:07:00] that’s okay. Basically, they came out with results.

Earnings quality were decent, but there was dilution per share decline in the EPS despite strong profit growth. So I think they’ve been issuing stock or converting preferred shares or something is going on to dilute the EPS. And also they reported loan book shrinkage. In a, an environment when interest rates are still high, so not really sure what’s going on there.

Bottom line is I had to let them go and replace them with Jackson Financial, which was my pulled pork on episode nine. They’re the seventh largest US life insurance company for memory based outta Michigan, I think Jackson, Michigan, something like that. Where they got their start. Anyway, so the US market is booming, our portfolio is booming, but nothing like zep a th You ever seen a thousand percent increase in a QAV stock [00:08:00] in 30 days?

Tony? A 10 bagger?

Tony Kynaston: And I wonder whether there was

Cameron: No.

Tony Kynaston: kind of stock split. on that may have accounted for it, but I couldn’t see it in the announcements.

Cameron: Yeah, me either.

Tony Kynaston: Yeah. And the other one that, um, you haven’t mentioned that you did a pulled pork on was forward. And I, I’ll just, uh, bring you back down to worth a bit, even though the share price hasn’t, uh. Gone too bad. I don’t know what the numbers are like since he did the pool port, but their quarter, to profit was pretty much wiped out by the US tariffs that have come in. Um, and they a lot of importing of aluminum in particular, which is retracting high tariffs. I.

Cameron: Yeah, I covered them on episode six. On the 21st of May, they were trading at $10 80. At the time, they were trading at $11, 14 as of last close. So they’re up 3% since then. So, you know, not shooting the lights out, but they haven’t gone the wrong way either. The only one that’s really gone backwards since I talked about it was, uh, who I mentioned last [00:09:00] week, INEL Chile, ENIC.

They’re down 18% since I covered them in episode five on the 14th of May, but everything else is done reasonably well,

Tony Kynaston: Again, I wonder if that’s

Cameron: so.

Tony Kynaston: driven too, if they’re exporting from Chile into the US perhaps.

Cameron: Yeah. Dunno. So what else? Donald Trump signed an order extending China tariffs. Uh, truce, the tariff truce by 90 days. Today, the new order prevents us tariffs on Chinese goods from shooting up to 145%. While Chinese tariffs on US goods were set to hit 125% rates that would’ve resulted in a virtual trade embargo between the two countries.

It locks in place, at least for now, a 30% tariff on Chinese imports with Chinese duties on US imports at 10%. So another 90 day delay by President Tar Trump.

Tony Kynaston: Clemency. [00:10:00] He’s a compassionate man.

Cameron: Uh, other news I saw this morning, July’s consumer inflation report is due on Tuesday and investors anticipate that the Fed will lower borrowing costs by about 60 basis points by December. According to data compiled by LSEG, the inflation data is starting to embody the more direct tariff impacts on the consumer raising concern that inflation will remain sticky.

S Eric Teal, chief investment officer at Comerica Wealth Management.. So, um, I’m sure if the inflation report is bad, Trump will make sure that whoever prepared it gets fired and, uh, replaced with somebody who gets the right numbers. That’s the way it seems to work these days. I,

Tony Kynaston: Well, I’m, I’m laughing as well ’cause um, as you know, uh, economists have been turning themselves in not trying to predict what the Reserve Bank is gonna do on interest rates in Australia. And, uh, they were blindsided last month and we’re waiting to see what happens this month. So. a bit of a fool’s game trying to predict moves in the Fed, I [00:11:00] think just like it is in Australia.

Cameron: Uh, just on that, for our Australian listeners, the Reserve Bank has delivered its third interest rate cut of 2025 with a 0.0 0.25 percentage point reduction at its August board meeting, so you successfully, incorrectly, deliberately predicted it.

Tony Kynaston: Yeah.

Cameron: Yeah, you predicted a cut last month and they didn’t, so this time you predicted No cut.

Just so they would do it to spite you.

Tony Kynaston: it’s,

Cameron: Outta spite.

Tony Kynaston: hard to find a friend who gets things a hundred percent right. But it’s still equally as valuable to find someone who gets things a hundred percent wrong. They, they’re usually easier to find.

Cameron: There you go. Yeah. Yeah. Why are you looking at me when you say that?

Tony Kynaston: I have

Cameron: Um.

Tony Kynaston: on the screen.

Cameron: Yeah. Yeah. Um, so unless you have other news, I’m gonna get into my Paul Pork, my deep dive for today, right.

Tony Kynaston: I.

Cameron: As I said, um, you know, the last couple of [00:12:00] weeks I’ve been deliberately sort of scrolling through the buy list, looking for sorts of companies that we haven’t talked about before, and particularly anything that I think is Berkshire worthy, that Warren Buffett would like.

And this is another one I think. We’ll see what you think by the end of it. Titan Mac Machinery, as I said, TITN, they’re listed on the Nasdaq there, there are Josephine at the moment, just, uh, for new listeners, Josephine is what we call a stock that is a buy, but the share prices in a, in a decline from where it was at the end of last month.

And usually we would treat that as a whole wait and see in case we can buy it cheaper next week. But it’s worth keeping an eye on because it is a buy and its numbers are good. To give you, um, just a sense of how much of a Josephine it is last month’s close. So the end of July was $19 32. It’s currently trading at a, I closed at $18 98 last night, so it’s down 34 cents, which [00:13:00] is in a great amount at 1920 bucks.

But yeah, could be, could bounce back very quickly and become a buyer again. So, uh, this company is one of the largest dealers of agricultural and construction equipment in the us. They have a hundred dealerships throughout the world, including 16 locations in Australia. Tony, they claim to be the largest dealer for CNH industrial brands who are an Italian American corporation with global headquarters in the United Kingdom.

And I mentioned Titan is listed on the Nasdaq. Now. Last week on the show we were talking about, um, no, the week before that s. ENEA, Seneca Foods that are listed on the Nasdaq. And he said, why the Nasdaq? I thought they were tech companies. And I looked into that this week. So as we talked about in our Australian show, there looks like there’s gonna be government of approval for another, uh, trading, share, trading, um, platform [00:14:00] in Australia.

Nasdaq started in 1971 as an electronic quotation system. Uh, which was faster and cheaper to list on than the New York Stock Exchange. Didn’t have the old school in-person trading floor structure. It was all electronic and then it, because of that, it became the sort of exchange of choice for tech companies because it was faster and cheaper.

And so we tend to associate it these days with tech listings, but that’s not the only re, I mean, that’s not the only company. So these days it’s home to PepsiCo, Costco, Hasbro. Every company that ends with an o uh, has to, by policy, be listed on the NASDAQ apparently and Titan Machinery.

Tony Kynaston: Oh.

Cameron: And Seneca Foods o Seneca.

The revenue comes mostly from sales of equipment. About 75 to 80% comes from selling new equipment. Parts is about 15%, and service is about five to 10%. Parts and service, obviously that sort of 20 to 30% is good ongoing revenue that helps spread out bumpy sales. And the reason they’re on our buy list in a looking cheap at the moment is because it’s been a pretty bumpy period for selling new equipment to farmers, particularly in the US in the last couple of [00:16:00] years.

So it still. It generates a lot of cash despite some recent losses. Total revenue has grown from 1.3 billion in 2020 to 2.7 billion in 2025, doubled its revenue in that five year period, which is. Not too shabby, but here’s the rub. It’s been losing money recently. Margins have collapsed. Now, this is because there’s been a collapse in the US ag market, and I’ll talk about the wise and wherefores of that in a minute because I don’t know how much you know about the US Ag market.

Uh, we just talked about chicken farming in Australia. I don’t. And how they’re innovating the chickens. Uh, I didn’t know anything about this, so I had to drill down into it. But, um, to give you an example, their FY 2024 net profit was 112 million. Their FY 2025 was a $37 [00:17:00] million net loss. And that’s because basically the bottom fell out of the new equipment, uh, market in the us.

And they’ve also got, uh, net losses forecast for the next couple of years, although they are forecasted to decline to a $9 million loss in 2027. Gross margins created from 19.3% in 2024 to 13.7% for trailing 12 months. So basically they had to just cut their margins to get stuff out the door. They were sitting on a bunch of inventory.

And sales collapsed and they’ve been just doing whatever they can to get the stuff out the door. So why the ag equipment demand collapsed? There’s a couple of factors in it, but US farmers have come through a couple of brutal years. Incomes fell about 20% in 2023, and then another 4% in [00:18:00] 2024, even though they were producing bumper crops.

Why? Well, their costs shot through the roof. Um, a few years ago, COVID, Ukraine, invasion, trade wars, all these sorts of things were going on. And, um, prices went up, like, uh, crop prices went up, corn, maize, that kind of thing. Bumper years. The underlying costs went up alongside it. Fertilizer, seed, diesel equipment, prices all went up, but then the prices all collapsed again.

The, the crop prices collapsed. Corn dropped more than 20%, soybeans about 12%, but the underlying costs didn’t come down with them for a variety of reasons. So the farmers, um, borrowed a lot of money. At, at higher rates, uh, [00:19:00] bought a lot of staff on contracts at higher rates, then the prices that they can get dropped and they’re, they’re getting squeezed on their cash flow.

They’re loaded with debt and the first thing you cut is big ticket spending like tractors and combines, they’re holding off on big spends. These farmers, they’re getting squeezed by the finances, the banks, et cetera too. So new equipment sales have been plummeting. Then you’ve got trade tensions, tariff fears.

And that’s throwing another spanner into the works with anyone being able to predict what’s gonna happen tomorrow, let alone a month from now or a year from now. So dealers like Titan are sitting on this inventory backlog. They can’t sell fast enough. They’re slashing prices, pushing service and parts sales to try and make up for it, but that hits their margins too.

So grain and oil [00:20:00] seed markets went nuts in 20 21, 20 22 because of the pandemic disruptions, droughts, and the invasion of Ukraine. Coin corn and soybean prices spike. So farmers bought more fertilizer, more seed, more equipment, thinking the boom would last, but then global production caught up. Ex Ukraine got some export markets moving again.

Brazil had record harvests and demand from China softened, which led to the prices crashing back down, but the farmers were still paying boom time prices for their inputs. Fertilizer, diesel and machinery parts all rose 30 to a hundred percent in price during the boom. And then, as I said, suppliers didn’t drop prices when commodities fell because markets were still tight, fertilizer plants was slow to ramp back up, and manufacturers had locked in expensive raw material contracts themselves.

So. Operating costs stay high while the selling [00:21:00] prices drop and the margins imploded. Most US farms finance their operating costs seasonally short-term loans for seed, fertilizer, fuel, and then pay them off after harvest, with rates going from 3% to seven to 9% in a couple of years. Debt servicing costs doubled or tripled, and big capital buys like $500,000 for a new combine are suddenly.

A lot more scary. Then there’s this uncertainty going on about the US Farm Bill. The Farm bill is this big catchall law that they renew every five years or so, and apparently it decides how everything in US farming runs. Everything from crop subsidies to crop insurance, conservation payments, food stamps gets renewed every five years, but instead of passing a new one.

Late last year as they were due to Congress, extended it out until September [00:22:00] 30th, 2025, which is only seven weeks away. And then, uh, the one big, beautiful bill. That passed a couple of months ago, rewrote big chunks of the ag commodity programs that normally live inside the farm Bill. So that means when the farm bill gets hammered out, supposedly in the next seven weeks, if it doesn’t get extended again, there’s gonna be less certainty and fewer supports for certain crops.

So no one really knows or apparently, from what I can tell, what’s going on with that, how that’s gonna land. As we know, the entire Trump administration is sort of fly by the seat of your pants. No one knows who’s up, who, and who hasn’t paid. It’s, uh, whatever bright idea President Trump has when he sitting on the toilet in the morning on Twitter, um, or truth social now.

So no one knows what’s going on. And tariffs don’t hit Titan directly ’cause they don’t [00:23:00] manufacture the equipment, but they suffer upstream. Higher equipment costs from manufacturers who are dealing with the tariffs, steel and aluminum inputs. Global trade tensions get passed down to Titan. So they’re getting squeezed both sides, right.

Some of the big manufacturers like John Deere and Caterpillar are flagging the tariff impacts now. So that’s sort of the, sort of the background on these guys. Uh, good, been around a long time. Good operators, um, big network of dealerships, but they’re having a cash squeeze. That said, they’re currently sitting on $21 million in cash.

The F score is a five, so not terrible, not great, but we score anything over a four and a half, so they get a score for us on the F score. Financial health is strong ish, but their net debt increase from 300 million in [00:24:00] 2023 to 960 million today, tripled in the last couple of years, so they’ve gotta figure out what to do about that.

But from a numbers perspective, the price is $18 98, uh, $18 96. It closed at last night, operating cash flow. Per share. TTM is $4 81, so price to operating cash flow is just four times. Um, it’s pretty, pretty solid from our perspective. Not the best we’ve seen, like we’ve seen much, much lower than that and some of the shows that I’ve done recently, but it’s pretty good.

Um, for us, what you will like is the price to book. The latest price to book is 0.7225 means it’s trading at 72% of equity value on the book. So if you shut the company down, paid off the [00:25:00] debts, you’d at least get back what’s. On the book. So it’s very, very cheap from a price to book perspective. Book value’s been growing too.

Did take a small dip in 2025, but CAG a 12% for book value over the last five years. So the growing the business doing a great job. We don’t have either of our intrinsic values, IV one or IV two because their EPS. And their forecast, EPS are both negative, so we can’t give them a score on either of those.

But I’ll get into the full scoring in a minute. Margins are down, but from my perspective, the the dealers, the parts and the service revenue creates a safety net equipment revenue slid. Four to 13% depending on segment or quarter, but the parts are steady and service is up 14.5% for the full year. So they are, obviously, [00:26:00] people aren’t replacing their combine harvesters and their tractors, so they’re having to spend more on parts and service.

So they’re kind of ameliorate at a little bit. They’re cheap, I guess, because no one can see what’s happening and it could go belly up or it could go bad. If the economy doesn’t improve for farmers, maybe people know what something we don’t know about the future of farming in the us. But just looking at the numbers and the scoring for me, it looks good.

I’ll get into the full scoring. Um. From a stock Edia perspective, quality score is 64%. We give them a score for anything over 60. Value is 91%, momentum is 86%, and stock rank is 96. We will score anything, uh, equal to or over 90. So, uh. Average daily trade is a little [00:27:00] over $4 million, so relatively large. Last financials I’m working on are from April, 2025.

Price to operating cash flow, as I said, is a four, so we score ’em for that. We scored ’em for quality rank, for stock rank for F score. Not for the IVs. They do score for price less than book. They also, of course score for price less than book plus 30. They have obviously a three point uptrend. Um, despite the Josephine, I didn’t, they didn’t get a score for new three point upturn, but looking at it, they probably should have.

They, they became, um, a new three point upturn. So for new listeners, that’s when their three point trend line goes above our byline. We score them for that. If they come out after their most recent financials, it happened just before their most recent financials like March, and their financials came out in April.

Like, so somebody got ahead of the game and the share price went above it. So I didn’t score them for that technically, [00:28:00] but they probably would’ve got a score if I’d done it manually. They don’t get a score for growth over PE being greater than 1.5. Um, book Val, I, the, the system did score them for book value growth being positive.

Even though I said they’re slightly down in their last one. I’m not sure why the score is wrong. I’m gonna have to look at my code for that. But it sort of counterpoints of new three point upturn, so I don’t care too much. PE is not less than the yield, um, because they don’t have a. Earnings. Um, yield is not greater than bank debt.

Uh, forecast IV is, uh, time is not greater than twice the price. ’cause they don’t have a forecast IV ’cause they don’t have a forecast. EPS we did score them for Pr/OpCaf being less than seven. As I said, so they got, um, 10 out of 11 actually for the scores, a quality score of 91% and a QAV score of 0.23. By the way, one of the founders, David Meyer, [00:29:00] holds 8.44% according to Stockopedia

not above the 10% that we normally score them on, but it’s, you know, that’s sort of a, the 10% is sort of a. Slick your finger and draw a line for Worthy. It’s a lot he owns. He’s got a lot of skin in the game as the owner founder too, so maybe I’d give him a half a point for that if I was manually scoring them.

So anyway, the bottom line is, um, they do, they’ve had a tough year and they’ll have a tough year. They had a tough year last year. They’ll have a tough year this year, maybe a tough year next year, depending on what happens to new equipment sales and tariffs and, uh, pricing in the ag game in the us. Lot of farmers voted for Donald Trump, so, uh, I’m sure he’s gonna look after them.

He’s that kind of guy. He looks after his people. I’m sure it’s gonna be beautiful. So it’s gonna be the most beautiful agriculture market you’ve ever seen [00:30:00] in the next, uh, little while, but old school dealership. Good business just with a tough time and therefore they’re cheap, but they score well for us.

That’s Titan Machinery. Tony, what do you think?

Tony Kynaston: look, I like them. It’s a, a

Cameron: I.

Tony Kynaston: buying opportunity, isn’t it? we can buy them for, um, steep on in terms of their operating cash flow, which is always good to see. Um, if their debt debt is increasing, then um, they’ve probably got the cash to work through that. by the numbers you’ve just mentioned. Uh, interestingly enough, their equity per share is still pretty good. So if they, oftentimes if you see a company dramatically increased debt, then the equity suffers, but doesn’t seem to be too much of a drag for this company. So that’s still a good thing. Um, look, negative EPS. Forecasters of the forecast, they’re going through tough [00:31:00] times.

Um, like they’ve got enough reserves to, to weather that storm. And you know, from sort of cyclical companies I’ve seen before, it sounds like they’ve probably got a an overhang of inventory. Like the tractors, they can’t sell and they’re combine harvests, they can’t sell. And that’s a bit like a pig working through a python.

So you’ll see a big bulge of, of, of stock move through the business and get stuck, and then eventually get. Discounted and sold. And before they take on new stuff, they’ll be, um, they’ll be selling their old stuff. So it, it should work itself out within a period of time. Whether that’s one year, two years, I don’t know.

I dunno, the or the industry well enough, but, um, that that’ll be a problem that they’ll chip away at, get rid of. Um, may have the reverse problem if suddenly things come good in the farming industry that they haven’t got enough tractors to sell, but. Well, they’ll worry about that when it happens.

But, um, yeah, it’s, it’s, to me it’s sounding like short term [00:32:00] problem is a buying opportunity. Um, it’s, it’s hard to say though, because we are in the new world of tariffs on their imports and farmers doing it tough because of, uh. Uh, costs are cost rising for them being able to pass it on to their customers.

So I, I suspect it’s, it’s a bit of a turmoil, but is it gonna be a turmoil for the next 10 years? Possibly not. And, you know, both the farmers and this company will write it out. I would think. Um, certainly been well run so far. Like you said, as a founder, uh, with skin in the game, he would be very experienced at downturns in the ag industry.

It’s not like it hasn’t happened before, and we’ll know exactly how to trade through what I would’ve thought.

Cameron: Yeah, from my perspective, I agree with everything you said and it, like, there are going through a tough period, but it’s not of their own making. From what I can tell, it’s general macro economic pressures on the business, but outside of that seemed to be a very well run [00:33:00] business, double their revenue in the last five years.

Um, you know, they, they’ve, and were profitable, uh, through all of that time, like their net profit. From 2020 through to 2025 was 14 million in 20, 20, 19 0.4 million, 20 21, 60 6 million in 2022, 102 million in 2023, 112 million in 2024, and then the pressures kicked in and it started to go backwards in 2025.

As I said. And those were boom years, as I said, with some of those like 21, 22, 23. So that explains some of that increase. But, um, taking your net profit from 14 million to 112 million in four years, five years, you know, not a bad, not a bad business. They seem to know what they’re doing.

Tony Kynaston: Yep. I agree.

Cameron: All right. Well, uh, that’s all right. Now we’ll cut to is our tradition at the [00:34:00] end of our shows, after we finish talking about investing, we do after hours where we talk about books, music, film, tv, travel, golf, horses, kung fu. My abs, um, everything, anything else that people wanna know about. So let’s talk after hours.

Tony.

Cameron: you’ve got a couple of interesting shows in your list of notes.

Tony Kynaston: Yeah. So two in particular, uh, the man who fell to worth. The old, uh, David

Cameron: The original,

Tony Kynaston: The

Cameron: classic.

Tony Kynaston: yeah. I

Cameron: Nicholas Rogue.

Tony Kynaston: hadn’t, seen it since it came, since I saw it in the theaters when it, uh, probably its second time round, I think. I think it

Cameron: Mm-hmm.

Tony Kynaston: been R rated, so I don’t think I would’ve seen it the first time round. Um.

Cameron: funny ’cause I was thinking about that movie just last night before I got your notes as I was shaving around my nipples and. I was thinking of the scene where he slices his nipple off and I [00:35:00] was thinking about that film and then it was in your notes. How weird is that?

Tony Kynaston: I’ve got your bathroom bugged probably.

Cameron: Uhhuh?

Tony Kynaston: no, I um, yeah, but I, I loved it. Um, it’s, it’s

Cameron: It’s great.

Tony Kynaston: lynch in it, in its style. In that it’s,

Cameron: And I remember,

Tony Kynaston: does have a

Cameron: sorry, I was going,

Tony Kynaston: Yeah.

Cameron: I remember reading an interview with Bowie, you know, late in his life saying he could, couldn’t remember anything about making that ’cause he was so high through the entire making of it. He had no recollection of it whatsoever. I.

Tony Kynaston: Yeah, so I, I, what I wanted to say as well is it’s on SBS, so it’s, um, you can watch it there with a few ads, um, I’m finding SBS to be a treasure trove of quality movies. Um, they’ve got a. A section out there at the moment called the Oscars, and it’s probably about 70 really, you know, great [00:36:00] movies that, that, um, a couple I haven’t seen before, so I’m gonna go back and watch those.

But, um, yeah, it’s a real, it’s my go-to destination for movies at the moment. I.

Cameron: We’ve been watching The Handmaid’s Tale on SBS the final season of that, I should say. We hate watching it ’cause we kind of hate it right now. It’s so terrible, the writing, but we’re determined to finish it. I think we’ve got one episode left to go, but we’re just, we’re just being snarky through the whole thing now.

Just hate watching it, which is fun in its own way. But I did see, uh, like all of these greater var. Films that they’ve got on there, all of his collection. And there’s a bunch of his I haven’t seen. And the ones that I have seen, I watched probably in the nineties. And I say that kept saying to Chrissy, we, we need to, I mean the ads piss me off on SBS, they’re the worst ads, and they repeat them constantly.

It’s really, I dunno why the advertising is so terrible on SBS, but that aside, uh, yeah, good, good curated collection of content. [00:37:00] They seem to have.

Tony Kynaston: And then, uh, the other movie I watched last night actually was The Apprentice. It wasn’t on SBS, it was on Stan. Um. And I’m loving it. I mean, Jeremy Strong’s fantastic is Roy Cohen, it’s, it’s basically the Donald Trump origin story, which is, is super industry

Cameron: Hmm. Mm-hmm.

Tony Kynaston: what he learns from Roy Cohen, the rule, the Roy’s three rules, rule one, attack, attack, attack.

Rule two, admit nothing. And rule three uh, you never have a defeat. It’s always a victory.

Cameron: Mm-hmm.

Tony Kynaston: And, that pretty much sums up the playbook for Trump.

Cameron: Yeah, Roy Cohen was the, well, one of, one of several guys behind him that helped catapult him, but uh, played a big role in helping him develop his strategy later in life. Yeah, well, through his real estate career too, but he’s turned it into politics as well.

Tony Kynaston: Yeah. It’s an interesting sort of vibe for the movie. It’s, it’s set back in New York in the, probably the seventies, I’d say, before it [00:38:00] was cleaned up. So, you know, it’s, um, it’s, it’s. I think they’ve even adopted that sort of style for the film. It’s grainy and it’s, you know, lowly lit and, and all that.

But yeah, very of its time.

Cameron: Hmm. No, I’ve been looking forward to seeing that the, the guy who plays Trump in it too, I can’t remember his name. Stan something.

Tony Kynaston: I don’t, I can’t remember his

Cameron: Sebastian Stan. Sebastian Stan. Yeah, he’s done a lot of superhero movies. He’s looking like the Captain America things. But before that, when he was quite young, um, he was in a series that I can never remember the name of, but, um, star Ian McShane.

So after Deadwood, there was this short-lived series where Ian McShane played the King of America. It was sort of an alternate reality thing.

Tony Kynaston: uh, American Gods Is it? It’s the,

Cameron: No, no, that’s where he plays a God.

Tony Kynaston: Neil Gaman wrote.

Cameron: No,

Tony Kynaston: Man in

Cameron: that one.

Tony Kynaston: the High [00:39:00] Castle.

Cameron: No, he’s not in that. Um, it’s called like butterflies or something. Hold on, I’ll tell you. Um, it only ran maybe two seasons.

 Kings. There you go. It’s loosely based on biblical story of King David. But said in Modern Day America. And, uh, anyway, Sebastian Stan plays his son in it, who’s sort of raised to be the heir to the throne, but he’s closeted homosexual and very sort of weak. And Ian McShane’s this brutal, uh, magnate, but he, the, the, it’s one of these weird shows where the writing is very good, very sort of Shakespearean, Macaulay Culkin was in it too.

But, um, really well done. Check it out. If you ever get a chance, um, well, well worth a watch. [00:40:00] Um, but yeah, Sebastian Stan is good. Like I really thought he was a great actor in that. And then he went and just sort of, I won’t say wasted his life doing superhero movies ’cause I’m sure he got paid a lot of money.

But Brian Cox is in it too. Um, from succession. Um, he plays the. Previous king who had been overthrown in a coup, and Ian McShane keeps him in like a, a prison. Everyone thinks he’s dead, but he’s really alive in this secret prison. And Ian McShane will go visit him every now and again with a very expensive bottle of scotch and they’ll just sit there and drink and talk about, I think he was like a, they were old friends that have known each other forever and he had to depose Brian Cox and they sit down and they have a little heart to heart about how to run the kingdom.

Anyway. Yeah. Well, I’ve watched, I’m halfway through watching a 1984 low budget sci-fi film called Night of the Comet, which is set in la um, [00:41:00] lo I read it Mabb. It was shot for $700,000 and made 14 million when it came out. So a huge financial success, very low budget, sort of apocalyptic end of the world zombie thing.

But fun. I just love, it’s like low budget, early eighties sci-fi movies. Yes, please. That’s for free. There’s a lot of things on YouTube that are free, like these old sort of bargain basement VHS films that are to totally in my wheelhouse. But the thing I wanted to talk to you about is, uh, over the weekend, for some reason, again, on YouTube, I watched the whole.

Ali versus George Foreman fight in Zaire, the Rumble in the Jungle,

Tony Kynaston: Okay.

Cameron: which I haven’t watched for years. Oh, so good. So good to watch. Have you ever sat down and watched that?

Tony Kynaston: The Roper

Cameron: Oh,

Tony Kynaston: Absolutely.

Cameron: Roper dope.

Tony Kynaston: Mm. [00:42:00] And

Cameron: Ali.

Tony Kynaston: is just my favorite documentary

Cameron: Great,

Tony Kynaston: brilliant.

Cameron: great doc. I remember showing the twins that when they were probably Fox’s age. Yeah. Such a great documentary.

I asked Hunter if he remembered watching it. He was like, nah, I dunno what you’re talking about. But yeah, great documentary, but watching the whole fight all eight rounds and just Ali 30 33 I think, and Foreman was 24 at the time. Ali just comes out, right? The commentators are saying, well, Ali’s gonna have to, he’s gonna stay away.

Foreman hasn’t gone past two rounds in any of his boxing matches. Ali’s gotta just try and dance away from him and not let him hit him. Bell rings, Ali just leaps in there and starts throwing jabs and going at him and then getting in tight. And as we know from the documentary, just, is that all you got, George?

Tony Kynaston: the roper do. I mean,

Cameron: Gets [00:43:00] him angry.

Tony Kynaston: the

Cameron: Yeah.

Tony Kynaston: great ‘ cause it. He talks about Ali walking past foreman training every day and seeing, seeing foreman tearing into the punching bag and then just getting tired and every

Cameron: Yeah.

Tony Kynaston: Ali’s going, that’s how he’s, I’m gonna beat him. Gotta make him tired.

Let him hit me until he. Runs outta steam, which it like, you know, just imagine it’s, it’s almost like the Garden of Gethsemane, isn’t it? It’s like, you know, I know what I’ve gotta do, but this I’ve gotta get pummelled by. I’ve gotta go through rounds of train wreck of, of car crashes before I get to, you know, where I need to be to beating. Must be incredible

Cameron: Yeah,

Tony Kynaston: do that and physical

Cameron: just keeping, keeping his arms up and just taking the body shots. He did take a few hit blows to the head, but a lot of bo, mostly body shots and uh, yeah.

Tony Kynaston: Who Commentated, was it Cosell?

Cameron: I think Cosell is, there’s a, and Joe Frazier is one of the commentators. They got a whole panel of Ken Norton? No, no. Ken [00:44:00] Norton came later. I don’t know. There’s, there’s a couple of other Ali victims that are on the panel, but, uh, yeah, just, and then just watching the last seconds of the eighth round when I think there’s like 20 seconds to go in the eighth round.

And Ali just, just. Explodes off the ropes and just hits him with a couple of jab hook combos and lands one, and that’s it. He’s down. It’s just magnificent to watch. It’s really great. Ali’s last great hurrah, really?

Tony Kynaston: Hmm.

Cameron: Um, yeah. What a, what a what a what an athlete he was in his day. And an an interesting human being too.

Tony Kynaston: Mm.

Cameron: I read his memoirs many, many years ago. I was in my early twenties, I think. Really enjoyed those. Alright, well, uh, it’s not quite two 30, Tony. Um, should we check the news? it’s not on Reuters, [00:45:00] Google News.

The Reserve Bank has delivered its third interest rate cut of 2025 with a 0.0 0.25 percentage point reduction at its August board meeting, so you successfully, incorrectly, deliberately predicted it.

Tony Kynaston: Yeah.

Cameron: Yeah, you predicted a cut last month and they didn’t, so this time you predicted No cut.

Just so they would do it to spite you.

Tony Kynaston: it’s,

Cameron: Outta spite.

Tony Kynaston: hard to find a friend who gets things a hundred percent right. But it’s still equally as valuable to find someone who gets things a hundred percent wrong. They, they’re usually easier to find.

Cameron: There you go. Yeah. Yeah. Why are you looking at me when you say that?

Tony Kynaston: I have

Cameron: Um.

Tony Kynaston: on the screen.

Cameron: Yeah. Yeah.

Alright. All right. Well, that’s all we’ve got for this week of QAV America. Uh, thank you Tony. We’ll see what we’ve got next week.

Tony Kynaston: thanks Cam. And I’m looking forward to Titan going up tenfold after you’ve done a pulled pork on it, just like some of your other stocks. Happy Nasdaq everyone.

Cameron: [00:46:00] Yeah. Yeah. Happy Missy.

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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[00:00:00]

Cameron: Welcome back to QAV America, Tony, episode 17, recording this on the 5th of August, 2025. We talk too slowly

to somebody on YouTube,

Tony Kynaston: Really.

Cameron: so can you, can you speak faster this time, Tony?

Tony Kynaston: I

Cameron: Uh, well, not fast enough for this person on YouTube. have you been? Tony, you’ve been following the US market,

 you’ve been reading the Wall Street Journal this week, Tony,

Tony Kynaston: I have, yes. Read the Wall Street Journal every day. At

Cameron: what have you learned about the US market from the Wall Street Journal this week? Tony?

Tony Kynaston: don’t learned this week.

Cameron: Yes,

Tony Kynaston: it’s a

Cameron: yes.

Tony Kynaston: Taught to us

Cameron: Yeah, as we were talking about in our last show, uh, as people may or may not know, I’ve spent the last 20 years doing mostly history related podcasts and a lot of it on, uh, Soviet [00:01:00] Union and the Cold War. And it is very reminiscent of, you know, uh, an ideology based state like, uh, Soviet. Union under Stalin or uh, communist China under Mao, where you have a particular ideology and messaging that you wanna convey.

And if the facts and the data don’t map neatly to that ideology, you deny it, you ignore it, you arrest the people that are promoting it, and, uh, make sure that you end up with a. With a culture, with a society where everyone is too scared to speak the truth, and they just say things that they feel they will be rewarded for, and that’s the problem.

You, you, you, it’s a slippery slope then into a society that ignores, uh, facts and data. And, uh, it’s not, it’s not a good thing for society. It’s not a good thing for [00:02:00] industry. It’s not a good thing for business. It’s not a good thing for investors. Uh, so yeah, hopefully this trend in the US gets, uh, turned around at some point

Tony Kynaston: is never a good And I’ve seen it, and it’s kind of a corporate approach to things too. I

Cameron: Mm-hmm.

Tony Kynaston: plenty of times in big businesses where a boss wants

a number when you come to your results, you hit the number by all call

Cameron: Mm

Tony Kynaston: even if

Cameron: mm.

Tony Kynaston: sometimes.

So, uh, Yeah. no,

Cameron: Yeah. Well, um, I think I will just do a quick portfolio update, uh, for our US portfolio. I did have a look at it this morning. And let me see. For the last 30 days, our portfolio was down 1% versus the s and p 500, which was up 1%. For the last 12 months, our portfolio is up 19% versus the [00:03:00] s and p 500 up 18%.

And since inception, for our portfolio, which is September, 2023, we’re up 56% versus the s and p 500, up 42%. And as I said to you on our last show, you know, one of the. Well, the big, uh, success in our portfolio is Willis Lease Finance Company, WLFC, which it, by the end of last year was up like 300% since we bought it.

It’s come back about 30%, so now it’s only up about 200% since we bought it. But a lot of the, uh, retreat in our portfolio this year has been Willis Lease Finance Company giving up. Its 300% returns down to 200%. So our portfolio. This year looks like it’s been going backwards, but really it’s just giving up some of the gains that had, that had already amassed last year.

Still 56% versus 42% for the s and p 500 is, is a nice return in September 23, so like not quite two years, but almost two [00:04:00] years, nearly a 60% return. It’s pretty good, right? just on a commodity update this week, for people who are new to our show, when we’re investing in commodity stocks, which is a big thing in Australia, we tend to look at the underlying, uh, performance of the commodities that the companies are built on top of.

If they’re a gold miner, we look at the gold commodity or iron ore or coal. There was some cha, there were some changes when I looked at the commodity graphs this week. Iron ore has become a Josephine, um, for new QAV listeners, that that means that it’s in a by state, but it’s declining. Uh, so the price.

Today is lower than the price was at the end of last month. Yeah, end of the month was only a couple of days ago, but it’s retreating a little bit, but still in a buy state technically. But we’re gonna, we would wait if, if we had an iron ore stock that was a buy on our buy list. If the underlying commodity is a is a Josephine, [00:05:00] and I called it that because I’m a Napoleon buff, and Napoleon famously.

Supposedly said, not tonight, Josephine. Um, gold is a buy. Thermal coal is a Josephine Coke, and Cola is a buy. Crude oil is a Josephine Copper is a Josephine. Uh, wheat is a cell. Nickel is a cell. LNG is a Josephine Platinum’s. A Josephine aluminum’s. A Josephine zinc’s. A Josephine tin is a Josephine Steel is a buy.

However, lithium is a buy, so there’s been some changes this week. Iron ore, coal, platinum, aluminum, zinc, all became josephine’s this week. Nickel became a cell and wheat became a cell. They were the big changes for this week. So if you’re holding any stocks that are nickel or wheat based, you might want to think about stealing those, not financial advice.

Do your own research also in a portfolio. Last week I sold a stock for the first time in a long time, I had to sell [00:06:00] Enoch. Um. Which I think I did a pulled pork on a little while ago. They became a rule one sell and an advanced Rule one sell too. They dropped 20% below the price that we bought them at, so I let them go and I replaced it with the company that I’m gonna do a deep dive of pulled pork on today, which is GTN Tony, and I’m quite excited about this one.

Like the company I did last week, this is strikes me as another Berkshire classic Berkshire type company. Kind of out of favor, little bit boring, but generating a lot of cash. Uh, seems to have a bit of a moat and, um, we’ll see what you think after I

deep dive.

 So I.

Tony Kynaston: these. I.

like these Berkshire [00:07:00] stocks.

Cameron: Yeah, me too. And it’s interesting to see them, um, in the, in the US market because we, you know, we don’t, I mean, maybe we do have a lot, I mean, we have a lot of sort of in the, in the Australian market, companies that are certainly outta favor on our buy list all the time because they’re dirty mining companies.

They’re digging up coal or they. In oil or things like that. And so they’re not ESG friendly, but we, we don’t tend to get a lot of businesses like this one. We do have some television networks. It’s in old media companies that pop up from time to time. GTN is gray television. There are, they call themselves a multimedia company.

They’re really a television business with some add-ons. But I nearly bought this a year ago, July, 2024. For our US portfolio. And then you talked me out of it. ’cause it had a bad Zed score. That’s when we were still paying attention to ZED scores. It [00:08:00] was a good call though. ’cause at the time I was trading at $5 51.

Today it’s $4 46. So glad you did talk me out of it, but now we we’re ignoring Zed scores. It’s back on the buy list. And I did add it last week. It has since become a Josephine at the end of the month. I will just call that out. So it’s price. Uh, this morning was $4 46. At the end of the month it was $4 51.

So it’s slightly below that. So I wouldn’t buy it today, but it was okay when I looked at it, uh, late last week. But who are they? Gray, as I said. Yeah.

Tony Kynaston: I, I what josephines, not Josephines, because, um. The long term trend might mean it’s a buy, but we can probably buy to a better price if it’s slower than what it was, but it closed out at the end of the month, So that’s the reason for looking at the short term trend as well. the short term trend is higher than the end of the last month, then the [00:09:00] upward trend is still intact and gives you, gives me more confidence that the momentum’s behind this stock. ’cause if it’s down, even in the short don’t know whether it’s a

Cameron: Which makes you different from a classic value investor who just believes that if it’s a good company, you buy it regardless of the sentiment, regardless of what’s happening. You, you’re a little bit more sensitive to sentiment because as you said, you can. If you can buy it cheaper tomorrow or a week from now, why not buy it cheaper then?

Tony Kynaston: Um, the classic value investor would hold it and just say, look,

Cameron: Hmm.

Tony Kynaston: got it wrong and it’ll wake

Cameron: Hmm.

Tony Kynaston: to itself. But like, you know, my is that can go on for a long time until the market. the stock and comes to its senses and I can better deploy my cash somewhere else in the stock, which has sentiment behind it, but still is less than I ascribe to that company. And I may as well put my capital to work go to work.

Cameron: Yeah. Unlike [00:10:00] Buffet in, you know, late, late era buffet, late stage buffet, let’s call it that. It’s not like we struggle to find things to buy. As we talked about on this show last week, there’s. Plenty to buy in the US market, in the Australian market. And over the years we’ve been doing this show, there’s only been a handful of occasions that I can remember when we couldn’t find anything to buy, usually after a major market crash or, you know, um, what do you call it?

Let’s re uh, re re something. Um, the market’s

itself, a market reset.

Tony Kynaston: major like COVID. And even those, and even those periods don’t last, haven’t lasted since we’ve been doing the show for very long. During COVID, it was, uh, a month, maybe month and a half. Um, you know, we haven’t been through anything like the GFC necessarily when it might be longer or like a really major reset, but anyway.

Cameron: Okay. Gray, um, headquartered in Atlanta, [00:11:00] Georgia, just up the road from my father-in-law in Augusta. According to their website, they are the nation’s largest owner of top rated local television stations and digital assets in the United States that serve 113 television markets reaching approximately 36% of US television households.

This portfolio includes 80 markets with the. Top rated television station and 100 markets with the first and or second highest rated television station. So, um, they go back to the fifties. Um, oh. The newspaper man called James H. Gray bought a TV station in Albany, Georgia, called WALB tv. Then he started adding more stations and they’ve continued to expand ever since, particularly in the last decade, they’ve bought a bunch of businesses.[00:12:00]

Uh. Interestingly, they’re sort of their headquarters now in Atlanta, Georgia is a thing they called Assembly Atlanta. This was an old General Motors assembly plant for decades. It went outta business, I think in 2014, something like that. The site, which just huge. It’s like 165 acres. They flattened it.

They’ve built their, basically like a mini Hollywood. They’ve got studios and back lots and parks for the public to come. And it’s like this whole sort of Hollywood in Georgia kind of thing, which they see as not only where they produce a lot of their. TV content that other people can come and produce content there.

So it’s sort of the cornerstone of what they’re doing. Assembly Atlanta, and they’re doubling down on [00:13:00] television and film production, which is interesting. You know, it’s obviously a. Difficult time. We’ve obviously seen the announcement in the last couple of weeks that Paramount is, uh, shutting down

what is it?

Is it the, the, the Late Show? The Late Show.

 it’s the old Letterman show. I think Steven Colbert has, it’s the Late Show. I think Kimmel’s got the Tonight Show, not Kimmel, the other one. Jimmy Fallon. Yeah. Anyway, Stephen Colberg show whichever one it is and they’re saying, ’cause it’s not making money. Some people don’t believe that.

They believe it’s more political than fiscal. But anyway, I mean, I think it, it’s a truism that the big TV networks are struggling in the era of streaming and TikTok and fragmentation of eyeballs and attention and all that kind of stuff. But these guys are doubling down so interesting. Um. [00:14:00] Th in 2019, they purchased a company called Racom Media, which owns multiple stations and also has a thing called Racom Sports, which is a long running sports production business, goes back to 1979, produces live events and original programming for college football, uh, college, uh, sport over there, which is a big thing in the US as we know.

In 2021, they bought a company called Quincy Media, which is a Midwestern station owner, um, gives them more coverage in small and mid markets in the Midwest in 2021, they also acquired Meredith’s local media group, which added 17 TV stations and increased their national coverage. They have a brand called Tupelo Honey, which I assumed was named after an old Van Morrison song, but no, apparently Tupelo Honey is a real thing.

It’s honey that, uh, comes from trees called Tupelo Trees. Uh, but the founder of this [00:15:00] business, Tupelo Honey, named it in honor of his wife, who was from Tupelo, Mississippi, and he referred to her as his Tupelo honey. Named the business after that. But it did get me listening to Van Morrison all morning while I was, uh, preparing my notes.

So that was, that’s never a bad thing to listen to Van Morrison in the morning.

 Yeah. In 1969. Yeah. Or 71 or whatever. 71. I think that album came out. He predicted, uh, gray Media in 1971. People. Oh, honey, is a sports and entertainment production company again, that fo focuses on live events and also connects fans with athletes and brands. So I think they kind of do deals with big sporting stars and do branded content and um, you know, entertainment programming, all that kinda stuff with them.

They also own a brand called Power Nation, which is an automotive. How to brand for car Enthusiast [00:16:00] shows they own a company called, well actually they just announced they’re buying a company as long as it doesn’t get blocked. Uh, called, uh, block Communications. Let’s hope Block Communications doesn’t get blocked.

It’s a family owned media company. They’re in the process they just announced a couple of days ago. It owned stations in Kentucky, Illinois, and Ohio. It says pending re regulatory approval, which as I understand it from the, uh, paramount, uh, deal means, uh, a cash donation to the, uh, Trump Library. Uh, they also own third rail studios, which is a perfect.

Yeah, professional film, TV facility. Um, it was acquired in 2021 and then folded in. It has sound stages and production infrastructure. So they own all of these TV media production assets and locations and stations. Their business model is based around a couple of things. Um, obviously [00:17:00] selling advertising into all of these local markets, local advertising, car dealers, hospitals, supermarkets.

News and sports, but also on even years. Um, political advertising got a quote here from one of their executives, um, which is political advertising revenue in even years is typically five to six times higher than odd years.

’cause they have the, the midterms and the presidential elections. Right. Um, and this will, this will show up when, when I do the numbers later on because 2025.

It’s not an even year. So their numbers for this year aren’t gonna be as good as they were last year and might be next year. Now, the revenue for next year is based on the assumption that there will be midterms. You know, I’m skeptical about that. Um, I, I don’t think the US is gonna have another election [00:18:00] for many years to come, but we’ll see how it plays out.

However, we, we can’t predict, so we’re assuming that business will be business as usual, so they make money out of all of that. They also have retransmission. Content or retrans as it’s called in the lingo. I think this is, uh, the payments that they get from cable satellite and streaming distributors to carry the programs and the channels that they produce.

And the good thing about that is that it’s contractual recurring revenue. It’s not based on advertising. Doesn’t really matter. Where the economy’s at, it’s not based on political advertising cycles. Advertising revenue can be lumpy depending on where the economy’s at, where the jobs numbers are at. And of course, if you don’t like the jobs numbers just fire the person that came up with them.

Um, but they have this contractual revenue, which helps smooth out the bumps. They also sell production capacity. They have the ability to make shows, film, live [00:19:00] events. Um, I remember when, um, we were in, when, when we were, when were, when were we in Vegas with, with Ray and Markum? Like 2015. No, I, it was during Trump.

I know Trump was still in the primaries for his first campaign. ’cause I remember having an argument with Markham about that. Markham was like, he will never win the Republican nomination. You don’t know what you’re talking about. And I was like, I don’t know man.

And I rubbed that in his face every chance I get.

so yeah.

Tony Kynaston: Toronto was the,

the head of Democrats abroad

Cameron: Well, he is not from Toronto. He is from, he’s, well, he was living in Washington, lives in Toronto now. Yeah, yeah, yeah, yeah. Well, I don’t think it’s there, but yeah, somewhere else. Anyway, [00:20:00] um. They, they’ve, I, I, my point was gonna be, there was a guy there with us whose name I can’t recall, one of, one of the listeners to my Caesar show or my Napoleon show or something, who was a director for one of these live sports production companies.

That may have been one of these, but I know he would just travel round and shoot football games and baseball games and, and that kind of stuff. So these guys do that too. Yeah. So, um, the reason that they’re on the buy list or the reason is they’re generating a lot of cash and their price to operating cash flow is wait for it.

0.62.

So that means if this was a coffee shop and we bought it, it would be able to pay us back in six months, seven months. Yeah. Um, which is ridiculously cheap to be able to buy a business. [00:21:00] Why is it cheap? And look, they are carrying quite a bit of debt. They’ve, they’ve, you know, leveraged all of these acquisitions, uh, and.

So, you know, the market doesn’t like that sometimes. Um, and I think old fashioned tv TV production is not sexy. It’s not Netflix, it’s not, uh, TikTok. It’s not, uh, anything that’s got AI involved in it. But on top of all of that, they’re paying a 6.44% dividend. Um, so that’s good. The F score, the Petrosky Petro Roky F score, despite all of the debt, is eight out of nine.

So very, very healthy, uh, financial score. And you’ll like this one too. The price to book is 0.17, the, uh, book per. [00:22:00] Yeah, the um, price is $4 97. The book per share is $28 53, so it’s, um, crazy cheap. It scores its ass off too when I run through the QAV numbers. By the way, the average daily trade is about seven and a half million shares, so, um, it’s quite a, quite a highly traded stock.

With the Wikipedia numbers, the quality rank is a 67. We score it if it’s over 60, so it scores for that. The stock rank is 97, so we score it for that as well. Lemme just, I’m gonna bring up the real, the live numbers here so I can see it.

Tony Kynaston: so that’s

Cameron: Quality rank? Yeah. Stock rank is 97, so we scored over 90, so it scored for that. The PETROSKY score, the F score for, no, what I say eight. We score [00:23:00] it if it’s over four and a half, so it scores for that. Um. IV number one, our intrinsic value, number one, which is our EPS over our hurdle rate of 19.5% is $12 35.

The price is $4 97. Well, I was when I did the, when I did my analysis, it’s 4 49 last, uh, um. Market close. So it’s uh, well, a third of the intrinsic, uh, first intrinsic value number roughly. We don’t have an iv.

Yeah, usually the harder one. Right? But here’s the thing, it doesn’t have an IV two because the future earnings per share is negative.

Um, net profit for this full year is, uh, supposed to be negative 82.8 million, but, you know, uh. That’s because it’s not an [00:24:00] advertise, it’s not a political advertising. Here is one part of it. Right. So I looked, I drilled into this a little bit. They’ve got big depreciation and amortization charges. They’ve acquired a ton of stuff in the last few years.

They’ve got a lot of intangible assets as part of that, a lot of licenses and goodwill. Property, plant and equipment like towers and stages that are all getting amortized and depreciated over time. Um, non cash expenses, but it kills reported earnings with gap. So even if they’re operating, cash flow is solid and it is operating cash flow for.

Yeah, last year, 2024 was 3.644 billion for this year. It’s gonna be down a little bit. It’s gonna be 3.173 is the expected. Um, but next year, again, a political, um, the midterms year, it’s back up to 3.638. So, um. Actually TTM is [00:25:00] 3.60. That’s probably carrying over some from last year. I’m not sure how that works, but bottom line is they’re making, uh, cash flow, but a lot of, lot of amortization and depreciation, which is gonna bleed through to their EPS interest expense is.

They’re servicing billions in debt. Um, the 2025 interest expense is about 120 million, so that that’s gonna eat through profit even if the operating metrics look okay. Bottom line is strong operating cash flow, strong F score. The core business seems quite solid, but the profit this year is gonna take a hit.

Um, we don’t have a, um, uh. Double forecast IV because there’s no IV two. Um, price is less than book. As I said before. It’s also less than book plus 30. Book plus 30 is, uh, [00:26:00] $37. Price is $4 97, so it’s scored for both of those. Book value growth is positive. Uh, obviously price to operating cash flow, it’s scored for that.

The PE is two point. Oh six. The yield is 6.44, as I said before. So it scores for PE less than the yield. And the yield is higher than the current bank rates. I think I’ve got 6.3 I think for bank rates in the us so 6.44, so it’s above that as well. And it has a three point uptrend and um, a new three point upturn as well.

So it’s scored for both of those. So the quality score, QAV quality score was 86%. The QAV score, 1.38, it just killed on all of the numbers. Um, and it’s kind of been on the buy list for a long time too, like even [00:27:00] though it’s, when you look at the share graph, it’s been declining since 2022. But it’s, uh, it’s generating tons of cash and it’s very, very cheap.

So, I mean, there’s a lot of things that could go wrong with this being tv, as we said, et cetera. I mean, it’s probably not as affected by the tariff wars, although if the tariff wars have a bigger impact on advertising revenue and or if there are no midterms ’cause. Trump declares martial law, uh, or is just arresting, is they’re, they’re arresting all of the Democrats.

Did you see this in Texas? The and, uh, in Texas yesterday they, Congress there tried to have a vote. They were going to do some, um, gerrymandering of the, of the. Um, districts there and all of the Democrats left the [00:28:00] state, so they couldn’t have a quorum, they couldn’t have a vote. And now the Texas governor has issued an arrest warrant for all of the Texas Democrats who left, but they’re all in New York saying, well, your warrant’s no good in New York, so good luck.

Come and get us. So, yeah, who knows, things are gonna play out

year in the us but again. We can’t predict. We don’t predict.

based on the numbers, Tony?

Tony Kynaston: value play. question for you, it’s based in Atlanta. Is that, is that coincidence or is it, is there some kind of history or tie up with, uh, Ted Turner and his network? C

Cameron: Well, no, I said the, the founder of Graham. The founder of Gray Media, James H. Gray bought a TV station in Albany, Georgia back in 1954, WALB, and they, they sort of come out of that. So, [00:29:00] no, I think it’s, um, distinct from Ted Turner’s operation. Didn’t come up anywhere in my research, but yeah. Interesting. He was also based in land.

Tony Kynaston: like you know, it oftentimes you find there’s a productive workforce to pick from who have already been trained in TV production. And so if you open up another production facility, you can tap into that.

So that, that makes sense. Um, reminds me, I mean, it’s a classic cigar butt stock, isn’t it? It’s, yeah, it’s, it’s, um, it’s, prices declined quite heavily over the last five years, but it’s, it’s It’s had a bit of an uptick now, so maybe it’s found its level. Um, certainly there are a lot of. Headwinds in the television industry kind of reminds me of Seven West Media in Australia that we did. We covered on our

Cameron: Yeah.

Tony Kynaston: show a little while ago, and you asked me the time when I talked about it, why would you station? And know my [00:30:00] answer is because eventually the price is right and it’s, this one in particular is throwing off so much cash. I mean, you threw some numbers out there about operating cash flow, paying you back in six or seven months, which is just. Amazing. I looked up the numbers on stocked while you were talking. Even if you like operating cash flows, the metric and want to use free cash flow. ’cause as you said, you know, there’s amortization and depreciation going on with all the, the, um, takeovers. Free cash flow per share is still $6 33 and the share price is $4 49.

So you’re still getting paid outta free cash flow. More than what the share price is, which is, you know, kind of unheard of and crazy I think. And I guess the market’s taking a bet that TV will keep declining, but, um. All the things happen in these industries when they go into decline. There’s consolidation that can happen.

There’s a lot of merger activity. Even with Seven West Media since we spoke about it. You know, there was net parts of the network being sold off [00:31:00] and parts of other people’s networks being bought, et cetera, which supports the, the, the current industry. see it in any sort of industry in decline. It’s, there’s always one or two players who. Get left holding the baby and it can be turned into a, a profitable sort of, um, industry, even though it’s much reduced as an industry compared to what it was.

Cameron: Mm.

Tony Kynaston: you know, looks like it might play out in a similar sort of way. There’s so much cash. I guess the last point I’d make is, um, even though it’s got lots of debt. I can see it being paid down over the last couple of halves. So cash, cash cures, debt. if you have lots of cash coming in, you can pay down the debt. And uh, if you do that quickly enough and you’ve still got the cash flow, it’s a terrific business to be in. And the time to buy it is now, not, not when people wake up to the fact it’s paid down, its debt and, uh, it’s throwing off even amounts of cash flow.

Cameron: Yeah, well I, unlike the one I talked about last week, this [00:32:00] one I have added to the portfolio, as I said, because they were high up on the buy list when I needed to add something. Thing this week to replace Enoch with. So, uh, let’s see how it goes. Um, see what they do with all of that cash, you know, and again, it’s, it’s sort of part of the QAV philosophy that if when you’ve, when you’ve got a company that seems to be well run, um, smart people running it, they’re generating a lot of cash that we trust that they’ll figure out what to do with it.

Uh, you know, hopefully. Make the business bigger and better, or sell it to somebody else who’s gonna make it bigger and better, uh, at a premium.

 Or Yeah, who knows? Who knows who wants to come along And like, um, Larry Ellison’s son,

Ellison, um, who’s buying Paramount, which owns CBS, like he was a [00:33:00] production company, um, who made a, uh, he got started making, uh. Documentary about himself, uh, because he, he likes flying planes. He’s a pilot and so he, uh, sort of, I think self-funded with his dad’s Oracle money, a documentary about himself, and then ended up co-producing Mission Impossible Films and, uh,

now is buying Paramount.

 So

Tony Kynaston: Skydance.

Cameron: he’s Skydance? Yeah.

Tony Kynaston: Right.

Cameron: I think Ance was the name of the original documentary. Um, I think so, anyway. Yeah. Uh, you don’t, you know, which startup’s gonna come along and decide. They, they want a bunch of television networks and production facilities and cash flow and, and pick it up, so,

Tony Kynaston: sports broadcasting now. I [00:34:00] Yeah. when I open up Apple and Amazon. They’ve got the latest NFL game on them. And, and so, you know, they’re business people, they’ve gotta say to themselves.

Well, if we wanna get into college football, do we go out and create a network from scratch or do we go over to this company and make ’em an offer on their sports broadcasting unit? Um, ’cause it’s cheaper. So I think, I think m and a plays into this. Um, I, can’t predict, but, uh, it’s so cheap. You’ve gotta think that we’re not the only ones who are looking at it.

Cameron: Well, that’s GTN and that’s QAV America for this week.

Tony Kynaston: stock. Thanks.

Cameron: Hmm. Thanks Tony. Have a good one.

Tony Kynaston: All right. Bye.

Sarah: 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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In this episode of QAV America, Australian value investors Tony and Cam are focusing on Seneca Foods, a classic American company known for its packaged fruits and vegetables. They discuss Seneca’s financial performance, history, and why it’s a compelling value stock despite being considered a boring business. The hosts also reflect on other stocks they have reviewed recently, showing significant gains, and emphasize the ongoing potential to find undervalued stocks in the US market. The podcast aims to apply value investing principles to identify promising investment opportunities.

00:00 Introduction to QAV America
00:57 Success Stories and Market Insights
04:34 Highlighting Seneca Foods
05:33 Seneca Foods: History and Operations
13:00 Challenges and Financial Performance
19:15 Competitive Advantages and Industry Overview
20:21 Financial Performance Analysis
21:35 Cash Flow and Investment Strategy
24:05 Stock Performance and Market Sentiment
28:59 Seneca’s Historical Context
32:57 Investment Opportunities in the US Market
37:03 US Portfolio Performance
38:57 Disclaimer and Transparency

Cameron: [00:00:00] Welcome back to QAV America. Tony, this is, uh, for new listeners. Welcome. We’re two Australian value investors talking about the American market. We’ve been talking about the Australian market for years. We’re like, let’s broaden our horizons. Let’s, let’s start investing in American stocks as well and applying value investing principles.

So each week on the show, we take a stock. That’s on our US buy list, and I do a deep dive into it. Let’s try and figure out why it’s turning up in our buy list, as we call ’em a pulled pork. But, uh, how have you been, Tony, since we last spoke 20 seconds ago?

Tony Kynaston: Thank you. Are we called QAV

Cameron: I,

Tony Kynaston: now? Is that, do we have to change our name? it’s no longer the Gulf of,

Cameron: yeah.

Tony Kynaston: it’s, or QAV.

Cameron: Yeah.

Tony Kynaston: QAV

Cameron: Well, originally we were, yeah, we were QAV Mexico, but then Trump said we had to change it to QAV America. Tony, a couple of weeks ago on this here [00:01:00] podcast, I did a deep dive on a company called Zep, Zep Health, Chinese Smartwatch Company. Within days of me publishing that their share price jumped up 400%.

Um, so I’m not saying I’m a genius. But, um,

Tony Kynaston: It’s

Cameron: some people say I’m the greatest genius who ever lived, so that was an interesting one. Um, they have. The this, this smartwatch technology that we talked about sounded pretty good, but apparently within a few days of me publishing that they came out and said that they expect the 30% year over year revenue growth growth for the second quarter of 2025.

This would be their first revenue increase in three years, and it was seen as a big turnaround. We did talk a lot in the Paul [00:02:00] pork about. Some of the structural things that they were doing and changing their branding. And, uh, they’ve also apparently signed a couple of prominent athletes, NFL running back, Derek Henry and Ultra Runner Rod Fava as brand ambassadors for a maze fit one of the brands that they market under.

On Amazon, which as I said, makes you think that it’s associated with Amazon, but it’s not. It’s just something they sell on Amazon anyway, so we don’t hold them.

Tony Kynaston: they had, low point price points, I think too, didn’t they? Which was their, one of their big

Cameron: Very low. Yeah. We don’t hold them, uh, in our portfolio. I wish we did, but our portfolio was full. We didn’t have any capital left to allocate to them or I would’ve bought them, but I did. Uh, the reason I found this out is I put together a spreadsheet just tracking the stocks that, uh, I’ve done a pulled pork on that we don’t hold in our official portfolio.

[00:03:00] And, uh, they’ve, some of them have done really well. Um, CX is up 49% since we talked about it at the end of March. That one Z is up 361% since we talked about ’em on the 11th of July. Some of the other big ones are Poco Holdings. Remember them? There was on the 1st of July. They’re up 20% since we talked about them on the 1st of July.

Precision Drilling Corporation we did at the end of June. They’re up 12% IHS holdings we did at the end of May. They’re up 18% Canadian Imperial and Bank of Commerce is up 16%. Uh, Dan OS Corporation is up. 13% Greek shipping company. The one that hasn’t done as well was NL Chile. It’s down 20% since we covered them in May, but the rest are all doing quite well since we’ve covered ’em on the show, which.

Is, you know, all jokes aside, just evidence of a couple of things. [00:04:00] Number one, the US market is kind of bonkers at the moment, so I think a lot of things are doing well over there. But also, you know, we are picking stocks that are, um, undervalued, doing good businesses that are undervalued, so we expect them to do well over time.

Tony Kynaston: and if you, I mean, it’s a kind of almost like a law of physics if you give. A lot of cash to good managers. They’re gonna invest it wisely and make money for shareholders. So, uh, that’s

Cameron: You hope?

Tony Kynaston: you hope. Yeah. All things being

Cameron: You hope?

Tony Kynaston: should happen. Yeah.

Cameron: Well, the stock that I’ve got for this week, Tony, is unusual in a couple of ways. Number one, it’s a NASDAQ stock. I think I said in last week’s show. We don’t tend to.

Tony Kynaston: Can you, whisper it to me before you announce it so I can. a four bagger this week. No, we don’t front run stocks. We should say that. We don’t. We don’t

Cameron: Yeah. What have you done?

Tony Kynaston: it. Yep.

Cameron: No, uh, it might be one of the ones that goes down 20% too. You dunno. [00:05:00] It’s a NASDAQ stock. We said last week that, you know, we don’t tend to get NASDAQ stocks a lot on our buy list. Technology stocks tend to be way too expensive for us, but this, for whatever reason, is an NASDAQ stock.

It’s also sort of a classic Berkshire type stock. Hmm.

Tony Kynaston: find it on the nasdaq, isn’t it? It’s, I couldn’t see the

Cameron: I dunno why it’s on the nasdaq.

Tony Kynaston: and this company. Yeah.

Cameron: No. Well, maybe when it floated back in 1995 it was. Anyway, the company is Seneca Foods, and I think if you’re a North American listener of this, you probably know Seneca Foods. I asked Chrissy, my American wife, Hey, you know Seneca Foods. She was like, yeah, of course. I was like, okay. Um, they, they distribute all around the world too, so I’m pretty sure we’ve bought.

Seneca Products had them here, but [00:06:00] they’re a, they’re a classic American company. Been around since 1949. Big into canning and food packaging. So beans, corn, fruit. Um. Anything that needs packaging. They’re the kings of packaging food and they’ve acquired a lot of different companies over the years. They’ve been around, but it’s, it’s, it’s like one of those classic Berkshire type businesses, unlike a lot of the companies that we’ve talked about in the last.

Few months, you know, like weird fracking operations and, and walking, um, oil wells and, and, and mobile phone towers in South Africa and smart watches in China, et cetera, et cetera. This is a boring food manufacturing business. And as I just said to you on an Australian show, I did have a question for you about it ’cause it is a little bit unusual.

It’s cashflow. Tri is a little bit unusual, but we’ll get to that [00:07:00] later. So their website, by the way, their tagline on their website is Farm Fresh Goodness made Great. I dunno if that’s a MAGA add-on. They’re making farm fresh food great again, or if they’ve had that pre maga, not sure

Tony Kynaston: Uh.

Cameron: but. The founding of it is a good story.

Founded in 1949 by a guy called Arthur Walcott, art Walcott, who had just graduated from doing a degree in, uh, business and economics at Cornell University in New York. He went to an auction in Dundee, New York. Uh, actually hadn’t graduated. He was a Cornell senior. He was looking for a good deal on a typewriter.

He ended up buying a bankrupt grape juice plant instead, which apparently did own at least one [00:08:00] typewriter. So you buy the bankrupt company and you get the typewriter thrown in kind of deal. He must have seen something in it. Because he took it over and I think the first year it did like a hundred thousand dollars in revenue.

Something small like that. Well, smallish but not bad.

Tony Kynaston: big

Cameron: And um,

Tony Kynaston: though.

Cameron: yeah, probably, yeah, would’ve been a lot. And he, but he turned it into an absolute monster company and he only passed away. In 2021, age 95, he was the chairman and president of Seneca Foods from 1949 to 1987, and then served as chairman of the board until he passed away at 95.

So yeah, he sort of reminded me of a Charlie Warren sort of guy, been around, run his thing, stuck to his knitting,

Tony Kynaston: it,

Cameron: a good

Tony Kynaston: out

Cameron: [00:09:00] solo visit. Yeah. Yeah, yeah. Um, in the 1950s, Seneca contracted with Minute Made to co-pack the first frozen grape juice in the United States. And today they produce canned, frozen, bottled fruits and vegetables sold under their own brand and also through major retailers, private labels.

In the 1990s, they did lots of act acquisitions and became for a period of time the world’s largest processor of canned vegetables. In 1995, the company went public. Today about 85% of their revenue comes from canned vegetables and fruits. The rest comes from pro frozen products, juices and snacks, and they have an EBITDA margin about 10 to 12%.

Um, I told you about Walcott. He was married to his wife Audrey for 72 years. [00:10:00] Married her and bought the bankrupt grape juice plant in the same year, 1949, while still a senior at Cornell. Got back from World War ii. Um, went and studied, married her, and did his thing. The CFO of the company is a Michael Walcott.

He’s also treasurer and senior vice president of the company. Not sure of the relationship, but judging by his photograph, I’m guessing he’s probably a grandson. Of the founder or maybe a very young son. Maybe he was, he and Audrey was still at it for a long time, and this guy’s his son, but he looks like he’s in his late thirties, early forties.

Read a bit from their 2025 annual report. Seneca is a leading provider of packaged fruits and vegetables with facilities located throughout the United States. Its high quality products are primarily sourced for more than 1,100 American Farms. The company’s product offering [00:11:00] includes canned, frozen, and jarred produce and snack chips.

Its products are sold under private label as well as national and regional brands that the company owns or licenses, including Seneca. Libby’s Green Giant, aunt Nelly’s, cherry Man, green Valley, and Reed. The company’s fruits and vegetables are sold nationwide by major grocery outlets, including supermarkets, mass merchandisers, limited assortment stores, club stores, and dollar stores.

The company also sells its products to food service distributors, restaurant chains, industrial markets, and other food processes. Export customers in approximately 55 countries and federal, state, and local governments for school and other food programs. Additionally, the company packs canned and frozen vegetables under contract packing agreements.

Seneca Foods Corporation conducts its business almost entirely in food packaging, which comprised 98% of the [00:12:00] company’s total net sales in fiscal year 2025. Uh, already said the breakdown before non-food packaging sales, which primarily related to the sale of cans, ends seed and outside revenue from the company’s aircraft operations.

Of course, why not rep, if you get enough tin cans, I dunno if you know this Tony, but you can make a plane. You get the tin cans

represented 2% of the company’s fiscal year 2025 net sales. So.

Tony Kynaston: Is that selling food to airlines to serve on the planes, or do they actually have an aviation

Cameron: they, yeah, they bought an airline. I saw that in the notes somewhere. I didn’t, I didn’t drill down. It was small. I, I, I’m guessing it’s for, you know, moving stuff. Like they have their own integrated airline. Yeah. Something. There’s my, my guess, but I didn’t get into it ’cause it’s such a small part of their business now this is also, this is from the [00:13:00] chairman’s.

Um. Report in their most recent annual report, fiscal year 2025 was challenging yet solid for Seneca Foods with net earnings of 41.2 million compared to 63.3 million the previous year. Major factors impacting profits include extreme weather during the planting and harvest seasons causing historically low crop yields.

And ongoing inflation pressures. Additionally, significant tariff related cost increases, particularly for steel tin plate added substantial expenses. The severe weather, especially in Minnesota and Wisconsin, resulted in just 70 to 75% of expected crop volumes, forcing plants to operate below capacity inflating unit costs.

However. Seneca leveraged plentiful inventories from 2023 to meet customer demand. Moving forward, the [00:14:00] company plans to operate at full capacity to rebuild inventories to normal levels. Steel tariffs remain a critical challenge. Since 2018, US domestic tin plate production capacity sharply declined forcing reliance on costly imports.

Recent tariff increases from 25% to 50% will further elevate costs, inevitably passed on to consumers. Despite these headwinds, overall unit volumes rose, nearly 6% boyed by strong performance and branded retail channels, including green, giant products and new innovations like canned pumpkin, which by the way, you ever tried to buy canned pumpkin in Australia

Tony Kynaston: haven’t, but we don’t do pumpkin pie, so I guess we don’t have much of it here. We don’t do,

Cameron: while? Well, I,

Tony Kynaston: Thanksgiving.

Cameron: I do make pumpkin pie

Tony Kynaston: good for you. Uhhuh,

Cameron: for Thanksgiving. For Chrissy every year.

Tony Kynaston: you are giving. [00:15:00] Thanks for Chrissy being here.

Cameron: I am. That’s exactly what I’m doing. Yeah. Yeah.

Tony Kynaston: you.

Cameron: And I’m giving thanks to her country for letting her escape 16 years ago and come to Australia. Um, uh, but yeah, it’s, it’s the one thing, I started it years ago. It’s like, um. My small attempt at uh, Thanksgiving was her favorite sort of holiday in the US and so I try and recreate a little bit by making pumpkin goodbye and I’m bloody good at it too.

But you over there they use canned pumpkin. We don’t have canned pumpkin here, so I have to get a real pumpkin and

Tony Kynaston: it up.

Cameron: it and puree it myself. Yeah. Yeah. It’s not a big deal, but yeah, you just can’t get tin pumpkin here. Chrissy’s always like, why is there no tint pumpkin in this country? I’m like,

Tony Kynaston: No

Cameron: We just have real pumpkin.

Tony Kynaston: Yeah.

Cameron: Yeah. Well, I mean, yeah, I guess pumpkin pie. I dunno what else you use tin pumpkin for, but yeah,

Tony Kynaston: could, uh, you could

Cameron: and pumpkin pie is a weird thing.

Tony Kynaston: scones, couldn’t you?

Cameron: It could. [00:16:00] Pumpkin pie is a weird thing if you’re not used to it. Like it took me a while to get used to savory dessert, you know? But I enjoy it now. I do a really low sugar one too.

I used to buy one. There was a place in Brisbane that sold them. I used to buy it, and then they went outta business. So anyway, I had to make my own.

Tony Kynaston: person who married an American. They’re like,

Cameron: No, you had to order like six weeks in advance. If you wanted a pumpkin pie for Thanksgiving. It was like boom, boom season for them. Anywho, uh, moving right along. Uh, tinned pumpkin. Yes. The snacks and glaze fruit segments had strong years through though tariff induced price hikes on imported ingredients like.

Pineapple and orange peel may impact future pricing. Seneca continues focusing on cost control, strong balance sheet management, debt to quality ratio at 0.62, and conservative liquidity strategies, positioning itself [00:17:00] to see strategic growth opportunities. The company maintains a robust workforce. I think they hire about.

27, 2800 people through competitive wages and significant investments in seasonal housing essential to sustaining operational efficiency. The president expressed confidence in Seneca’s long-term resilience, highlighting employee dedication and shareholder support, underscoring the critical role the company plays in providing nutritious, affordable food to consumers.

One of the things that he did talk about is inflation pressures in the US driving consumers towards more affordable canned products. So their, their unit costs are up because of tariffs, but they’ve, they’ve sort of integrated them into their pricing and, uh, they think more customers are gonna be buying canned foods as Trump’s tariffs make everyone go broke.

Um. There are,

Tony Kynaston: did the

Cameron: sort of a PR.

Tony Kynaston: say that?

Cameron: [00:18:00] No, that was, uh, I don’t wanna put words in his mouth, Tony. No. So why It’s cheap. Uh, you know, we’ve had a lot of crazy businesses that we’ve done Paul Porks on, um, over the last few months, and a lot of them are cheap for a lot of different reasons. This one. Hard to tell why it’s cheap from a value perspective, other than I think it’s just an old boring f.

Food canning business, which is again, why it, to me just screams like a classic Berkshire Hathaway kind of investment. It did have a rough couple of years, which might have hurt it. Um, as he said, you know, they had bad crops. They, they were, they lost money for the last couple of years. They had to really dig in and support the business.

Uh, they really had a great year in 2025, cashflow wise, profit wise, but it was [00:19:00] sort of a, a turnaround year, and I wouldn’t expect them to have that kind of year moving forwards. One of the things that they have done though, despite all of the challenges, is pay down nearly $300 million in debt. So that’s good.

It’s reducing their, um, interest expense slightly, but they’ve got a lot of compe, you know, a lot of mo type compe. Uh, competitive, competitive advantages. Huge scale, very strong and old retail relationships. Vertically integrated operations, which protect it from volatility and supply chain costs to some extent.

But it’s a mature industry. They don’t pay a dividend. They like to put the money back into the business, and they’re not sexy. You know, they, they don’t do, they don’t have an AI division, uh, they don’t have a chip manufacturing plant out the back. Um,

Tony Kynaston: stock promoting them.[00:20:00]

Cameron: no. Maybe we should, we should suggest that to them.

Tony Kynaston: QAV Meme Stock America.

Cameron: Yeah, well, just having it on this show is, is all it needs is Zep has proven, from a numbers perspective, the price to operating cash flow at the moment is 2.09. But this is what I wanted to ask you about. So I mentioned this earlier, so if I go over and look at their numbers in stock Edia, if I look at their operating cash flow from the last five years, so 2025, full year ending March, 2020 5, 330 5 million.

If I go back to 2024, it was negative 83 million 2023. It was negative 213 million. 2022. It was plus 30.2 2021 plus 180 3 and 2020 plus 1 [00:21:00] 27. So it’s been a choppy five years. And the 3 35 is, is like the best year they’ve had in 10 years by a long shot. So I don’t expect them to do that again year after year.

I mean, they’re not generating $335 million a year in cash flow. So whether or not their Pr/OpCaf priced operating cash flow will look as good a year from now or would’ve looked as good a year ago, probably not. But it does look that good right now. And so the one question I wanted to ask you is, if you’re looking at a company like this that’s had a rough couple of years, turned it around, had a really good year, but you know, and they’re forecasting that that won’t look like that forever.

Do you discount the really good year or do you say a really good year is a really good year? And we’re looking at today’s numbers [00:22:00] and that’s good enough for me.

Tony Kynaston: That’s exactly what I do. Um, again, this idea of if, if it’s a one-off year, um, look, I look, I might, I might pay attention if they sold something, for example, and that was. Uh, for some reason the assets went into cashflow. Doesn’t always do that. Usually goes into the balance sheet, but there could be some cases where they sold something, which did, um, that might sway me not to.

But look, if they can generate this cashflow and they’ve through some bad years, which is probably the right time to buy them, frankly. Uh, ’cause it’s not like. Um, if they’ve been through the bad years and they’ve survived and now they’ve had a good year, that says to me that, uh, they can withstand bad years.

And, um, so it’s, it’s, you know, buying when the going gets tough and then waiting for it to get better. And, uh, I take your point, this is a one off year for whatever reason. I think you mentioned off air that might’ve been because of inventory flows were a bit unusual. This year. So, [00:23:00] again, that might not happen in the future. Uh, but, but generally, like, it’s the, it’s not quite a law of physics, but you’ve got a company and it’s thrown off a lot of cash and the company is been around for a long time, it’s not gonna go broke. It’s got, as you say, moats. It’s pretty integrated into its industry. Um, and it’s got good management.

Um. it’s either the son or the grandson or the founder. So they probably learned a lot about the industry along the way. Giving good, giving a high amount of cash to someone, like that’s probably a good recipe for them to invest it wisely. Uh, and so yeah, it might be a one-off, but yeah, if they could put that back into the business, they’re gonna grow sales, I would’ve thought And improve the business, or as you say, pay down debt. To improve the balance sheet. So I’m, I’m happy taking the one off cash bump, and, and not discounting it, you know, based on an average over a number of years or something like that.

Cameron: Hmm. [00:24:00] Good. Well, I’m glad you feel that. Way, um. Some of the other numbers I said they’re not paying a dividend yield. Uh, the F score is a six, so that’s pretty good. Um, I wanted to just look at the Wikipedia numbers. They give them a quality ranking of 68. A value of 94, momentum of 68 and a stock rank of 93.

So from our perspective, pretty solid stock edia numbers. If you look at the five year chart, uh, it’s been going up in a straight line since it bottomed out in the middle of 2023. Middle of 2023 was trading at $32, and today it’s around $102, just north of $102. So. Great time to buy. It would’ve been

Tony Kynaston: Hmm.

Cameron: middle of 2023.

It’s gone up 300% since then, give or take. Uh, but despite [00:25:00] that still comes in very, very solidly with our numbers. Um, I’ve got some more quotes here before I get into the deep, deep before I get into the scoring. Um, let’s see what I’ve got here. The turnaround was driven by normalizing inventory levels, reducing working capital, drag and full monetization of the 2023 pack inventory that got them through the disastrous 20 12 20 24 season in FY 2023 and 2024 inventory built up.

Buildup inventory buildup ate cash. But in 2025, they flipped that around 325 million realized from inventory alone, which was the biggest single driver of their cash surge. So it wasn’t magic, it was just they had the inventory and they pulled it out and they sold the crap out of it. So that’s good business, right?

Tony Kynaston: [00:26:00] said prop calf was two, something like that, wasn’t it? Two times,

Cameron: Mm-hmm.

Tony Kynaston: even if, even if we average it over the good year and the bad year, and say you know, we should look at an average cashflow. It’s still gonna be a low prop cap. It’s still gonna be four or five times, I would’ve thought.

So it’s still,

Cameron: Low seven. Yeah.

Tony Kynaston: it’s, it’s below seven.

Cameron: Yeah. So not necessarily repeatable, that inventory reduction is a one-off event as they cleared stock, but it does, as you said, Lindsay puts ’em in a strong cash position where they can. Fund plant capacity or new acquisitions and they, they run a very tight operation debt wise as opposed to some of the businesses we’ve talked about recently carrying a lot of debt.

So let me crack into some of the other numbers. Um. They don’t have a qualified audit. I check their most recent annual report. Positive Market sentiment has been for quite some time. [00:27:00] Average daily trade is about 6 million. So good liquidity for pretty much everyone. Price, fiber and cash flow 2.0. Six 2.09, something like that.

Quality rank is a 68 outta 60, uh, sorry, a 68, which is above 60. So we give it a score for that. Stock rank is a 93, which is above a 90, so we score it for that. The F score is a six, so we score it for that. Priced, uh, is not less than intrinsic value number one. Our intrinsic value number one is $30 25. The price is around about 102, so it doesn’t score for IV one.

There’s no forecast. EPS doesn’t have a lot of broker coverage, surprisingly to me ’cause it’s such a old and relatively large business, but no forecast EPS. So we don’t have an IV number two. Price is above the book, but lower than book plus 30. [00:28:00] Book plus 30 is about 119 and the price is about 102. So I did score it for that.

It does have positive book value growth, it pa over the last few years. So it passes for that no dividend. So it doesn’t, uh, get a score for that. And the directors, from what I can tell, the CEO and the COO combined on about 6%. So less than the 10% that we want to score them for that. But all up they get a quality score, a QAV quality score of a hundred percent, 10 outta 10, uh, and a QAV score of 0.48.

So very good QAV score. So that is Seneca. S-E-N-E-A is the ticket code. They just couldn’t fit the.

Tony Kynaston: See.

Cameron: CI couldn’t fit the C in. I tried, couldn’t get it in. How much do you know [00:29:00] about Seneca? The, well, the Seneca, the, the older or Seneca? The younger.

Tony Kynaston: Uh, about as much as I knew about Seneca Food before you told me about it.

Cameron: Well, I know quite a bit about the Senecas because you know, with the Caesar show that I do, we’ve talked a lot about, particularly Seneca, the younger Seneca, the elder, the father was, uh. Uh, philosopher slash rhetoric ion in ancient Rome lived through the reigns of Augustus Tiberius and Caligula, and, uh, you know, had a relatively interesting career and, uh, wrote a lot of interesting works that have, uh, survived, some of which have survived.

But his son is the more interesting one. So his son was a very famous, stoic. Philosopher and was tutor to the Emperor Nero when he was a young lad. Hired to be his [00:30:00] tutor. And then when Niro became emperor, when he was, uh, 20 18, 20, something like that, Seneca became his advisor and basically ran the government for the first five years of Niro’s Reign, which is known as the golden years.

Um, it was, everything was great, everything was going well, and then. Niro turned on him and Seneca also got himself into a bit of trouble. There was, uh, rumors of him sleeping around with people he shouldn’t have been sleeping around with, and there were suggestions that he was involved in some sort of treasonous plot and, uh, I think he ended up having to, um.

Kill himself. He had to commit suicide. But uh, yeah, like a really interesting guy who tried to write [00:31:00] the situation in Rome in the early part of the empire.

Tony Kynaston: Okay.

Cameron: tried to bring a civilized approach to government for the first time since the death of Augustus. Really? And, uh, I dunno which one these guys named themselves after, but it, I assume the younger, but interesting to me when,

Tony Kynaston: no.

Cameron: Hmm,

Tony Kynaston: Tin food in the Seneca household. In Rome.

Cameron: yeah, yeah, they did, they did have ways of storing food, but. Uh, the company that we just talked about on the Australian show was called bgan. I guess after Rajni, these guys are called Seneca, I assume, after the stoic philosopher. So interesting. When you see companies that have deliberately chosen a very deliberate name, you imagine, to represent what they stand for in some way.

Tony Kynaston: did wonder if they were based in Seneca, [00:32:00] New York, which is a town named after Sydney, I would think, but they may have just named it after the

Cameron: Uh, interesting. Well, they were based up somewhere around upstate New York, so yeah, it could have been, could have just named themselves after that. And I’m reading too much into it. Alright, well that took the wind outta my sails. Thanks. Uh.

Tony Kynaston: hypothesizing. I, I don’t know.

Cameron: I dunno either. Anyway, check him out. Um, that’s, uh, Seneca, what do you think after all of that, Tony, as an investment?

Tony Kynaston: as we said before, a lot of people wouldn’t get excited by that, but I thought it was a great, a great, uh, thing to pull apart when, uh, I saw it on the notes before the show. I got excited. It’s a kind of classic value business. Long history. The founders passed on, but the family still involved, so a lot of history in managing it. of moat and a lot of cash. Buy at two times cash flow. I’d be snapping it up if I was in the us.

Cameron: You know, I, [00:33:00] you know, I follow the value investing subreddit and I, I see people post all the time on there that there’s no value buys left in the US they’re all talking about Google as being the value buy and that nothing’s left. Everything’s priced to perfection because of everyone’s got all the data and all the information.

And we are finding these companies week after week that, uh, have. Just great, great numbers from our perspective. Like every week, I’m, I,

Tony Kynaston: Niagara

Cameron: I never struggle.

Tony Kynaston: Yeah.

Cameron: Yeah. Like the, the, I did a new buy list for the US market, uh, yesterday and on the buy list, the final version of the buy list, there is 54 companies. That, um, you know, some, we’ve already talked about, some we already own.

There are some big brands like Vodafone, uh, Hertz, which I think we’ve talked about [00:34:00] Hertz before.

Tony Kynaston: did.

Cameron: Um,

Tony Kynaston: outta bankruptcy, or it

Cameron: of the,

Tony Kynaston: going into bankruptcy when we spoke about it years ago.

Cameron: hmm, don’t remember. United Airlines are on their, uh, shell. Is on there, Avis is on there. Um, so some very, very big brands on there, which you’ll be interested to drill down into. But then a lot of other companies, Methodex, A DO, ATCO, agro, a lot of financial companies. As we’ve said before, Waterstone Financial, synchrony Financial Up, FinTech holding.

O’Reilly Automotive, some of the other ones we’ve talked about. Uh, yearend Digital, I think I’ve talked about them. I looked at them. Stealth Gas is still on there. Mammoth Energy Services, who I nearly did. Um, by the way, their share code, their ticket code is Tusk, which is,

Tony Kynaston: Named off the

Cameron: I dunno what that’s got to do [00:35:00] with.

Tony Kynaston: yeah.

Cameron: Yeah, you would think so. But I think it’s named after the mammoth in their name. But it’s a pretty cool name. Tus pretty cool ticket code, but it’s just like over 50, over 50 companies on the buy list that, um, so there’s, there’s, there’s plenty of choice if you’re looking for value buy in the US

Tony Kynaston: And, we draw a, a reasonably arbitrary cutoff for the buy list too. So

Cameron: Yes.

Tony Kynaston: a more loose definition of value. You can find hundreds on the list, probably.

Cameron: So for new listeners, um, we have a cutoff of a 0.1 QAV score, but the reason we have that is just so we have a cutoff. Right. It was very arbitrary

Tony Kynaston: it gave

Cameron: when you came up with it.

Tony Kynaston: a list that we could easily manage and we’d always find something to buy, but it wasn’t too big to be unwieldy. Yeah.

Cameron: Yeah, but if I, um, like, okay, so if I. Look at my overall scoring sheet and go [00:36:00] down lower than that. Yeah, there’s hundreds.

Tony Kynaston: And if you

Cameron: yeah.

Tony Kynaston: once there’s, there’s about three and a half thousand, maybe 4,000 stocks on the US market. So if you took the top decile 400 stocks, you could, you

Cameron: Yeah.

Tony Kynaston: say there’s four. Stocks on the value buy list if we just kept going down the list until we had 10% of all stocks from a value ranking perspective.

Yeah.

Cameron: Yeah, so I don’t know why these people can’t find value stocks in the US market. ’cause I find ’em every week.

Tony Kynaston: And they go up, you said, and the portfolio’s been doing well too.

Cameron: oh yeah, I have, well, I haven’t done, uh, I should just do that before I go do an update on, uh, the, our US portfolio. Um.

 Well

Tony Kynaston: But it is

Cameron: in the last,

Tony Kynaston: you saying that you can’t find value stocks. I mean, Warren Buffet said it all the time too, that he’s been teaching this stuff for 50 or 60 years [00:37:00] and he still finds things to buy. Uh,

Cameron: yeah, so, um, our, our portfolio in the US has been running since September, 2023. It’s up. 59, 60% over that period of time versus the s and p 500, up about 43% in the last year. It’s basically been tracking just slightly, well, at the moment it’s about a little bit north of the s and p, it’s up about 19% versus the s and p 500, up about 17%.

Going back to going back six months ago, we were up 40% for that period versus the s and p up 10%. But Trump’s tariffs have played havoc with our portfolio, but it’s still beating the index for the last 12 months. Um, but the last six months it’s come down quite a bit, but some of our stocks are, you know, doing very well.

Willis Lease Finance Corp was up [00:38:00] 300%. It’s now up 200%, so it’s come down a bit in, in the last few months. Um, Euro Seas is up 84% since we bought it in over International is up 75% Foreign trade. Bank of Latin America is up 65%. Optimum Bank Holdings is up 40%. Regional management is up 37%, so they’ve all, you know, mostly doing very well.

NL Chile is the one that’s down out of all of them. It’s the only one that’s down. It’s down nearly 20% since we bought it, but, uh, I might have to get rid of it.

Tony Kynaston: getting close to a rule one then.

Cameron: Yeah, but lots of opportunity

Tony Kynaston: Yeah.

Cameron: market if you know where to look.

Tony Kynaston: Definitely, and you don’t get distracted by meme stocks, or you don’t get distracted by crypto or, um, anything else?

Cameron: Yeah, right. Thank you, Tony. That’s QAV America for this week.

Tony Kynaston: have, a good week, cam. Thank you.

Alex: Disclaimer: This podcast is an [00:39:00] 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 investment may fall as well as rise. The results are general advice only and not personal product advice.

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This week on QAV America, Cameron delivers a doozy of a pulled pork on Bausch Health Companies (BHC), the scandal-riddled pharma beast formerly known as Valeant. From jacking drug prices to a multi-billion dollar loss for Bill Ackman, this company has a backstory filthier than a New Jersey motel carpet. But does all that stink mean it’s a value investor’s dream? We break down the history, the cashflow, the debt, and whether BHC’s rebrand is enough to justify a second look — or if it’s just lipstick on a particularly greasy pig.

Tony weighs in on cultural overhang, conglomerate discounts, and why even psychopaths can run a good balance sheet. Oh, and we talk Trump, Maxwell, and the goddamn Godfather.

—

## **⏱️ Timestamps + Stocks**

– **00:00** – Welcome to QAV America 15: NYSE focus and value investing lens

– **02:00** – This week’s pulled pork: Bausch Health Companies (BHC)

– **04:00** – Dirty history: Valeant, price gouging, and the big rebrand

– **07:00** – 10,000% price hikes and congressional heat

– **09:00** – Philidor scandal, shady pharmacy networks, and fake aliases

– **10:30** – Bill Ackman’s $2.8B loss and catastrophic exit

– **12:00** – The Sprout female Viagra saga: billion-dollar boomerang

– **13:30** – Current financials: $1.6B OCF, $20B debt, and F-score of 7

– **16:00** – Xifaxan, IBS, and hepatic snuffleupagus

– **18:00** – Bausch + Lomb confusion: spin-off but 90% still owned

– **20:00** – Conglomerate discount, legal overhang, and valuation mess

– **24:00** – Why value investors should care: deep discount and high cashflow

– **26:00** – Quality and QAV metrics: QAV score ~0.45

– **28:00** – Trump, Ozempic, and pharma pricing politics

– **30:00** – Portfolio update: US portfolio YTD and all-time performance

– **33:00** – After hours: The Open Championship, Godfather rewatch, John Wick realism, and Robert Maxwell conspiracies

 [00:00:00]

Cameron: Welcome back to QAV America, Tony, episode 15. We are recording this July 22nd Australian time, 2025. Just did our Australian show. Now talking about America. For new listeners, welcome. We’re two Australian value investors that have been doing a podcast in Australia for about six years on value investing, and now we’re doing one on the American market as well, where each week I take a company.

On the New York Stock Exchange or NASDAQ in theory, but they always tend to be New York Stock Exchange. ’cause our system of value investing doesn’t tend to score very many NASDAQ companies very highly. But, uh, there’s a lot to choose from. On the New York Stock Exchange, so I, I pick one every week. That scores highly in our system of looking for [00:01:00] quality companies.

And by quality companies we mean a lot of different things, but essentially generating a lot of cash is the big one that we’re looking for. And then we look at the, the valuation. What can we, can we buy them at a discount? We’re looking for companies that generate a lot of cash. Particularly interested in the ones that we can buy to discount to what we think their intrinsic valuation is.

Then I’ll do a little bit of a deep dive or a pulled pork as we call them. And this week, oh, this is a terribly dirty, dirty company story. Yeah. I think last, I can’t, I think last week we were talking about dirty oil or dirty something. This week it’s dirty, dirty drugs

Tony Kynaston: about coal tile last week.

Cameron: Ah, that’s right. Well, this time it’s dirty drugs and dirty contact lenses.

You don’t want your contact lenses to be dirty, but uh, turns out the business of contact lenses is dirtier than I realized. So the company is called. [00:02:00] Bausch Health, you’re probably familiar with Bausch and lom. The, uh, eyewear brand. Well, this is the parent company now, confusingly Bausch Health. BHC is the company that I’ll be talking about.

Bausch Lo is a separately listed company on the New York Stock Exchange. They spun it out. I think it’s B-L-B-L-C-O is Bausch and Lam. Not talking about Bausch and Lobo. I’m talking about Bausch Health. They still own 90% I think of Bausch and lom. They floated off a small amount of it, and they might float off the rest of it too, which I’ll get to, but this is BHC.

Now, I do want to preface this by saying. From a sentiment chart perspective, they are currently what we call a Schrodinger. They are above their byline, but slightly below their sell [00:03:00] line. So they’re simultaneously a buy and a sell. So we wouldn’t buy them, they just tipped down they were a buy. So I ran my checklist, my, my buy list, like, uh, two weeks ago.

They were a buy at the time. They’ve just dipped a few cents below. Well, it’s a bit more than a few cents. Their sell price is $6 49. They’re currently about $6 31, so they’ve dropped 18 cents or so below their, uh, buyline. So we wouldn’t buy them at this stage, but I’m gonna talk about ’em anyway ’cause they could pop back up above that at any given moment.

They’re a global diversified. American Canadian. Really? Canadian American. ’cause they come outta Canada. Pharmaceutical company. Primarily global corporate headquarters are in Quebec at a place called Laval in, uh, Quebec. Its US headquarters are in New Jersey, which is [00:04:00] fitting because I think for a long time they sound like they were run by like the mob.

Tony Kynaston: Allegedly.

Cameron: Oh, it sounds like they were run like the mob, not by the mob, like the. Dirty. Very, very dirty. Uh, they develop, manufacture a market range of pharmaceutical products, from diarrhea to constipation, from female horniness to itchy skin conditions and better contact lenses. They’ve got it all covered, although they sold off their female Viagra product.

But it’s a really good story because I’m, I’m gonna get to that later on. They’ve had a bunch of scandals over the last decade in particular, uh, actually had other scandals going back to the nineties, but thi this is a company that has a stank on it. They’ve had lots of very, very expensive headline grabbing corporate scandals over the last 20, 30 years, [00:05:00] and that’s one of the reasons I think why they’re cheap at the moment.

It’s just one of the reasons so bad they had to do a rebrand to try and get away from the stink on their brand. So they used to be known as Valiant, V-A-L-E-A-N-T. But then about seven or eight years ago, they changed their name to Bausch. So, um, people, as I said before, if you, if you, if you wear glasses or you have ever walked past a glasses shop, you’ve probably heard of Bausch and lom.

They’re a pretty big global brand. This is the parent company. They bought that business quite some years ago. But they really are post-scan rebrand of this company, Valiant Pharmaceuticals. They have one of the filthiest backstories on the market. Um, about 10 years ago, they were in a heap of trouble in the US for all sorts of things.

Jacked up, drug prices, lied about sales cooking. The [00:06:00] books blew up one of the most famous hedge funds on Wall Street. Your old friend Bill Ackman, then they changed their name in 2018. To, you know, I guess to in hope that the market would forget, and it hasn’t really, but this is how it all went down. I mean, the company goes way back many, many years started by a, I think it was a Canadian pharmacologist, but it went through decades of development.

In 2003, it was called ICN Pharmaceuticals changed their name to Valiant. And decided they didn’t. The guy who was the CEO at the time decided they didn’t want to develop drugs. They just wanted to buy existing brands. So he started doing this massive rollup. A debt fueled rollup of other smaller drug companies, stopped really spending on r and d and just started borrowing like crazy, gobbling up small drug [00:07:00] companies.

And then once they bought it, jacking the prices up. Through the roof, they would. Buy an old medicine, cut costs, raise the price and then milk the hell out of it. Got some examples. In 2015, they bought two old cardiovascular hospital drugs, Isoprel and Nitropress, and then raised the prices overnight by 525% and 212% respectively.

No new research. No better version, just. A new sticker price, and that wasn’t a one off. They did that on 62 different drugs, raising the prices in some cases by more than 500%, and one antifungal called flu toine. It’s being sold in the US for 10000% more than it was costing in Europe, [00:08:00] 10000%. So they got themselves the, uh, in all sorts of trouble with Congress, the me there was a media storm around it.

Then in 2015, the activist firm, Citron Research called Seller, Andrew left, who I think we’ve talked about before. He’s one of these guys that like in the big short, uncovers companies that he thinks are doing dodgy stuff and then he shorts them and then. You know, writes about them and tries to destroy the business.

Yeah. He accused them of accounting fraud in 2015 through a shady pharmacy network called philidor. His allegations were that they had a fake pharmacy that they secretly controlled. Yeah, then they would use it to push their own expensive drugs and make the numbers look better than they really were.

Valiant employees. Were allegedly working at [00:09:00] Philly door under fake names. So basically valiant people. Um. Pretending to be philidor people emailing doctors and insurers using fake aliases to hide the connection. The whole thing blew up in October, 2015. Valiant denied it at first, then tried to quietly cut ties with Philidor and get rid of the whole thing.

Meanwhile, bill Ackman, the guy who runs the Pershing. Fund an activist investor, one of the biggest names on Wall Street. Loved Valiant. He took a massive position in Valiant over the years. At its peak, he was up billions of dollars. He loved the business model. Then when all of this stuff about the price gouging inquiries and the the filler door allegations all blew up, the share price dropped from $262 to under $15, and he sold [00:10:00] the lot.

He lost $2.8 billion dumping his steak and had to walk away. He’s still around though.

Tony Kynaston: Hmm.

Cameron: And, uh, he, he did okay. He invest, he’s invested in lots of things, but he called it a very costly mistake. But it was, I was reading through, like he was pumping these guys up massively and then it all just collapsed like a house of cards.

But the dur goes back even further. So their iCare unit, Bausch and loam were caught in the nineties. Selling the same contact lenses under different names and different prices, same product, different labels, different price tags. One was marketed to last a year, another would only last a month, and another would last for only two weeks, exactly the same contact lens.

And they got in trouble. The states sued them. They settled for $68 million in 1996 and agreed to stop. I remember that a similar sort of thing happened here, I think with uh, [00:11:00] Neurophin

Tony Kynaston: Hmm.

Cameron: a few years ago, wasn’t it? They got caught doing a similar sort of thing.

Tony Kynaston: Uh, well, similarly, yeah. I mean, they, they had, if you walked into a grocery store in Australia, you’d have different versions of neurophin. One for backache, one for one for this and that. But they’re all the same tablet, allegedly.

Cameron: Same thing, yeah. But these guys sort of have a history of price gouging and yeah, not being exactly the nicest people on the block. Um, really, really full on aggressive marketing of pharmaceuticals. Then, this is my favorite story. There was this company called Sprout Pharmaceuticals, developed by a woman called Cindy Eckert.

They developed this drug called Aye, which was a female Viagra, I think it had been originally discovered for lowering blood [00:12:00] pressure or something like that. Bit like Viagra and had a, another pharmaceutical use. Then people found out that it got made women horny and so they started marketing it. They got, she got approval from the FDA in 2015 to sell it as a female Viagra.

Uh, Valiant. Bought it the next day for a billion dollars.

Tony Kynaston: Whew.

Cameron: But that was 2015. Just as all of this price gouging stuff started to blow up, she then sued them two years later because part of the agreement when they bought it was they had to do a good job marketing and she must have been getting a percentage of the sales or the profits or something as part of the deal, and they didn’t do a good job.

So she got it back basically for nothing. They had to give it back to her a couple of years later for essentially for free. So she sold it for a billion dollars and then got it back a couple of years later, which, uh, I thought was great.

Tony Kynaston: excited, then, then [00:13:00] nothing. Nothing will,

Cameron: Steve was excited. Worked for her. Yeah. Oh, I’m sure. So that was a great story. So then the CEO, uh, Jay, Michael Pearson, I think his name was during this whole period, got the boot. They rebranded as Bausch Health in 2018, hoping the new name would sort of clean the blood off the walls, but they’re stuck with the debt.

’cause they went on this debt fueled

Tony Kynaston: Yep.

Cameron: rollup thing. They’re still carrying like $20 billion in debt. So that’s one of the problems with these guys. Massive amounts of debt. The, the CEOs, they’ve had two CEOs since Pearson got, uh, kicked out. And they’ve gone on a massive selling spree of their assets to keep the walls from the door.

They spun out Bausch and Lam, as I said in 2022, but still owe 90% of it. And that’s also one of the problems with this, I think from a market perspective, it’s one of these Frankenstein monsters, we’ve talked about this in [00:14:00] other e episodes, these massive conglomerates that have stakes in lots of different businesses and lots of different sectors with different levels of ownership and different things.

It’s hard, I think, for a lot of investors to figure out how to value it.

Tony Kynaston: Right.

Cameron: These guys have everything from drugs to beauty, lasers, gut meds, and eyecare division, which is partly spun out, but from our perspective, it’s still generating a ton of cash. So thumbs up, looking pretty good, carrying a lot of debt, but generating a lot of cash.

So. Despite all of the lawsuits and the stink and the bad blood, it’s a money machine. It’s throwing off $1.6 billion a year in operating cash, and its market cap is $2.6 billion. So it’s a prop calf of about [00:15:00] 1.6 I think. Which is very, very low. Part of that cache comes from a gut health drug called Xifaxan.

It’s mostly for IBS and liver related brain fog called hepatic slo. In, in, in, in encephalopathy, telepathy. Mr. Who’s the elephant on, uh, Sesame Street?

Tony Kynaston: Mr.

Cameron: Is he in n. Yeah, that’s it. It’s called hepatic snuffleupagus. It brings in about $2 billion a year, this one drug, and they, they had a recent court win that awarded them patent protection until 2029.

On that, they sued another company that was selling something similar, I think. So they have got a few years of runway at least, to keep milking that. The contact lenses division, Bausch and Lo, that brand has been around since the 18 hundreds. [00:16:00] Uh, don’t think they’re making contact lenses in the 18 hundreds, but depends on what contact lenses would’ve looked like in the 18 hundreds.

Uh, but it’s, it’s one of those, it’s got a sort of a moat in terms of the brand. It’s been around so long that it, it’s, it’s a trusted brand when it comes to eyewear. It’s got very, they’ve got very good. Channel penetration with optometrists and eyewear stores and that kind of things. B and l is sort of one of the go-to brands in that space.

So it’s kind of a moat and it brings nearly half the company’s revenue.

Tony Kynaston: So

Cameron: Yeah.

Tony Kynaston: Long got spun off though. They, what are they doing? So still has the contact lens business. What does Baus that’s been spun out? Are they the rest of the, spectacles? Are they?

Cameron: No, well, they spun it, so they spun it off as a listed entity, but I think it’s all still run by the same [00:17:00] company,

Tony Kynaston: well, okay.

Cameron: so they own 90% of it. They, they spun it off as a float, but I think they still own it. And they still run it. They still run the business, I think. They just spun it off, uh, as another publicly listed entity.

That’s my assumption that you don’t think that’s how it works.

Tony Kynaston: you normally wouldn’t retain ownership if you spun it off. You might keep some ownership, but what’s the point of spinning it off if you keep, if you

Cameron: Well, they’ve got 90%. Uh, I don’t know.

Tony Kynaston: Okay.

Cameron: Well, there is, there is talk that they’re going to sell off the rest of it.

Tony Kynaston: Okay.

Cameron: So maybe it’s, it’s a way of just offloading that to the public markets over time. Spin off the division. I dunno. But I know that it generates about half the company’s revenue, so the money is still coming into Bausch Health.

Uh, so [00:18:00] I’m assuming they still run it. I didn’t go down into that level of detail.

Tony Kynaston: Mm-hmm.

Cameron: So why is it so cheap? Um, well the market doesn’t trust them and for good reason, even though they’ve had a couple of changes of CEOs since then. I imagine it’s culture that has spent decades. Manipulating the market and getting itself into trouble for it.

So there’s probably a lot of cultural legacy I imagine from that. They’re still carrying around $20 billion in debt from the valiant years. One bad quarter, one lawsuit go wrong, and the whole thing could look pretty wobbly. And they got a fair amount of legal overhang as well. They’re still. Some level of opioid litigation, Xifaxan patent challenges that they, they have been dealing with.

I think the Xifaxan is safe for a little while yet, but there’s a fair amount of legal uncertainty over the business as well, which [00:19:00] investors tend not to love. And then, as I said before, there’s the conglomerate discount. Bausch still owns 90% of Bausch and Loan, which trades separately, but there’s this structural messiness to the valuation.

Have you, uh, discovered anything? I see you

Tony Kynaston: Yeah,

Cameron: some research. Did you ask ChatGPT

Tony Kynaston: did. it said, back you up. It says that Bausch and Loan was spelt, it was spun off, but, uh, Bausch Health still retains a majority ownership stock.

Cameron: and manages a day to day? Is is my understanding as well, like the division is still part of the company. It’s not like it’s a

Tony Kynaston: says it’s a,

Cameron: length thing.

Tony Kynaston: it’s a subsidiary, so I just can’t get my head around why it’s listed separately then, but anyway.

Cameron: It’s America man. Your gut’s to it’s America to spin off stuff. So they’ve been exploring selling the rest of b and l. If they do that, that could bring in billions of dollars and help them knock a serious [00:20:00] dent in the debt. They’ve refinanced some of their ugliest debt in 2025. They locked in a new series of loans that pushed out maturities lowered their risk profile.

Wasn’t cheap. They had to pay a 10% coupon, but it bought them some time to pay off some of the debt that was coming due. If Trump’s able to get rid of, uh, Powell and interest rates come down, they could refinance again and save more money. They’re probably part of the Fire Jerome campaign. Hashtag fire Jerome.

But the bottom line is I think, uh, you know, it’s a really. Impressive cash generation machine with some really great products that make a lot of money with a really bad history of bad corporate activity and getting caught out for it and having to pay lots of fines and share price collapse, [00:21:00] and from $262 down to below $15 is.

A big hit. It’s trading at $6, by the way. Um, so it’s, it’s, uh, had a pretty steep fall since the heydays.

Tony Kynaston: But new management, I’m guessing so, um, that’s all be the, the old days are behind it.

Cameron: Yeah. As I said before, you know, well, as I said before, like new CEOs, but it’s a 30 year cultural legacy of. Doing things a certain way that I just know from working in big corporates like Microsoft. You know, you can have a change of CEO, but you have. A thousand senior executives that are still there and their little, you know, hierarchies and empires that are used to doing things a certain way.

And there’s a certain mindset, come on, we [00:22:00] wrote a book on psychopaths, Tony, you know, psycho psychopathic cultures don’t get. It cleansed easily. I think, uh, if you’ve spent decades developing a psychopathic business culture that’s like, yeah, screw the customer. Who cares? We’ll get away with it. And if we don’t, we’ll just pay the fines.

Uh, those sorts of cultures tend to have a residual effect. I think.

Tony Kynaston: Well, we haven’t, have you

Cameron: I hope I’m wrong.

Tony Kynaston: you seen any legal cases though, since your management took over?

Cameron: Well, they’ve got, yeah, they’ve got some residual cases around things like opioid litigation and stuff like that, but no, nothing,

Tony Kynaston: Okay. I.

Cameron: nothing that looked like it did 10 years ago, but they’re still cleaning up the mess from what happened 10 years ago. We, we dunno what’s gonna hit

Tony Kynaston: we’re

Cameron: a year from now. Right. Who knows?

Tony Kynaston: the current management though.

Cameron: No, I don’t, I, no new management. It’s been 10 years, you know, rebranding all that. They, they’re trying to do the right [00:23:00] things, like they’re trying to clean up the debt anyway. They’re trying to get rid of the debt, selling off divisions, making sound business decisions to dig themselves outta the hole brand wise, as well as business wise.

You know, it’s not the sort of company that if I, I wouldn’t want to go to a dinner party and hand over a business card and say, yeah, I work for Bao. Remember the old valet? Yeah, that was us, man. You know, I wasn’t even comfortable saying I worked for Microsoft. At the end of it. I had to like hide my head in the sand.

But, uh, but as an investment. I think it looks pretty good. Um, so as I said, uh, bringing in a ton of cash, dirt, sheep, uh, even after they pay, you know, we were talking on our last show about. Operating cash flow versus free cash flow. Their free cash is 1.2 billion, so they’ve got a lot of cash that they can [00:24:00] pay off debt.

Invest in r and d, buy back shares, whatever it is. Their FF score is seven out of nine.

Tony Kynaston: Very good.

Cameron: It’s, which is one of the strongest that I

Tony Kynaston: Hmm.

Cameron: we’ve seen, um, on the QAV America Show. Um, so financial health wise, it’s pretty strong. Particularly this is a company carrying $20 billion of debt. Um, for a seven outta nine F score.

That’s pretty good. The other, the other sorts of things that are interesting is the analyst consensus is that the earnings per share next year could hit $3 95, which would be about an eight time bump on what they earned last year.

Tony Kynaston: Right. So what’s happening?

Cameron: S

Tony Kynaston: driving that?[00:25:00]

Cameron: um, just dunno, Tony Dunno.

Tony Kynaston: Okay.

Cameron: I just dunno, Tony

Tony Kynaston: Dunno. Don’t care.

Cameron: much. Don’t, no analysts think it’s gonna make a lot more money next year than I made this year.

It’s good enough for me. I’m not an analyst just telling you what the analysts think they’re doing my work for me. Um, what else have I got? I mean, I can take you through some more numbers. Um, just quickly. Um, quality rank, they scored on quality rank. They got a 68, so I score them for that ’cause it’s over 60.

Couldn’t score them for stock rank ’cause it’s below 90. Did score them for the F score. The price is not lower than our IV number one, but it is lower than our IV. Number two, can’t score them for. Price less than book because their book is negative. ’cause they carrying $20 billion worth of debt, did score them for [00:26:00] a three point uptrend and there’s a new three point upturn.

Or there was actually, when I scored them, it’s dipped below the cell line. But um. You know, those sorts of things. I’d have to rescore them if I was doing it today, but when I did it a couple of weeks ago, they both scored for that. Uh, what else have I got? Growth over PE greater than 1.5. They scored for that book.

Value Growth is not positive though. PE less than yield. No. Yield bank debt? No. ’cause there’s no yield. They’re not paying a dividend. Um, the IV number two is greater than twice the share price, so that’s unusual. Scored for that as well. Yeah. So. Um, the, the quality score actually was 79% when I did it. Um, but I think I had to fix something in my sheet because there was a problem with the book price in the [00:27:00] first round of scoring.

I think it came down to about 67 when I rerated it, but it had, uh, a QAV score of about 0.4, 0.45 at the end anyway, so a pretty good. QAV score. But again, it’s one of these things that we see I see quite a bit on QAV America. It’s like a hold your nose stock. Um. Which to a degree, any mining company is here for me too.

You know, it’s a dirty business. I don’t like the business, I don’t like the impacts of the business. I mean, I’m happy for these people to sell drugs, but they’re obviously have a history of price gouging American consumers, which sucks to be an American consumer in the healthcare system, I guess, you know, come to Australia and get stuff cheaper.

There was this thing, it’s a funny thing. I saw Trump gave a conference a couple of weeks ago. He was talking about a friend of his who was in the uk, uh, who had to buy [00:28:00] Ozempic. He ran. Did you see this? Oh my God, it was so funny. Trump Trump’s, you know, doing this press conference. And he goes, it’s a friend of mine.

He’s a very, very successful businessman, very famous. You’d all know the name. He, he’s, he’s very fat. He’s very, very, very, very fat guy, very ugly guy. Very, very fat. But you’d know him. He’s very successful. Anyway, he says he’s on holiday in England with his family, and he’d run out of Ozempic. And he went to buy it in the uk and it was like one, 100th of the price that it costs him in the us.

And he got on the phone to Trump and said, what the hell, why, why are Jug so cheaper? And then Trump says, well, we’re gonna, we’re gonna slash all the drugs. He said, this press conference, he said, we’re gonna cut the prices by 50%, 60%, more than a hundred percent in some cases. Like, really, you’re gonna cut the price by more than a hundred percent.

You’re gonna gonna make it free. You’re gonna pay people to take the drug. What, what the hell are you talking about? But then, and then he’s [00:29:00] come out in the last week and said that they’re gonna start punishing Australia if we, if we keep, uh, making our drugs cheap.

Tony Kynaston: Well, we have the pharmaceutical benefit scheme where we, the government negotiates on price with the pharmaceutical companies rather than each chemist chain or network or whatever, which the

Cameron: Yeah,

Tony Kynaston: companies don’t like. Probably vouch doesn’t like. Yeah.

Cameron: so he’s gonna, he’s gonna

Tony Kynaston: Up our tariffs.

Cameron: penalize us, penalize us if we, uh, keep making healthcare cost effective for Australians. Any who, um, what do you think of Bausch Health, Tony from all of that?

Tony Kynaston: Well, look, I um, certainly was aware of Valiant and so I’m

Cameron: Were you,

Tony Kynaston: yet heard of

Cameron: you would’ve been living in Canada around about those times, weren’t you?

Tony Kynaston: And heard of Bill Ackman’s. Big loss on it too. [00:30:00] So, um, yeah. Um, was aware of that. So look, I haven’t researched this company. I can’t. Vouch for the rebranding and the change in management, but assuming it’s, it’s an improvement.

Um, I’d have to do some research into that. Uh, cashflow looks extremely strong, but they’re still carrying a lot of debt. So, uh, from the, from the quality point of view, I think they don’t rank as high in Wikipedia as the F score might suggest for, a quality ranking. I think they were down in the sixties from memory. Uh, but yeah. Um. Look, cash flow solves a lot of problems. And if they can sell off something like their majority stake in Bausch and long and pay off the debt, it’s, it’s cleared up quite quickly. So, um, I like the fact that it’s

Cameron: They get a

Tony Kynaston: and we’re buying it very cheaply. I,

Cameron: stocked, gives them a 97 for value.

Tony Kynaston: yeah. What’s the quality ranking though?

Cameron: 68. Yeah.

Tony Kynaston: Yeah.

Cameron: [00:31:00] Stock rank is 74 68 for quality, but, but a 97 for value.

Tony Kynaston: That’s probably a good summary though,

Cameron: Hmm.

Tony Kynaston: quality’s down ’cause of the debt, but it’s a deep value buy. Um, yeah. Which is,

Cameron: But a seven for the F score, you know, so they can, they can pay their debt. They’ve renegotiated the debt, they can meet the debt. They generating enough cash to pay the debt. Yeah, so a bit different from the usual

Tony Kynaston: Hmm. Very.

Cameron: shipping companies and, uh, financial services firms that we’ve covered. Uh, I should say we, we don’t hold them in our US portfolio.

Uh, we don’t, you know, we are fully invested in the US portfolio. I should also do just an update while I’m here on our US portfolio. I guess. Uh, where are we at? Let’s have a look. So. For the last 12 months, we’re up 23.7% versus the s and [00:32:00] p 500, up 14.54%. Um, year to date we’re down 15.7 versus the s and p up 7.2.

Thank you Donald Trump for all your hard work.

Tony Kynaston: calendar, year to date or financial year to date?

Cameron: Y Yeah. Calendar, year to date since the beginning of January.

Tony Kynaston: Yeah,

Cameron: Yeah, and all time, so we started this portfolio back in September, 2023. We’re up 57.97% versus the s and p 500, up 41.89%. So we’re doing okay versus the index, not as good as we were. pre-Trump late last year we were up 90.8% versus the s and p up 34%.

The uh, Trump Trumponomics. Has had a massive detrimental effect on our [00:33:00] portfolio this year. It’s the greatest economy. It’s gonna be the best economy. It’s gonna do great. Has not done great for our portfolio over there, but it’s, it was doing so great before that, that it’s still doing okay.

Tony Kynaston: Yeah.

Cameron: So there you go.

Tony Kynaston: Very good. Thank you. Can

Cameron: Alright, well that is QAV. We’re into after hours. Tk, what do you got? What do you got for me?

Tony Kynaston: Well, we, I mean I’ve been watching the British Open, so that’s been my sort of entertainment diet for the weekend or the Open championship as they prefer to call it. get quite prickly when people call it the British Open, but everyone calls it the British Open, so,

Cameron: Why do they get prickly about that?

Tony Kynaston: Uh, because it’s officially called the Open Championship. And when I’ve pushed people over there as to why they get about it, apparently, and I don’t know if this is the the case, but apparently Northern Ireland is part of the [00:34:00] uk but not Great Britain. Uh, so they call it the British Open. If we call it the British Open, we’re not including Northern Ireland, which is where it was played this year. Um,

Cameron: right.

Tony Kynaston: you know, splitting hairs and you can, um, and when the English split hairs on things like that, you can see why the English language is so hard to learn if you weren’t born speaking. Um,

Cameron: see why everyone hates the poms. Like just get over yourselves. You get the Great Britain, England, the United Kingdom.

Tony Kynaston: yeah,

Cameron: on. Just pick something.

Tony Kynaston: like everyone else does.

Cameron: Yeah.

Tony Kynaston: fun, good fun to watch. It was, uh, at Port Rush in Northern Ireland, which is where, I went to with Ruddy when it was last there in 2019. Prior to COVID a great, great time in Northern Ireland, uh, and the rest of Ireland that trip.

Um, had a, I think this year they had much better weather. When we were there, it was just cyclonic, the, the wind and the rain, and it was won by a local Irish player. This year it was, uh, [00:35:00] and sunny and the Americans prevailed. So, um, that, that was interesting. But, um, the other thing we did this week was after watching the offer, Jenny wanted to go back and watch The Godfather.

So we did that, um, which was great. She hadn’t seen it in since it came out and, I hadn’t seen it for a

Cameron: What?

Tony Kynaston: Yeah,

Cameron: She hadn’t seen it since 1972. Wow. Chrissy and I kind of watch it at least once a year.

Tony Kynaston: We don’t do that. Um, uh, it was great to watch the offer and then go back and watch the, the Godfather and just get blown away by it again. And, um, and knowing some of the backstory on how it was created and, uh, really came away with the feeling of it being just like every scene is so special and just delivers a, a punchline in every scene set up, usually with a background of something big happening, a waiting, a funeral, and then tight, [00:36:00] you know, tight into a couple of protagonists and then punchline every scene, which was really, really quality filmmaking.

Cameron: Yeah. And like it just holds up so well, it’s so beautifully shot. The performances are so great. The story’s so great. Um, and the second one, you know, arguably even better, the part two with, uh, cutting backwards and forwards.

Tony Kynaston: our, next. Next, uh, watching this week. Hopefully to get to that,

Cameron: Yeah. Well thank, thank God for Bob Evans who saved it on the cutting room floor as we joked about last week. Yeah, no, just every time, like I never get tired of watching The Godfather. It’s just such, such a masterpiece. My only complaint over the years has always been Jimmy Khan, James Kearn as Tino, not Italian.

Doesn’t look at all Italian.

Tony Kynaston: Ann was the, was the pick to play Sonny and that was the compromise. [00:37:00] I said, we’ll keep him in, but we’ll make, uh, we’ll give it to Al Pacino, but we’ll keep James Carney in.

Cameron: yeah. Like he just does not fit with the rest of the cast at all. Um, but you know,

Tony Kynaston: Impressive. I mean, he’s physically

Cameron: yeah,

Tony Kynaston: Plays the part really well. It’s a great part, but yeah, it doesn’t look like he’s part of the family.

Cameron: he, he can do anger very well and you know, throws, goes off his rocker and all that kinda stuff. It’s great. Uh. Don’t want my brother coming out of the stalls with his, just his dick in his hand. Great line. Um, yeah. Anyway. Very good Godfather. Well, I haven’t really watched anything to speak of, was watching a bit of John Wick two last night.

Um, still just appreciating John Wick was doing, doing knife defense at kung fu this morning with my sifu and he was like, you know, you get stabbed and that’s it. It’s all over. And I was [00:38:00] like, I saw John Wick get stabbed and he went on and fought 500 guys. I saw him get, get shot. In the abdomen and then ran at full speed for hours and hours through, uh, CCOs and took out a bunch of guys.

Was doing, doing kung fu on people after getting shot in the belly. Uh, either being shot or stabbed in the belly isn’t as bad as you’re making it out, or I shouldn’t believe everything I see in a John Wick film either way

Tony Kynaston: That’s

Cameron: Anyway.

Tony Kynaston: comment we made about the Godfather with the Coone guys take, can take all the bullets, like you see the, you see Don Coone being shot and he gets shot about five or six times and he falls on the car and rolls over and lives, you see, um, being shot at the toll booth and he’s like machine gun, but he still gets outta the car and stands up and he gets machine gunned again and he Yeah. Takes about 30 bullets to kill him.

Cameron: Yeah, all the [00:39:00] squibbs going off. It was crazy. Um, but then, yeah, I’ve been reading this book on Robert Maxwell and it’s fascinating. Like I had no idea. I mean, I kind of, you know, I remember who he hearing about Robert Maxwell in the news in the eighties and when he died and that kind stuff. Never really paid that much attention to him.

Knew he had a great rivalry with Rupert. See, um, Trump has sued Rupert for $10 billion or $20 billion or something now. So he’s suing Rupert, who owns the Wall Street Journal, but also owns Fox News, which is sort of his number one fan base. And then there was a story that JD Vance went and spent a couple of hours with Rupert and Lachlan a month or so ago.

And then that’s followed by the Wall Street Journal article about Trump’s birthday picture drawing for Epstein and the suing. Like, [00:40:00] what’s going on? You know, how does Trump think this is gonna play out if he’s suing the guy that owns Fox News?

Tony Kynaston: Yeah, yeah, exactly.

Cameron: to, it’s hard to figure out how much is performative theater?

How much is real?

Tony Kynaston: oh, I think Trump’s lashing out to try and stop the Epstein files from coming out, but I don’t know what, what it, what’s in it for Rupert to prosecute It

Cameron: Well, the, the word on the street has always been the Rupert completely loathes Donald Trump, like as everyone pretty much does, including his own administration, I think. But um, yeah, I don’t know, man. It’s fascinating. But anyway, the Robert Maxwell thing, Maxwell’s story is fascinating.

Tony Kynaston: that, did you

Cameron: Yeah.

Tony Kynaston: Colberts being, um, canceled

Cameron: Yeah.

Tony Kynaston: and,

Cameron: And the, the theories behind that,

Tony Kynaston: yeah. Yeah.

Cameron: I read Nate Silva did a big post on [00:41:00] it today.

Did you see that?

Tony Kynaston: No, I don’t fall on eight silver.

Cameron: He did a big analysis on it and talked about all the different theories and, you know, there’s no doubt that late night shows and the, the big television networks are doing it tough. The economics of all of that is hard to justify these days with the fragmentation of attention towards TikTok and streaming and all that kind of stuff.

Um, whether or not it was just, uh, a political hot potato after Colbert called Paramount’s payoff to Trump to get outta the court case over 60 minutes, a big fat bribe. And they just decided, you know what? This is, we don’t need you anymore. We’ll get rid of you because Larry Ellison’s son wants to take over Paramount needs, Trump’s approval, et cetera, et cetera.

I dunno, interesting how all these [00:42:00] big media companies and big law firms are, uh, paying off Trump. As Colbert said, it just looks a bribe.

Tony Kynaston: so-called,

Cameron: It’s a shakedown.

Tony Kynaston: independent, organizations.

Cameron: Mm. Mm-hmm. Anyway, back to Robert Maxwell. He was born in this little town in the middle of nowhere in, uh, Czechoslovakia, sort of on the border of Czechoslovakia and all the other countries around there.

Born to a poor family of nine kids. When he was 16, he left home and, uh, went and joined.

Tony Kynaston: was that called the Maxwell House?

Cameron: Well, funny you should mention that. So his name is not Robert Maxwell? No. His name is like Jan Yarn Cock or something. Changed his name three or four times during World War ii. Settled on Robert Maxwell and [00:43:00] then later on when he started building his empire in the United Kingdom in London, he did buy a building and called it Maxwell House.

Uh,

Tony Kynaston: Was there a

Cameron: but.

Tony Kynaston: like a big spoon coming out of the roof?

Cameron: I think he, I think he got sued or they had some trademark issue with the coffee brand in the, in the United States. But anyway, born with, in this poor family, nine kids, he goes off joins World War ii, goes off and later finds out that his entire family got killed by the Nazis. His mother, all of his siblings, except two sisters survived.

They got gassed at Auschwitz. Um, his father got shot by the Nazis. Um, so he’s a Jew, right? Um, they all got exterminated. And, but he, he ends up sort of becoming part of military intelligence, uh, in World War ii, working for the British [00:44:00] and changes his name and adopts a British accent and takes on the persona of a, he’s a bit like Don Draper and madman.

He just takes on madman, takes on. This persona of this British upper class gentleman ends up getting funded by MI six to buy a. Uh, the, the rights to a scientific publishing business outta Germany that was trying to figure out what to do with all of its scientific literature that it hadn’t been able to, uh, export or sell globally during the war.

So he buys all of these books, but it’s funded by MI six. So the big question at the moment with the Epstein stuff, which you probably have seen is whether or not Epstein was a, Mossad was working for Mossad and the CIA and how the line from him goes through Ghislaine Maxwell to her father, who it seems was a [00:45:00] Mossad agent, or was Mossad adjunct or something.

I’m still trying to get to the part of the book where they talk about that, but he did seem to be, his early entrepreneurial activities were funded by MI six. And, uh, he, when he died under mysterious circumstances, falling off his yacht, just after he’d taken over a big New York tabloid, that’s a great story.

So he took over this tabloid in New York in 1991 that was about to go outta business. He took it over and then made the managing editor of the newspaper, Paul Rupert Murdoch, and just to tell him, Robert Maxwell has just bought this paper. That was the phone call. So he calls Rupert, Rupert was in Australia at the time, apparently calls Rupert in the middle of the night.

Rupert answers the phone. He goes, yes. He goes, oh, it’s John Hoge from the Daily, the [00:46:00] Daily World, or whatever it was. Robert Maxwell wants me to tell you. That he just bought this paper in New York. ’cause of course Rupert owned the New York Post at the time. He said Rupert just burst out laughing and said, tell him that’s fantastic.

And I

Tony Kynaston: Uh,

Cameron: just, the, uh, the rivalry between the two was great. Anyway, so when he died, there was this massive state funeral for him in Israel,

Tony Kynaston: I.

Cameron: attended by Prime Ministers and the former heads of all of the intelligence services and uh, all this kinda stuff. So he was beloved by Israel for some reason. Anyway.

So his whole family died then. He had nine kids of his own and two of them died very young. Um, one from I know encephalitis and one from a car accident. His eldest son got brain damaged in a car accident, [00:47:00] survived for like another 10 or 12 years, but was a vegetable and to a lot of tragedy, a lot of tragedy in his life, but, uh, managed to somehow turn himself into this media barren.

And, and by the sounds of it, kind of one of those sort of psychopathic dudes who just treated everybody around him like. Shit. And, you know, yelled and screamed and abused his way. It could be extremely charming and flattering, but also extremely volatile and abusive. And when he took over the, uh, newspaper in New York in 1991, they were talking about how the, uh, security staff welcomed him to the building.

And the first thing he did was fire all of the security staff because he wanted to replace them with his own security staff. So he just walked in and got rid of everybody, got rid of all of the staff in the paper, et cetera, et cetera, firing people left, right, and center [00:48:00] on day one. Anyway, we’ll see how that goes.

That’s about it. Tony,

Tony Kynaston: Yeah.

Cameron: I got for you.

Tony Kynaston: Widow.

Cameron: to a lot of the Go-Betweens too. A lot of the Go-Betweens this week. Watched a good documentary on YouTube, on the Go-Betweens

Tony Kynaston: Mm-hmm.

Cameron: the 16 Lovers Lane album, which was fun.

Tony Kynaston: Yeah, I’ll look it up.

Cameron: Hmm.

Tony Kynaston: watched that, uh, Tarantino clip on Dirty Harry too. That was great fun.

Cameron: It is great, wasn’t it? Yeah. Yeah, yeah, yeah.

Tony Kynaston: good.

Cameron: Okay.

Tony Kynaston: All right.

Cameron: All right. Talk to you next time. Thanks, Tony.

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**Episode Summary**

In this episode of QAV America, Cameron dives deep into the murky, combustible world of Sasol (NYSE: SSL), a South African company built on the back of coal liquefaction technology born in Nazi Germany and refined under apartheid. It’s the kind of “anti-woke” fossil fuel juggernaut value investors might love—or love to hate. With Tony chiming in, they explore Sasol’s origins, tech, environmental baggage (they’re the world’s largest single emitter of CO₂), explosive safety record, and its appeal as a classic ugly-duckling value stock. They also tackle the ethics of ESG investing, ADR headaches, and Sasol’s brutal-but-effective cash-generating machinery.

—

**📊 Timestamps + Topics**

– **[00:01:00]** Introduction to QAV America and this week’s pick: Sasol (SSL)

– **[00:02:00]** History of Sasol: Nazi-era tech and apartheid origins

– **[00:04:00]** How coal liquefaction works (Fischer-Tropsch & hydrogenation)

– **[00:07:00]** WWII Germany’s reliance on synthetic fuel

– **[00:10:00]** Sasol’s Secunda plant: 150,000 barrels/day, world’s #1 CO₂ emitter

– **[00:13:00]** Environmental targets and underwhelming progress

– **[00:14:00]** The disastrous Lake Charles Chemical Project and $4B overrun

– **[00:15:00]** Ethane cracker 101 + LyondellBasell JV

– **[00:16:00]** Explosions, deaths, and new CEO (Fleetwood Grobler out, Simon Baloyi in)

– **[00:18:00]** Revenue breakdown: energy, chemicals (Africa, America, Eurasia)

– **[00:20:00]** Currency complications: ZAR reporting on NYSE

– **[00:22:00]** The QAV stance on ESG investing

– **[00:25:00]** Sasol’s debt, coal reserves, and South African market dominance

– **[00:27:00]** CO₂ taxes kicking in from 2026

– **[00:28:00]** Key QAV metrics:

– Price/Op Cash Flow = 1.4x

– F-Score = 6

– Price/Book = 0.39

– QAV Score = 0.51

– **[00:30:00]** Value thesis: ugly duckling, monopoly position, tons of cash

– **[00:34:00]** US investor challenges with ADRs

– **[00:35:00]** Final take: not pretty, but potentially profitable

Cameron: [00:00:00] Welcome back to QAV America, Tony, two Australian value investors talking about investing in the US market. That’s just, I put, put that in there for new listeners. How are you, Tony?

Tony Kynaston: I am well, thanks, cam. Yep. Just finished the hour and a half on stocks in Australia, so it’s fun to see you

Cameron: I.

Tony Kynaston: Good to see you

say

Cameron: Well, um, I don’t really have any sort of broad news, as we say every week on this show. It’s in such a state of flux. The US market with tariffs are on, tariffs are off, tariffs are up, tariffs are down. It’s, you know, it, it’s really hard to make any sense of it. And so we don’t try, I mean, we just. Um, for people that are new to QAV, uh, what we try and do is look at the fundamentals of individual businesses and try and find [00:01:00] something that is a bargain.

Something that we think is generating good cash flow, but we can buy it at a bargain for one reason or another. And, uh, then on this show, I pick one each week. That is on our US buy list and I talk about it for half an hour, uh, and why it’s on our buy list. And this week I’m doing a company called Sasol, which kind of sound we were just talking about, the Godfather.

Um. On our Australian show, and it’s, there’s a character in, in one of the Godfather films, Joey Saso, I can’t remember.

Tony Kynaston: part three.

Cameron: Is it right? Joey Saso.

Okay.

Tony Kynaston: Yeah. Sza.

Cameron: Oh yeah. Joey Saso. Yeah. Yeah. It’s, uh, well he’s, he plays Vincenzo Corleone, [00:02:00] his Sonny Zi.

Tony Kynaston: kills Joey

Cameron: S Joey Sasa. That’s right. Yeah. He’s saying something bad about Michael Corleone.

Yeah. Yeah. Isn’t that uh, yeah. I can’t remember the name of the actor who played him. Anyway, not to get distracted. Sasol. SSL is the ticket code for Sasol. And you were on an Australian show. You were talking about anti woke. ETFs and I said, well, I’m gonna talk about an anti work company in some ways. This, this company is, uh, what a story they’ve got behind them.

Uh, they’re a South African coal liquification. Company and they do other things, but that’s mainly, uh, their background and, and where most of their revenue still comes from. Today, I knew absolutely nothing about coal liquification. Don’t think I’d ever, ever even heard of coal liquification before I started this, but now I [00:03:00] know a little bit about it so I can talk to you about it.

But this company, um, was started in the fifties in apartheid South Africa, mostly as a way of securing their energy independence. Because they don’t have a lot of oil in South Africa and they were under economic sanctions and so they were getting, finding it difficult to buy oil. So they needed to figure out how to take what they did have, which was coal, and turn it into petrol and chemicals that could be used for everything that they needed petroleum for.

And so Sasol was founded in a dusty little town called Sasol Berg, which was created in 1954 to provide housing and facilities for Sasol employees. The, um, [00:04:00] there’s a couple of different ways to take coal and turn it into liquid petroleum, essentially synthetic gas or synthetic petroleum. And it was first discovered by German chemists in the early 19 hundreds, and the, there’s, the main way of doing it is called the Fisher TRO process.

After the names of the. Two, uh, Germans who developed it Fisher, who was not a Nazi at the time, but became one later, uh, trs, got the hell out of there in the late twenties and ended up in the US But uh, Fisher stuck around. Basically you can take coal and force it to give up its liquid hydrocarbons. Uh, one way is to just make it really, really hot, and the other way is to pulverize it [00:05:00] and then put it under huge amounts of pressure.

So without going into too much detail, the first way is what’s called the indirect route, which is the fisure tr method. You gasify the coal. Creating synthetic gas or sin gas as it’s known, you basically heat it up to 1300 degrees Celsius or 2,370 degrees Fahrenheit, which is pretty hot. You ever stood inside, uh, next to a furnace like that?

Tony Kynaston: Ooh, good question. Uh, no. I’ve done firefighter training when I was working at Shell. It gets pretty hot doing that, so, but not a furnace hot.

Cameron: I have stood near furnaces when, in my Microsoft days, um, uh, in Victoria we had some coal industry clients. I can’t remember who they were now, but I remember doing tour of some of their facilities. [00:06:00] And I remember being next to a furnace. Actually, no, this wasn’t coal, it was steel. They were melting steel, which is about the same temperature that it takes to gasify coal.

And I remember, you know, being in the room next to the room where the furnace was on, and it was insane. It was like standing close to a sun. It was. The Oh hot. It was absolutely bonkers. Terrific experience. Highly recommend it. If you ever get the chance, stand, stand next to a feel steel furnace. Anyway, so they heat it up, then they clean it, run it over an iron or cobalt based catalyst that stitches the molecules back together in a way that you end up with wax, just these hydrocarbons that are a wax, and then you crack the wax and you end up with diesel and naptha.

And this was a big deal in Nazi Germany. Uh, believe it or not, Hitler struggled to get his hands on [00:07:00] enough oil during World War ii, so not a lot of oil wells in Germany. Uh, so it became a huge part of German industry during World War ii, CTL as it’s known, coal to liquid provided 92% of Germany’s air fuel and over 50% of its petroleum supply in the 1940s.

Uh, but then when they lost the war, it sort of got a bad rap because some Germans believed that they lost the war because they couldn’t produce enough. Uh, fuel out of that had nothing to do with the fact that the Americans and the, uh, Russians joined up and they just got summarily defeated and Stalin crushed them at Stalingrad.

But that’s another story. Then the other way of doing it is called, uh, hydrogenation, the direct route it’s called where you pulverize the coal. Mix it with heavy oil and [00:08:00] hydrogen under 300 bar for people like me who dunno what that means. Um, I know you’ve been to at least 300 bars in your time, but that’s a different story.

One bar equals atmospheric pressure. So 300 bars is 300 times 14.5 PSI. So 4,350 PSI comparable to the water jet cutting pressure used on stone basically. Then you strip out the sulfur and the oxygen, it’s quicker, but it’s a pretty harsh way of doing it. So you do this and it’s actually very expensive to do this.

The output cost sits north of $50 US per barrel. Um, but you.

You have to do it. If you don’t have access to liquid oil, if you can’t get it outta the ground, you just have to suck it up, which was a apartheid South Africa apparently.

Tony Kynaston: I was gonna ask that because, um, [00:09:00] been some coal seed gas companies in Australia over the years and they’ve never off. And I think one of the reasons was it was just uneconomical. The, the process sounds fine and we have lots of coal, but, uh, never survive. But I guess if you are in apartheid South Africa, you need to do it

Cameron: Or Nazi Germany. Yeah,

Tony Kynaston: Nazi Germany.

Cameron: and well,

Tony Kynaston: now then if it’s, uh, South Africa

Cameron: because it’s huge. Uh, it’s, it’s huge. Um, it’s turned into a absolutely mega company that’s produces a ton of this sort of stuff and I don’t know, they must be able to justify it, uh, economically. So they produce roughly two barrels of liquid for every ton of coal plus buckets of CO2 sulfur and ash. Which is where the, uh, anti woke side of this comes in.

Um, [00:10:00] so Sal’s main operation is called the Secunda Complex, and it produces roughly 150,000 barrels per day. Which is a lot of, uh, oil, I guess. The, uh, China also does a lot of CTL, um, on a much smaller volume per facility.

Tony Kynaston: you, say 150 barrels a day?

Cameron: 150,000 barrels a day, 150 KBBL per day.

Tony Kynaston: I.

Cameron: China producers, uh, a little bit outta CTL two. There was a lot of CTL operations, uh, running in the us, but they kind of got replaced with shale,

I think. Um, which is, as we know, not as economical as [00:11:00] sucking oil outta the ground either, but is, uh, lower

Tony Kynaston: Yeah.

Cameron: than.

Pulling up coal and crushing it apparently, or cooking it. So, uh, yes. It works. These guys are the kings at it, Sasol, but really bad for the environment. So what else can I tell you? The founder Ion, uh, started the company in 1955, was sort of the plan of the Apartheid government then, and they’ve been producing it ever since.

They, because of of decades of sanctions, they had to become really, really good at it. So they developed this really obsessive engineering culture that still runs the Secunda complex, the world’s single biggest CO2 emitter. And they’re trying to do [00:12:00] something about that, um, for a variety of reasons. I’m sure.

It’s all just out of, uh, care for the earth. And also South African government is putting in really big taxes on carbon emissions. Uh, that might have something to do with it as well on the, on the ESG part of their website. I couldn’t find it anywhere where they admitted to being the world’s single largest.

CO2 emitter. But they did say that they’ve, their goal is to be, uh, net neutral by 2050 or net, sorry, net zero by 2050. I guess it’s the same thing, net net neutral. Uh, but their goal, they’ve recently increased the 2030 goal from a 10% reduction of 2017 levels to 30% reduction of 2017 levels. Uh, ask me how they’re doing.

Tony Kynaston: Are they, how are they tracking towards their, [00:13:00] uh, you call it, their, um, audacious, big, hairy, audacious goal.

Cameron: Let’s say it’s a, it’s a, it’s a slow burn. Slow.

Tony Kynaston: I should throw it in the kiln man.

Cameron: They should, yeah. They got a lot, a lot of burning capability. I dunno why they’re not burning. They’re at about 5% reduction

after eight years. They’ve got five years left, um, to get the other 25%. So who knows, maybe they’re just, maybe they’re gonna cram it all in in the last six months, like

Tony Kynaston: they’ve spent five years building things that will help them in the next five years. Who knows?

Cameron: would be, maybe they’re just hoping AI will solve it for ’em. Who knows? Um. So they listed in Jonas Burg in 1979. Then on the New York Stock Exchange in 2003, spent the 1980s selling fuel to sanction, hit markets that couldn’t buy it from anywhere else, [00:14:00] and then they started exporting their knowledge to Qatar, uh, in the 1990s.

They’ve had a lot of problems though. Um. They’ve got a massive project in Louisiana called the Lake Charles Chemical Project, which ran, you know, a little bit over budget. Um, you know, four bill, what’s $4 billion between friends over budget? Tony, I think it was an $11 billion project, which is now looking at a $15 billion project.

I like on their, on their website, it said it’s gonna cost somewhere between 11 and $15 billion. You know, give or take, give or take something around that. That’s a, uh, an ethane cracker operation. Eh, you know, it’s down in the south and the us there’s a lot of crackers down there in the south. But this is a particular kind of cracker.

This is an

ethane.

Tony Kynaston: [00:15:00] oh

Cameron: Sorry, I had to,

had to get that one in.

Tony Kynaston: to, the Andy woke show.

Cameron: It’s the anti work show. I can say whatever I want.

Tony Kynaston: what? We can

Cameron: It’s a,

Tony Kynaston: People

Cameron: I can, yeah. No, it’s an ethane cracker. Um, it’s a giant industrial furnace that rips hydrogen atoms off of ethane to make ethylene. So it takes C two H six, turns it into C two H four, which is the starting block for most plastics apparently.

So they ran over budget on that. They ended, ended up having to do a 50% JV with an American multinational chemical company called Lion de Bazel. Uh, they’ve had lots of other problems as well. Um, like just a lot of explosions. In the last 21 years, they have had 23 [00:16:00] onsite deaths at the Secunda plant. Which is a, a fatal accident rate or an FAR of roughly 2.2 deaths per hundred million work hours, which is roughly two to three times the international oil and gas industry benchmark.

So not doing too well despite all of their engineering expertise on stopping their workers from dying. And that led to their CEO getting replaced in 2003. Uh, after yet another op, uh, 2021 was an Anna’s hoist. They had three separate mine side incidents. And, um, the outgoing CEO though had a great name.

His name was Fleetwood Gobbler, which I gotta tell you, [00:17:00] I. Out of all of the names I’ve heard in my entire life, I think Fleetwood Gobbler is up there. It sounds like a Chevy Chase name from a Fletch film. Fleetwood Grabler. What a to. Congratulations to Mr. Grabler if he’s out there listening in. He was replaced by Simon Balli, who’s a process safety engineer.

So he’s been the CEO since, uh, April, 2024, so they’re trying to turn that around. But yeah, they’ve had a lot of problems over the last 20 years with this sort of stuff. Um, and, you know, you know, delivering this ethane cracker project, et cetera, et cetera, how the money is sliced. Today, they have about four operating buckets, energy.

Which is colder. Liquids plus gas and marketing is about 57%. [00:18:00] Chemicals. Africa, 37% chemicals, America 6% and chemicals Eurasia 3%. Um, they’ve got, um. Also a renewables thing. They’re trying to do renewables. They’ve got a green hydrogen thing like Australia’s, uh, Mr. Forest, Andrew Forest. So they’re, they’re playing around the edges with all of that kind of stuff.

But it’s mostly steel, coal, uh, uh, liquid, um, operations.

Tony Kynaston: I did know

Cameron: But.

Tony Kynaston: a large part of the company’s called Dino Nobel. And so two questions for you on that. Is that. Does that trace itself back to Alfred Nobel? ’cause he, I think was South African and uh, Donna Nobel in Australia is an explosives company. It was owned by a chemical company in Australia called Oracle.

I think it may have just been sold, but there is an Australian company called Dino Nobel as well. So I wondered what the link was there. If you’ve come across [00:19:00] it.

Cameron: Dino, no Bell. Um. No, I didn’t come across that in my notes. Where did you see that? On their, uh, website.

Tony Kynaston: Oh, their business breakdown. I think it’s, I think it may be the name of the chemicals business.

Cameron: Oh, okay. If I look up Wikipedia for diner, Nobel just talks about the explosives company founded in Sweden by Alfred Nobel

headquarters, Brisbane, Australia, and Cottonwoods. Hi, Cottonwood Heights, Utah.

Tony Kynaston: Right.

there is. If you look up the Sasol website, one of their businesses called Sasol, Dino Nobel.

Cameron: Oh, okay. No dunno. It didn’t come up in my notes. I’ve probably been to Cottonwood, Utah. It’s uh, in Salt Lake County. Spent quite a lot of time in Salt Lake. I anyw who [00:20:00] back to my notes. Um. Where am I here? So. Very low. So I, I should have said at the beginning, so this is another one of these companies on the New York Stock Exchange that doesn’t report in USD, it reports in z ar, the RAND in South Africa.

But I did all the conversions and, and interestingly the scoring didn’t change for anything once I converted it. Um, our IV scores, um, but. It still prints a lot of cash. It’s the main thing I like about this. It doesn’t score very well, uh, in Wikipedia for stock rank or quality rank, but it throws off a ton of cash.

So it’s got a very low prop calf. Um, I think single digits. We’ll get into the actual figures later on, but it’s, [00:21:00] it’s an ESG nightmare. But it’s generating a lot of cash. And for new listeners, do you want to explain the QAV policy on ESG investing?

Tony Kynaston: Yeah. Well, so I said this on the Australian show when we

Cameron: I.

Tony Kynaston: about

Um, we just produced by. List of companies that score well and it’s then to the individual investor whether they want to buy that company or look on. And we don’t take a position on whether it’s a good company or a bad company or whether investing in this company is good or bad.

It’s up to the individual investor. And that’s, that’s the plus I think for QAV. ’cause you’re managing it yourself. Because we spoke about in the Australian show, there are ETFs out there, which are. calling themselves ESG ETFs. Oftentimes they’re just the index with a few stocks removed, and they charge you a lot of fees for that, for that pleasure.

So you’re getting index like performance at best and paying more than the next fund. [00:22:00] whereas if you do it yourself, you can decide whether you wanted to, you might like all these kinds of companies and you might put together a, of value stocks that, um. our anti work. That’s fine.

It’s up to you. We don’t take a position, we just say, here are the numbers, and, uh, create a buy list. And then it’s up to you whether you wanna buy this stock or an ESG stock, or you know, stocks which are in the defense industry or any particular filter you wanna place on it yourself. We don’t have a position.

We just say, here are the stocks that score. Well go ahead and put the portfolio together yourself.

Cameron: But what about your position on ESGS? Uh, ba Well, yeah. Buying ESG stocks or buying oil, let’s say that, or mining stocks.

Tony Kynaston: so we’ve had this discussion before as

Cameron: I.

Tony Kynaston: is that, um, I would buy them, I don’t know much about Sasol, so I’d have to have a good look at it, but I would buy oil stocks or, or coal stocks on the ASX because I think, uh, you can’t just turn the lights off overnight [00:23:00] and, uh. replacements for, um, energy production just aren’t there yet. Um, might be down the track, but at the moment there’s a gotta be a transition path between, know, keeping industry going, keeping ourselves warm and well lit and fed through to the day when we can have, um, completely renewable Angie sources. But we’re not there yet. So I’m, I’m happy buying these stocks myself personally.

Cameron: And the other other argument I’ve heard you make over the years, correct me if I’m wrong, but is that when we buy shares on the market, these come. Companies don’t get, unless we’re buying a, a new listing or a new issue or something like that, they’re not getting our money.

They don’t get the money. So we’re not funding their operation.

We’re not perpetuating their operation. We’re, we’re an individual buying share, a share off another individual or off another fund or whatever it is. So we’re not, um, encouraging the business. We’re not financially supporting [00:24:00] the business. We’re just buying a share.

Tony Kynaston: And possibly buying it from someone who’s selling because they’re, uh, want the ESG issue in their

Cameron: Yeah.

Tony Kynaston: yeah, we do profit from them doing well, but we don’t provide them with any capital to, to grow their business.

Cameron: Yeah. So, uh, back to this company, um, they’re a, they’re an ESG nightmare, so it’s one of the reasons why I think they’re cheap. They’ve also, they’re carrying a lot of debt, but they. They’re sitting on 1.9 billion tons of coal reserves that they have access to in South Africa apparently, which will keep ’em going for a while.

They’ve got a 70 year learning curve. In this whole coal to liquid process, that, uh, gives them a bit of a competitive advantage, engineering wise, over competitors. Not that they have many competitors in the CTL space outside of China, [00:25:00] and they sell a lot of, uh. Petroleum synth gas synth petroleum to South Africa.

I think they cover about 20% of South Africa’s demand. Uh, they’re protected by a regulated price, uh, in South Africa as well. Which is interesting. I wish we were protected by that here. The petrol price here has been insane. It went up 25% in a week. I filled up my car one week. It was like a buck 75 or something elite.

I filled up the next week. It was like $2 25 a lead. I was like, what the hell? How? How’s that possible

anyway?

Tony Kynaston: It, and the oil price hasn’t gone up that much all that quickly.

Cameron: what else? So, yes, so they got a lot of debt, 120 billion Z ar net debt, which is, uh, divide that by. [00:26:00] 20 to turn that into USD. So about what, 6 billion us? Is that right? 10. Well, by 10 it’d be 12 or 20 Be six. That’s 6 billion. Yeah. Um, and a lot of a, a lot of that’s coming from the Lake Charles. Kerfuffle, they, they haven’t issued a dividend since 2020.

Their CO2 footprint is bigger than Portugal’s and the RAND has got some FX issues, a as any, my old IT guy used to be in South Africa and they had like constant. Grid blackouts all of the time. He’d be offline for a day here or a day there, or hours here. So the sort of problems in South Africa with supplying power, and I guess that impacts these guys in some way, shape or form.

But, oh, the other thing is, um, the South [00:27:00] African government are really kicking up the penalties for being a carbon emitter and the next round kicks in next year. 2026. So these guys are gonna have to start paying, uh, bigger hike or buying more trees, something like that to offset. Um, but it’s gonna, it’s gonna be a hit to their numbers, but not a huge hit.

I, I got some notes on that a bit later on, but. From the numbers, uh, the key numbers for us price to operating cash flow is about 1.4 times. So very low. They’ve got bus, they’ve got issues, um, and they, they look dirty on paper, but, uh, very, very cheap. From a Pr/OpCaf perspective, their F score is six outta nine, not as good as the.

EDU you just talked about, but pretty [00:28:00] solid from an FS score perspective. And the price to book is 0.39 times. So very, very low. Uh, what else have I got for you? Um. You know, there, there’s like, there’s a lot of things we could look at. Um, if they pay off their debt, if there’s a rebound in polyethylene ammonia spreads, it could lift their earnings outta Lake Charles.

There’s, there’s, you know, if they, if they come up with a better CO2 abatement plan, they could unlock some ESG investment. There’s a lot of things like that, but that’s all. Prediction and forecasting that are really of no use to us, but some of my analysis uncovered potential upsides in those things. Red flags are really higher.

CO2 taxes or stricter South African emission laws, which are gonna force [00:29:00] them to continue to spend money on heading towards net zero or getting down to that 30%. Uh, level that I mentioned earlier on, or more blowups at secunda, or more problems with Lake Charles that could nuke their cash flow. But the punchline is really that there are.

An ugly duckling refinery. I think, you know, um, sort of a classic value buy that we’ve seen a lot over the years that we’ve been doing the Australian show, just out of favor with a lot of funds because it’s such an ugly duckling. You know, it’s, uh, a, not a woke by, uh, because of all of the CO2 that they push out.

The apartheid thing is probably in their past. Uh, just in terms of what we scored it on Price, uh, less than or equal to IV one. Yes. Price [00:30:00] less than IV two. Yes. Price Less than book? Yes. Less than book plus 30. Yes. Price to operating cash flow Less than seven. Yes. Petrovsky score better than 4.5. Yes. Fails on quality Rank fails on stock Rank.

Fails on book value growth being positive, fails on growth over PE greater than 1.5. Does have a three point uptrend, has a new three point uptrend, but fails on yield being greater than bank debt and, uh, passes for Ivy two being greater than twice the current share price. So. The QAV score is 0.51, which is a pretty good QAV score.

Yeah.

But you know, it’s a, it’s sort of a hold your nose, uh, buy, I think if you were gonna buy it, it’s, it’s not very ESG [00:31:00] friendly and, um, but it’s the reality, as you said before, south Africans. Need to get their power generation from somewhere. They’ve got enough problems as it is. So, uh, these guys are providing a lot of that, and they are working hard too.

It seems. 5%, maybe it’s not, it’s not evident in their results, but I believe everything they say on their website, Tony, they are trying super, super hard. They’re, they’re big believers.

Tony Kynaston: like they do the old things really well and the new things not so much with changing to ESG and building a plant in the US I.

Cameron: Well, you know, they, yeah, they are. I dunno how environmentally good or bad, Ethan cracking is really, I imagine if you’re having to, you know, post process things that intensively is probably a lot of flow on [00:32:00] negative environmental impacts from that.

Tony Kynaston: which is a, cleaner fuel than oil. So, yeah.

Cameron: but I dunno, in, in terms of, you know, ripping the hydrogen atoms off the ethane, um, you know what, what the trickle down carbon emission impact of that is, dunno.

Tony Kynaston: Me neither. Um, but the last point too, I think we should say is it’s a commodity stock, obviously.

Cameron: Mm-hmm.

Tony Kynaston: not sure whether it was, we should track it as a coal stock or an oil stock, but they’re both buys at the moment, so it doesn’t matter.

Cameron: Yeah. Yeah, they are. They’re both buys and these guys I guess, fit into their somewhere. I don’t think we have a commodity for synth gas or liquified coal, but, uh, I guess it ties into those pricing somewhere. I, I mean, I dunno if we track the commodity price in South Africa and if we would have to do that for these guys, [00:33:00] singers.

There’s some sort of regulatory price, uh, controls around it there. Anyway, uh, in terms of it on our checklist, you know, I think it’s, uh, it makes sense to look at as a value investment. Again, it’s sort of the classic ugly duckling. Out of favor, but, uh, and has a lot of, lot of operational problems, but is still sort of, has a monopoly on what it does, has a moat and is generating a ton of cash and is very, very cheap.

Is my summary.

Tony Kynaston: We’ve done a number of overseas pulled porks. I’m guessing this is an A DR as well on the New York Stock Exchange, and I’m

Cameron: I think so.

Tony Kynaston: into some of these

being value stocks as well, if that stocks some

in the US from buying them. Interesting to get

Cameron: Yeah.

Tony Kynaston: that from the US what their experiences with ADRs.

Cameron: Right. Yeah, we went through that a few episodes ago, didn’t [00:34:00] we? The, just the sort of reporting complexities, the paperwork complexities with ADR for American investors.

Tony Kynaston: Yeah.

Cameron: Yeah. All right. I’ll try and. We’ll see if I can get someone to come on and talk to us about that in a future episode. But you’re right.

That’s probably one of the factors with these as well.

know, when I’m going through our buy list each week looking for companies to buy, I’m, I’m looking for companies that are different to the ones that we’ve talked about in the past, and just a lot of them tend to be foreign based. Companies, it seems.

I don’t go deliberately looking for them, but yeah, they just do the, I go, oh, okay. That’s a bit different. Where is it? Oh, South Africa. Okay, great.

Tony Kynaston: Yeah, no, I get that.

Cameron: All right, well that’s your, uh, stock tip to look at this week. If you’re looking for a value stock in the US market, take a look at Sasol, but do your own research.

Tony Kynaston: Absolutely. All right. Thanks Cam. Thanks for [00:35:00] the pulled port.

Cameron: Thank you, Tony,

Tony Kynaston: Happy.

Cameron: too late.

Bernard: Disclaimer: 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 [00:36:00] performance; unit prices and the value of your 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.

**Episode Overview:**

In this episode of _QAV America_, Cam and Tony dissect the fundamentals of **Zepp Health (ZEPP)**, a Chinese smartwatch manufacturer with aspirations well beyond step counters. They unpack the company’s evolution from low-margin Xiaomi contractor to an ambitious, vertically-integrated brand aiming to take on Apple — at a fraction of the cost. Cam walks through the business model, leadership, geopolitical hedging via a Netherlands HQ, and a potential future in AI-powered wearables. Despite being unprofitable, Zepp boasts positive operating cash flow, aggressive R&D spend, and a book value nearly five times its share price. Tony and Cam debate its merits as a deep value tech stock in a crowded, commodified market — with a few detours into Marx Brothers references and Cameron’s post-Kung Fu abs.

—

### **🔢 Timestamps & Topics**

– **[00:00:00] Trump’s Tariffs & Market Volatility**

Trump’s threats to Japan/South Korea spark global market reactions.

– **[00:02:00] What is QAV America?**

Quick refresher on the QAV system and the process behind selecting U.S. stocks.

– **[00:03:20] Zepp Health (ZEPP) Introduction**

Zepp’s background, link to Zeppo Marx, and business model basics.

– **[00:06:00] What They Make**

Smartwatches, fitness bands, health-focused earbuds under brands like Amazfit and Zepp.

– **[00:08:00] Price Point Strategy & Competitive Landscape**

Sub-$200 devices aiming to mimic Apple Watch functionality.

– **[00:12:00] Founder Story & Business Transition**

From a hacked pedometer to $10M investment from Xiaomi.

– **[00:14:00] Post-COVID Strategy Shift**

Moved final assembly to Vietnam, dropped Xiaomi contracts, chasing margin.

– **[00:17:00] Netherlands HQ – Why?**

Tax, regulatory and geopolitical benefits of being a “Dutch” company.

– **[00:19:00] Historical Sidebar: Friars Hung for Transubstantiation**

Cameron’s tangent on Gorinchem’s bloody Reformation history.

– **[00:21:00] Crowded Marketplace – Smartwatch Wars**

45M units shipped in Q1 2025, Zepp fighting for space in cheap smartwatch jungle.

– **[00:25:00] Margins, Hardware & Amazon Dominance**

Race-to-the-bottom manufacturing, vertical integration, low build costs.

– **[00:29:00] Financials Breakdown**

– **[00:33:00] AI Push – The Bull Case**

Expanding AI team to 120 people. Vision for on-device LLMs powering wearables.

– **[00:36:00] The Future of Personal Devices**

Onboard AIs, wearables, and the shifting market from fitness to full-assistant functionality.

– **[00:38:00] Final Verdict**

[00:00:00]

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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