EM Talk: Learn To Invest In 15 Minutes Or Less

Bryce: [00:01:26] Welcome to another episode of Equity Mates, a podcast where we break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Alec Ren Renehan. How are you going rogue? [00:01:41][14.7]

Alec: [00:01:42] I'm good. How are you? [00:01:43][1.0]

Bryce: [00:01:43] Very well. You might have noticed that I switched up the intro. It wasn't the usual. [00:01:47][4.2]

Alec: [00:01:48] Yeah, it was good. I like it. I like you changing it up later. Got plans to change anything else up. [00:01:52][4.4]

Bryce: [00:01:53] Yeah. So we do have some plans. We've, we've been thinking about this for a while now and we're pretty excited to get it underway. If you want to tell our listeners what we'd have decided to do. [00:02:03][10.6]

Alec: [00:02:04] So we're both big podcast listeners. And I think there's a trend going on in podcasts for shorter and shorter podcasts rather than, you know, the Tim Ferriss three hour extravaganza or the forty five minute episodes that we've been putting out in that spirit. We're going to try and be very disciplined and we're going to limit ourselves to fifteen minute episodes and we're going to try and do three every fortnight to start with bang. [00:02:34][30.0]

Bryce: [00:02:34] So new catch phrase for us is learn to invest in fifteen minutes or less. So that's going to hold us to the fifteen minute mark, obviously give or take, and we're hoping that we can now get a lot more content out to you guys. A lot more focussed, a lot more targeted. So we're pretty keen to see how it goes. Obviously we'd love to hear your feedback. [00:02:51][17.0]

Alec: [00:02:52] We should just say one thing. We our interviews will remain unchanged. So, you know, we've been loving doing the interviews. If we get, you know, Alan Colora, Wayne Swan, don't worry. We're not going to try and smash out an interview in fifteen minutes. [00:03:04][11.7]

Bryce: [00:03:04] Yeah. So this is just a ploy from my side to keep Ren under control. [00:03:07][2.6]

Alec: [00:03:09] Watch me dominate this fifteen minutes this episode. [00:03:13][3.5]

Bryce: [00:03:13] We're going to be focussing on the reporting season and we did an episode about the reporting season earlier on in the series sometime last year. And it's something that we like to revisit because obviously it only happens twice a year and it's a fantastic opportunity to get an understanding of how companies are performing, where they sit in the market and get an idea, obviously, how the analysts in the marketplace are reacting to them. And then we're going to share what we sort of took away from it. So, Alex, you want to take it away? [00:03:39][25.5]

Alec: [00:03:39] Yeah, sure. So I have chosen the company Wesfarmers, which a lot of people have heard of and some people might even own. For those who aren't sure, Wesfarmers is one of Australia's biggest companies and they own a lot of our biggest retailers. So Coles, the supermarket, Kmart and Target, Bunnings, the hardware store, Officeworks, they're the main ones. They also owned a coal mine, but they sold it. And I own some a couple of other businesses. And the reason that I chose them is because they're a good illustration of how the numbers, the topline numbers or the numbers that are reported don't always tell the whole story. So on the face of it, Wesfarmers profit for the first half of financial year 2018 dropped eighty six point six percent. This this time last year, they made one point five billion in profit and this time they only made two hundred and twelve million in profit. So by any stretch of the imagination, you'd say that's a shocking half for their business. Absolutely has collapsed. But you know what happened? The share price went up the day that they announced this typical. Yeah. Which was surprising to you. Why is it typically what? [00:04:54][75.1]

Bryce: [00:04:55] Well, I think last time we spoke about the reporting season, one of the things we said was that it's not uncommon for results to come out and then the share price to move in the opposite direction. That's what's untypical. Like Woolworths had a classic stellar result, one of the best we've had in years. Stock price went down. Yeah. [00:05:10][14.7]

Alec: [00:05:10] So I guess why why is that the case? And for Wesfarmers, the reason that that's the case is because their business didn't actually do. Eighty six per cent was their profit margin have been down eighty six percent. But the reason for that was they had to write down some some of the poorer performing businesses, shall we say. So they wrote down. So they're trying to expand Bunnings to the UK and Ireland and they had to write down a billion dollars worth of value there as that that project struggles along. And then they also wrote down three hundred million dollars for Target as they try and turn Target around. So in reality, when you take those one point three dollars billion in write downs away, their profit was actually pretty flat from this time last year. It was down about two percent. But when you when you add those write downs back in the eighty six point six percent down, the reason that the market actually went up was because people expected it to be a lot worse. The company had told the market that they'd write downs were coming. And so even though it wasn't a great result by any chance, it was better than people expected. And so the market responded. I bidding the price [00:06:25][75.0]

Bryce: [00:06:26] up go Wesfarmers. So does that mean does that mean they're done completely in in Europe with Bunnings? [00:06:31][5.5]

Alec: [00:06:33] Well, some people thought that, but no, it looks like they are in for the long haul or at least in until the next billion dollar, right? [00:06:40][7.7]

Bryce: [00:06:41] Yes. So what's their strategy? [00:06:42][0.8]

Alec: [00:06:43] So they what they did was they bought a whole bunch of home base retailers, which was a British hardware company. And they see in a classic example of how success in one market doesn't always translate to another. They basically fired all the senior home based management and put a whole bunch of Bunnings Australia people in that great strategy. It turns out that England and Australia are different hardware markets and the consumers want different things and the businesses are run in different ways and there are different suppliers. And, you know, it's it's different. They're finding out the hard way that the success in Australia doesn't automatically translate to success in the UK. Yeah. Now, that's not to say that they won't be successful, but it's obviously been a tough time for them at the moment. [00:07:31][48.2]

Bryce: [00:07:31] Well, they certainly are finding the hardware way, that's for sure. [00:07:34][3.1]

Alec: [00:07:38] That is why people like us, right? It might only be 15 minutes, but as long as you can pull out those zingers, we'll be right. [00:07:46][8.8]

Bryce: [00:07:47] All right. Well, in 30 seconds or less, is it a buy, sell or hold? [00:07:51][3.4]

Alec: [00:07:51] I don't actually hold any, but if I did, it would be a hold. And the reason for that is just because it's such a big company, it's so consistent. It never really is has stellar results. But, you know, it trades always in that low to mid forty dollars a share range and it always pays a pretty consistent dividend. It's diversified enough that it will never collapse. It's got Bunnings, which is a solid engine. Coles is pretty consistent. I wouldn't be buying it just because that much exposure to retail scares me, you know. Yeah, I don't think I think it's premature to say retail is dead and all that. But I think having the second biggest supermarket, the biggest hardware chain, two of the three biggest department stores and the biggest office supply store, all national chains, all with a lot of physical retail space, that's that's a scary proposition as more and more consumers switch to online. [00:08:49][57.7]

Bryce: [00:08:50] Nice. So that was why more than 30 seconds, but great detail there. [00:08:54][3.9]

Alec: [00:08:55] Look, you know, we might say we're doing 15 minutes, but, you know, may I like to waffle? [00:09:00][4.8]

Bryce: [00:09:01] So that was your pick Ren Wesfarmers. And be interesting to see. Now that they've done that, write down how the market reacts next time they give a bit of a report. So from my end, got one that I had never heard of before. And I'm not sure if you have either Ren, but we've previously mentioned on the show that we both like the Australian agricultural space. Both know that it has a lot of potential. It's where a lot of growth is going to be coming from or is coming from for Australia. And I think we added, I say Australian Agricultural Company into our portfolio right back at the start of the last year. So this was a nice surprise finding this. And it's it's a company called the Costa Group Holdings. And I would say it's an agricultural superpower in Australia. Why is that? I hear you ask Ren very quietly. [00:09:46][45.0]

Alec: [00:09:47] That's what I'm asking. [00:09:47][0.5]

Bryce: [00:09:49] So it has what it's got five main agricultural pillars, I guess, that they sell both domestically and export to Japan, the US and China. So they sell citrus, mushrooms, tomatoes, berries and now aggressively expanding the avocado business. So from a top line point of view in NY, eighteen first half, they had a nine point eight percent increase in revenue to just under half a billion dollars, four hundred and ninety nine million Ibut, which is their earnings before interest and tax was up twenty four point three percent and then the net profit was up fourteen and a half percent to sixty six point two million. They paid a dividend of five cents a share, which was up twenty five four per cent on last year and fully franked. And they've got a great cash flow and cash position relative to the amount of debt that they have on their books, which is always a good thing from a value investing point of view. And I guess the main attraction for Costa for me was that they're now aggressively expanding their avocado business and we know how lucrative avocados are, as well as how popular they are, guacamole, smashed, avocado, all that sort of stuff. I don't know about you, Ren, but I love a good avocado. So one of the big things that they did in the first half was an acquisition of a company called Coastal Avocados. And this will bring the total growing regions for Costa Group to four within Australia. I guess this gives them great diversity and it allows them to supply avocados all year round, which is a great advantage that they're going to have. They're doing a bit of vertical into. At the moment, from an avocado perspective, revenue for the avocados grew 47 percent over the half. But the other thing to consider is that as harvest of avocados is weighted towards the second half of the financial year, so we can expect some bigger returns than what we saw this year. So keep an eye on it. I think risks for me is obviously the impact of weather on all of the fruit and vegetables, although they've increased the size of their greenhouses and that sort of stuff to cope and adapt a lot better. And that's probably what I like most about them as well, that they have aggressive expansion plans over the next year to access to Chinese markets. And I think that they're able to adapt quickly to conditions to either service, changing consumer needs or to react to any sort of weather events that may or may harm. So they have a strong balance sheet and I like them. So nice surprise. [00:12:17][147.9]

Alec: [00:12:18] That was a very comprehensive debrief of Costa. Thank you. I want to also I want to know from it, though, is will my smashed avocados be cheaper? [00:12:26][8.4]

Bryce: [00:12:27] I'm going to say no, [00:12:27][0.6]

Alec: [00:12:28] Waza, [00:12:28][0.0]

Bryce: [00:12:28] because there's no need for them to drop the price. I don't think they are going to I don't think they've got excess supply of avocados that's strong enough demand that they can sustain the price that we're at. And I don't. And it seems now that the three Dollars to three ninety four in avocados is this is the standard price that we're now going to be paying, unfortunately. [00:12:49][20.3]

Alec: [00:12:50] So so you heard it here. First, folks, Bryce is supporting a company that is locking another generation out of the Australian housing market. You can direct any hate mail towards him. Yeah, to be honest, I hadn't heard of Costa before. Bryce just gave us his excellent de-brief about five minutes ago. So any opinion I have is more uninformed than usual. [00:13:11][21.7]

Bryce: [00:13:12] Yeah, well, that's what I like about the reporting season. All these little companies pop up out of nowhere. It's always nice to already be invested in those companies when they do pop up, but unfortunately, you can't be invested in all of them. But it's given us a good opportunity to review. And now who knows? We might both be in Costa Rica buying smashed avocados. But anyway, we've hit the we've hit the seventeen and a half minute Mark Ren. [00:13:35][22.4]

Alec: [00:13:35] So I think we'll be able to edit it down [00:13:37][2.5]

Bryce: [00:13:38] by the time we get it off the dribble out. It should be down to fifteen. [00:13:40][2.2]

Alec: [00:13:41] Yeah, maybe even less. I doubt it. Too much out otherwise I won't be a podcast. [00:13:45][4.3]

Bryce: [00:13:46] Sure. Snippets the highlights reel. [00:13:48][1.8]

Alec: [00:13:50] But we should say if if you guys like the shorter format, let us know, give us a review on iTunes or shoot us an email or you know, social media, all that stuff. And if you haven't already signed up to for starters. [00:14:02][12.9]

Bryce: [00:14:03] Yeah, we'll be releasing on Thursday, Tuesday, Sunday back [00:14:06][2.8]

Alec: [00:14:06] five days between episodes. Yeah, that's [00:14:09][2.3]

Bryce: [00:14:09] right. Yeah. So let's see how we go. Ren. I enjoyed that. I hope everyone else did. And get around the reporting season and Ren mentioned in thought starters that one of the best or a really good resource that he found to look and update and get an idea of some of the companies that have reported was the CommSec reporting season websites. [00:14:29][19.8]

Alec: [00:14:29] You're writing those stories. Yeah, yeah. [00:14:32][2.1]

Bryce: [00:14:32] And I actually went on and checked it out and it's yeah, it's really good. Easy to read. They've got a video summary of a number of big companies. So if anything, it's just a great resource to go in and understand how companies are reporting during this time and obviously how the markets and analysts are thinking about it. So head over there, sign up the thought status and we'll see you guys next week,. [00:14:50][18.3]

[00:14:51] Equity Mates and the people appearing in this programme may have positions in the companies mentioned. This is general advice for me. Please speak to a financial professional to understand how they pertain to your individual situation. [00:14:51][0.0]

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