EM Chat: Let’s Pick A Winner!

Alec: [00:01:29] Equity Mates, Bryce and I just walked out of a presentation by clime capital, theyre a investment firm that had offices in Australia and also across the globe. The presentation was entitled Investing in a Volatile Market. And we are just going to tell you a little bit about what was said, some of the key takeaways, and hopefully pass on some of the information that some of the lessons that they had onto you. Bryce, why don't you tell us about client capital seeing that you're an investor? [00:01:58][28.9]

Bryce: [00:01:59] Too easy. As Richard said, I have a bit of money in client there, ASX listed fund management company that you can invest in, both with a minimum of 10000. I think it is directly into the firm and they individually manage your funds or you can get a bit of exposure to them from the ASX. [00:02:15][16.5]

Alec: [00:02:16] So we should make the distinction there. If you're investing, if you're giving them $10,000 to invest, then the people who work for Clime will invest your money. Yeah. Or as you've done, yeah, you can invest in the business itself and capital as a company and talk them into, you know, keep making money with performance fees and the like and own that part of the company that way. That's right. [00:02:38][22.3]

Bryce: [00:02:38] But the reason that I like them and we went along today to listen is because they have a very strong focus on value investing. It's their main strategy. And we thought that it would be a great opportunity to go along and hear what they have to say as professionals in the industry about how they're going to approach 2017 from a value position. So it's going to be a brief discussion. There's three takeaways that we got out of it each for me. The first one was that there's such opportunity going forward for value investors to find great undervalued companies in a volatile market, especially as we're seeing periods that we haven't gone through before, especially since the global financial crisis. [00:03:18][39.5]

Alec: [00:03:18] So why don't want just quickly explain what volatile markets are. [00:03:21][2.9]

Bryce: [00:03:22] Volatile markets are markets that are quiet or reactionary that go up and down without any sort of consistent basis. [00:03:29][7.2]

Alec: [00:03:30] So the price fluctuates medium to long term. It's pretty flat. That's right. The daily movement is quite. That's right. [00:03:36][6.5]

Bryce: [00:03:37] So a volatile market. You might find that over a period of five or six years, the market itself might not have risen much. But within that five or six years, they would have been a lot of peaks and troughs. And as a value investor, it's a very it can be a very rewarding time if you manage funds correctly to invest during these periods. So that was probably my biggest takeaway, was the understanding that, you know, if you have the capital ready and markets are dropping, then it's a fantastic opportunity to finally get hold of some of the companies that you might have been watching and get them at a very low, undervalued price. [00:04:10][33.2]

Alec: [00:04:11] So I guess my my first takeaway would say about the Australian large cap companies. So, you know, these are the big banks, Telstra, BHP. Yeah, BHP, Rio. Just, you know, the big Australian companies are an important thing to know about these Australian companies is that compared to the rest of the world, they pay extremely good dividends. And while that has been attractive for investors and in really good periods for the Australian economy, it's great because if these big businesses can grow and also pay dividends, well, that's a win win. But what we're saying at a pretty low growth global economic environment is that these companies, investors expect them to still pay big dividends because of that. They are having to use money that they could otherwise invest in growing their business. They have to use that money to pay dividends. So there's an opportunity cost. You know, if you're the CEO of Commonwealth Bank or Telstra, you want to make the shareholders happy and you want to live up to their expectations. But you also have to try and plan for the long term. And, you know, every dollar you're paying a dividend is a dollar that you could have invested in some new technology or, you know, improving your supply chains or just investing in the productivity of the business. And what we're saying in this low growth environment is that these big companies are choosing to pay dividends rather than really maximise the investment in their business and really set themselves up for the future. So that's not to say that Australian large caps should be avoided because good, strong defensive stocks that pay high dividends are important. And depending on what you're looking for, maybe the best investment for you, but don't expect great growth and great share price growth out of these companies. They're there to be invested in, really, if you're seeking good paying stocks and good dividend and especially with the banks, what we're saying now is that they're having to do a lot of capital raisings, which is, you know, raising money from investors to still start to fulfil the capital requirements that the government are putting on them. But what they're doing is they're raising capital on one hand and they're still paying quite good dividends, on the other hand. And whilst that's keeping shareholders happy, it's not exactly great for that balance sheet, because if if shareholders didn't expect such high dividends, then you could see them withholding more of that dividend and having. Raise less capital, which would probably be better for their balance sheet in the long term. So just something to keep in mind when you're thinking about investing in those big Australian companies. [00:06:37][145.9]

Bryce: [00:06:38] The second point for me that I really took away from it was not necessarily something new to us at all, but some sort of reinforced, you know, the strategy that we're pursuing. And that was the relationship between value investing and how it's linked so strongly with the broader economic environment. You know, they made mention of taking into consideration the cash rate, unemployment rate, you know, exchange rate bond yields, which is something we'll discuss it later and finding value. And I like market and company positions based on that. [00:07:10][31.7]

Alec: [00:07:10] I guess it's because the way that all those factors influence businesses prospects. Yeah, yeah. [00:07:17][6.4]

Bryce: [00:07:17] And I think that these are things that as a first time investor, you can understand or begin to understand how these affect a company environment much more than trying to understand the financials of the company Afterpay ratios and that sort of thing. [00:07:32][14.4]

Alec: [00:07:32] So that is a quick example. Let's take exchange rates. How would that affect your investment decisions? [00:07:38][6.3]

Bryce: [00:07:39] Well, I mean, on a simple level, if your company is a strong exporter or importer, an increasing or decreasing exchange rate is going to have implications for their revenue at the end of the day. Yeah, absolutely. And so that was probably the most basic, you know, example. [00:07:52][13.3]

Alec: [00:07:53] But a way to look at it and the world will go through some of those things in later episodes. We'll talk about, you know, what the exchange rate or what the interest rates mean for certain sectors or companies will try and give you as much knowledge as we can about that just just for now, just for this little slice of the talk will lead to that. Yeah. So another takeaway that I had was about a key metric that Clime use when they're looking at value investments and that is return on equity. And basically what that means is how much return are these businesses getting for the capital that they deploy to business. So really simple example. If I own a business and I invest 100 dollars in that business, one return in my game and if every 100 dollars I'm investing, I'm getting ten dollars back, I'm making 10 percent return on equity coins. Metric was they would only invest in a business that was getting 15 percent or more return on equity and also had a pretty consistent track record of doing that. They said five years in the past and three years in the future. So in the past, you can look at the company's financials. In the future, you have to look at their projections and to an extent, you have to trust their projections. But the main thing is if they have a consistent track record of getting a good return on equity, you can generally back in that they have a good management team, that they have people that know suitable ways to deploy capital to really get the most out of that business. And that's what you want to say. At the end of the day, as a shareholder, you want competent management team that really is going to use every dollar to the best of their abilities and maximise your value as a shareholder. [00:09:28][95.4]

Bryce: [00:09:29] Yes, I mean, 15 percent return on equity would actually for a lot of companies listed on the Australian Stock Exchange, and that's something that they might mention as well. But it's not interested in any other company. Yeah, but that falls below that mark. [00:09:42][12.8]

Alec: [00:09:42] I mean, that's that's a good thing to sort of have as an investor going forward, because you can get lost in company financials. But, you know, if you if you can have a couple of metrics that you sort of pay particular attention to. So if client has a return on equity, a lot of investors look at price to earnings ratio or earnings per share. You can have this sort of key figures that you look for, you think are important and that can sort of filter out a lot of the numbers and a lot of the noise. And you can sort of just focus on what you think is important. [00:10:09][26.9]

Bryce: [00:10:10] Yeah, it was interesting because I definitely don't have an exact figure that I would look at a return on equity for a company and filter it out either yay or nay. And I know that, you know, 15 per cent might seem quite high, but that's also because of the understanding that they are superannuation focussed fund. And I'm sure a lot of the stocks that we're looking at at the moment wouldn't have a return on equity. Correct me if per cent, but it's something that I'm looking forward to seeing how we might deploy as we sort of go in our training. [00:10:35][25.8]

Alec: [00:10:36] I think that's the whole thing about this podcast. As we said from the very start, just as well, just as you're learning, we hope to give some knowledge. We're also learning this is a journey that we're all tied together. So, you know, there's definitely times now in the future where, you know, we come on the podcast and tell you something that we didn't look at or we didn't think was that important. And yes. So let's keep going on this journey. [00:10:58][22.4]

Bryce: [00:11:00] Well, the third and final point for me, Ren is in such a volatile market, it sometimes can be difficult to keep on top of, you know, all these stocks if you're buying individual companies, which can prove to be, you know, quite disastrous. And so they made mention of the fact that there are a number of ways that you can manage your risk while still being in the market. And one of those ways is through buying ETFs or exchange traded funds, which are essentially listed fund management companies. Give exposure to indexes, and so it's an easy way, as we'll discuss in a coming episode, to get access to the market without having to worry so much about knowing information about individual companies and having to make the call on that. Yeah, so they gave a mention of a few that we'll discuss a bit later on in a bit more detail. But I started my investing journey by buying into a diversified and then later on got into ETFs as well. And I've got a couple on my list that I'm looking at at the moment. So it was good to hear them reinforce that as well. [00:12:03][63.6]

Alec: [00:12:04] But I guess I will leave. This section of the podcast is maybe just a quick summation of some of the things that Client talked about as being the features of quality businesses and what they look for when they're making investment decisions. So I already talked about return on equity. That's that's a very important one for them. But some of the other the other features that they look for, they look for companies with dominant market positions. So, you know that that could be both having a large share of the market or having some form of protection, whether that be, you know, high barriers to entry or, you know, protected intellectual property, just just something that gives them a strong position in the market. Yes, strong brand. Yet another feature was self-funded growth from cash flows and tied to that was also moderate or no gearing. So essentially what that means is that the company can fund its its business operations and its expansion from the money it's generating. It doesn't have to go to the bank or doesn't have to raise capital from investors. And obviously that can't be a hard and fast rule. There's times when companies should take on debt. You know, if a company is going to acquire another company, they'll have to raise capital or, you know, they might just be trying to expand their business activities. They sense an opportunity and they need to raise that for it. So I don't think this is a hard and fast rule. But in general, what you want to see from companies is them being able to sustain their growth from the money they're making and they don't have to go to external sources to get it. Another feature that they look for, which is tied to what I was talking about before with Australian large cap companies, is that they want to say that the earnings the companies made are sensibly apportioned. So that means, you know, they're not paying too high a dividend. They're investing back into their core competencies, what they do well as a business, what continues to generate cash for them. And, yeah, it's it's also a sign of a good management team, which is the next feature that Clyde look for. If you have a good management team in place, they're going to be allocating capital well, and that's something that they look for. The final one the client looks for is they want to say less cyclical growth. So a great example of that is Australian mining companies. They are completely reliant on the sick. They are completely reliant on the price of commodities. And commodity prices are quite cyclical in nature. So, you know, when the iron ore price rises or the coal price rises, you know, Rio Tinto, BHP, they have an absolute field day and they have a run up in their share price. But then when coal iron ore prices fall, the share price falls commensurate to that. And what you don't want to pay is an investor that's left holding the shares when iron ore prices fall. And all of a sudden, you know the valuation, [00:14:43][159.6]

Bryce: [00:14:45] especially if you don't actually have an understanding of what influences the cyclical nature of the business. Yeah, if you're just betting on the fact that maybe in the future prices are going to go up, then you can get into the serious amount of trouble. [00:14:54][9.6]

Alec: [00:14:55] By all means, get stuck into studying iron ore prices and make a lot of money and back yourself into be the first one to sell when the price will turn. But look, I'm I'm not going to do that. I imagine most people aren't going to do that. So that's not to say I don't buy Australian miners, but that's just to say go into owning them with your eyes open, recognise that they do have large run ups in price and we're seeing a pretty good run for the miners recently. But that is heavily influenced by the price of commodities. And just as we're seeing a pretty good run for them recently, in the future, we will see that turn. And so don't be left holding them when when it does. Yeah, no, [00:15:36][41.0]

Bryce: [00:15:37] I think something actually will. But I'm I'm going to do is take these features of a quality business and try and go through my portfolio and see if they match up to one or two or maybe all of the points. And I think, you know, that's something that our Equity Mates could also find of use, you know, just as a fun little exercise. [00:15:58][21.2]

Alec: [00:15:59] Yeah, absolutely. Of course. All right, stop the way, so we're going to do this every podcast. Yes. And this is by no means. Here's a stock you should run out and buy a lot of. Whereas what we're saying for this whole journey, we're not professional advisers, we're not professional investors, but hopefully through our conversations about shares and saying if they perform well or just as likely if they perform poorly on you as the listener can take something out of it. And I think we as the people under pressure to make some good picks, we'll take some comfort as well. [00:16:40][41.6]

Bryce: [00:16:41] Yeah, well, we're definitely not picking these stocks for other people. These are stocks that we will probably buy ourselves anyway. Yeah. So we're not just doing this for the sake of having a stock to pick each week. Yeah. [00:16:52][11.4]

Alec: [00:16:53] So we could sort of save everybody and, you know, like a big protected LogCAP country, Australia. Yeah. We could go like Telstra, Commonwealth, Transurban, BHP and Rio and just not really get anything out of it and not really give you as a listener anything out of it as well. So we're going to put ourselves out there a bit more and pick some companies that you probably haven't heard of, some companies that we haven't really heard of before. We started doing research for it. And we're going to have a conversation about why we picked what attracted us to it, what we think potential risks in picking it up. And then what we're going to do, as we've said before, is put it on our website and have a hypothetical portfolio that you can look up at any time, see how it going. And, you know, just sort of like think back to the conversations we've had and then compare that to, you know, performance six months down the line, 12 months down the line, and hopefully you get something out of it. [00:17:50][56.9]

Bryce: [00:17:50] So let's get started. [00:17:51][0.5]

Alec: [00:17:51] All right. Well, we'll let you kick us off and tell us where the money is. [00:17:55][3.9]

Bryce: [00:17:55] Okay. First cab off the rank is a stock or a company called Gateway Lifestyle [00:18:01][6.0]

Alec: [00:18:05] wants to [00:18:05][0.3]

Bryce: [00:18:06] have off. The rank is a company called Gateway Lifestyle Stock. All right. So it's a company called Gateway Lifestyle Group [00:18:15][8.3]

Alec: [00:18:17] and ASX CODE? [00:18:18][1.0]

Bryce: [00:18:19] GTY. OK, so if you want to look at all your listening ASX dotcom today and type in GTY and you'll be able to see what we're talking about. It's a company that is in a space that we're both really interested in. [00:18:29][10.5]

Alec: [00:18:30] Oh, I think before we get into it, we should say we're recording this on the 16th of February and its share price is currently two dollars and one cent. So that's what we're going to get for our good little price. [00:18:41][11.3]

Bryce: [00:18:41] Yeah, nice to kick it off. Well, Ren, it's you. As I was saying, we're both really interested in the space. It's got to do with aged care, and that's probably what first drew attention to it. So, I mean, take it away. What is it? [00:18:55][13.6]

Alec: [00:18:55] It's listed in its listed on the ASX as a real estate company. But essentially what its business model is, is it owns large, I guess like large tracts of land that it is turned into retirement communities and at this stage owns 53 different communities, the all or most of them outside major city centres. And essentially what they're doing is trying to attract retirees that are interested in a sort of sea change for their retirement. Now, the the unique thing, the gateway to doing, as opposed to the sort of traditional business model of retirement villages and retirement communities, is that they are offering retirees the opportunity to design their own home and then they will actually manufacture that home for them and place it on their land. And in doing that, they'll only charge the retirees for the for the house and not the land underneath it. And that gives them significant pricing power in relation to other retirement housing options. We'll get into that a little bit later. But that is that's an important aspect of the business. Although we keep in mind, [00:20:00][64.0]

Bryce: [00:20:00] you know, essentially its aim is to make retirement living cheaper for retirees. [00:20:06][5.4]

Alec: [00:20:06] Yes. Now, a little bit of that history. So the pretty fresh onto the ASX. They've only been listed for a couple of years and they've pursued a pretty aggressive acquisition strategy. And so what they've done is they've raised money both for listing and then for a capital raising and also by raising debt and have acquired a number of sites that they're currently in the process of turning into a retirement community. So I guess that's best illustrated in the rise in revenue in five point fifty five million in revenue, and that's jumped up to over one hundred million at the end of financial year 2016. So that's sort of indicative of, you know, doing a lot of acquisitions in 2014, 2015. And they're in the process of converting those acquisitions into sites that they're pretty much horizontal. Yeah. [00:20:56][50.0]

Bryce: [00:20:56] So the reason that they're probably doing such an aggressive growth strategy. Is making mention of the fact that this was one of our favourite specialities because they're probably trying to solidify their mark in this market because they can. Well, we all know that our population is ageing. And in years to come, the ageing of the ageing population is going to be, what, eight point eight million people over the age of 65, by 55 by 2050, five double what it is now. So they're foreseeing that there's going to be a demand for this sort of housing for retired. Couples, individuals, whatever. Yeah, one of the major reservations I have with Gateway is its aggressive growth strategy and it might seem a bit counterintuitive, but whilst they are doing it to sort of solidify their brand in the market at the moment and, you know, get as many communities up and running as they can so they can get their brand out there. I think that the risk you run in being so aggressive is that if you're not careful with your cash flow, then you can run into real problems in terms of your level of debt. Yeah, and then that has a flow on effect. And before you know it, you've really gone too hard and you have to start scaling back investors pulling out and you can go downhill really quickly. [00:22:22][85.9]

Alec: [00:22:23] And that is something that is particularly notable about Deep Dive is that they do have a relatively high level of debt. It's a sort of hundred million dollars in long term debt, and that's compared to about 700 billion dollars in assets. But not all debt is created equal. No, and we're not too worried about this debt for a couple of reasons, which, you know. [00:22:46][22.6]

Bryce: [00:22:46] Well, I mean, one one reason that to me it's not a massive issue is because they have been so aggressive over the last couple of years that they have had to have taken on such large amounts of debt in order to get to where they are today. So without taking on that debt, the process of expansion might have taken a lot longer. And looking at what we know about the company, the occupancy rates aren't actually that bad, well over 50 percent. And so if they can maintain this level of occupancy and increase it from where they are, then the value of the company is not only going to increase, making the size of the debt appear a lot less confronting and also their revenue stream to service this debt is quite consistent. And if it keeps in trend of the sort of forecasts that the management is making, then paying down the debt isn't something that we should really be too worried about. [00:25:27][161.5]

Bryce: [00:25:29] I mean, another question I have is the locations of the communities. I'm not really I mean, we've had a look at the list and there's some places in there that I wouldn't want to go to as a people or there's something that I haven't really heard. Also begs the question, are they choosing communities in places that are attractive outside of the fact that they would be moving because it's cheap? You know, would someone move there as a retiree just because it provides a nice living environment? Are they good facilities in that sort of stuff? Or are they just choosing facilities and communities to buy it just because they are there and they have the ability to do so and they want to create a big portfolio? Yeah, so that's something that I would keep an eye on. I don't know. A lot of it is heavily based in New South Wales. It makes sense. You know, their whole thing is come and have a sea change with by the coast and all these little nice towns. And with Sydney getting priced out a lot at the moment, it's now becoming a lot more affordable to live in places like these. And these places are, as a result, going to become sort of much bigger centres of living. That would probably one of my reservations. [00:26:28][58.7]

Alec: [00:26:30] So I think with the location, it obviously is a concern. But the what Gateway is banking on and I. As investors, we're kind of telling them as well, is that this generation of retirees are going to feel the financial pinch in a way that no generation of retirees has ever really felt it before. And there are a number of reasons for that. The main one is just cost of living in major cities is exploding. And also that superannuation for this generation is like they haven't had the whole working life to accumulate the solid superannuation balances. And so what we say is that for someone aged 60 today who hasn't yet retired, the average superannuation balance is only only ninety five thousand dollars, which is [00:27:13][43.6]

Bryce: [00:27:14] like it's a scary thought that you're going to potentially retire at 65 and have what, equity in your house plus the 95000 you got in the super and you need that to generate an income to survive the [00:27:23][9.0]

Alec: [00:27:23] rest of your life. And the other thing that is going to make the financial pressure worse for this generation of retirees than any other generation before is the ironically, not the advancements in medical technology that is pushing the life expectancy further and further out. And so, you know, retiring at 65, you now have the potential to live for 30 years or maybe by the time, you know, some of these people are retiring 40 years even, whereas that wasn't as much a likelihood back in the day. But then commensurate with that is that health care costs are rising. So a great proportion of your retirement income is going to be tied up in keeping yourself alive, which then, ironically enough, makes the remaining portion have to stretch further. Yeah, so there's quite a lot of financial pressure. And what gateway that we think may become quite attractive in the longer term is, as you say, retirees generally have the equity in their house and then their superannuation and maybe some investments and stuff like that. But the equity in the house is an asset. And traditionally what you would do is you would sell your house and then you downsize and you buy another house, which [00:28:32][69.8]

Bryce: [00:28:33] is either going to be in a retirement facility like Gateway or, you know, [00:28:38][4.7]

Alec: [00:28:38] a residential house. Yeah, yeah. What that guy does that's quite unique is because they sell the house, the land, they are actually quite a bit cheaper than the average house, but also the average retirement village, house or unit. So we put up some figures here just to illustrate that at the moment, if you're going to get a retirement living house in New South Wales, the average is about three hundred ninety thousand dollars, whereas Gateway are charging two hundred eighty five thousand in New South Wales. Similarly, in Queensland, there's one hundred thirty thousand dollars difference. And in Victoria, the difference is actually quite large as well as over two hundred thousand. [00:29:19][40.4]

Bryce: [00:29:20] So what's the difference in New South Wales between, say, buying a gateway property or downsizing into a residential market? [00:29:26][6.2]

Alec: [00:29:27] So the average apartment price or residential property in New South Wales is 680000. So there's a four hundred thousand dollar difference. But even if you're looking at the retirement option, the important thing to keep in mind is that whilst you know, one hundred thousand dollars difference may may not seem a lot to the 30 year old investor who isn't thinking about retirement for years and years to come for the 65 year old retiree who only has ninety five thousand dollars of super in their account. One hundred thousand dollars is quite significant and is a big consideration when when you're making these decisions. [00:30:03][35.8]

Bryce: [00:30:04] This is gateway selling point, essentially, because the income that you could be able to generate from that 100k in having a super account. Yeah, it could mean the difference between a retirement where you're struggling on the pension and one that way. Yeah. You might still be taking some government assistance. You're definitely making a lot more comfortable. [00:30:20][16.2]

Alec: [00:30:21] Yeah. And the other thing to note is when you pass away the the House that you buy with Gateway actually forms part of your estate and you can bequeath it to another retiree or you can sell it and the proceeds to your family. And so just having like being able to having the comfort of knowing that you own that asset in the house does is good for the retiree as well. [00:30:43][22.2]

Bryce: [00:30:43] It'll be interesting to know just what the appreciation on the houses would be on the time, [00:30:48][4.3]

Alec: [00:30:49] much because, you know, own the land with a lot of houses, like the appreciation comes from owning. [00:30:53][4.0]

Bryce: [00:30:53] Yeah. Which is why it's a good business for gangways. Yeah, exactly. Yeah. It's such a large quantity of land. [00:30:58][4.9]

Alec: [00:30:59] Yeah. So do you have any other things that you are worried about with the [00:31:02][4.0]

Bryce: [00:31:04] one thing that I thought about that could potentially retirees off from making the decision to go and live in a gateway community would be the fact that they don't offer any additional aged care services. They are entirely a provider of a space and a house to live. And yes, they provide like a community centre and a bus into town, but they don't actually have anything in their communities that are specifically tailored towards the needs of elderly in the sense that, you know, if you needed an emergency, there's not there was no mention of the. That that would be giving you quicker access to emergency services or [00:31:41][36.0]

Alec: [00:31:41] like a nurse on site. [00:31:42][0.7]

Bryce: [00:31:42] Exactly, exactly. So if you were in a position where you needed those services, then this probably isn't the best place for you at that time of retirement. Now, having said that, you're going to retire, you retire at 65 and you wanted that same change by all means. They might say, look, we'll go there for, say, 10 years. And if things start to go downhill, then we still with asset. We've still got our cash. We can sell and move to an appropriate facility. But I'm just saying that for some retirees, it might not be the best option just because some do really need those additional services at this time in their life. [00:32:11][29.1]

Alec: [00:32:12] Yeah, exactly. So, I mean, it's tied to a certain demographic of retirees. Yeah. And given the expanding size of the market that we're going to say that isn't necessarily a problem in and of itself, because as the pie grows, you could target smaller nations in a pot in that pie and still remain profitable. And I think that, you know, if people are retiring at 65, they generally will have quite a few good years of health care before they need to start looking at moving to a, you know, a full retirement, a full care facility. I don't know the technical term is there, but yeah, I mean, I understand the concern. I, I think that it's something they would be aware of and. [00:32:54][42.5]

Bryce: [00:32:54] Yeah, yeah. I mean, other than that, though, you know, I think that that's probably most of my dislikes. Yes. Certainly there are more lax than there are dislikes for me. As we as we mentioned before, something that I quite like is the dual income stream that they've got going on. So they've got an income stream. That one comes from payments that the retirees make on a weekly basis to the company. What was 140 dollars a week? [00:33:21][26.4]

Alec: [00:33:21] The average rent is [00:33:22][0.6]

Bryce: [00:33:23] one hundred forty dollars a week. And then the second stream of income comes from the sale of the house. So they manufacture, manufacture the houses offsite, presumably through a contractor, and then they ship the houses in, build them on site, and then the retiree will build that house that you would presume slightly additional cost to the cost of actually building it, [00:33:39][16.7]

Alec: [00:33:40] which we should say is the business model for most retirement. [00:33:44][3.7]

Bryce: [00:33:44] Yeah, there's nothing unusual about that. [00:33:45][1.3]

Alec: [00:33:46] Yeah, yeah. But it is just nice for an investor to know that when you like, with the current occupancy that you have, you constantly generate income generating income from them. But then we never knew that you bring in you get a nice little payment up front in the property that is on in the house and then you add them to you like continuing revenue base. So I think that when I was initially looking at this company, I was quite worried about bought in, thinking about it and looking into it. I actually think it can be quite unique. Selling point is the idea of the manufactured home. And let's be honest in terms of the points of difference, location is one to an extent. But I mean, there are other retirement villages in rural locations and change locations and I'm sure there are other retirement villages also doing manufactured homes. But in terms of like the traditional retirement village model, what you would normally do is you as a retiree would buy a unit or a house in the retirement village that someone has lived in before. And then you would move in. And if you had a disability or if you had special needs, what you have to do is then pay to get that facility or that apartment or house retrofitted for what manufactured homes offer. That's very I think is better is the ability to design the house that you need with your unique requirements in mind. So, you know, whether whether that's a complete wheelchair accessibility and all of the cupboards and everything in the house being at a height for the build up or, you know, whether you really you know, if you lose a site and you need, you know, things biga or handrails, handrails, you can bathrooms, any of that light switch. Yeah. [00:35:35][109.3]

Bryce: [00:35:36] Appliances that were a lot easier to use. Yeah. [00:35:38][2.0]

Alec: [00:35:38] Also, all of that stuff can be factored into the design of the house. And so when you get through that design process is a better living experience of the hardest time. Yeah. So, so that's good. But if manufactured homes still have that sort of demountable classrooms that we all sort of remember from our primary school Dollars, then it wouldn't be an attractive proposition for a lot of retirees. But in looking at manufactured homes where they currently stand now, it's actually quite tough to tell the difference between a manufactured home and a a built on site. But not all all of the things that you could want from a house that's built on site, you can really get from a manufactured home. [00:36:21][42.7]

Bryce: [00:36:22] Yeah, I don't think I don't think the retirees wouldn't be worrying about if it's manufactured outside or inside. One of the major advantages of it being manufactured offsite. But you can get the process happening well before you want to actually move to the location. And then it's shipped in on a truck and built. Within a matter of potentially weeks, so there's not a huge you can you can have the time of selling your house and then pretty much make Australians upset. Yeah, I like that point. And you can see that down the track as technology progresses and and they start incorporating this technology into these houses, then they could really be developing houses that are entirely unique to your living situation, which would be a very yeah. As you said, really increase the standard of living. [00:37:02][40.8]

Alec: [00:37:03] Yeah. And that's something that a lot of retirees want to do. They want to I think that the term that uses age in place and that essentially means have their house, but they can live in and grow old enough for as long as possible and avoid the trip to, you know, the full care retirement home or to hostels or whatever it is. They want to avoid making that trip for as long as possible. And if they can offer the opportunity to age in place for longer, then that's great for investors. No, not nothing more for me. I think, you know, when when you look at the stock, it it's obviously quite early in its business cycle, but you're paying 30 times earnings to get it. I think that's pretty good. I think the average [00:37:49][46.7]

Bryce: [00:37:50] is like 20. I mean, those sort of statistics are incredibly contextual. Yeah. But like going out there and times like. [00:37:57][7.1]

Alec: [00:37:57] Yeah, yeah, true. But I mean, the net tangible assets of Dollars 40 per share. So that means if the company liquidates today, you know, if you put dollars a share for it, you got a dollar for it. You say that. Yeah, that's that's all right. [00:38:14][16.8]

Bryce: [00:38:14] So Ren, is there anything else that you love about anything else that you don't like about Gateway before we quickly wrap this up? Well, OK, so I think we've definitely given you guys enough information about Gateway to give you a good example of how Ren is. And I both like to discuss companies and come to a conclusion about why we think there are theyre a good buy, not a good buy. We both definitely think that this company has a lot of potential. We're excited about the space that it's in. And this is definitely going to be our first stock on our hypothetical portfolio. [00:38:48][34.0]

Alec: [00:38:50] I think maybe we should we should say something about the financials just because I think a lot of people will be sitting there thinking, why haven't we talked about the financials at all? And I think not not much. We talked a little bit about that, that we talked a little bit about that revenue growth. But I think the way that both of us look at investing is we obviously look at the financials, but we more look and see if there are any major red flags. Yeah. So as long as everything is, you know, in a normal range is sort of what what industry averages are a little bit better than the industry average, then that isn't going to be the decision to buy or not to buy it. It's obvious red flags will cut it off the list. But once you see that the financials are pretty much of the mill in this case, the financials are a little bit better than average, then what we do is we do we have the conversation that we just did. Yeah. And we talk about the future outlook, whether we think the business model will work, whether we think I'll be able to attract consumers, because at the end of the day, you can look at charts and you can look at cash flow statements and you can look at balance sheet until the cows come home. But if you're not going to be able to continue to attract more customers, we'd like a business offering that is enticing. Then a snapshot of your financials is going to be another hit on that. Yeah, so and [00:40:08][78.3]

Bryce: [00:40:09] I also want to add to that is what we also look at the financials. This discussion process helps us to prove that we actually have an understanding of the business so that we're not just blindsiding ourselves and looking at the financials and being like, yeah, right. They're above industry average. Let's go for it. We've looked at the financials and then we've tried to dissect it in a way that we can really understand. And we've gone great, we understand this business. We can see opportunities for it. We can see ways in which they might fall down. And if we can understand both of those sides and see which one outweighs each other, then we can make a much more informed decision. [00:40:40][31.4]

Alec: [00:40:41] Yeah, and we might be wrong, but you've got to you've got to be in it to win it, really. And I think I think with this, we'll run through some of the some of the positives and negatives. And I think really the big negative for me is that there and that that worries me, but relatively confident that the management is in place and the business model is in place, they going to be able to convert when they use that debt for in these land acquisitions into new paying customers and new retirees. And so I'm confident that although there is a lot of debt, that that won't be a problem on a long term basis. [00:41:19][38.2]

Bryce: [00:41:19] That one of my dislikes that I mentioned before is that they might have a slightly more limited market, in fact, that they don't provide fully or any sort of additional aged care facilities. And I was also a bit worried about some of the locations. I wasn't sure if there was much support going into the locations that they were purchasing or if they were. Not just because they had the opportunity to do so, I wanted to aggressively expand those are our main dislikes. The locks that we had were the attractiveness of owning your own home at a much cheaper price than if you were to do it in another way, either in a downsized residential property or in another retirement facility, freeing up a lot of capital and equity that you have in your house. We also liked the fact that it had two streams of revenue, one very consistent and one coming from the manufacturing of the homes. [00:42:07][47.4]

Alec: [00:42:08] And I think a lot of luck was with that manufacturing of the home that you give retirees the opportunity to design the retirement home that they want to live in and that meets their needs if that happens. [00:42:18][10.9]

Bryce: [00:42:19] And the biggest lock of all and we saw the upside with this was that it's in a space that we both love. We both know that it's going to be so much demand consumption coming from this demographic in the future. Population is certainly ageing and there's just going to be such a big focus on it. So we want to try and get in on it while we can. So that's our stock for the week. [00:42:36][17.0]

Alec: [00:42:36] First one one, one more like that. We didn't really touch on that. I also like businesses where when the customer comes in, that customer is going to keep paying you for a while. And when a customer comes in to retire in your retirement village, they're going to be there for, you know, 10 or 20 years at least. And that's right, because it means you have to keep selling the idea that as long as they don't leave your facility, they're going to keep paying. And that's a nice little protected look once you have a customer, harder for them to leave. [00:43:01][24.5]

Bryce: [00:43:02] Good point. So that's it. First talk of the week, to get it up there, jump onto our website. What we're going to do now is post a nice little summary of what we've discussed today in a bit more of a, you know, not so much detail, but it's easy to read, easy to follow. And then we're also going to put up a graph to show you a purchase price and to kick off our entire hypothetical portfolio portfolio where you can see the financials of it. We're roughly going to be buying about 250 shares with the five hundred dollars that we've got, including brokerages. So that might drop down a little bit. But yeah, thanks for listening and we'll see you next time. [00:43:42][40.3]

Speaker 6: [00:43:46] Equity Mates. And the people appearing in this programme may have positions that haven't been mentioned. This is general advice. Please speak to a financial professional to understand how you have to look at your situation. [00:43:46][0.0]

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