Expert: Maroun Younes – The investing story for Keisei Electric Railway + Quanta | Fidelity

Bryce: [00:00:14] Welcome back to another episode of Equity Mates. Or should I say you are partner? Welcome to Gold Mining Investing the Wild West of podcast where we rustle up the toughest money and investment questions this side of the Mississippi. With the help of you find folk, our rugged listeners. Our aim is to saddle you up with knowledge and turn you into a bona fide financial cowboy or girl. My name is Bryce, and so I am joined by my equity buddy, Ren. What do you think of that one? 

Alec: [00:00:42] I think that chapter is now getting you to do accents as well. 

Bryce: [00:00:47] Going early on the accent.

Alec: [00:00:49] I know, I know. And that could get us in trouble in the future. But the American accent won't. That was American cowboy. 

Bryce: [00:00:57] American cowboy? Yeah. Gold. Gold. Mine, actually. Gold mining. Where? Gold miners. 

Alec: [00:01:02] Oh, okay. Well, if we were gold miners, we could have been Victorian. 

Bryce: [00:01:05] It's actually a bit confusing because it finishes with. Yeah, we have cowboys and cowgirls, but then it starts with the gold mining sites. I don't know where, but mid-western cowboys called gold. 

Alec: [00:01:17] The gold mining was more hard west in California. True. Anyway, Talk of Anyway. 

Bryce: [00:01:24] Just joined us for the first time. Welcome to Equity Mates. This is a podcast that follows the journey of Alec and I as we learn to invest in today.

Alec: [00:01:31] And Bryce learns how to do accents. 

Bryce: [00:01:33] And do accents. But today, Ren, one of our favourite sort of formats, is just deep dives on stocks and hearing new investment opportunities. And we welcome back to the studio a returning guest Maroun Younes from Fidelity. He's the co-portfolio manager of Fidelity's Global Future Leaders Fund. It's a fund that is a diversified portfolio of 40 to 70, small to mid-cap global companies. And Ren, today, he brings two companies for us to explore. 

Alec: [00:02:02] Yeah, two companies that I hadn't heard of. I'm going to hazard a guess that you hadn't heard of either, although we both have interacted with at least one of them. The two companies are Keisei Electric Railway, listed over in Tokyo, in Japan, and also Quanta, not Quantas, Quanta listed in New York. So we won't try and explain what they do because Maroun does a far better job of doing it. But two interesting companies here unpacks talks about the reasons why they're in the fund. We also unpack the bear case and what would be some of the things that would have to change for the thesis to break. So really interesting stock data ties. It is always important to stress when we do these episodes, do not take these as by hold and sell recommendations. Do your own research. Any advice is general advice only. Maroun, Bryce or I are not aware of your personal financial circumstances. And so while we are licensed, it's important that you do your own research. 

Bryce: [00:02:58] That's it. And Ren, finally, this episode is sponsored by Fidelity. We do thank them for their ongoing support of Equity Mates, which allows us to keep providing you with free content to become better investors. So thank you to Fidelity. But with that. 

Alec: [00:03:11] I want to have fidelity again. I think about your intro. 

Bryce: [00:03:14] Why? What's up? 

Alec: [00:03:15] Well, I don't know. I don't. I don't. I don't want to offend you, so it's not anything more. 

Bryce: [00:03:22] Well, love it. I love it. Anyway, without further ado, let's jump into our conversation with Maroun. Maroun, welcome back to Equity Mates. 

Maroun: [00:03:30] Thank you. Lovely to be back and to have a chat with you guys. 

Bryce: [00:03:34] Now, before we kick off, I'm trying a new question at the start. It's a would you rather. So here we go. Maroun, would you rather be royalty 1000 years ago or an average person today?

Maroun: [00:03:47] That's actually a very good one. You probably have to go with an average person today, I would have thought. 

Bryce: [00:03:52] Yeah, I think I'm on that vibe as well. What about you, Ren? 

Alec: [00:03:55] Oh, no question. An average person today, if you think about a thousand years ago, just like

Bryce: [00:04:01] I know general living conditions, no internet. 

Alec: [00:04:04] Quality of food, like. Oh, yeah. 

Bryce: [00:04:07] Just know stock market.

Alec: [00:04:08] Even like the amount of manual labour you'd have to do if you were royalty a thousand years ago. You probably have to fight a war at some point of your life. 

Bryce: [00:04:15] Yeah, you have an expected life expectancy of probably like 35. I don't know. Anyway. 

Alec: [00:04:22] You wouldn't be able to invest in the stock market. [00:04:23][1.3]

Maroun: [00:04:26] But if you're royalty, you don't need the stock market, right? You've got everything. 

Alec: [00:04:31] That is true. Marounn, well, we could. We could unpack that for a little while longer, but let's let's move on to the investing side of things. And today we're going to dive into two companies from the Fidelity Global Future Leaders Fund. And we love having you on the podcast because you often bring us companies that we haven't heard of before, and today is no exception. But before we get into the two companies, I guess we want to just take a step back, talk about the broader market and economy at the moment. Give us a sense of how you're saying it, because, you know, the last 12 months have been tough and it seems to be we're in a little bit of limbo right now. Was everything going to go? So how are you saying it? And are there any key thematics that you're focusing on at the moment? 

Maroun: [00:05:16] Yeah, it's an interesting one. I mean, how I'm seeing it is probably as clear as mud, right? Well it's honestly very hard, to be honest. If you asked me the question 12 months ago, you know, would I have thought we would be in a recession by now and I'm talking predominantly about the US here? Would I have thought the US would be in a recession by now? 12 months ago, I would say to you, yes. But here we are. And, you know, we basically seem to have, you know, at least for now, avoid it, whether we completely avoid it. And this ends up being a mid-cycle slowdown or whether, you know, the usual lags are going to be more extended this time around, I'm not quite sure. I think this case is to be made for both. So it's really, really hard. And I think the market is continuously grappling with this question. Right. Because you wake up some mornings and, you know, it's risk off and, you know, a whole bunch of stocks have been hammered quite hard. And then some other mornings you wake up and and, you know, everything's up two or 3% and it's a soft landing again. So I think the market really is sort of in this bipolar mode, didn't really know which way it wants to go. And every new data point sort of gets it to jerk in one direction or another. So it's really hard, I think, to call right now. And so the way I'm trying to navigate is just by avoiding having to make a call because it's it's, it's quite binary. And so if you position one way or the other, if it sort of works out in your favour, obviously you're having a good time, but it sort of works against you, then it's going to be quite painful. So there's no clear thematics that I'm seeing right now, to be honest. Obviously it is a big theme, but I tend to skew a lot higher up in the market cap than what we look at because it really is a scale game. So it really lends itself to the bigger guys. I think in the smaller mid-cap universe, there's probably more aged losers than there are winners, although there are, you know, a few here and there. But apart from that, there hasn't really been any major themes. So really what I'm looking for is companies that are going to do relatively well regardless, right? So companies where if we avoid a recession, you know, it's business as usual. They keep doing what they're doing. And if we do end up going into a delayed recession, then you know that they hold up better than the average stock. And then, you know, the drawdown won't be as painful. So for me, that's probably the safest way to play out, just given it's very murky up there now. 

Bryce: [00:07:42] I think at the time of recording, speaking of AI and video recorded their earnings overnight and smashed expectations again. So let the market run. Anyway, let's talk about a couple of companies that are in the portfolio, I guess, that, you know, align with the themmatic of the all weather stock. And we'll start with, now I'm going to probably butcher the pronunciation of this. 

Alec: [00:08:05] I reckon you can get this.

Bryce: [00:08:06] Keisei. 

Maroun: [00:08:07] Keisei, yeah. 

Bryce: [00:08:09] Keisei Electric Railway is the first company that we're going to unpack. The ticker is 9009. It's listed on the Tokyo Stock Exchange. Love their tickers over there, just numbers. And so what we want to do, we've got two stocks and we want to understand what they do. The bull case, the bear case, and then a bit of a discussion around the metrics when analysing the. These companies. So, Maroun. Let's start with Keisei Electric Railway. What does Keisei do? And how did you find it? 

Maroun: [00:08:35] Yeah. So let's. Let's start with I guess. What is it do. Keisei Electric railway that you know, the name sort of gives some of it away there. The legacy business itself, it's primarily a railway operator. It does have some of the smaller businesses in their collection department stores, some real estate businesses, hotel and travel services. But, you know, the big portion of what it does comes from this from this railway business. And so it operates this rail line and it basically links Narita Airport to Tokyo City. And so there's two rail lines, but obviously there's there's many other ways to get from the airport to the city and vice versa. You can catch a taxi or Uber or whatnot. But Narita Airport itself is one of the two airports. For those that don't know, Narita Airport is another two airports servicing the greater Tokyo area, the other one being Haneda, that Narita is the busiest airport in Japan by international passenger traffic. And so naturally, Keisei rail business skews much more towards international traffic and tourism. Right? So if we're just looking at the base business, the first angle here, I think, is the recovery following COVID lockdowns. So, you know, Japan endured a much longer lockdown shutdown than than many Western countries and I think partly is due to the older demographic profile of Japan. The skew quite a little bit older from a population perspective, the official easing of travel restrictions by foreigners into Japan pretty much only started from about, I think, September or October of last year. So it's relatively recent in that regard. But in addition, if you sort of look pre-COVID, China was by far the largest source of inbound tourism into Japan. I think they account for about a third of tourism into Japan. And obviously we've seen in China that they've had a very protracted episode of lockdowns. In fact, I think group travel out of China was only eased a couple of weeks ago. I think it was the 10th of August where you were allowed to travel as a group. So, you know, prior to that, you could go off on your own as an individual on a business trip. But if you want to travel with your family, which is usually what you do when you're going on holidays, that was only eased a couple of weeks ago. Interestingly, the same thing with Korea as well. I think Korea eased roughly around the same time for group travel. And Korea itself was also, I think, the third largest source of inbound tourism into Japan. So between China and Korea, you basically had 40 to 50% of pre-COVID sources of tourism and that basically being hamstrung in terms of their ability to, I guess, travel to places including Japan. So if you look at China itself, passenger volumes from China into Japan are still only sitting at about 23% of their pre-COVID peak. So they're still down almost 80% peak to trough even today. So there's a huge amount, I think, of recovery potential to come back. In the rail business itself, it was down 35% peak to trough from a revenue perspective during COVID, and now it's basically come back to being back to pre-COVID levels in terms of revenue. But this is obviously before China snaps back, right? So you can clearly see a line of sight when China starts to come back in big numbers and create completely a line of sight for this business to go to levels above pre-COVID levels. And I guess the interesting thing is, you know, why are they back to basically pre-COVID revenue levels, even though China is not there? And that's because other countries like the US and they are doing record volumes into Japan to other countries in the West, they've actually picked up their tourism into Japan. And so that's why you've got this rail business now doing back to peak level revenue. But the China angle is still there. So there's a huge amount of upside there in terms of operating income. The business only recorded its first profitable year in the FY23 post-COVID, and it had a nominal operating margins of 0.5%, So basically just break even in Q1 of 24 because these guys have in March year end said Q1 for them was due in Q1 of 2024, the operating margin was 9.8%, so you can see that nice recovery there. Just to put that into perspective, their operating margins, pre-COVID was sort of in the 12, 13, 14% level. So you can not only see an opportunity for tourism and therefore revenues to come back primarily from China and Korea, but you can also see margins also trending up from sort of 10% up to what's at 13, 14%. So that's the first angle. I think Now in addition to this base business, which is its legacy business. Keisei, I also owned 20% of another company called Oriental Land, which is also a listed company in Japan. Oriental Land owns and operates the Tokyo Disney Resort, which is primarily made up of two theme parks. So. Disneyland in Tokyo Disney. See it's also got a bunch of hotels in there as well. It licenses the IP of Disney in the US and it pays them a royalty fee. I think of about 7% revenue. The royalty fees that Oriental land pay to Disney in the US account for about 10% of the revenues for Disney's Parks Experiences and Products division. So it's not an insignificant amount of revenue for that division. Prior to COVID, Tokyo, Disneyland and Disney, see, they were the third and fourth largest theme parks in the world respectively, and they were the biggest outside the US. So that the biggest two theme parks are the Disney theme parks in Florida and California. Number three and number four, both Tokyo theme parks just. 

Alec: [00:14:11] Surprised that China, Shanghai, Disney or anything like that isn't isn't bigger. That's fascinating.

Maroun: [00:14:18] It probably will be over time, but it's a lot more recent, the Shanghai Disneyland as well. So Tokyo Disneyland, I think, has been operating since 1983. And Disney Sea was I think it was in the late nineties, if not 2000, we opened. 

Alec: [00:14:35] So you wouldn't believe this, Maroun. But I've actually done some in-person due diligence of this company and been to Tokyo Disneyland. So they go to. It was a while ago I was eight years old but can confirm it's big and it's a lot of fun.

Bryce: [00:14:50] Good deal.

Maroun: [00:14:52] Very good. Yeah. So it's you know, that they are the largest. I think there's also a volume angle there as well. Right. So if you sort of look at 2019 to pre-COVID, you know, this combined resort, the two theme parks were doing about 32 and a half million attendees in a year during COVID in 2021 that dropped to around seven and a half million for the year. So it's a very steep drop. And even now, I think we're only back up to about 21 or 22 million combined for the two theme parks. So we're still really about a third off the peak in terms of visitors. So you've got that volume angle there that can come back in addition to the volume angle. There's also, I think, a monetisation perspective. And so if you look at the prices to attend the Tokyo Disney theme parks, they're about 60 to 70% below the prices to attend the same theme parks in the US when you adjust for effects, which is crazy, right? Given it's the same IP, the same characters, the same themes, the rides, etc. So it's a huge discount there. And even if you compare it to something like Shanghai Disneyland or Hong Kong Disneyland, ticket prices in Tokyo are about 10 to 30% lower than they are today for the Asian neighbours. So this is adjusted for effects as well. So clearly there's an opportunity there for the gap in pricing to close at the time. Now, historically I think Oriental land is not been as aggressive on price rises and I think part of that was due to Japan not having any real material inflation or wage growth. And so I think management there is sort of apprehensive about pushing up prices in the absence of wage growth. I think that's been changing recently. You know, so about a decade ago we obviously had Abenomics and I think more recently, you know, the a lot of stimulus via monetary policy has been coming in. And we're actually starting to see things like wage growth and CPI picking up in Japan very, very low levels. I think that's giving Oriental and more confidence to raise prices and be more aggressive. And indeed they have. They have been doing so. They've been putting up base ticket prices gradually. They also introduced this new pricing system in 2021 called dynamic pricing, which basically varies the daily admission price based on what day of week or what time of year or what season it is. And the aim here, I think, is to sort of monetise the busy windows, but then also provide more price sensitive consumers, some sort of enticement or carrot to be able to visit the theme park during the quiet period, just to sort of smooth out some of those peaks and valleys. I think another factor that's interesting here is they've got this expansion project called Fantasy Springs, which is due to open in 2025. I think it's an expansion of Tokyo Disney. See, it's based on Disney's fantasy genre. So think of things like Frozen and Peter Pan and Tangled, and I think it would do two things for them. Firstly, it'll allow them to create another step, change upwards in ticket prices, but also I think CapEx will come down because a lot of CapEx has been going into this expansion project for the last few years. And so, you know, once it's finished, CapEx will come down and you get this huge increase in free cash flow from 2025 onwards. So I think if you add it all up, you've got a recovery not only in the base rail business within Teesside, but you've also got this price and monetisation growth angle within Oriental land. Now the best part of it all is if you take. The value of Keisei's stake in Oriental land, which, as I mentioned, Oriental lands listed in Japan. So it's very easy for you to be able to compute a value for that, for that asset. But if you take the value of the 20% shareholding Oriental land, it's actually much larger than the entire market capitalisation of Tesla. So just to just to give you some numbers in US dollars, I think it's a lot easier to lock in U.S. dollars than the yen because there's a lot more zeros involved with the Oriental land I think is about 56 billion U.S. market cap. So you take about 20% of that. It's roughly about 11 billion. That's the protected value that Keisei has now given. This is a legacy investment. If they were to sell it, that triggers some tax. So let's say it's about 8 billion post-tax. If that were to sell out, the entire market capitalisation of KC is 6.6 billion and they've got this 8 billion post-tax investment sitting there. On top of that, you're also getting this profitable real business thrown in there basically for free. Right. And so this business, if you look pre-COVID, was probably doing about the equivalent of almost 300 million USD in operating pre-tax income. So you're getting that for free. So even if you subtract out things like group debt, you put a reasonable conservative multiple on this base business, let's call it seven or eight times. But that base businesses alone could be worth close to 2 billion. So between the base business, between Oriental land on a post-tax valuation, it's reasonable to potentially see the assets being worth combined about 10 billion US and you're buying the entire thing for about 6.6 billion US in terms of its market capitalisation. So you're getting lots of recovery post COVID lockdown plays, you're getting monetisation plays and you're getting a discount or pretty much wrapped into one.

Alec: [00:20:23] I love that. That's fascinating. And the value there, that's classic value investing where you can, you know, buy a dollar for $0.50. And yeah, it's a really interesting company. I guess we were going to ask what's the bull case? But I think you've done a really good job outlining it there. But I guess to extend that, you know, your fund is the Fidelity Global Future Leaders Fund. I guess. How do you think about this company fitting in the thematic of future global leaders? And along with that, you know, when you think about the future of this company, I guess how big could it be or like what could the future be if management can execute? Well. 

Maroun: [00:21:03] I think from a future perspective, obviously a lot of that is going to come down to Oriental land, right? I mean, you just look at Disney IP and you know, you yourself have sort of been to some of these theme parks. I mean, Disney has an endless library of IPs, right? It's just as a content company, they've been able to captivate people for decades, irrespective of, you know, what age group you are. Right. So and, you know, over the past sort of decade or so, they've been able to add to that Star Wars and Marvel and the like. So I think when you sort of look out into the future, ten years from now, will people still want to go to Tokyo and visit a Disney theme park? Absolutely. You know, 20 years from now, will they still want to do that? Absolutely. So. And, you know, management are going to continue to expand. They've got multiple expansion projects at the time I mentioned Fantasy Springs, but, you know, there'll be more in the future. So I think in terms of continuing to appeal to consumers five, ten, 15 years from now, I think, you know, that asset, given its unique IP, it basically holds itself in really good stead. The rail business is the rail business know it's not a business of the future, but it exists. It does a job, you know, and until we find sort of quicker and cheaper ways to be able to travel, you know, it's still going to do its base business. I wouldn't really think of that too much as a future leader, but certainly the access to the Disney IP is probably the crown jewel somewhere.

Bryce: [00:22:36] So Maroun, when, you know, always thinking about an investment, you need to consider what are some of the risks or what's the bear case. So can you just talk us through any potential, I guess, red flags that you have in your mind that you'll be keeping an eye out for that? Or talk us through the Bear case for Keisei. 

Maroun: [00:22:53] So, you know, obviously both Keisei and Oriental and I think sort of made it clear that they are at this point in time exposed to passenger volumes coming back in, particularly from China. So anything that could really thwart that recovery would be would be it sort of the best case scenario, whether it's another COVID strain and we have another round of lockdowns, whether there's something, you know, more nefarious, like a real geopolitical tension episode between, say, China and Japan, because, you know, Japan sort of. Moving closer to the US. And if the attitude of Chinese tourists change quite a lot towards Japan and they start to sort of view Japan more as an adversary, maybe that sort of could could impact things. Also, you know, if if management at Oriental land fail on on their attempts to better monetise their assets because they do have very unique assets and they are under monetised. So so anything there I think would, would probably be, you know, a bit more of a bearish signal. It's also worth mentioning Oriental land itself is trading at very full multiples. Now I think it's it's sort of justified given the recovery potential there and the pricing lever they have available to it. But nevertheless, it is trading rich multiples. So often you get a push back on Oriental land as a standalone investment. The push back would be valuation multiples are pretty high. Now, again, I think it's somewhat mitigated if you invest by a Keisei because you are picking up Keisei stake in Oriental land for a discount. Plus you're getting the base business for free. So I think some of that valuation pushback can be negated if you do it by a Keisei. But it's still sort of worth mentioning or, you know, some people sort of look at Oriental and they go great business, but I just can't justify the valuation multiples. 

Alec: [00:24:44] It's a fascinating one. As as I said at top one company I hadn't heard of before, even though I had frequented a park that I invest in. And I guess we probably call it the train from Narita Airport as well. So. 

Maroun: [00:24:57] So would it be in one of two trains. There's there's another one owned by J.R East I think, and then there's one owned by Keisei. So it would have been one of those testing. 

Alec: [00:25:05] My memory is.

Bryce: [00:25:06] One in. 

Alec: [00:25:07] China. Yeah.

Bryce: [00:25:08] Yeah, yeah. Two long ago. Yeah. 

Alec: [00:25:11] So that is Keisei Electric Railway, Tokyo Stock Exchange 909 for people interested in doing further research. Maureen, we're going to take a quick break here. And then on the other side, we're going to talk about a second company that is in the fund, and that is quantum, not quantum, but quantum, the New York Stock Exchange ticker pay. So we'll get to that right after this. Welcome back to Equity Mates. Today we're talking to Maureen Eunice, the co portfolio manager of the Fidelity Global Future Ladies Fund. And we're unpacking two companies in the fund. Before the break, we spoke about Keisei Electric Railway, and now we're talking about Quanta, a company listed in New York. The ticker is P.W. Cimarron. As we always like to start when we're unpacking a company, if you can start, General, tell us what the company does and how you found it. 

Maroun: [00:26:11] Actually, I should mention both for Keisei and for Quanta. You know, both of these were ideas surface to us by analysts in our equity team. So so Keisei was one of the analysts in Tokyo surface the idea wasn't yet something like Keisei. For example they only report like their annual reports and only numbers in Japanese, right? So it's very hard to be able to sort of sit here in Sydney not knowing Japanese and be able to research that. Quanta reports in English that that's obviously a lot easier. But that was still brought to us by one of the most energy team in the US energy team. But, you know, what does it do? It's basically a leading, I guess, speciality infrastructure solution provider. Sounds very fancy, but basically, you know, provide services and solutions for the utility industries, for the renewable energy industries, communications and I guess legacy oil and gas. So basically it's an outsourced provider for electric grid companies. I think of like an AGL or an Ausgrid equivalent in the U.S. and renewable energy, telecommunications, oil and gas. So and the services that it provides are basically end to end sort of things, you know, right at the start from things like design, engineering all the way through to things like project management, installation, maintenance, repairing and replacement. So there is a very broad services business there. Now the growth angle here again, I think is multifaceted. So I think firstly, if you sort of look at the US, it wouldn't be surprising to many people. But the US really has underinvested in its infrastructure for decades, right? I mean, if you sort of think about, you know, following World War Two, they emerges as the largest economy and the most powerful military, and they embarked on this big infrastructure program. They laid a network of roads all around the country that connected north and south, east and west. They invested a lot in things like electrical grid infrastructure. And, you know, that paved the way for them to just grow miraculously throughout the fifties, sixties and seventies. But I think over the last few decades have really neglected some of that infrastructure. And so if you look at the requirements for upgrading and maintaining the electrical grid, it's basically resulting in CapEx growth for utility companies in the region of 5 to 10% per annum. So these utility companies having to spend quite a bit of money reinvesting back into the grid just to sort of maintain it, keep it as it is, but then also upgrade it for the future and sort of touch on that a little bit more. But around half of the revenues come from what they term repair, replace and upgrade type work. So it's and you know, being able to reinvest back into the grid, upgrading the grid and maintaining green basically plays into that half of Quantas revenue bucket. So if its underlying customers are growing their CapEx at five or 10% per annum, that's going to bode well for for Quanta who's a net source provider. Secondly, there's also a big push towards renewable energy. Right? And so like irrespective of people's views on climate change, you know, some people believe in it, some people don't. Irrespective of that, we still have the issue of finite oil reserves. So, you know, according to too many estimates, I think we have somewhere around 50 years worth of oil reserves left to extract people, take a few years. So even if even if you don't subscribe to the climate change idea, we still need to pivot away from oil at some point in time simply because we're just going to run out of that stuff eventually, right? So if you sort of think about things like the Inflation Reduction Act that the US Congress passed into existence about a year ago, the IRA, as it's called, and it's that single act committed almost $800 billion from memory to spending on energy, primarily on green and renewable energy. Something like that is expected to triple wind and solar capacity in the US by the end of the decade, which is a huge expansion. And so if you sort of think about Quanta, over half of their revenues come from renewable energy solutions. They bought a business a few years ago for two and a half billion called BLATTNER, and basically that gave exposure to that segment. And management think this particular segment can grow in the low double digit revenue growth rate. So we're talking 10 to 12% revenue growth rates for the foreseeable future. You know, just to put some. Arms around the Goldman Sachs estimate, it's going to require something like $3 Trillion in CapEx to meet net zero emissions in the U.S.. If you sort of think about 3 trillion USD, the Aussie economy in US dollars annual GDP is about 1.5 1.6 trillion. So it's about two years worth of Aussie GDP in US dollars that's required to sort of get to net zero. So that's that's the wall of spending in this space That's that's forecast to come. And even if you sort of think about something like these, just to sort it off a little bit here, if you sort of think about something like EVs, it may not seem like a big change right now because, you know, right now you just go to the service station. If you fill up your car with petrol in that easy world, you just sort of plug guitar into a charge. It fills up. So from an end user perspective, it doesn't seem like it's that big of a change. It's just, you know, swapping out one fuel versus another. But if you sort of just think about what's required to get everything to where it is in the current world, you've got energy companies, they extract the oil out of the ground, they refine it because crude in its natural form can't be processed by cars. It's got to go through a refining process. Then it gets put on tankers, you know, and then driven out to various stations around the country. And then, you know, you go to your service station, you fill it up from there. So that's sort of like the value chain for or the supply chain for getting oil into your car. If you sort of think about an easy world, you've got things like solar farms or wind farms. And usually they're done in locations that are far away from metro areas. So solar farms quite often will be in deserts where you get like lots and lots of sunshine, wind farms, a lot of them either in remote hilly areas, like if you're driving towards Bathurst here in Sydney and you drive past the Woodlawn Wind Farm. But often a lot of countries put them out in the deep ocean because it's quite windy there as well, so far away from metro areas. You've got to transmit them, have a high voltage transmission lines to get them into metro areas. You've got substations in metro areas from a substation, then the power goes out on to the regular electric poles that you and I would know, you know, the poles that we see in the streets. And then it sort of makes its way into our home and into our car. So it's a very different inter end supply chain for that tiny change right at the end, which is just substituting oil for electricity. And our grids have not been built for that. They've been built to sort of turn on our lights and power, our appliances and maybe feed our homes. But if it's also going to be required to also raise fuel outcomes going forward, then, you know, there's a lot more capacity upgrades required over time. So that's I think, you know, the long term bullish angle for that corner of the business that Quanta has that is exposed to renewable energies. Another part of its business, about 6%, so it's relatively small, but it's growing quite good. It comes from communications. And so I think the customers in the US, like Verizon, AT&T, Comcast, for example, you know, they're building out 5G right now that's going to provide them growth with quite some time. Basically, by the time it's done, we'll be ready for six G, which you know, is likely to be around here in sort of 2030. So you basically finish building out one generation, you sort of move on to the other. And basically that's a lot of telcos in this sort of way. So their CapEx requirements are always quite high. And then the final part, it's about 20% of the business comes from traditional energy companies, I think of like oil and gas companies. And what Quanta does is help to help me out in things like gas distribution, pipeline maintenance, logistics, management. It's probably not an area that's going to grow as quickly as some of the other parts of the business. But I think you can still expect sort of mid-single-digit revenue growth going forward. So you've got growing in markets, right, which is really good. But then you've also got another layer of growth on top of that, because right now roughly about half of the work is outsourced to third party providers like Quanta, and the other half of the work is done in-house by some of these energy companies, some of these communication companies, etcetera. That proportion that's being outsourced have been growing over time to be sort of go back five, ten years ago is probably more like 40, 45%. Now it's about 50%, it's expected to continue to grow probably towards 55, 60% of the next decade or so. So Quanta can potentially grow even faster than some of these end markets as they get more and more work outsourced as a proportion. Quanta Quanta is the largest outsource provider. They have about ten or 15% market share, which is more than the next three competitors combined. So if you add up competitors number two, three and four, that's the size of quanta. And you know, remember I said half of the work is done in-house so that 10 to 15% market share. 50% of that work is done in-house. If you exclude that calculation and just look at the outsourced market, then Quanta market share is closer to 30%, 25, 30%. So it is by far the dominant provider in this space. And the other thing worth mentioning is that 95% of its revenues come from repeat customers, so they don't have to go out every year to find new customers. It's the same group of guys, the Verizon's, the energy companies, etcetera, that are just providing them with relatively sticky, relatively predictable revenues going forward. So you've got a large and growing TAM. Most of are exposed to areas that are not particularly sensitive to the economy. You've got Quanta being dominant player in that space. On top of that, you've got management that it means that committed to improving the margin growth profile and I think you can expect earnings growth to continue to outpace revenue growth. It has been doing so for about a decade. Then I think you can sort of expect that going forward. I think it's it's a mid-teens level of annual EPS growth is achievable over the next few years and also converts roughly about 80 to 90% of its net income into free cash. So those earnings are not just sort of accounting gimmicks, they are they do translate into real cash. Now, some of that will be reinvested back into the business, some of it will go into M&A. I mentioned that they bought that renewable business platinum for two and a half billion. So they might do some of that in the future, but will also, I think, continue to see buybacks. So these companies bought back almost $1,000,000,000 us with the stock over the past four years. And they also have a small dividend. So you know capital that's not it generates a lot of free cash cash that's not going to be reinvested back into the business, comes back to shareholders via buybacks or dividends on the balance sheet, I think is in pretty good shape. It's only two times net debt, which I think is relatively conservative for a business exposed to these sorts of end markets. The return on equity, they've improved now sort of in the mid-teens range, low double digit return on invested capital heading into 2023, which is trading at what I thought was a modest 20 times PE multiple. You know, it is up quite a bit this year. It's up about 47% year to date and the S&P 500 is only up about 14 or 15%, so it has seen its multiple expand out into the high twenties from a PE. So obviously not as attractive today as what it was a few months ago from a valuation perspective. But I still think the long term fundamentals are in place. 

Bryce: [00:38:08] There will no doubt a pretty solid bull case there. Maroun, I guess we got to ask and close out by asking, you know, again, are there any red flags that you kind of have in mind that you'll be keeping an eye on to see if this bull case no longer stands? 

Maroun: [00:38:23] Yeah. Yes, it is. From a macro perspective, I think you still have the risk of recession now mentioned, this is probably not as exposed from an economic perspective as, say, something like consumer discretionary. But, you know, there would still be impacts from a recession if, for example, you know, the government needed to spend more money on Social Security and less taxation revenue coming in, maybe they might delay some of those ramp up spending on IRA or anything like that. Some companies might also delay some of their projects or just sort of extend them out. So I don't think it changes, you know, the world of spending to come, but it might change the near-term profile of that annual pace of spending. So that's something worth keeping in mind. The other risk as well is, is just in poor execution. So I did mention that about half of the business is repair replacing and upgrading type work. The other half is exposed to new projects. And always, you know, with a service provider new projects can create risks because some projects that you tend to forego over budget and you might have to weigh the consequences etc.. Now I think it's a little bit mitigated in Quanta's case because out of that half of their business that is more project focussed, 70% of that half is actually towards smaller projects and the other 30% is sort of larger projects. So if you sort of think about the likelihood that a large flagship project goes way over budget and you may have to weigh some big PNL losses on and they're paying off for a year or two, the likelihood of that I think is mitigated by the fact they tend to go for smaller, more frequent projects as opposed to the Big Bang type projects. So there's a little bit of, I guess, mitigation there, but that's also a risk. 

Alec: [00:40:11] Well, Maroun, we have come to the end of our time to fascinating companies as a reminder for people Keisei Electric Railway listed over in Tokyo, 9009 is the ticker and then Quanta listed in New York. The ticker is P-W-R. As I've said a couple of times here, two companies I hadn't heard of before, but I'm certainly going to go and do some more research now. As a guest on equity mates you are automatically in the running for. Our guest of the year or Expert of the Year competition where the community get a chance to celebrate all of the experts who have given their time to come and share their knowledge with the equity mates community on the podcast. As a final question and is I guess a final shout out to the equity mates community, is there any advice, any content recommendations or any actions that we should take to, I guess, further our investing journey that you want to leave us with today? 

Maroun: [00:41:11] Obviously, equity mates is a fantastic source of content. I actually genuinely mean it. And I was listening to your your podcast the other day was Christopher may have a guy that sort of get to talk about 100 pages because I read some of his blogs. I would just advise everyone to just continue to learn. This is this is a lifelong learning journey. You never stop learning. The second you feel like you've stopped learning, you go stale. So always go out there. I've personally been listening a little bit as well to it, to another podcast called Richer, Wiser, Happier, which is run by William Green. He wrote a book of the same name, which was a happier. He profiles some some investors from around the world like Charlie Munger and Brian the like. And he talks about ways of not only winning in markets but also winning in life. How to approach life with the right mentality, how to cope with different challenges and stresses and things like that. So he's got a book, but also he does a weekly podcast, but it usually sort of brings on one of these big experts and sort of talk to them about their journey and their life, etc.. So I think that's sort of a very interesting one too, to sort of add to your at least the podcast to listen to as well. 

Bryce: [00:42:26] Well, Maroun, as always, you know, you always bring stocks to the table that are interesting and we love hearing new investment opportunities. A reminder that what you hear these days is by no means a buy sell recommendation. We're just hearing what is interesting and also as part of the portfolio that Maroun runs. So thank you so much. It's an absolute pleasure to have you back on equity mates again. We look forward to having you back at some point with more interesting companies. But, Maroun, thank you very much. 

Maroun: [00:42:58] My pleasure, guys. Always fun to be here and to have a chat with you guys. So thank you for having me.