EM Portfolio: Community Stock Pitches & October Buys

HOSTS Alec Renehan & Bryce Leske|19 October, 2020

Meet your hosts

  • Alec Renehan

    Alec developed an interest in investing after realising he was spending all that he was earning. Investing became his form of 'forced saving'. While his first investment, Slater and Gordon (SGH), was a resounding failure, he learnt a lot from that experience. He hopes to share those lessons amongst others through the podcast and help people realise that if he can make money investing, anyone can.
  • Bryce Leske

    Bryce has had an interest in the stock market since his parents encouraged him to save 50c a fortnight from the age of 5. Once he had saved $500 he bought his first stock - BKI - a Listed Investment Company (LIC), and since then hasn't stopped. He hopes that Equity Mates can help make investing understandable and accessible. He loves the Essendon Football Club, and lives in Sydney.

It’s time for our October investment committee meeting, and what an episode we have.

As per the rules of the portfolio, we add to two ETFs in our core portfolio.

For our satellite portfolio, we hear two stock pitches from members of the Equity Mates community. Daniel and Euan both come on to walk us through stocks they believe will be great additions to the EM portfolio.

It was awesome to have them both on – and we encourage other members to submit their ideas as well via our social channels or email.


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Bryce Leske: [00:01:28] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. We break down the world of finance and investing from beginning to dividend so it is more accessible for you. My name is Bryce and as always, I'm joined by my Equity Mates Ren. [00:01:41][12.8]

Alec Renehan: [00:01:41] How's it going, bro? I'm very good. Bryce looking forward to this episode. Oh, you've changed. I figured if you change, I'll change. Oh, I try too many people out. [00:01:51][9.6]

Alec Renehan: [00:01:51] Honestly, your intro still throws me off a little bit. [00:01:54][2.8]

Bryce Leske: [00:01:54] Yeah. Look, it's really not rolling off the tongue. I'm going to give it some more thought. The main thing is I'm not going to revert back to the old one. [00:02:02][7.6]

Alec Renehan: [00:02:02] It's good that you keep putting thought to the most important thing. [00:02:04][2.0]

Bryce Leske: [00:02:04] Absolutely. Absolutely. So Ren, we're here with the hypothetical portfolio, both core, and satellite. We haven't touched on it now for well, at least we haven't bought as consistently as we had said we would. [00:02:17][12.5]

Alec Renehan: [00:02:17] Hey, there's a lot of content to produce, so that's OK. [00:02:20][2.7]

Bryce Leske: [00:02:21] So that's why we are here. We're going to do a portfolio update and then also buy some ETFs in our core portfolio. And then we're going to hear two stock pitches from members of the Equity Mates community who have submitted some stock ideas over the last couple of months. And as we said, we're all about this portfolio being about the portfolio of the community members. So very much looking forward to having you and Daniel come in and pitch for us. [00:02:46][25.0]

Alec Renehan: [00:02:46] Yes. Now, before we do, two important things that I got to bring up. First one, I've heard everyone's feedback around how I say performance. I will endeavor to get that right. [00:02:58][12.1]

Bryce Leske: [00:02:59] Look, you've been saying it for a long time. [00:03:02][2.5]

Alec Renehan: [00:03:02] So no promises but Facebook group. So just wanted to put that on the record and get that confidence. And Bryce will call me out if I say it wrong. [00:03:13][11.1]

Bryce Leske: [00:03:13] I don't think so because you're likely to say it again and it's likely going to be in one of your monologues and I'm not going to want to interrupt that. So. [00:03:19][6.0]

Alec Renehan: [00:03:21] Fair enough. Fair enough. The second and probably more important thing is just a reminder for everyone about this portfolio that nothing we talk about, none of the stocks we talk about, none of the ETFs. We talk about a buy, hold or sell recommendations. This exercise is purely educational. Bryce and I have been doing the podcast. A lot of people have been listening to the podcast for a number of years. We really thought that people would enjoy us talking about stocks. We wanted to hear from the community stocks that they were looking at. But most importantly, it's to really use this as a practical example of some of the things that we've learned over the journey. But we do just need to stress in these episodes that nothing is a recommendation. So don't buy, hold or sell any stocks or ETFs on the basis of what you hear and what we discuss. [00:04:09][47.9]

Bryce Leske: [00:04:10] Exactly. Ren well said. So let's start off with a portfolio update. So the current portfolio for our core, which is as a reminder, if you've just joined the show, is purely made up of ETFs. We have set about ETFs in there that cover everything from Australian equities through to Europe, Asia. There's some property, equities, infrastructure, gold, and fixed income. We've evenly weighted some of them. I think the main thing is that we haven't bought over the last two months. So we've got 2000 that we need to put into that. [00:04:42][32.2]

Alec Renehan: [00:04:42] And so as a reminder for people, the portfolio strategy that we're following and that a lot of the experts talk about is a core and a satellite, the core being long-term buy and hold set and forget, and then really just apply principles of dollar cost averaging. And then the satellite is where we invest in individual companies and try and apply some of the learnings we've learned around analyzing companies' valuation and stuff like that and the money that we get to invest in the portfolio. We've said, well, a thousand dollars a month for each portfolio, which is probably more than most people. But that's just for a couple of examples. But it's really the idea is that we're replicating someone who's saving a bit of their paycheck every month and then investing it in the market. Yeah, you definitely don't need to save a thousand or two thousand a month to invest. But this is just all for illustrative purposes only. So that's for people who are new to the show and wondering what the hell we're talking about that hopefully, that gives you a bit of a summary of where we're up. [00:05:42][59.8]

Bryce Leske: [00:05:42] So we liquidated our old portfolio, which was made up predominantly of Afterpay, and we had 18000 or about 17000 to spend on the purchase of all of our assets, which we did in one hit. So the update Ren the purchase value for our portfolio of ETFs was seventeen thousand two hundred and thirty eight. It is currently eighteen thousand one hundred and five, giving us a return, as it stands of 866. [00:06:06][23.5]

Alec Renehan: [00:06:08] The whole point of this is long term set and forget investing. And so I don't even think we should be well, one, I don't think we should be checking the performance every month, but two, I think writing out a whole bunch of numbers on a podcast is probably not great content. So I think maybe it's awesome. Maybe. We say go to our website if you want to see those numbers, but really the update is we've saved a bit of money and we're going to apply the principles of dollar cost averaging and we are going to dollar cost average into two ETFs. [00:06:40][32.4]

Bryce Leske: [00:06:41] Yeah. So those are the 200 Aussie equities. So it's the beat iShares ASX 200 ETF tracks the top 200 companies on the ASX, so 1000 into that and a thousand into the Europe ETF that we chose. Ren, which was the Vanguard Footsie Europe shares its ticker is Vakili. So we'll mark that down, as Ren said, should be available on the website to view the total portfolio for this month, making up for lost time on September, putting in the 2000, and we'll endeavor to buy more in next month. [00:07:12][30.9]

Alec Renehan: [00:07:12] All right. So we'll set and forget the core portfolio and we'll move on to the satellite. Fortunately for us, neither of us is pitching tonight. Instead, members of the Equity Mates community continue to send ideas in of companies that they're looking at and that they want to tell us about. And so tonight, we've got youan and then Daniel telling us about a company. Yeah. So unless you've got anything further, let's get stuck into that. [00:07:36][24.1]

Bryce Leske: [00:07:37] Absolutely. Let's do it. [00:07:38][1.1]

Bryce Leske: [00:09:01] So Ren, as we said at the start of the show, we are very excited for the next upcoming sort of 20 minutes, 20, or 30 minutes as we welcome two members from the Equity Mates community to come on to continue with the listener stock pitch for a hypothetical portfolio, the satellite portfolio. We were lucky enough to have been come on in pitch Citadel Group, which shot 40 percent on the back of a takeover bid, but no pressure to the table. [00:09:25][23.5]

Bryce Leske: [00:09:26] So that was great. And as we said, we're welcoming of any listeners who want to come and pitch the stocks for the portfolio. And it is super exciting to have a lot of pitchers come in. [00:09:35][9.0]

Alec Renehan: [00:09:35] Don't feel bad if you're not going to pitch a stock like Citadel that goes up 40 percent. I'm sure many people remember my Stock of the Year last year. I think Closter ended up close to halving in value. So this is a learning experience as we as we keep saying this is an investment advice. It's just taking all the lessons that we've learned over the last few years and trying to analyze some individual stocks and be a bit more practical in applying the lessons. So I think without any further ado, should we welcome them into the show? [00:10:04][29.4]

Bryce Leske: [00:10:05] Yeah. You and Jenkins' Equity Mates, community member, welcome to the show. [00:10:08][3.1]

Euan: [00:10:09] Guys, thanks so much for having me. [00:10:10][1.1]

Bryce Leske: [00:10:11] So you and you reached out a number of months ago? I think so. Hopefully, your stock hasn't gone crazy since you actually reached out to pitch the idea, but you reached out and wanted to pitch one of your stocks. And just as we said at the start of the hypothetical portfolio, one of the rules is that you must have a thesis at 50 words or 5000 words. And you did send in a pretty decent overview of your stocks. So looking forward to digging in. But before we do, can you give us a bit of a background into who you are, how you came across Equity Mates, that sort of thing? [00:10:38][27.2]

Euan: [00:10:38] Yeah, sure thing. So I'm a 21-year-old student down in Melbourne, Victoria, and I'm studying biomedicine at Monash University. So that takes up most of my time at the moment. And one of my good mates, Paddy Crowley, suggested this podcast to me probably about six months ago. So shout out to Paddy for getting me onto it. [00:10:58][19.6]

Bryce Leske: [00:10:58] Nice. Really nice for looking for your stock pitches as well as [00:11:02][3.7]

Bryce Leske: [00:11:04] nice paddy. [00:11:04][0.4]

Bryce Leske: [00:11:06] Oh yeah. I knew there was a reason we got to London. That's right. Anyway, enough of that. [00:11:13][6.8]

Bryce Leske: [00:11:15] How about you just give us an intro into the name of your stock, what's the ticker code? And then we can jump into some of the key metrics and then get stuck into the overview. [00:11:22][7.2]

Euan: [00:11:23] Yeah, sure. So the company I'm pitching today is called A Time Diagnostics Team 81. [00:11:29][5.5]

Bryce Leske: [00:11:29] And how did you find this stock? [00:11:31][2.1]

Euan: [00:11:32] Yeah, so like a lot of people at the moment, I wanted to try and make some money out of Covid. But anyway, I could and I found that a lot of companies rumored to be the ones to win the vaccine Bryce tended to be really expensive and highly discussed in the media and everything. So I thought about looking for some more niche companies that could potentially make some big money out of Covid. So I started looking at companies, for example, which supply materials needed for vaccines. So stuff like needles, vials and all of that. And then I stumbled across a Tarmo and their rapid diagnostic test devices I saw. [00:12:04][32.4]

Alec Renehan: [00:12:05] And well, that's a good Segway into at a time. I do. So can you maybe explain what a rapid diagnostic test device is? And I guess is that the main product, that atomos? [00:12:15][10.6]

Euan: [00:12:16] So, yeah. So there in the health care equipment and services sector, I'm actually just recently appeared in April this year and their business is manufacturing and selling what I said, the rapid diagnostic test devices where basically you can test for diseases and have your results within minutes. And the way I like to think of them is kind of similar to those diabetes insulin tests, you would say, where you pick your finger and take a little sample of blood and then it'll raid your results on a screen. Prior to Covid, the main business and main sort of stream of income with these tests was a self HIV tests, [00:12:51][35.5]

Bryce Leske: [00:12:52] which kind of sounds similar to that bad blood Theranos company. But have you read that book where she essentially says she has a test that can prick your blood and it'll give you a thousand test results in like seven seconds? [00:13:04][11.3]

Euan: [00:13:05] I was actually pretty amazed by how many things they could test for, but basically got a few devices and you can load into it sort of any tests that you want. And so they can test for things like they have. They have, say, a range of inflammatory conditions, malaria, herpes, allergies, and even they're starting to get into sort of cancer sort of thing so they can do a test now for prostate cancer, which test for PSA antibodies in the blood. So it's actually really impressive what they're doing. [00:13:30][25.7]

Alec Renehan: [00:13:31] Well, now, in defense of a time over. Yes, there are no [00:13:35][4.3]

Bryce Leske: [00:13:35] signs of it. [00:13:36][0.8]

Alec Renehan: [00:13:37] Is the problem with Theranos was they tried to test everything with one drop of blood and they diluted it so much that the test results were Buhle. Whereas for this like atomos covid-19 test, it's only testing for Covid. Okay. [00:13:51][13.9]

Bryce Leske: [00:13:52] That's right. [00:13:52][0.2]

Euan: [00:13:53] That's right. So so they can test for a number of things, but you would need a number of devices to test for one thing. [00:13:58][5.8]

Alec Renehan: [00:13:59] Now the crazy. Thing about the covid-19 test is that you get results in 15 minutes, which I don't I don't know if either of you guys have had a Covid test, but I have and it was like a 48 hour turnaround until I got a test. So the 15 minutes, that is rapid. [00:14:15][15.7]

Euan: [00:14:16] Yeah, that's right. And Ren, you've kind of just spoiled by being surprised. [00:14:18][2.6]

Euan: [00:14:22] I had mentioned that that brought out a Covid test yet. [00:14:24][1.9]

Bryce Leske: [00:14:25] we will give this to you. [00:14:25][0.2]

Euan: [00:14:28] So, yeah, now that cat's out of the bag. Like I was saying, prior to Covid, their main source of income was through self testing HIV test kits. And that was doing really well for them. It's currently the only one approved by the TGA for use in Australia when they sell them worldwide. But now, since Covid has hit oh, basically since around the time they appeared in April or May, they started making a serum antibody, Covid, which, like said, can tell you whether you're infected with covid-19 within about 10 or 15 minutes. And it can also tell you whether you've been infected in the past, depending on which antibodies show up. Interesting. So, yeah, it can be used not just for someone showing symptoms. I go in and get tested like they're being used all around the world at the moment, say, for example, at an airport. If you're saying whether that can be used to test people for immunity to Covid. And so I can say this being a big thing with when people stop going back to work around the world and travel starts getting big, that they can sort of act as an immunity checker where you can say whether someone has had Covid and whether they're sort of at risk of getting it. [00:15:33][65.2]

Bryce Leske: [00:15:34] That's actually. So, yeah, I guess my question then you is it sounds great in theory. Is this the one we're seeing out on the streets at the moment? Has it been approved? [00:15:45][11.6]

Euan: [00:15:46] Yeah, that's a good segue to sort of get into the discussion about approval and everything that I know. You guys, I'm probably a lot of listeners are thinking it's just another health care sort of biotech company where so much of their success is completely dependent on approval by different governing agencies. And just a couple of weeks ago in your episode with Julia Ley, you were talking about how these kinds of health care companies can just eat up so much money, what they're going through trials and hoping to get approved. But the great thing about the Tarmo is that they're largely passed up phase. So that serum Covid tests have already been approved by the TGA, which is arguably one of the strictest and hardest agencies to get approval from worldwide. So that's a pretty good indicator that they'll be successful with the approval in other countries that Mack-Cali already have approval for emergency use in the US by the FDA and that sort of pending more popular use over there. They've been approved in multiple different countries across Europe, including France, where, you know, at the moment the virus is just going nuts. So it's probably one of the better places to be approved. And like I said, that have been approved by the TGA and they are starting to slowly roll them out. I'm not 100 percent sure when we'll sort of be seeing them become a more commonplace. I might just mention now that they've just recently expanded a partnership with Access Bayer to produce and distribute covid-19 Rapide antigen tests in Australia and New Zealand and India. And so these are more like the Nizer pharyngeal swab tests that are the more common Covid tests at the moment. And you might have seen those on TV where there's sort of a new way to process the swab and they're very similar to the ones currently being used, except they no longer require molecular PCR, which has to be carried out in a lab. So instead you can get your results from this Nasatir jail swab on the spot within about ten minutes. And this eliminates a need for people to be oscillating for 24 to 48 hours until they receive the test results. And it just sort of helps the testing process and the contact tracing profoundly. And no doubt it'll become a very sort of a big part of testing this rapid antigen test. And what they're saying is that it could be very useful to use the rapid serum antibody test alongside this antigen test. So basically, it'll tell you very precisely whether you have it or not now and whether you've had it in the past. So maybe once I start rolling out these rapid antigen tests might say the serum antibody tests being used alongside the [00:18:08][142.4]

Alec Renehan: [00:18:09] let's put some numbers against the company, I assume is making a lot more devices now during Covid than it was in pre Covid times. Do you know what that uptake has been like? [00:18:21][12.0]

Euan: [00:18:21] Yeah, yeah, you're absolutely right about that, Ren. So at the start of the year, they were making about 300000 devices a month and then nine factories in South Africa, I believe. And now they've been able to more than quadruple that number. And I'm making over one point three million doses a month. And it's worth noting as well that they only started selling these devices right towards the end of FLIR Twenty and their revenue actually went up an astonishing nine hundred percent. And in what, twenty compared to find nineteen anywhere from zero. [00:18:50][28.3]

Bryce Leske: [00:18:50] Exactly. Let me go for that. [00:18:54][4.1]

Alec Renehan: [00:18:54] Let's actually put numbers against it. Like what is that rise. [00:18:57][2.5]

Euan: [00:18:57] So I believe it went from about. Five hundred thousand to five point five million. Yeah, four million. [00:19:04][7.0]

Bryce Leske: [00:19:05] And what is the market cap of Otomo? [00:19:06][1.5]

Euan: [00:19:07] I didn't mention that at the start. So they can't share price or haven't checked today. [00:19:11][3.9]

Alec Renehan: [00:19:11] It's 35 cents. [00:19:12][1.0]

Euan: [00:19:13] Yeah. Yeah. OK, so it's been around that 35, 36 cents for a while now when the market cap is just over 200 million. [00:19:19][6.1]

Bryce Leske: [00:19:20] So it's pretty small cap. Great overview. I think it's certainly a company that I'd never heard of. You've obviously through I guess your studies have a very good, much better understanding of this sort of stuff than I do. I like the thinking around trying to find a company that is going to, I guess, move with the times being Covid. And to Alec's point, you know, finding companies that other picks and shovels and we'll sell products into this sort of industry, I guess. So great overview. Ewin, you have a question? Ren. [00:19:48][27.8]

Alec Renehan: [00:19:48] Yeah, I've got to, but I'll ask them one at a time. So my first one is there are obviously a number of companies making test kits at the moment. And as you sort of explained before, you and there's some that are doing like nasal swabs and then the others that are doing blood tests and stuff like that. What are the competitive advantages for this particular companies test kits? Is there anything that makes them better or more defensible than some of the other companies making testing kits? [00:20:13][24.6]

Euan: [00:20:13] Yeah, I think they've got probably at least three or four pretty solid competitive advantages. So like I mentioned before, the main one probably for this company at the moment is their approval. So if you think back to their main business before the Covid tests, they are the only TGA approved have a self test in Australia, which is a pretty massive competitive advantage. If you're the only person who can make and distribute that, they've got a really good track record when it comes to gaining approval, which is arguably one of the biggest hurdles for companies in this sector. Like I mentioned before, another competitive advantage would be their financial position. So like I mentioned before, a market cap of about 200 ml making around five point four million, not twenty after big capital raising in April, when they opposed, they managed to wipe out all of their debt and they're sitting on a healthy twenty eight dollars million in cash, which gives them a cash run rate of approximately four years so they can go another few years without sort of getting into positive figures before they sort of laid out. What's also great is, again, looking back at the HIV area is that that's a market, the HIV self-test market. It's predicted to rise at a compound annual growth rate of eighteen point seven percent per year over the next decade. So even without sort of stunning the stunning success of the Covid arm of that business, I think they've got a really bright future in terms of the HIV testing area. And finally, because they're still such a small company, they have the real advantage of being agile and nimble and can really adapt their business when they need to. And their production of the Covid serum antibody test is a great example of this. And I just think it's so impressive how well they've adapted to the needs of the world. And it's also great for society and really great businesses out there. Like I mentioned, they have just been able to quadruple their production and increase their revenue by ten fold. So I think that's another big advantage for them. [00:22:06][112.6]

Alec Renehan: [00:22:06] My second question, and I think you went some way of answering it there was what's the enduring competitive advantage in a world where covid has been vaccinated away? And I think you partially answered it there when you explained that they've got the only TGA approved HIV self test kit and the HIV testing market is expected to grow at that 18 percent a year. I guess, though, my follow up question to that would be what percentage of the revenue is from the non Covid related businesses and then how much is covid related? Because I guess that would be my only concern. You know, if the revenues up nine hundred percent in a year, how much is that going to fall if covid is vaccinated away? [00:22:49][42.6]

Euan: [00:22:49] So there's a few things that I would talk about in regards to that the first. So I'll give you sort of the numbers. About 50 to 60 percent of their revenue for 20 was from selling of Covid devices. 30 percent of it was through HIV and other diagnostic kits. And the last 20 percent part of their business was through OEM sales, which is original equipment manufacturer sales. So what they basically do is they can sell these test device cartridges all around the world to medical companies and pharmaceutical companies, and they can load into it whatever test they want. So if they they've done the research on how to test for something that a timer hasn't, they can buy a bunch of these test devices and then load into it their own tests. So if you think of it like that, as long as there's anything out there to be tested that can sort of keep selling a testing device kits even once Covid has passed. Another thing I briefly touched on before is if we think in terms of a vaccine, it might be another six to 12 months away. And then to roll it out across the world, I don't know. It could be it could be another two, two or three years realistically before everyone's vaccinated. And even then, like I mentioned, I think these could make. Really, that could play a really important part of being immunity checkers, and I think I wouldn't be surprised if you start to say them at airports and potentially workplaces once everything gets back up and running nice. [00:24:10][80.5]

Bryce Leske: [00:24:10] So you and you've really laid out the positive side of things in the pitch. But as always, it's worth discussing what some of the potential downsides for a stock like this might be. It's always good to think about the risk reward situation when investing. So have you given any thought to perhaps some of the potential downsides that might make this investment somewhat risky or less appealing? And if so, what are they? [00:24:36][25.9]

Euan: [00:24:36] There are a couple of potential downsides that I can say. Luckily, they're all pretty minor in my opinion. But to start off with, like I said before, and actually one of the advantages, sort of a double edged sword where it can be a disadvantage is that it is a small cap stock. You get the associated risks and drawbacks from this. You know, like low liquidity. There is sort of a larger risk, a greater risk that they could go under much faster than a larger company. But that's not too much of a turn off for me because I'm thinking more long term with this another downside, which isn't necessarily a downside. To say that more just something to note is that they only went public about six months ago. And so you only have about 12 months of reliable data to look at and you miss out on that sort of reliable year on year track record, which you can look at in other companies that you are thinking of investing in. We've already touched on this a little bit before, but like I said, with any sort of health care company, there's always the idea of gaining approval sort of looming over the head of the company. But like I touched on this before, I've got a pretty solid track record when it comes to approval. So, yeah, I'm not too worried about that. And finally, potentially the biggest worry, although information is still quite minor, is that they do still have negative cash flow that twenty nineteen it was halved this year compared to this year. It went from negative four mil to negative term. And I think it's pretty likely they'll will become profitable in the very near future, if not sort of this year. If they still haven't got a positive cash flow in the next one or two years, I might get a little bit worried about that and start to reconsider and sort of have another look at the faces. But at the moment, that doesn't really worry me too much. [00:26:12][95.6]

Bryce Leske: [00:26:12] That's the Vogue thing for investors at the moment. Isn't investing in companies that don't make any money over the airwaves? [00:26:18][5.1]

Bryce Leske: [00:26:19] Yeah, exactly. Like trying to break it up [00:26:22][3.0]

Bryce Leske: [00:26:23] or hopefully [00:26:23][0.4]

Euan: [00:26:26] finger cross [00:26:26][0.2]

Bryce Leske: [00:26:26] nice and I think it's always good to recognize some of the potential downsides. When you go into investment, you know, you've definitely got to consider the risks that you're taking when you go in. So it's good that you've certainly thought about that [00:26:36][9.5]

Alec Renehan: [00:26:36] before we get some maybe some concluding thoughts and wrap it up, I just want to go back to the question that I asked earlier, because I was just flicking through that annual report in terms of if covid went away and their revenue from Covid went away. I've just looked at the numbers. So their revenue was up nine percent with covid. Without Covid, their revenue would have still been up 400 percent. [00:26:55][19.1]

Bryce Leske: [00:26:56] Oh, nice. Yeah. [00:26:56][0.6]

Alec Renehan: [00:26:56] So excluding covid, the HIV business was up almost 400 percent as well. And the other [00:27:03][6.3]

Bryce Leske: [00:27:03] that they wouldn't have IPO to get cash for this period. It was just coincidental. I don't know. [00:27:08][5.1]

Euan: [00:27:09] Yeah, I think it potentially could have been. I mean they would have had to think of it a lot longer beforehand. Yeah. [00:27:14][5.3]

Bryce Leske: [00:27:15] I mean, you can tender an IPO in a month and it [00:27:18][3.2]

Euan: [00:27:18] probably did line up pretty well for them, but I think it would have been a bit of a longer pressure. [00:27:22][4.1]

Bryce Leske: [00:27:23] Yeah. Yeah. I think let's not throw that one out [00:27:25][2.4]

Alec Renehan: [00:27:25] there without any evidence to back it up. [00:27:27][1.5]

Bryce Leske: [00:27:27] Hey, hey, hey. That's awesome. [00:27:28][1.6]

Euan: [00:27:30] If I can just touch on what you were mentioning there. I agree with what you're saying and that when I sort of was looking for this company, I had no idea that the sell off testing HIV market was even really a thing. And so it sort of got me onto that. And I started looking at looking into that and saw more and more positives. And it was almost as if the Covid test that they're making is just sort of a cherry on top of that of their previous sort of business model. [00:27:51][21.1]

Bryce Leske: [00:27:52] So, yeah, nice. Have you given any thought to valuation? I think with these pictures, it's for us it's more about the process and the thinking. [00:27:58][6.4]

Alec Renehan: [00:27:59] It's tough to value a company that isn't making money. I was going to [00:28:02][3.6]

Bryce Leske: [00:28:02] say negative cash flow growing quickly. [00:28:04][2.1]

Alec Renehan: [00:28:05] You'd have to project out what you think that revenue, what their cost structure is going to be and then try and figure out cash flow from that and then discount it back. Yeah. [00:28:12][7.1]

Bryce Leske: [00:28:12] So it's not difficult. But if you've done [00:28:16][3.3]

Alec Renehan: [00:28:16] it, you and [00:28:16][0.3]

Bryce Leske: [00:28:16] welcome to the you know, [00:28:19][2.4]

Euan: [00:28:19] I've got nothing for like I said, we've only got a year data to graph and I've sort of exploded from then. So I mean, are we going to go off that? They're going to tenfold their revenue each year. So. [00:28:31][12.3]

Alec Renehan: [00:28:32] Well, I know that would be a pretty nice valuation. [00:28:34][1.8]

Bryce Leske: [00:28:36] Exactly. [00:28:36][0.0]

Bryce Leske: [00:28:36] How about we just finish with some concluding thoughts from you? Yeah. And then and then we can wrap it up, I guess. Do we make a decision if it's going in or we'll take that offline? [00:28:44][7.3]

Euan: [00:28:44] Yeah. I was going to actually ask you about that, whether I stuck around to hear that, [00:28:48][3.4]

Alec Renehan: [00:28:50] given, you know, we haven't got many positions in the portfolio castevet. We've got some cash to burn, I think, you know. Well, let's see. [00:28:57][7.0]

Bryce Leske: [00:28:57] You can chemical. Yeah, you didn't really pitch us, give us the elevator pitch [00:29:03][6.0]

Bryce Leske: [00:29:05] elevetor pitch and then we'll spend five minutes on air with you and chatting it through and we can make a decision, OK? All right. [00:29:13][7.5]

Euan: [00:29:13] Here, we got to follow the elevator pitch. So back to what I was saying is start. I feel like at the moment sort of everyone's so fixated on vaccinating hopes that this company is sort of going largely unnoticed. And like I said again before, realistically, the vaccine sort of just a massive buzz word. And so many people are kind of just behaving like Bryce would and they're purely having a gamble. [00:29:32][19.5]

Bryce Leske: [00:29:34] Yes, I remember I am [00:29:39][4.7]

Bryce Leske: [00:29:39] 50 percent of the investing committee [00:29:40][1.1]

Bryce Leske: [00:29:42] is going to need to step out and have a doctor for this matter, but [00:29:45][3.1]

Euan: [00:29:47] rather to take it to the Facebook group. So like I was saying, I would behave like Bryce and then just having a gamble that throwing their hard earned cash at these companies and just sort of crossing their fingers in the vaccine Bryce. So, I mean, I think it's kind of a nice way to look at trying to make money off Covid without sort of doing the mainstream throw money and AstraZeneca or a Moderna or a CSL kind of thing. You know, these guys are selling tens of millions of Covid test kits right now and they'll continue to do so well into the future. Like you sort of touched on before. A lot of people might be thinking, yeah, great, as soon as Covid ends, this company is going to be sort of down the drain. But it's not really like that at all. I don't think there'll be sort of these are debts already being used around the world as immunity checker's where people coming back into offices and trunkful overseas, like I said. And besides this whole Covid side of the business, I've still got a really solid business model selling the HIV AIDS testing kits. I don't think I've mentioned this before. There are other self testing HIV kids out there. But what this company prides himself on in terms of their HIV test is that it's just extremely simple and a lot of other self testing kits that come with sort of multiple parts and you have to pick your finger and pipettes some blood onto a sample and pipette some buffer solution onto that. And sort of it results in a lot of user errors. And then from that inaccurate ratings, these guys have a really simple prick, your finger and drip, a few drops of solution that they have onto the spot and it'll show up within 10 minutes. I like to think of it sort of as Ren would say, that's some really solid performance. [00:31:23][96.0]

Bryce Leske: [00:31:24] Yes, I know you're not offended. [00:31:27][3.3]

Bryce Leske: [00:31:30] I come back on board. Firstly, massive. Thank you for putting your hand up to be the second of our community to come on and pitch your stock. I know you've put a lot of thought into this, and it's just great to have part of the community sharing their experience and their process of finding information and researching stocks. So firstly, yeah, again, massive. Thank you for doing that. I think from my point of view, Ren from investing committee point of view, I would put one rule on it, that if we do put this in the portfolio, then we will be relying on you and to give us a buzz when it is time to take the stock out of the portfolio. Yeah, I think in fairness to the effort we've put in, I'm happy to throw it in. We've got 18000 cash on hand to put in. The rule was a thousand a month. We actually haven't bought anything for two months. [00:32:18][47.5]

Bryce Leske: [00:32:18] So we always [00:32:19][0.6]

Bryce Leske: [00:32:20] firstly, as the other half of the investing community are happy to do that. [00:32:23][2.7]

Alec Renehan: [00:32:23] Yeah, I think for me there's two reasons why I'm I'm willing to do it. The first is, I think, you know, if you're modeling this out properly, you would do two separate models. You would do a Covid loss for, you know, like two years plus or maybe two years and then another that it's sold in like the next six months. And unfortunately and Ewan's down in Melbourne and really feeling the brunt of Covid at the moment. But it feels like this is going to be a longer term problem. So there's probably some growth there. But I think for me, if you strip out the Covid revenue from their revenue numbers, there's still a good growth story there. I guess my one question would be, what's the total addressable market like? What is the growth potential of this HIV testing market? But I'm convinced enough that we should put it in as a specky stock and hold you in accountable. If he doesn't call us 100 to sell. [00:33:17][54.0]

Bryce Leske: [00:33:18] I mean, less than 200 million market cap trading at 35 cents at the moment, pretty flat since its IPO back in April. So, yeah, it is very much, in my eyes, a specky peak. It's certainly in the right sort of trend area, I guess, given what's going on at the moment. A lot of interesting stuff happening. So you and happy to throw it in as long as is there a deal that if things change, if your thesis changes, you've got to give us a buzz. It's nice to put some numbers to it, the current purchase price is 35 cents, eight Dollars brokerage. So we're going to be purchasing 2000 834 shares. So that's going to go into the portfolio ticker of 81. So nice Ren you're in. [00:34:04][46.0]

Euan: [00:34:05] Awesome. Thank you all so much. Another thing I forgot to mention before is that they're actually getting funding from the Bill and Melinda Gates Foundation in order to combat global diseases in terms of HIV testing kits. [00:34:22][16.2]

Alec Renehan: [00:34:23] So that actually turn Bryce off. He's a bit of a Bill Gates conspiracy Dollars. [00:34:27][3.9]

Euan: [00:34:28] Really? [00:34:28][0.0]

Bryce Leske: [00:34:29] That's not true at all. [00:34:33][3.1]

Euan: [00:34:33] Well, I was going to say, I mean, if Bill Gates backs it in surely way, but maybe not anymore. [00:34:37][3.9]

Alec Renehan: [00:34:37] Yeah, I mean, it's an interesting one. He's obviously not investing. It would be charitable. But Bill Gates is obviously a smart guy. And I think we'll put it in as a speccy and we'll see what happens. [00:34:49][11.6]

Euan: [00:34:50] I was going to say it is a satellite portfolio after all. [00:34:52][2.4]

Bryce Leske: [00:34:52] That's it. Absolutely. [00:34:53][0.5]

Bryce Leske: [00:34:54] Well, that was epic. Again, thank you for your time Euan. You and we'll leave it there. We do have another listener to get their pitch. You can sleep well tonight knowing that you're safe and sound in the portfolio. But we will be coming off to you. If something happens, let us know. We'll keep in touch. As I've said many times before. Thank you. And we encourage any other community members to follow in your footsteps and come and pick your stocks. So thank you very much. So Ren, we are hot off the back of the stock pitch from you in which was a lot of fun and it is our absolute pleasure to welcome another Equity Mates community member to the show. Daniel, welcome to the show. [00:35:28][34.0]

Daniel: [00:35:28] G'day guys. [00:35:28][0.1]

Alec Renehan: [00:35:28] I guess we're keen to get stock into the stock, but before we do, maybe if you can tell us a little bit about yourself, what you do for your day job, where you're from, that would be great. [00:35:37][8.2]

Daniel: [00:35:37] Yeah, well, my name's Daniel. As you said, I work in construction management, so I'm probably the last person that should be giving financial advice. [00:35:44][7.2]

Bryce Leske: [00:35:45] That's good because you're not giving financial advice. [00:35:47][1.6]

Alec Renehan: [00:35:48] We need to be very clear that nothing here is financial advice. This is a learning experience where we're just all trying to learn together. [00:35:54][6.4]

Bryce Leske: [00:35:54] Yes. Nice, Daniel. So you sent this email through an Ren was actually pretty impressed with the email that you sent just because of the simplicity of it. And I'll get him to touch on that a little bit later. But how about you introduce the stock that you're going to pitch as well as the ticker and then how you came across it? [00:36:10][15.5]

Daniel: [00:36:10] So the stock I'm pitching today is a letter. It's a pretty simple stock. I think it's very much in the style of Peter Lynch in that it's something I understand and use every day. The village is much nicer. So I have to ask you to gym junkies [00:36:23][13.2]

Alec Renehan: [00:36:25] Bryce six o'clock every morning. You'll find him a fitness first. [00:36:27][2.5]

Bryce Leske: [00:36:28] Yeah, I wouldn't say I'm a gym junkie, but I am at the gym bit. You're just doing a classic. Spin it. And what is it? Body attack the dance class. And I don't do that. I do body parts, those sorts of things. [00:36:40][11.9]

Alec Renehan: [00:36:41] certified rumba instructor. [00:36:42][0.8]

Bryce Leske: [00:36:43] But that is not true. But yeah, I'm looking forward to hearing a little bit about you. Are you a gym junkie, Daniel? [00:36:49][6.0]

Daniel: [00:36:50] No, I wouldn't say I am, but I go I guess I go regularly. And yes, I found this stock by changing gyms and that's the reason I started looking into it. [00:36:57][7.3]

Bryce Leske: [00:36:57] Firstly, that's an awesome I guess, using your surroundings and literally what you know, to come across a stock that is interesting and a great example of what we sort of talk about many times on the show. So awesome example. How about you just run us through a couple of the key metrics to start. So like let's talk market cap, what's it trading at revenue, those sorts of things. [00:37:16][18.4]

Daniel: [00:37:16] So it's pretty small in the scheme of things. It's market cap is one hundred and seventy seven million revenues, forty point nine million. And then the net profit is currently unprofitable at a loss of six million a year. Last year did report a profit. So when I did have a deep dove at the company, I sort of worked off twenty nineteen numbers. Yeah, that's a lot more clearer without the Covid impact. [00:37:38][21.6]

Alec Renehan: [00:37:39] And as Bryce mentioned at the top, we were struck by how clear, but at the same time simple. The, the thesis was it wasn't, you know, some complex math that you needed to get into. You really summed it up in a paragraph, but we thought it was quite compelling. So maybe to start this pitch off, if you just maybe recap how you pitched it in your original email so people can say, you know, when Bryce is saying fifty words or five thousand words, you really don't need to write five thousand words to have a compelling stock thesis. [00:38:11][32.7]

Daniel: [00:38:12] Yes, I think that's what's so great about this company. It's very simple. It's a very simple business model, very easy to understand. It's also potentially one stock that's still discounted because of Covid. So if anyone with Flomo from missing out on Covid sell off like it's still available. [00:38:26][13.9]

Bryce Leske: [00:38:27] Yeah. [00:38:27][0.0]

Daniel: [00:38:28] If you look at the current numbers in the previous reporting period, that fifty six thousand, which they increased, almost doubled to 96000 members. So if you just apply those members to twenty dollars a week, which I pay four dollars a week, premium [00:38:41][13.0]

Daniel: [00:38:44] So the average, which is roughly twenty dollars a week next year, the report? Ninety eight million dollars of revenue. So based on fourteen percent margin to that revenue, which is what they did in the current year, the earnings will be thirteen point six million if you apply PE of twenty to twenty times to that, which I think is reasonable for a high growth company, that market cap could be around the turn of 74 million mark, which is an increase of 60 percent on today's price. And that's all assuming that zero growth next year. But they also have increased their growth by thirty seven percent year on year for the past five years. [00:39:16][32.1]

Alec Renehan: [00:39:16] So to recap that, all you did was you took the member numbers that they're out now. You applied the Standard weekly, right. And you calculated their revenue off the back of that. Then you just applied the historic profit margin of fourteen percent and you calculated what you expect their earnings to be on the back of that. And then based on a pretty, pretty market standard, pay the value that you got for the company is sixty percent above what it is now. [00:39:41][24.5]

Daniel: [00:39:41] Yeah. And that 14 percent margin is also during Covid times. So historically of the past five years, they've been at about 20 percent. So it's more continuously in that number as well. [00:39:50][8.9]

Alec Renehan: [00:39:51] Yeah. wow!!! [00:39:51][0.0]

Bryce Leske: [00:39:52] Let's practically talk. You've identified that the 274 million is a potential market cap and it's currently trading at one hundred and seventy seven million. So that means that it's trading at a discount, right? [00:40:03][11.4]

Daniel: [00:40:04] Yeah. I think the reason for that is that the revenue hasn't been realized from those numbers due to the four months the Covid impacted the business where everything was closed for up to 10 weeks to. The state and some are still closed in Victoria and obviously restricted in New South Wales. [00:40:20][15.8]

Bryce Leske: [00:40:20] You're right, just to confirm as well, the name of the company here is Viva Leisure. But what gyms do they actually operate? [00:40:27][6.4]

Daniel: [00:40:28] So the company operates Club Line. It started in Canberra with a few franchises and then has expanded to be one of the top operators in Canberra. Given that it's probably the top two in the market in Canberra, I think that gives a big advantage here. And that's part of the reason I think they've gone public and had the ability to grow so much there. They've also expanded now to have other health clubs. So they've got hit Republik, which similar to 45. You know that it's a group class circuit, a lot more social. And that was a reason to actually change to this gym and started looking into it at all because it had those other offerings that had a pool near me, which I can access for the same price as the gym and then the republic side as well. [00:41:06][38.7]

Bryce Leske: [00:41:07] Yeah, interesting. [00:41:07][0.3]

Alec Renehan: [00:41:08] Daniel, I've got a question about these member numbers. So that ninety six thousand is that current as of we're talking in October. Is that is that current as of October or was that ninety six thousand pre Covid? [00:41:21][13.2]

Daniel: [00:41:22] So that was when it reported in August. [00:41:24][2.4]

Alec Renehan: [00:41:25] Right. So it was still right in the middle of Covid because my question was going to be, is the market putting a lower value than what you'd expect because they expect the member numbers to drop off, but I assume all gyms in Canberra are back open, is that right? Yeah, they're at full tilt. So it's unlikely that the member numbers will drop off from here because of like another Covid shutdown or anything like that. So it's an interesting one, I guess. I guess my second question is then what's the growth opportunity for this gym operator? So it's quite big in Canberra. Does it have presence in any other cities at the moment? [00:42:00][35.0]

Daniel: [00:42:00] So since it publicly listed, which I think the reason for the capital raising was to expand elsewhere, since they've listed last year, they've added quite a number of clubs. They've moved to New Zealand, they've had a lot in Brisbane, but through acquisitions and also through opening new franchises, they're moving to New South Wales slowly as well as Victoria. So there's a lot of growth opportunity in other states currently of all their locations, there's 41 in Canberra and another 40 in the rest of Australia and New Zealand. Yeah. So there's lots of lots of space in other states. And there's also the growth of the other offerings, which is it, Republik, which is just starting out to become bigger in Canberra. They're already opening ten new locations in Canberra in the next period, which they're just finalizing. And they're also looking at opening a new studio, which is going to be focused on yoga bar and politesse. So that'll get another advantage to their core business. [00:42:55][54.2]

Alec Renehan: [00:42:55] Yeah, it's a pretty compelling company. I mean, I'm looking at their annual report now and they're twenty twenty highlight's, so twenty twenty being a year where covid shut them down for probably a couple of months, you know, their revenue was up 24 percent, membership up seventy four percent. The number of locations up ninety eight percent. Surprising to me that a gym was able to grow. Yes, it was saturated at twenty. It's not because it's saturated for me. It's because of Covid. [00:43:21][25.6]

Bryce Leske: [00:43:22] Good point. Yeah. But I think they would have pulled the trigger on those plans before Covid. [00:43:25][3.5]

Alec Renehan: [00:43:25] Yeah, that is true. That is true. Is there anything else about the stock that you find interesting or compelling? [00:43:30][4.6]

Daniel: [00:43:31] One of the good things I found when I looked a little deeper after talking to you guys was that the CEO, Harry, who was the original founder of the first franchise in Canberra. So we started off with the one Jim Hastie loans, over 30 percent of the shares in the market, which I think is a really good sign that his interest is in the best interest of all the shareholders is clear skin in the game. [00:43:49][18.7]

Bryce Leske: [00:43:50] I agree. And he found a CEO that still owns a large chunk of the company is a good sign that they're in it for the long term and have everyone's well, generally have everyone's best interests at heart. So it's a good pick up there, I guess, for people who are looking for that sort of information. Where did you find that? [00:44:06][16.3]

Daniel: [00:44:07] So I just want to say ASX website, which has links to all their notifications and all the reports, [00:44:11][3.8]

Alec Renehan: [00:44:11] we always have to think about the downside when we're investing as well. So I guess the question is, what are some of the key risks that you say with this company and with this potential investment? [00:44:20][9.1]

Daniel: [00:44:21] I'd say that risk would be overspending on their growth. Part of their plan is to acquire a lot of gyms to get that growth in other states. And if they're not the major player in the near future elsewhere, they don't really have a good competitive advantage. So I guess I'd have to start doing something like Booba where they pick their battles like urban zone countries is realized they're not winning. So it's not worth the investment and they're spending a lot of growth where it's not coming back to the bottom line. So it's the same for Club Lime is that they're trying to spend all their money to grow into other states and they're just losing the battle that might be worth funding that growth. [00:44:54][32.9]

Alec Renehan: [00:44:54] In theory, the good thing about a business like this is that the unit economics of each gym that they acquire should be positive, whereas with Obed they've got such a large fixed cost that they have to overcome before they can become profitable. So I think the good thing with you know, a business like this where it's bolting on. Physical locations is you should be able to say quite quickly if the unit economics poor with acquisitions because that margin will be deteriorated nice. [00:45:25][30.3]

Bryce Leske: [00:45:25] Well, I think we've come to the end of a very clear pitch, and it's just a great way to, I guess, understand and see how you've thought about the stock. And this, to me is a great value play. And you've certainly identified a potential discounted stock here. So I think that's epic. Daniel, I guess Ren as the investing committee, we need to decide whether or not. Yeah. Whether or not this makes the cut or not. I'm happy to start it off. Look, I think we've spoken before about keeping faces clear, identifying stocks that, you know, are in your wheelhouse. Easy to understand, business models using what is around you to identify opportunities. And I love just the way that this has been worked through so, so clearly. And some thought has gone into finding a valuation and comparing it back to current market cap. For me, it is a yes. [00:46:12][47.1]

Alec Renehan: [00:46:12] Nice one. For me, it's a yes as well. I think the thesis is pretty clear. I mean, if any of those numbers move the membership number, the average weekly revenue per member or the profit margin, then it's worth reviewing your thesis. But at this point, you know, just to echo what Bryce said, the thesis is pretty clear and it's pretty compelling. So it's a yes from me now. [00:46:35][23.2]

Daniel: [00:46:36] There's a lot of pressure on to the stock to the point [00:46:37][1.6]

Bryce Leske: [00:46:38] where, I mean, we don't have to put it in. If you don't want to say we can put you can you, can we can put it on the watch list. [00:46:44][5.7]

Daniel: [00:46:45] a of pressure off to the Citadel pick. [00:46:46][1.5]

Alec Renehan: [00:46:48] No, no, no. No pressure for every citadel. There are some absolute duds that get talked about on the show and there will be none worse than some of the ones that I've thrown out there on the show. So no pressure at all. [00:46:59][11.6]

Bryce Leske: [00:47:00] Daniel, just to run through the numbers for everyone. Current price is two point fifty nine purchasing on the 13th of October, including brokerage eight Dollars. We're buying three hundred and eighty three shares. So that is now in the Equity Mates hypothetical satellite portfolio. Please, if your thesis does change, let us know. We're looking forward to seeing how this plays out. Daniel and Massive, thanks for coming on the show, putting your hand up to come and pitch the stock. We're having a great time sort of talking to the community and Ren and I are learning a lot as well. So a massive thank you. [00:47:31][30.3]

Daniel: [00:47:31] OK, thanks for having me. [00:47:31][0.0]

[2554.6]

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