Finding investing ideas in the news, what next for inflation & 3 new companies we’re watching

Bryce: [00:00:14] Welcome back to another episode of Equity Mates. Or should I say, Hey, they're champions. Welcome to this electrifying episode of Equity Mates. You are not just here to invest, you are here to master the game. Whether you're a rookie or a Warren Buffett in the making, we are committed to smashing those barriers and catapulting you from your first investment straight to those life changing dividends. If you're joining us for the first time, you're not just a listener. You are part of a community of achievers. As always, I'm joined by my equity buddy Ren. And who am I? 

Alec: [00:00:47] Well, Bryce, when you spoke about mastering the game, I thought you were maybe Bryce Leske in his second year at university. Raising the game. [

Bryce: [00:00:55] Not true.

Alec: [00:00:57] I'm going to guess you're Tony Robbins.

Bryce: [00:00:59] Yes. That is correct.

Alec: [00:01:00] Well, that was a toughie.

Bryce: [00:01:02] Yes, I reckon you've read my document. Sascha, we need to change. 

Alec: [00:01:05] I promise you, I haven't. I just try to think like motivational speakers. You know all of that stuff. 

Bryce: [00:01:11] T Robbins.

Alec: [00:01:12] Yeah. 

Bryce: [00:01:13] Yes. Well, if you are joining us for the first time, welcome to Equity Mates. This is the podcast where Ren and I track our journey of investing as we attempt to become better investors. And we have a massive show today. Before we jump in, though, a reminder that while we are licensed, we're not aware of your personal circumstances. So any information on this show is for entertainment and education purposes. Any advice is general. But in today's show we're going to continue the work we've been doing with our mentors. Ren got a couple of stocks that he wants to pitch. 

Alec: [00:01:44] A few crackers.

Bryce: [00:01:45] A few crackers. We have a call coming up with an equity mates community member, Matt, about finding investment opportunities based on what's going on in the news. Love that. But to kick off, as always. News portfolio changes. Let's do it, Ren. 

Alec: [00:02:01] Let's do it. Let's do it. Well, I mean, I'm looking at the Google doc that we used to plan. And your first point is general market vibes. So I'm just going to open the floor to you here. What are you vibing? 

Bryce: [00:02:17] I'm vibing that. I reckon a month ago there's a level of optimism. 

Alec: [00:02:24] Yep. 

Bryce: [00:02:25] Now, level of pessimism. 

Alec: [00:02:27] Because inflation came in like, a few basis points on. No, I don't think so, actually. 

Bryce: [00:02:32] Well, no. I mean, like, core inflation is still falling here in Australia. 

Alec: [00:02:38] So we've got 5.2%. Last month it was 4.9%. 

Bryce: [00:02:42] So drivers fuel and rent. 

Alec: [00:02:44] Yeah.

Bryce: [00:02:44] Yeah. 

Alec: [00:02:45] So but they don't expect more interest rate rises. 

Bryce: [00:02:49] Yeah. See this is where I reckon that tune is changing from, particularly over in the States where there was a, a sense that the Fed were going to hold them where they are for longer. We had a meeting with from the Federal Reserve last Wednesday where the rhetoric was that it's likely they're going to need to continue to raise to get it back into the band of 2 to 3%. Now, the Federal Reserve chairman has been pretty aggressive and has pretty much stuck to what he said he was going to do. And to be fair, America has the lowest rate of inflation of most developed countries in the world. So it's working. But more needs to happen to get to that point. And I think that feels to me at the moment that is changing the dynamic and it's not as optimistic as it was. 

Alec: [00:03:39] ASX 200 down 2% in the last month. You can certainly feel the, I guess it's like an uncertainty. When we spoke to Christopher Joye earlier this year, who's a big bear on housing. It's just a big bear generally. He was saying that the nightmare scenario that he thinks is more likely than most other people and certainly he thinks more likely than the market thinks is that we had that initial 12 interest rate rises in 13 months. There would be a holding period and then there'd be another rate cycle. And that is where like, you know, the mortgage cliff becomes really difficult and stuff like that. And from what you're saying there, I'm starting to get echoes of what Christopher told us six months ago.

Bryce: [00:04:24] Yeah. And his point as well was that the additional rate cycle wasn't priced. 

Alec: [00:04:29] Wasn't priced. Yeah, exactly. 

Bryce: [00:04:30] Yeah. So what we're seeing at the moment is reflective of the market thinking that rates are likely to hold more than they are go up. And I think Chris's point was it's not just going to be another interest, it's another cycle. Yeah. So the thing I keep reminding myself as well as, you know, some of the leading economists say that the period that it takes for interest rates to to seriously have an impact, the lag effect is like 12 months. So I think I've said that on the show and that's like now. So it's buyer beware for me. 

Alec: [00:05:01] So here's my question. I'm going to assume when it comes to the stock market, well, at least I'm going to speak personally. I'm going to continue, Dollar cost averaging the same amount into the same core ETFs for my portfolio. And then in my individual stocks, I'm just going to keep looking for value like long term compounders, trading at good prices. For me, like, the interest rate story is probably going to be a story of more opportunity popping up in individual stocks, but it doesn't really change my behaviour. You and I are both looking at buying a house. You're certainly further along on that journey than I am. Does it make you, for me, there's probably two things you would do. One is just wait and see what happens. Let the hiking cycle go. Hope the prices fall. But the other thing would be you, Rush, because it's like get a year, two years fixed now before the next hiking cycle. If you think the hiking cycle is likely, are you going to you how you think? 

Bryce: [00:05:58] Well, the third scenario there is that this is overblown and the interest rates don't increase. And then if what most people are thinking now is that next year we should start to see rate cuts in inverted commas, if that's the scenario, Australian property is just going to go on another rampage. So I think for me, the way that I feel comfortable, comfortable about it, regardless of what scenario happens there, mainly if rates were to go up, is just ensuring that the way that we model it, You look at what it would mean if interest rates were at 8%. And it's like. 

Alec: [00:06:36] Yeah, I think for me the biggest thing is that one month is not a good enough set. So 4.9% inflation came in last month and everyone was like, have we engineered a soft landing? Are we on a glide path down back to three? Are we going to say this is the interest rate settings that we're at now, the right ones to get us to where we need to go in a medium term? And then you get one month where it goes up three basis points, like that's a rounding error. That's not a meaningful statistical variation. You go from 4.9 to 5.2 and all of a sudden the market's down 2%. Everyone's freaking out. You're talking about an interest rate hiking cycle and people change behaviour on the back of that. One month is not enough data to make decisions because if it comes in at 4.6 next month, we are back to like, everything's going well, let's rip.

Bryce: [00:07:31] Well, I think a lot of it's being led by the US and I think more importantly, what the RBA look at is core inflation. And it didn't go up. It was headline which because they exclude things like petrol and rent, which is a bit ridiculous. Exactly. It's a bit ridiculous. But core inflation, excluding the two largest contributors to it, is continuing on a downward trend. So yeah, TBC watch this space. 

Alec: [00:07:59] So we mentioned there that regardless of what happens next dollar cost averaging for your core portfolio is the name of the game. Yeah. You sent a chart around to the Equity Mates team of your dollar cost averaging points in recent weeks. 

Bryce: [00:08:12] Yeah, I just looked at it out of interest and I was spewing. 

Alec: [00:08:16] Tell us. 

Bryce: [00:08:19] I use superhero and 

Alec: [00:08:21] Not sponsor. 

Bryce: [00:08:21] Not sponsored and claims you can. I'm sure most brokers do it now but you can see on the chart for your stock where every bi point you make and even so and so you can see your dollar cost average play out. And just by the nature of how I've said it, every point that I've had, I've missed in the last sort of three months or so, I've missed any drop in the market. 

Alec: [00:08:44] And when you say because of how you've said it, it's not like it's just like pure coincidence. 

Bryce: [00:08:50] Pure coincidence. But because I was looking at it, it's like my average price and where it is now, I'm just like, that doesn't really make a lot of sense. It's because every time I've bought it has essentially been the same price because I've missed any sort of absolute peak, I've missed any sort of absolute drop. But I've tended to be on the higher side of that of the average. Now I get it. But there's literally nothing you can do about it. And the data set was super small, I think it was only three or four transactions. If you obviously take it out to five years or whatever, it's different. But yeah 

Alec: [00:09:24] Well you expect the asset to trend up over time. 

Bryce: [00:09:27] Yes. Yeah. So it was, I was looking at it at a point where it was down and so I thought I'm just I'm going to just put a bit more in here myself just to try and get my average price down a bit.

Alec: [00:09:39] Nice. 

Bryce: [00:09:40] I thought that was interesting. Anyway, 

Alec: [00:09:41] So one thing that I was writing this morning, there's heaps of stock chart coming up, but I'm just going to flip one more piece of property stuff in there because I think it is relevant for the broader economic story and a lot of the stocks that we own are going to be very affected by the wealth effect of the housing market. You know, we even saw retailers in this earnings season come out and say they're saying a reduction in spend as people tighten their belts and allocate more to their mortgage. We're halfway through the mortgage cliff. We've reached the halfway point. 

Bryce: [00:10:18] Yay! 

Alec: [00:10:19] More than half of Australians who had fixed rate mortgages that were rolling to variable have done that according to ratecity.com.au. More than 1.3 million fixed rate mortgages have expired either last year or this year. And they were saying that that is the halfway point. So I feel like now is the time that we start to feel the effects. 

Bryce: [00:10:44] Yeah. On this point, it's similar to the lag of interest rates. Economists believe that the lag effect of your increase in interest rate going from 1% to 5% for households is about six months. People don't just have it flick over and then all of a sudden, whilst they might be in stress, it takes a while for the action to be made to either sell or reduce spending or whatever it may be. 

Alec: [00:11:10] Well, CoreLogic have looked at it, so if people flick over to variable rates, can't afford the mortgage, sell the property. So CoreLogic have looked at short term sales. They've found that houses that have been resold within three years of purchase have risen slightly to eight and a half percent. But in August, short term sales within three years reached a record high of 16%. And interestingly, within that, the number of loss making short term resales. So when you sell it for less than you bought it for has gone up from 2.7% this time last year to 9.7% in the June quarter. 

Bryce: [00:11:56] So short term being like rentals. 

Alec: [00:11:59] No, no, no short term sales. So buying and selling it in less than three years. Has gone up to 16%. And the percentage of those that were then sold in that short term window at a loss has gone from 2.7% to 9.7%. Yeah.

Bryce: [00:12:17] I was talking to someone the other day, I'm not going to mention, but they bought an apartment in in the middle of Darlinghurst. Do you think Darlinghurst safest houses and bought it six years ago, so it would have ridden the interest rate rise but also the boom in house prices? Went to sell it. This year we're getting offered 100K less than they bought it for. So it's like far out. 

Alec: [00:12:40] Not surprising. All right, Bryce. So I think that's enough property chat. Let's get into the stocks. We got contacted by a listener from Canberra, Matt, who wanted to talk about building investment ideas and theses of what's happening in the world and in the news. So let's give him a call and unpack this. 

Matt: [00:13:02] Hello? 

Bryce: [00:13:02] Matt, it's Bryce from Equity Mates. How you going? 

Matt: [00:13:05] Good, thanks, Bryce. How are you? 

Bryce: [00:13:06] I am well. I am well. I've got Ren here as well. 

Alec: [00:13:08] Hey, Matt. How's it going? 

Matt: [00:13:10] Yeah, good, thanks, Ren. How you going? 

Alec: [00:13:11] Yeah, good. Well, before we get into it, tell us a bit about yourself. You're from Canberra. Love that. What's your story? 

Matt: [00:13:17] Yes, I'm from Canberra. I looked a couple of years ago, hated discussing finance and anything. Talking money and all that sort of stuff. And then got on to the fire movement from one of my mates and that kind of got me interested in investing and that sort of thing. And then came across the whole podcast and I've been listening ever since. Yeah, and my question kind of came from where I started and not really knowing anything about financials and how to look at what rates of return and that sort of thing where but more just thinking about scenarios and where there would be opportunities and that sort of thing. So yeah, that was kind of where I started looking and started my investing journey and here I am. So my question is looking at some upcoming events. I know that it was announced recently that Australia is about to go through an El Nino summer, so looking at hotter temperatures and that sort of thing and the potential for, you know, more bushfires and that sort of extreme weather scenario. So thinking about that sort of stuff, is there opportunity there that people should be looking at or things that are going to affect the market I guess over the next 6 to 12 months? 

Bryce: [00:14:29] Love it. You know, we were talking about this in the office yesterday. I think before we get into our thoughts, have you developed your thinking beyond the question and have you thought about what opportunities might exist or how you would actually tackle this? Because it's not something that just applies to El Nino. It's something that anyone sitting at home watching the news or reading the paper like this is a classic way of finding investment opportunities, using what's going on around you. Have you thought about the next part of this? 

Matt: [00:14:55] Not too deeply at the moment. I guess it's sort of triggered for me. I know you guys in the past have talked about, you know, insurance companies and whether or not they're good investments at particular times or I know they go through cycles, but if we know we're about to have like an extreme scenario, then is that going to disrupt their normal cycle? Would they? Or then looking at, you know, to use go back to COVID for an example, it was kind of a once in a lifetime scenario. But then we saw how that kind of played out with Woollies and Coles and what that did to their share prices, because they suddenly became, you know, really important things within everybody's COVID experience. So trying to apply that kind of lens, I guess, to going through an extreme weather scenario. 

Alec: [00:15:39] So we've got a few different ideas. But the insurance one is interesting because my initial thought was insurance wouldn't do well in El Nino. And, you know, you think about the 2019 bushfires. I pulled some numbers. Insurance Australia Group had a $400 million bill for the December half at the back end of 2019. Suncorp about 300 to 400 mil. So I was thinking like yet be tough being an insurer with a higher risk of bushfires. But then Bryce found some data that challenged.

Bryce: [00:16:12] Yeah, it's interesting they it's, it's the reverse in a situation for El Nino when you get you're getting these hotter periods A because apparently a lot more people are more prepared for bushfires than if a cyclone rips through or like floods more. 

Alec: [00:16:29] You can, yeah.

Bryce: [00:16:30] You can prepare. And so the result of that is actually Morgan Stanley did some research to find that only 11% of total Australian catastrophe claims since 1968 have been related to bushfires, compared to almost 60% from cyclones, storms and flooding. So much fewer claims in times of El Nino. 

Alec: [00:16:51] I think their research had 40% fewer catastrophe claims on average in El Nino years compared to La Nina, surprisingly, but also not surprising when you think about it. Murder accident claims are also reduced in El Nino conditions. 

Bryce: [00:17:08] You know, sloshing around. 

Alec: [00:17:09] Because it's dry out. So that so maybe.

Bryce: [00:17:12] You look maybe along insurers. 

Alec: [00:17:13] Well I think Morgan Stanley's pick was Suncorp group. 

Bryce: [00:17:18] There you go.

Alec: [00:17:19] Given its better budget placement and greater exposure to Queensland because Queensland gets hit quite hard by cyclones and flooding in La Nina.

Bryce: [00:17:28] Yeah, yeah, yeah, yeah. 

Alec: [00:17:29] So there you go. That's one that I initially thought and then flipped it around. But I guess let's take a step back, throw some ideas out there. El Nino, It's hotter, it's drier, there's bushfires. I am a very pasty man. So my first thought was I'm going to need to lather myself up and sunscreen. 

Bryce: [00:17:47] That's just summer for you. 

Alec: [00:17:49] Honestly, that's winter as well. So I had a look at who are the big sunscreen makers in Australia. There's one company that does a lot, Baxter Laboratories not listed. There is a Baxter that's listed over in the US, but I don't think they're related. But Baxter makes Cancer Council sunscreen. They make Woollies brand sunscreen, they make heaps more. So unfortunately, you can't invest in it. But that's a little nugget of information. 

Matt: [00:18:15] But what about if I'm maybe not the supplier, but you know, looking at the pharmacist, is it I can't remember the name of it now, but isn't there a pharmacy group that's. 

Alec: [00:18:25] Like a chemist warehouse or. Yeah. API. Yeah.

Bryce: [00:18:29] Priceline. Yeah, yeah, yeah, yeah, yeah. That's a good one. Getting the retailer who's selling these products that are I guess going to be an increased demand. I think the challenge with those is you're naturally going to see an increase in demand across summer anyway. So you're trying to find that I guess that delta of what's going to be above and beyond. 

Alec: [00:18:47] I think it's like, is it metal, Is it material? Yeah, like people are going to be buying, you know, more sunscreen from Coles and Woollies and more bottled water and stuff like that, more super dopers and ice blocks. But like if you're talking about like a $20 billion business, like Coles or whatever Woollies is out these days, it probably doesn't really materially make a difference. Like there are there are other parts of the market where it will make a difference. That would be my thoughts. 

Bryce: [00:19:14] I think. Speaking of material, I think the big one you can't go past is thinking about agriculture. So there are a couple of ways to look at it. You can be looking at companies that supply irrigation, water rights, which we'll get to in a moment. But I think one that I found interesting, I don't have a stock for it, but is drought resistant seed, speaking to data about this overnight. And there's when drought can get particularly bad, you know it can have a pretty significant impact on your ability to grow crop. And so there are companies out there that have, I guess GMO or have particular seed that survives well and in drought conditions. So in a situation where it's drier for longer, it's companies like that that might present an opportunity and then water as well. Water scarcity, I think just generally when you're not getting a lot of rainfall is a big opportunity. And there's a company listed called Duxton Water. The ticker is D-T-O. It's the only company. 

Alec: [00:20:15] No, D20 

Bryce: [00:20:17] D20, I'm sorry.

Alec: [00:20:18] Unbelievable. I couldn't get H2.

Bryce: [00:20:20] I know it's the only company listed on the ASX that provides investors with direct exposure to Australian water reserves. 

Alec: [00:20:28] Yeah, so I guess they own water, right?

Bryce: [00:20:31] So is this sparking any inspiration for you, Matt? 

Matt: [00:20:36] Yeah, I think so. I think looking away, I guess the impact isn't necessarily immediately obvious because I think like you said, going back to talking about, you know, Woolies and Coles and everybody knows summer is hot, so that's probably already factored into the price. So yeah, so looking at where that surprise impact is, I guess.

Alec: [00:20:52] So here's a couple of other ones just to get your thinking and then I've got a concluding thought on everything that we've thrown out here. The last El Nino cycle with the bushfires in 2019 cost a group and vital harvests two of the big agricultural players. They did poorly and bushfires ripped through a lot of their crops. More died because of drought, so those two companies didn't do well then. Elders is another agricultural company that benefits from livestock sales and so 2019 was not a good year for them because of livestock sales as well. So there's some agricultural plays for me. As I was thinking about it though, I was like, Yeah, but a lot of these companies would also get affected. Livestock, not so much, but crops would have get affected in storm seasons as well. So like, that's just the nature of agriculture. It's brutally tough. And so maybe like again, it's like how material would it be? Like, how much would it change everything? And you know, what we live through in 2019 probably, or maybe not the same in 2023, hopefully not the same in 2023, but they're ones to look at. And then one other one super retail group is a it owns Bcf, boating, camping, fishing, it owns rebel. Maybe if there's less rain, it's hotter, there'll be more outdoor activities. So those companies will do well material. Unless there's heaps of fires, then those companies probably won't do well masks able to stay inside. But that's another one to to think about. Yeah. And then finally, one company that I've come across recently that we're actually going to speak about a little bit more later in this episode. There's a company that specialises in rebuilding for insurance companies. So like if you know, like how our town is destroyed in a disaster, they get called to rebuild. It's called John LYNG Group. LYNG, they make 90% of their money from insurance contracts and like disaster recovery and stuff like that. So that's one that I'd never heard of, but it's an interesting one. 

Bryce: [00:23:01] Nice. My concluding thought is watch out for it was in the same article. The Morgan Stanley stuff on insurers was is watch out for inflation as well, particularly through food. If we're if no one can grow avocados, those avocados are going to go up in price and input costs into a lot of the food that we ate. So I watch on on inflation. 

Alec: [00:23:22] My concluding thought is just like, be careful about being too short term with all of this. You know, like everything we've spoken about here, like it's fun to think about. And I think it's a good exercise to think about, like the first order and then the second order effects of change. Like that's it's a good investing muscle to build, but El Nino will pass. And like if you invested in a bad company because you think that, like the weather conditions will help it, the weather conditions will change and then you just stuck with a bad company. So it's like make sure you confident in the company as well.

Matt: [00:23:55] Yeah, yeah, I definitely agree with that. And I think, like I said, it's looking at a, you know, kind of a short term something that's going to disrupt how people would normally behave or disrupt how the market would normally behave. But obviously being aware that ultimately, you know, mostly things will come back to normal. So not banking on it for too long or too much. And yeah, being confident of your take. 

Alec: [00:24:16] I mean, the flip side is there might be companies that get hurt in this short term cycle because of the climate conditions that then offer a very attractive price and you say, hey, they're not doing well right now, but the weather will change and this is a great company and so might be an attractive entry point. Yeah, but that's a whole other conversation. 

Bryce: [00:24:35] Another conversation? Now, Matt, Matt, to close, I've been briefed by our producer Sascha that you're well, firstly from Canberra, but you're also a Raiders fan and you've had a crack at me for not knowing that the NRL clubs have songs. So to close out, would you mind singing me to write a song? 

Matt: [00:24:56] Well, look, I got to be honest. It's actually my partner. She's a massive writer's fan. Okay, son. So shout out to Josie and Will. Yeah. No, I think. I think you just have to look it up. It's a banger. 

Alec: [00:25:08] We're about to take a break and let's go out to break with the Canberra Raiders theme song. 

Bryce: [00:25:13] I love it. 

Matt: [00:25:14] Sounds great. Thanks to you guys.

Bryce: [00:25:15] Nice. 

Alec: [00:25:16] Thanks, Matt. Thanks, Matt. Really appreciate your time. 

Bryce: [00:25:33] Welcome back to Equity Mates Investing podcast. We've just had a conversation with Matt and I've I now know to NRL Song's friend We've had the Panthers, we've had the Raiders. I need to bring in, a 15 to go. I need to bring in some AFL songs here. I think they're a little bit better. But anyway, the final segment for today's show is a continuation of the work we've been doing with our mentors. Andrew Page is your mentor. Yeah, from strawman.com And I'm working with Henry Jennings from Marcus today. I actually haven't checked in with Henry for a while. I was on the longest European. Well, no, no, I was overseas for five weeks and then Henry went overseas. So we haven't touched base for almost ten weeks now. So I'm really looking forward to him being back on home soil so we can pick up our conversation to close out the year. But Ren, you've been working in the background trying to find or continue to find those high quality companies that both you and Andrew well, I mean, many investors love to find. 

Alec: [00:26:32] I mean, it's the name of the game. Yes. I mean, once upon a time you love to find them as well.

Bryce: [00:26:36] Yes. So we spoke about ResMed last week and we got great feedback from many of the community who agree with the thesis.

Alec: [00:26:45] Yeah, it feels like it's almost a consensus pick among Australian fund managers at this point. 

Bryce: [00:26:50] Yeah, too good on opportunity. 

Alec: [00:26:51] It's price keeps falling. So it's like, is Australia wrong as a country? 

Bryce: [00:26:57] What do you mean?

Alec: [00:26:58] Well, it's like it feels like a lot of the selling. I mean, they'll definitely be people in Australia that don't believe in it, but it feels like globally, like Americans and Europeans are a lot more negative about Rose and made a lot more positive about Novo Nordisk and it's like Australians, maybe because we're parochial or well. 

Bryce: [00:27:15] It's up 10% the last five days so can't complain or that. 

Alec: [00:27:18] Equity mates bump.

Bryce: [00:27:20] So Ren that brings us to today you've been working in the background with you've got three companies I want to talk about. 

Alec: [00:27:28] Yeah. Now I haven't bought any of these yet, but I might buy some of them. But three interesting companies that I'd never heard of before that I just wanted to bring to your attention and have a chat about, because this is what I love and this is why I love investing. And this is I'm glad that I've been working with Andrew and that we're sort of making time to do this is just like finding companies working on interesting things that I just, you know, just hadn't heard of before. So I've got three companies I've got this wasn't deliberate, but their orders of magnitude different in size. I've got a $2 billion company, a $200 million company and a $15 million company. 

Bryce: [00:28:06] Nice.

Alec: [00:28:07] You choose. Which do we want to start? 

Bryce: [00:28:08] Well, firstly, I think the question will be how did you find them? 

Alec: [00:28:13] Just broad reading, as annoyingly vague as that answer is. But I just have a notes app on my phone where if I come across an interesting company, I write it down. It's like my to research list and just from podcasts, I listen to things I read. I mean, like we're in a privileged position where all we do all day is invest in content. And you know, we speak to experts on the show and then we make content for social media and emails, sign up to our emails by the way. 

Bryce: [00:28:46] equitymates.com/email. 

Alec: [00:28:49] Yeah, I just have a list and I just work through. 

Bryce: [00:28:51] Nice. So there's no initial stage of using screen stock. 

Alec: [00:28:56] Screeners. 

Bryce: [00:28:56] Or anything like that. This is just from rating, which we hear from a lot of experts. All right. Well, let's start at the top. Let's go. Biggest, the smallest. [

Alec: [00:29:03] Okay, biggest. So when we just spoke to Matt about El Nino and finding companies, I mentioned this company, John Lyng Group, ASX Ticker is a JLG. It's a little bit grim. So this company makes its money from rebuilding after disasters, not just disasters, but like it works with all the big insurers, like it's rebuilding and recovery. I just read how it describes itself provides building and restoration services for insured properties and communities impacted by extreme weather events in Australia. So the Insurance Building and Restoration Services business is 90% of its revenue. Then it's got another smaller business which is just commercial building and construction, which is 10% of its revenue. It operates under 24 different brands, so they may have rebuilt a house near you, your house, without your even knowing it. The financial story is really interesting. So in five years it's gone from $287 million in revenue to $1.2 billion in revenue. Last year, revenue grew by 43% and net profit jumped by a bit more than 60% to reach 62.8 million. It trades on an okay multiples, so its 36 price to earnings, but it's growing really quickly. Part of the reason why it's not super expensive is because the company has said that this year is going to be tough. It revenue is actually going to go backwards this year. It's going to go from 1.22 billion to 1.14 billion. And that's because its commercial construction business is in a world of hurt. It's going from $370 million in revenue to 140 million. 

Bryce: [00:30:50] Wow. So it's why. 

Alec: [00:30:52] Don't I. Know. I need to do more research if I was going to buy it. 

Bryce: [00:31:00] Slowdown. 

Alec: [00:31:01] This is just like high level what I've found so far. Yeah, but the insurance restoration business continues to grow quickly. It's expected to go from 850 mil to $1,000,000,000 in revenue. So two very different stories of the two underlying businesses. But here's the thing, Bryce. Here's where it gets interesting. The commercial construction business isn't profitable. It lost $19 million last year. The rest of the business made 138.4 million in ebitda. But then, because the $19 million gets wiped off that by this unprofitable business unit, the final ebitda was 119 million. So reducing the size of the commercial construction business, reducing the revenue there, will actually improve the company's profit because they're making less of a loss. 

Bryce: [00:31:56] Yes. 

Alec: [00:31:57] And so even though revenue is going to go backwards this year, that's what the companies forecast. I think profit will go up from 119 to 128. And so that's an interesting business. That's an interesting story. If it's just like we're cutting our losers, we're going to take the revenue hit, but we're going to be more profitable. 

Bryce: [00:32:15] What's the long term thesis for this, though? 

Alec: [00:32:16] Like climate change 

Bryce: [00:32:18] Yes, climate change. You're betting on the fact that more and more people are going to suffer from catastrophic weather events. 

Alec: [00:32:26] The thesis would be something along the lines of these guys have entrenched relationships with all these massive insurers. In short, it's hard to disrupt that because insurers don't want to be dealing with lots of smaller providers in different localities. All these insurers are national players, and so they want to be dealing with a national restoration partner. So someone would have to have meaningful scale to then challenge for their contracts. There would be other players out there and then top line, the amount of work is going to grow because the world has been slow to deal with climate change and there's just generally like a bigger population. And this isn't just like climate related disasters. This is all just also just like day to day insurance stuff. 

Bryce: [00:33:12] Yeah, yeah, yeah. 

Alec: [00:33:13] Houses burn down, floods. 

Bryce: [00:33:14] It's not just been wiped out by a flood. 

Alec: [00:33:16] Yeah. So then you make a claim to your insurance company that can't call these guys and they fix it. Yeah, well, yeah, it heals, and you get your window repaired, stuff like that. So, yeah, that's a company that I hadn't heard of before. Profitable, growing, meaningful double digits. Few little internal tweaks in its business. Interesting. So that's one bring to the table. 

Bryce: [00:33:42] Nice. All right. So that one was John Lyng Group ASX ticker JLG. Moving down the market cap size. We've got 200 million market cap Coming up next. What have we got? 

Alec: [00:33:55] Yeah. LGI Limited ticker. LGI. So I had some work in the waste industry. Well, I worked for Coles but was exposed to the waste industry and I find it fascinating. There's money in landfills. I'll tell you what, this company is making landfills greener. 

Bryce: [00:34:13] Planning growth? 

Alec: [00:34:15] No. So founded in 2009, take a step back. Landfills. Well, when like organic matter, food waste, stuff like that breaks down in landfill releases methane. Yeah. Traditionally that just went into the atmosphere. Yup. Great. Great. Now, there are companies like LGI that are working to capture that biogas, and now they can also flare it less emissions. Yeah, or they can convert it to energy. Okay. Yeah. So that's what LGI does. They have solutions that range from biogas capture with ERF emissions reduction fund compliant flares. To the conversion of biogas to renewable power. And then they also use synergistic technologies, accompanying technologies like batteries and alternative energy offtake agreements to, you know, store the energy or divert it elsewhere. But but essentially what they're trying to do is use and monetise the gas being created by landfills. They currently have 26 sites. Eight biogas to energy or biogas to power. 17 where they flare up. But they get you get emissions reduction fund money because it's not being released into the atmosphere. So there's a a better environment. 

Bryce: [00:35:38] Where do they burn it? How do they burn it? 

Alec: [00:35:40] I don't know. I just get a lighter and. 

Bryce: [00:35:42] To some other gases released into the atmosphere or like, do you know what I mean? Like. 

Alec: [00:35:48] Yeah, you're going to have to. I just. I'm just telling you what I know at this stage. And then they've got a few other facilities, a number of them creating carbon credits and then also selling the energy 200 mil market cap. The founder is still the CEO. I love to say that. But here's what I found interesting. So they've got 26 sites so far, the company predicts. So there's 1100 operational landfills in Australia, 1100, of those they reckon more a little over 200 may be suitable for the bio gas solutions. Okay. So they sort of say an opportunity to expand meaningfully. And, you know, for a landfill operator, if they're just releasing the gas and then monetising it in any way, then it's a simple question of like, what's the capital cost to implement LGI? What's the ongoing opera operational cost and how much money do we make back? And if those numbers stuck, then it's, you know, you monetise monetising something that isn't currently monetised. 

Bryce: [00:36:57] Yeah. 

Alec: [00:36:59] So FY23 results for LGI revenue up 27% to 30 mil and profit up 35% to 6 mil, six and a half mil, having a look at their different revenue lines, all of them grow. So the money they made from energy generation up 42%, the renewable large scale generation certificates that they earn money which are the carbon credits up 14%, the revenue from that and then the infrastructure, construction and site management costs up 55%. So all their revenue lines are growing, which you like to say. Yeah, but I think it's just an interesting one. Like, as much as we all want alternative solutions for waste, the fact of the matter is a waste to energy facilities which are big in Europe are being built here, but they're expensive and they're not going to be a massive solution. And Australians suck at recycling.

Bryce: [00:38:03] Yes. Why?

Alec: [00:38:04] We genuinely suck at it. Yeah. And so that's going to be a handbrake on closing these landfills down. Yeah. So the fact of the matter is that here and companies like LGI are trying to make them greener. So it's an interesting one that I didn't know about. 

Bryce: [00:38:18] Love it to climate change. The mad stocks here. Yep. Long term climate to close out. We've got the smallest of the three with a market cap of only $14 million. 

Bryce: [00:38:31] What do we got? 

Alec: [00:38:32] So this one. Shout out to Andrew, my mentor, who interviewed the CEO of this company at Straw Man. So for Straw Man members, they probably have heard of this company. It's called Beam Communications. BCC, yeah, that was a knowing you have you heard of them. Really? Yeah. 

Bryce: [00:38:52] I don't know. 

Alec: [00:38:54] You remember it Straw Man. 

Bryce: [00:38:55] No. Yeah. It was until it paid service. 

Alec: [00:38:59] Yeah, it's private. You can only sign up like once every six months. 

Bryce: [00:39:02] Yeah. Anyway. Yeah. Beam. 

Alec: [00:39:05] $14 million company Micro-Cap. Tiny $11 million in revenue in 2018. $40 million revenue last financial year.

Bryce: [00:39:14] Wow. With a 14 million micro-cap. 

Alec: [00:39:16] Yeah so good growth so it grew about 60% of its revenue this year the company has forecast a similar growth rate this year. So growing pretty quickly, it's profitable. $2 million profit.

Bryce: [00:39:31] Love it. 

Alec: [00:39:31] Which means its price to earnings is seven. 

Bryce: [00:39:34] What does it do? 

Alec: [00:39:35] Great question. It does like satellite communications. So I think it's got some device that if you like. Yes, you're on a boat in the middle of the ocean you can call for help. And I think that's why it's sold off. So like what Its price to earnings is so small because everyone's like, aren't StarLink just going to come and eat your lunch? 

Bryce: [00:39:57] On that point, I watch a lot of boat videos on YouTube, so people are sailing. 

Alec: [00:40:04] Of course. 

Bryce: [00:40:05] Superyachts and also just people doing the solo travel around the world. A lot of them are talking up sailing. I love it. So I love the superyachts when they would do the Trans-Pacific. You know, it's a two and a half week journey. And in the middle of the Pacific, you obviously usually would have no reception for Internet. And they've all plugged in StarLink now and well, raving about it. Yeah. 

Alec: [00:40:30] So to build on that. Alice's parents, my partner's parents, they live in Forbes on a farm, they have StarLink and same thing. Mhm. They're just like they say it's epic. 

Bryce: [00:40:41] I think for his parents too as well. 

Alec: [00:40:43] And Bauer in Barrel. Yeah. And then I've been to a couple of rural weddings and StarLink has come up and everyone's like it's, it's epic. So yeah. 

Bryce: [00:40:55] StarLink is a song isn't it. 

Alec: [00:40:58] Anyway, is that related? 

Bryce: [00:41:00] Every time someone says StarLink, I have this song in my head and I'm just thinking it's probably knowing my luck. It's just probably the completely wrong song. 

Alec: [00:41:07] Starships You mean. 

Bryce: [00:41:09] No,I not starships.

Alec: [00:41:11] That is. I've googled StarLink song and there's at least six songs. 

Bryce: [00:41:16] Yeah, I've done the same. None of those ring a bell but anyway. 

Alec: [00:41:19] Star walking by little Nas X.

Bryce: [00:41:21] You know, I don't listen to that. 

Alec: [00:41:22] So anyway, so let's get back to Beam. So they they create, I guess like satellite phones is probably and they've got some other devices. But yeah, they're a satellite communication company. So, you know, rural mine sites and stuff like that. But these days, a rural mine site would be hooked up to the Internet with StarLink or something else. So I think the way that we're speaking about this company and the threat from satellite Internet players, because it's not just StarLink, there was that big British satellite company Oneweb and the French one, you'll start merged as like they wanted to create a company that would rival StarLink. And they've got both. Got one of them was geostationary. So big satellites further in orbit. And then the other was doing low earth earth orbit satellites, which is what? StarLink two So satellite Internet is going to become more and more of a thing, and it's going to be more and more of a threat for a company like Beam Communications. But if it's profitable, if it's growing, and if it's trading at a seven, like at some point, every company becomes worth buying. Yeah, and I'm not sure if this is it, but even if I was sure, we wouldn't be giving advice. But it's an interesting one, just purely from the financial story, I think. 

Bryce: [00:42:35] Yes, super interesting. 14 million micro-cap. Okay, year to date, down 26%. It doesn't actually have a lot of movement.

Alec: [00:42:41] Well, yeah, I guess so. 

Bryce: [00:42:42] So yeah, yeah. Nice Ren. So just to recap, they're all of these companies have just come through broad raiding that you do throughout the week and you create your own watchlist, I guess, and this is the highest level of research that you'll do before actually then. 

Alec: [00:43:03] The highest level.

Bryce: [00:43:04] Right? 

Alec: [00:43:04] Like high level, not the highest level is in like the most advanced. 

Bryce: [00:43:09] That's what I mean. It's like it's high level getting on the standings. Yeah exactly.

Alec: [00:43:13] What is the company do are they are the numbers interesting. Yeah. Is it worth exploring. Is it growing. Because what I want to do, what I'm working on with Andrew and what I'm sort of I guess doing in my own time as well. And I think what a lot of people are trying to do is just find really interesting companies that have a long growth. Potential ahead of them like a and then a managed by good teams that will realise that growth like at its core, that's what investing is all about. Stripped back the numbers and the jargon and the data and the charts and all we're trying to do is find great businesses and then like a leech, attach ourselves to them and join them for the right.

Bryce: [00:43:56] Interesting. Tonight they're all Australian companies, either home country bias or just you're writing a lot of Australian literature, surely.

Alec: [00:44:04] A mantra to find companies to talk to Andrew about and he's pretty Aussie. He made the point when we first spoke that there's so much opportunity in Australia, like there's thousands of listed companies in Australia that you don't know and that are doing really interesting things. So it's like until you.

Bryce: [00:44:24] Exhaust. 

Alec: [00:44:24] That, Yeah, yeah, yeah. And you know, you have an informational advantage because you're in the market where most of them are. Yeah. Yeah. 

Bryce: [00:44:31] Nice. Well, I'm looking forward to getting Henry back in the studio. Stay tuned. He should be landing in Australia any moment, but that brings us to the end of today's episode. Thank you for joining, as always. And if you've just joined us for the first time, welcome. I hope you enjoyed that episode. We should mention that we have an equity Mates newsletter that goes out twice a week. You can sign up at equitymates.com/email and also you'll find in the show notes today a quick listener survey. We're trying to get your opinion on what we can do better, what you really enjoy about the show so that we can start planning 2024 to be even bigger and better than 2023 with the direction of the show into next year. Ren as always, it's great to chat about stocks. We'll pick it up next week.

Alec: [00:45:16] Sounds good.