Expert: John Sevior – Airlie Funds Management

Bryce: [00:00:15] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce, and as always, I'm joined by my equity buddy Ren. How are you going? 

Alec: [00:00:30] I'm very good. Bryce. I'm very excited by this interview for this interview. We're joined in the studio by one of the big names in the Australian financial landscape.

Bryce: [00:00:40] That's it. It is our pleasure to welcome to the studio. John Sevior. John, welcome. 

John Sevior: [00:00:45] Thanks, guys. It's a big rap. 

Bryce: [00:00:49] John founded Airlie Funds Management in 2012 after 17 years at Perpetual Investments, where he was head of equities. He has over 25 years of experience managing funds of individuals, super funds, public institutions and charitable organisations. And today we're going to be sitting down with John to unpack how everything unfolds at Airlie. The investment process. His thoughts on current market conditions. And then, of course, we're going to close out with some company specific chat so we can't wait to get stuck in. Let's do it

Alec: [00:01:22] Yeah. Now, John, you say it's a big wrap, but it is a fair wrap. You are one of the big names and we are very excited to talk to you and learn from your experience. But to start with, we want to go back to the very beginning of your investment journey and hear the story of your first investment. We generally hear a good lesson, or there's generally a good story that comes out of it. So can you take us back and start at the very beginning and tell us the story of your first investment? 

John Sevior: [00:01:46] Well, look, I have to dust off the old cranial cobwebs that so nearly 40 years ago that I made my first decision, which was was in first investment decision was actually where I'd climb some sense of propriety. And that was a company called Plum Rose Australia. Its antecedents were from another era, and their main business was canned meat. Think spam and canned plum puddings and cakes, self sourcing cakes. Okay, so that was the core business, and it was controlled by a Danish parent company and there was a minority listing in Australia. I was cutting my teeth in the in the stock market with a small stockbroking firm in Melbourne, and I was tutored in the art of fundamental analysis by a terrific old fellow there who used to. I used to smoke in the office and he used to model on butcher's paper, and he really showed me the basics of fundamental analysis. Anyway, Pomeroy's Australia can meats canned cakes, the newest product. They won the distribution rights for Yo Play in Australia. Hunka and flavoured yoghurt was a whole new market, and needless to say, from ground zero, the business grew. Like Topsy, it was growing at something like 30 per cent a month or a quarter. I can't remember what the time period was, but you could just even just some basic back of the envelope butcher's paper model, and you could say that this thing was really going to be a company maker. So I thought this actually fits with what I came to understand was a good, sensible investment, and I bought my first shares. And fortunately and unfortunately, the company was taken over within a few months of me make my investment and I made 30 or 40 per cent in in very short order, which was terrific for my sense of confidence and my bank balance as about a twenty one year old at the time, but terrible to have a big win. First up, because I probably I probably developed a bit of over overconfidence, but that was my very first investment based on the principles that I understood to be the things you look for and when you invest in companies, I love it. 

Bryce: [00:04:12] So, John, when you're starting out as a beginner investor, there's often a lot of noise and you know, you can feel overwhelmed as to where to look and what really matters and what doesn't as as an investor. So with all the experience that you've had in markets, what have been in some of your biggest sort of lessons when it comes to understanding what really matters and what doesn't? 

John Sevior: [00:04:32] Well, I think it's a bit of both. And I think the things that noise is is a big factor, increasingly so because there's and we talk about this a lot at work. You know, when Matt and I started out nearly 30 years ago, we actually thought we had some information advantage. But there's so much good material. You know, the stuff you guys do and others people have got access to some really, you know, sensible, considered, you know, views and opinions and and got general guidance in investing. But when you started, when I started out, there was no real noise. All I really understood investing to be about was individual companies and also. What lay that's what still matters to me. I've gone through, you know, various forms of various iterations of myself as an investor. But the hardest thing to do and I think the follies that I have learnt and reflected on in my time investing, it's so difficult to call markets. Call a time markets. And that's where a lot of the noise is, you know, markets are markets down. Who knows why they're up or down on any given day? Someone's got to give an explanation about it really isn't particularly instructive. So it doesn't mean I haven't many times over in the last 30 odd years tried to time markets, but I think that's that's a loser's game in the long run, dealing with the universal themes of fear and greed emotion. These are all human characteristics, not investment characteristics. But what I found the most sustainable way of investing over time and temperament obviously comes through. That's a human factor. Is investing in individual companies understanding what matters to you as an investor and finding the businesses I that you understand and be that fit your temperament and what you understand to really matter in investing. One and I was reminded this last week where we had a young 15 year old schoolgirl do work experience with us. And whenever we get young kids to work experience, they basically just trail us round for the week and whatever experience we have, it's a immersion programme and they basically do whatever we do. And at the end of the, we give them some little assignments to do along the way. Comparing company and Company B in an industry, and we give them a sense of how they are sort of template as it were of investing. And it's a bit of a checklist for comparing apples and apples within sectors. And I said at the end of the week, you know, what have you learnt? And she done some great analysis, and I said that she said the thing and this is me, my words for her explanation. I thought the stock market was this big, amorphous number. The index was this big, amorphous number. What I've learnt is it's a whole lot of individual companies, each with their own story. And as I said to her, I couldn't have summed it up better myself. 

Alec: [00:07:30] Yeah, that is great. Well, if you ever want to open up that shadow programme to two 30 year olds, would would love to put an application. 

John Sevior: [00:07:40] Well, unfortunately, you don't cut the meat the age cut off, 

Alec: [00:07:46] but love your enthusiasm. So, John, the last few months, I think if there was a word to sum up how investors are feeling, it's nervous. You know, we've seen the tech sell off. We're hearing stories about inflation and oil prices. There's a lot of reasons to be nervous. And over the last twenty five years that you've been in markets, there's been some nervous moments or some catastrophic moments that you've lived through and invested through the Asian financial crisis. The tech wreck the GFC Covid in 2020. When you look back in those moments and how markets got nervous and then fell. Are there any lessons from those moments that you sort of applied to investing today?

John Sevior: [00:08:27] I think they again, they're universal themes and they can come back to fear and greed, really. I mean, they are the most exciting times. The most exciting times in markets are when the lights are flickering and threatening to go out, and all of those events would fit that criteria. And they provide overwhelmingly the single best opportunities every cycle to deploy capital. And the other exciting time is when things get crazy, frothy, you know, read tech boom tech boom 1.0, where you work out on a an analogue kind of guy. So I'm really just toying with the concept of tech boom one 1.0 2.0 3.0. Whatever the whatever the fad, whatever the mania is, obviously the GFC was overleveraged businesses, property, bust, whatever the mania is at a time, that's an exciting time because it means that everyone's attention is being drawn to often a very narrow choke, and it creates a whole of other opportunities in other sectors. So within those points of extreme of extreme greed and extreme fear, the market really, it can be quite dull. And that's the time, in a general sense where you've got to prepare for those opportunities. And obviously there are opportunities that present relative opportunities that present themselves or excellent opportunities that present themselves every day, which you've got to be prepared for. And in fact, every day does present some sort of relative opportunity in between those periods of extreme market extremes. It's the time for doing you for doing the hard work. Yeah. 

Bryce: [00:10:11] So John, as a. Twenty one year old, he started with fundamental analysis on Butcher's paper since then, how has your investing philosophy developed over time and how would you describe it today? 

John Sevior: [00:10:23] I'd describe it as I'm a balance of probabilities guy, which doesn't really fit any normal characterisation of an investment investment classification. So it's not growth or value or gap. So we try not to be, and I personally try not to be pigeonholed at elite. I try and stay open minded and flexible, but without compromising the base principle. So I guess I started out with some pretty basic fundamental analysis, which really was the entry into understanding into the market, and I had a fortunate first experience. Then, of course, I forgot all of that in the in the, uh, the heat and froth of the early 80s mining boom was going to say I became a speculative investor there that they probably are unlikely bedfellows. I was a speculator punting on punting mining stocks. So I think I had a base base understanding and then I totally forgot it in the pursuit of a fast buck, as you do in your early 20s. 

Alec: [00:11:27] Look, we we joke that it's a rite of passage for Australian investors to have this speculative mining phase. Everyone, everyone has that one.

John Sevior: [00:11:35] Everyone they do, and it's appropriate to your age, right? I think it is a rite of passage in investing in. I've never thought of it as a rite of passage. I think it is in investing. And fortunately, I sold most of my stuff before the 87 crash, where the market fell, I don't know, 20 or 25 per cent in a day, and that was a real wake up call. And I thought, Shit, this is actually a serious game. It's not just it's not a walk in the park. And I think that's when I began to start reading and trying to educate myself as an investor. So I think I've evolved over time from being, I think the very first proper book I read was a book by Sir John Templeton, who happened to be a good friend through his church with one of the partners of the small firm I worked with. That was really about being contrarian and value investing. I think that's that characterise my style for a long, long time. I think I've evolved to be a much sort of more open minded investor, but the principles that I learnt then are the principles I've applied myself and in the teams I work with a perpetual an early since which go to your core fundamentals of of balance sheet and the quality business and the people that run the businesses. 

Alec: [00:12:54] I love the balance of probabilities by way of summing it up. There's so many strong opinions about how you should invest and there's merits to to all of them. 

John Sevior: [00:13:05] And maybe it's a bit of a cop out to some a balance of probabilities, God. But I do understand. I do marvel at people who have these incredibly strident views, and I think, Gee, I wish I could have that level of conviction. As I say, it's not a typical investment style, but I think it best characterises how I how I think about investing. Yeah, try to tilt the odds in life. Do you feel 

Bryce: [00:13:29] like you'd miss more opportunity, though, if you had that just high conviction, it's this way or the highway? 

John Sevior: [00:13:33] Possibly. Possibly. I couldn't say with any. Well, talking about conviction with any conviction or.

Alec: [00:13:45] So John, are talking about your investment philosophy. We had a look at Aly's investment philosophy and Liz difference, I guess, and a key thing that stood out was that you really start with financial strength before then looking at the quality of the business, the management and then perhaps our business is underappreciated. So let's let's start with financial strength because it's, you know, you hear it all the time. We hear it from all the expert investors we speak to. It's it's really the name of the game when you're investing. But what is financial strength main to Ali? And what in particular are you looking for? That sort of indicates strength.

John Sevior: [00:14:26] We're looking first at what could go wrong. If you can sort of guarantee the base case or the downside case, then often the upside looks after itself. So what can go wrong and what's the most quantifiable thing you can measure that can go wrong and that's to get into financial trouble? So the first thing we're looking to do is to find companies that we think on the balance of probabilities can survive most economic environments. And obviously, you think of all of those market events that you talked about earlier, they are all shocks not just to the system, but to individual companies. And they do sometimes imperil the the future of those businesses from a financial point of view. So we're looking at at a basic level cashflow cover of of of debt interest cover. You know, we might look at debt to equity where it's appropriate, but we're looking at cash flow, cover of debt and interest. Covid is there the basic metrics we look at and we've got a sort of a hurdle of five times interest cover, which we think is very conservative relative to the market in general. But it gives us the ability to sleep at night knowing that companies that we own are in a good financial shape. 

Alec: [00:15:41] There are so many financial metrics these days and so many ratios that get spun out of those metrics. Are there any that you think are just not worth the paper they're written off, 

John Sevior: [00:15:53] not wanting to judge other people's investment stars, in fact, talking about work experience, kids? One of the first things I do when day one, the first thing after I explain how we think about investing out our process is pull out the Morningstar or Mercer survey of 86 managers or whatever the number is. And say all of these 86 fund managers starting at Aardvark investments down to xylophone investments. They all think they've got a magic formula for beating the market. Yeah. So who am I to judge what wins? Well, the numbers will tell you what wins in the long run, but the merits of one investor's process over another. So these are the factors, or these are the metrics that have worked for us over a long, long period of time. We don't try and overcomplicate it. Our clients understand it. More importantly, we understand it. So I don't spend the time trying to judge other people's. What matters to them is really is what matters to us and whether it works. 

Bryce: [00:16:59] So another part of the early investment process, I guess, or philosophy, is to find quality businesses that are underappreciated and looking at some of the top 10 positions of the fund. There are some pretty big names in there, ones that very recognisable Comm Bank, Macquarie Wesfarmers. Why do you think the market under appreciates these big names and what? How does Ali think differently about these? 

John Sevior: [00:17:26] Well, our separate valuation from, you know, that's the last thing we look at. We don't look at valuation first. We look at we're trying to assess the quality of business first, and you look at those big names and you think, yeah, they are big names that anyone could buy yesterday, today, tomorrow. I think we all understand those businesses and they may not be appreciated in the here and now, but in the long term, this is a comment that's, you know, made today. Or we could have made it yesterday. We could have it tomorrow. But in the long run, we think and I think their track record has proven that there is an enduring quality to those businesses that has a compounding benefit to investors. So you look at Wesfarmers and it's the most recent specific advantage we we could refer to. We don't own the stock. For a few years, it had gone nowhere. Rob Scott came in, I'm not sure, with a mandate for change, but but certainly a mandate to improve shareholder returns. And we had some discussions and it was their own analysis that there was a great. Appreciate it. Business within Wesfarmers, and that was Bunnings, which was 65 up, which is I forget what the number was, the over half their earnings and it was buried in the conglomerate structure and we made a case for separating Bunnings out on site and we thought it was probably 30 per cent undervalued on a standalone basis anyway in their wisdom. Wesfarmers chose one to close Bunnings UK, which was an unmitigated disaster. So that's the capital allocation decision and two to spin out Coles, and it had the benefit of showing more of Bunnings to the market. And I think it's now about 65 per cent of group earnings, and the stock price was up about 50 per cent over a 12 to 18 month period, having done nothing for a period of time. Commonwealth Bank It's been universally disliked by the market relative to other banks in Australia for virtually my entire investing career. There's a great slide in every pack, any results pack where it's the it's the most favoured financial institution for one third of Australians that use financial institutions, which is you think of a business that has a third market share for what is effectively a not market share. That's a favoured. It's a favoured institution for what is effectively a commoditized product, financial services. And you think that's a special business? It's no surprise it's grossly outperformed all other banks over that period of time. And Macquarie, it's underappreciated because it's got some of the smartest minds in finance in Australia. They've got a great incentive system. It's a return based system. They invest in pockets of activity that we could never invest in on our own infrastructure all over, well, the world. They're finding and making new markets. They've got a history of of highly sensible and accretive acquisitions again in industries that we couldn't access in the general Australian market. So I think the big companies, but they've all got unique characteristics, which we think over the long run around appreciated by investors. 

Alec: [00:20:42] Yeah, it is one of the big learnings for me over the journey of doing Equity Mates has been a real evolution from when I started thinking that to make money as an investor, you had to find the unknown name and it was all about like being first to a name before the market realised it. And over time, I've realised that some of the best returns, especially over the last decade, have been big names that everyone understands. But the market might underappreciated or, you know, in in the US, we look at the big names in the market just didn't realise how much they could keep compounding.

John Sevior: [00:21:17] That's the magic, the compounding benefit, but don't for one minute think that we're not looking to unearth the dog in the wrong time. Tell mean you know where ASX? 

Bryce: [00:21:28] Yeah, yeah. 

John Sevior: [00:21:29] Where we are. Don't worry, that is our yeah. You know, that is our daily, weekly monthly annual mission where we are always trying to find the stock that no one else. 

Alec: [00:21:40] Yes. So we will get to some of those other names in a second. But before we do, we're going to take a quick break to hear from our sponsors and then we'll be back. Sir John, before the break, we spoke a little bit about Ali's philosophy and some of the bigger names in Ali's Australian shares fund would love to now turn, I guess, to your view of Australia's market more generally and then some other companies that early invested in or watching at the moment. So let's start broad looking at the Australian market and the way that we've started the year. What's your high level assessment of the market and how it's all going? 

John Sevior: [00:22:20] Look, I know this is going to sound either rather naive, disingenuous or silly, but I don't really spend my time thinking about the market overall. And I think I mentioned right upfront it's one of the great follies that I have indulged in many times over, either as an individual professional investor over the last 30 or 40 years. We spend our time and I spend my time looking at individual opportunities, and every day there is an opportunity. The market provides you with an opportunity. And I think this recent sell off has provided us with selective opportunities and those long, drawn out periods between the points of extreme excitement, market lows, market shocks and periods of extreme hubris and greed are really the times we spend doing the work that enable us to take advantage of opportunities in individual stocks when they when they present themselves. It's not. We're not oblivious to what's happening. In a macro sense. We read a lot about it because it's dangerous to invest in a in a vacuum or a bubble. So we're we're cognisant of it. But in our experience, good companies, the better companies and the savvy management teams find a way to win in not all environments, but most environments. So we really do spend 90 per cent of our time. I'd like to say 100, but but I'm sure we do spend time thinking about other things, but we really spend our time thinking about, Okay, where's the best opportunity to deploy capital in the stocks we like? And I think Emma quotes in listening in relation to her podcast that comment. And she does this a great slide. She she shows in our presentation about the gyrations in share price movements over the course of a year, or 20 or 30 or 40 or 50 per cent from top to bottom in a lot of stocks relative to the pace at which businesses change. And I think that really is the best explanation of how we think about it. The businesses change a lot less than the share prices move. 

Alec: [00:24:39] And Emma had a quote in that interview that I have definitely stolen, but I think it's probably my favourite quote from five years of doing this podcast, which is markets move quickly, but business has changed slowly.

John Sevior: [00:24:51] It's a great summary or characterisation of of how we think about things, 

Bryce: [00:24:57] and that is in reference to Emma Fisher's interview, I think was it early 2021? 

Alec: [00:25:03] It was in that brief period where we could get back in this country over a period of time. 

Bryce: [00:25:07] So if you haven't listened to Emma, obviously, she also works at Ali. Go and check out that interview because it because it was great.

Alec: [00:25:14] And if you can't get enough of Emma on Equity Mates, she also did an interview on your good company. So there's plenty of Emma to true optimism. 

John Sevior: [00:25:23] There's never enough of Emma 

Bryce: [00:25:25] As we said at the top of the episode, we love to get stock specific. So you've brought two stocks today Premier Investments and Nick Scali, both of which I assume would fall under that sort of thematic of underappreciated quality. So let's start with a which would you like to start with Premier and Nick Scali? 

John Sevior: [00:25:44] I want we start with with Nick. 

Bryce: [00:25:45] Okay, let's start with Nick. For those that don't know what the company does. Can you give a brief explanation and then talk us through the process, the investment thesis and why it fits the aile framework? 

John Sevior: [00:25:55] Yeah, Nick Scali is a is a medium to up-market furniture retailer. They have about 60 outlets in Australia and New Zealand, with a plan to grow to about 85 over the next few years. And earlier this year, maybe late last year, they acquired Plush, which is more down market chain furniture chain, which style integrate into their own business over time. So it's one of Australia's largest furniture retailers, run by Anthony Scali, one of our favourite, one of our favourite CEOs taking it through the process. The balance sheet is in pristine condition. It's got virtually net cash despite the purchase of of plush, which they paid out of their own, their own cash reserves and a little bit of borrowing. But that debt will get paid down very quickly. In terms of the business, it's it's got a strong position in middle to up-market furniture. I'm not quite sure where they're going to take plush in terms of its market positioning. It probably balances the profile to keep it where it is relative to Nick's businesses. But it's a very, very efficient operator. Earning return on capital in its existing businesses of over 30 per cent plus is a lower margin, lower returning business. And I think the aim is to improve the financial returns from cash and therefore of the of the broader group management is is a key part of of our process and people say, Well, what? What is, you know, what is good management? Well, good management. And I'd say there's actually some crossover here because good management manages the financial position. Well, good management, you know, manages the business and the business profile and the growth. But for us, it's a little more than that. And particularly in an industry like retailing, which is a very tough industry and its can be quite binary, the big winners tend to be relatively big relative to the losers. It's a highly leveraged game in terms of operational leverage. So it's sort of industry generally where skill gets it really does get rewarded. Reward and lack of skill gets punished. So for us, the mantra is retail is detail. And Anthony Scali and the team at Nick Scali, they're a team that really have a very strong eye on detail, and I think they really care and leave the leave the business. And I think one of the best things we get to do is over time is to meet management teams and differentiate between the teams that care and teams for whom it's it's just the job and people say, Well, you know, what's your age over 30 odd years and it's not necessarily assessment of business. I think we all know what good businesses are. We all know what a strong balance sheet looks like. It's really differentiating between people who are motivated and care about what they do versus just taking the paycheque. And Anthony Scali in the team, Nick Scali amply amply fit that, so I think it's underappreciated as well. I think it's the the market has got the forecast for the business declining over the next year or two. I guess coming off sort of what has been sort of accelerated brought forward sales due to COVID as people spent money, couldn't spend money, obviously spend it locally. But if you look at the store openings, the integration of Plus, we find it very hard for the earnings to go backwards over the next couple of years. So it it ticks all the boxes. In fact, it ticks all the boxes for us and it's one of our bigger positions in the early Australian share fund. 

Bryce: [00:29:44] What's your investment horizon when you do these sorts of pieces of analysis? 

John Sevior: [00:29:48] Three to five years? I think that's that's the time period which you can forecast with some reasonable degree of confidence. And we're drawn to businesses. It's not on the label in terms of our process, but we're naturally drawn to businesses where there's a high degree of predictability in their earnings and businesses where there's less predictability and are now allows us to pay or enables us to pay or buy into those businesses with a greater level of conviction. 

Alec: [00:30:16] I really appreciated the conversation around like what is good management, like what you're looking for? You mentioned that Anthony was your CEO, one of your favourite CEOs. I think maybe we should just make that a standing question to ask expert investor, who's your favourite favourite CEO? 

John Sevior: [00:30:31] And we've all got to. And he's not even my most. He's my all time favourite thing 

Alec: [00:30:38] to do is this time. 

John Sevior: [00:30:40] All my all time favourite CEO is a guy. Roger Brown from ABC Corp.. Oh yeah, got it. Floated on what is a relic of a bygone era? The Melbourne Stock Exchange second board back in the early 1980s when I started and Abe started, it floated on that nascent second board, and I've watched the company really just grow phenomenally over 40 odd years. And Anthony is one of the best blokes you'll ever meet self-effacing, modest, incredibly passionate and caring about bull bars and four wheel drive accessories. And he's grown it to be a truly global company over 40 odd years and apart from a penchant for for nice cars. He's virtually unchanged over that time, and he's just a ripping bloke and an incredible, incredible CEO who has built an amazing business in what is a very competitive local and global market. 

Alec: [00:31:46] Yeah, Abe gets a lot of love in our Equity Mates. Understandably. Yeah, I think, you know, if you build a multibillion dollar company and interest in nice cars is forgivable.

John Sevior: [00:31:58] But having said that, only one last comment. I know that he has. He may have more, but he's well and truly entitled to. 

Bryce: [00:32:06] Do we throw in worst scenario? Well, yeah, that's right.

John Sevior: [00:32:13] Yeah. Yes, there's plenty of that.

Alec: [00:32:16] I do like that, though, because the more we ask that question, you know, you mentioned some character traits there, and if we keep asking it, I feel like we'll start to see some overlap between some different names and their traits. Well, there's 

John Sevior: [00:32:28] an honesty as well. I think that's the other thing about the good management teams and CEOs that give you the unvarnished view of things. It's not they're not trying to tell you that, you know, black is white or grey or spin you a lawn that, you know, they're just very candid. 

Bryce: [00:32:47] I'm interested to know how someone like Anthony or the CEOs he's speaking to at the moment now responding to, you know, ever more sort of pressure and and demand from investors on the sustainability side. And you know, it's something that's really important to the Equity Mates community and looking for companies that are actively addressing that. So what do you sort of seeing from these CEOs? 

John Sevior: [00:33:09] I think the CEOs, the businesses that a lot of the businesses we invest in. And I think you've got a sense that we have a disproportionate tilt towards owner manager only managed businesses who have a vested interest in making their businesses. I mean, they're not naive to the way the world's going. They take a truly long term view about their businesses, so they're highly motivated to make their businesses truly sustainable. I think the average tenure of a CEO in Australia is four and a half years. I'm not sure that a lot of businesses are truly I'm not sure that ties up with a truly long term, truly long term thinking about the sustainability of a business. It might be, you know, saying what they need to say in the in the here now. But sustainability is is far more likely to find truly sustainable companies or companies that think about it deeply in in owned and managed businesses where they've got skin in the game. [00:34:11][62.4]

Alec: [00:34:11] Yeah, yeah. Yeah. Well, speaking of skin in the game and also I guess speaking about, you know, we've spoken about some of the best retailers in Australia. Wesfarmers for May is the quintessential example of just brilliant retailers. You mentioned Anthony Scully, but at the top of a lot of people's lists would be Solomon Lew. And the second company that we're talking about today is Premier Investments. So tell us a little bit about Premier for people who haven't heard about it before and why you like it. 

John Sevior: [00:34:43] Premiers got three main businesses. It's got an apparel business, which is probably considered by some to be the runt of the litter. But it's a good cash cow. It's businesses like Just Jeans, Jay J's Portmans and Dotty Jackie. It's got the sleepwear business, which is the Peter Alexander brand, which has been a phenomenal success through Covid and even beyond. And Smiggle, which is the, I call it, the kids accessories business, which I think is has surpassed most people's expectations for a long, long time and continues to do very well. So it's a mix of businesses. Solly Lew is the as the chair of the business, but he's got his hands in and around the business all the time. In fact, so much so that most Saturdays, wherever he is in the world, he'll be wandering around shopping centres, comparing and contrasting his businesses or premiers businesses with all sorts of other businesses. He's thinking about retail as much as I'm thinking about AFL or cricket or 

Alec: [00:35:53] not 

John Sevior: [00:35:55] investing a lot of the time, but other things as well. So he is talking about caring about the business that he owns 40 per cent of the of the company. So he's not only, you know, financially motivated. You know, he truly leaves retailing, which in the spirit of retail is detail. You do actually have to really leave live retailing. He's done it without. I think the businesses had net cash for almost all its listed life. I should mention the other business, the other investments it has. It owns about a third of Breville, which has been a true global success, which Premier bought many, many, many, many, many, many years ago and has made multiples on its investment. And it's got a high team, mid to high teens stake in Myer, and Sol's got a bit of flak for that as going. Off piste, and I'm not sure we're not sure what his long term plan is, but I think his general thinking is probably it's got a lot of customers, it's got $3 billion of sales. He knows a bit about property, which is is integral to retail businesses. Surely he could do more with those assets than the current management. 

Alec: [00:37:11] When you think about that Myer stuff like obviously way of looking from the outside in, but it feels personal in some ways, like it's it's intense how how passionate he is about it. Do you have do you worry about like getting like distraction or like taking your eye off the losing the forest for the trees? Maybe it's the right time we saw. 

John Sevior: [00:37:30] No, he has been involved in Coles and Myer. He's back in the old old old days. He was a big shareholder and Myer when it got taken over by Coles. I don't think it's a sort of sentimental or nostalgic exercise. I think he genuinely does see value and he's under water at the moment, but he truly takes a long, long, long term view. I mean, he bought Country Row bought into Country Road many years ago, and I think he made it could have been 20 30 times his money in that brambles been up again. That's probably it. It could be a 10, 15, 20 bagger. They're different businesses. I get it. Department stores, he'd say, you know, relics of a bygone era. But don't ever underestimate soul. It's it's it's a tiny diversion from the main game. Yeah. The other element, the part of management. It's not just so. Martin McGuinness did a terrific job before him and Richard Murray, who did a great job. JB Hi-Fi, one of our other favourite companies retailers. He's a great enthuse, a great savvy, enthusiastic CEO who who thinks out of the box and is he's in the well and truly cares camp as well.

Alec: [00:38:47] Yeah, the JB Hi-Fi Hi-Fi story is just an incredible story of a retailer that was able to change with the times like ten years ago. It was full of seeds and DVDs, and you just expected it to follow sanity and HMV and those retailers out the door. 

John Sevior: [00:39:03] They're classy operators and very self-effacing to boot, which I love. Yeah. 

Bryce: [00:39:10] Well, John, before we move to the final three questions of of our interview. Firstly, thank you so much for coming on and sharing your time. If our audience want to know more about what you do and what he does, what would be the best place to go? 

John Sevior: [00:39:22] I think to check the alley website nice and the the vehicle that people can invest in through us for us is the Airlie Australian Share Fund, and 

Alec: [00:39:32] they can do that privately like off market. But also there's a 

John Sevior: [00:39:37] list as a listed 

Alec: [00:39:38] yeah, and the ticker is HSF. Yes, yes, I can go check that out. 

Bryce: [00:39:42] So that's Airlie Funds Management dot com I. You put notes in the put the link in the show notes. But John, it's that time three final questions that we always ask so let's crack through them. 

Alec: [00:39:53] So the first one, John, do you have any books that you consider? 

John Sevior: [00:39:56] Must read The 40 book I read was a book by Sir John Templeton. I'm sure it's absolutely not in publication anymore. That was 40 years old. I forgot what it was about. The truly instructive books were one up on Wall Street and beating the street by Peter Lynch from Fidelity, who ran the The Magellan Fund strangely enough for 20 30 odd years and had an incredible long term track record. And the other book, which is not specifically about investment, but it really opened my eyes to lots of different ways to look at managing companies or running businesses was outsiders. I think it's William Thorndyke. Yeah, that's a great book. It's a small book, and it's it's eight case studies of CEOs who who just did things a bit differently. And in our game investing, you do have to do things a bit differently. And that's why the 86 managers in the in the survey with 86 different 86 or thereabout, different ways of special formulas for trying to beat the index, they're all trying to do things a bit differently. They don't obviously all win in the long run, but you do have to to do things a bit differently. And so that was a book that really helped me actually understand in the spirit of we look for quality businesses what what a quality business was and what underappreciated, more importantly, what underappreciated quality was

Alec: [00:41:27] the second question we like to finish with just thinking about the company itself. Don't worry about valuation or what is trading out or anything like that. What's the best company you've ever come across? 

John Sevior: [00:41:41] I think probably Abe, and not just because of Roger Brown, not just because of its phenomenal. Stock market performance, but because it turned the germ of an idea and a passion into a passion for a product and a service into a business it grew from, I can't even think what the market cap when it floated was 20 million dollars to. 

Alec: [00:42:10] It's now over three billion.

John Sevior: [00:42:12] Yeah, three or four billion dollars that the management has remained, you know, just incredibly self-effacing and humble. Over time, there's been virtually no hubris. They build a global business, and I don't think they've raised a dime of equity in that time. So you think about the things that we believe in as investors that alien what I believe in personally. Yeah, I think that's and it's it's now got a pathway, unlike many Australian business. And this is a tricky question because you think our it's just businesses that, you know, a dominant in Australia. The really, truly exponential returns come from businesses that can parlay something special in Australia to something special globally, and that's what they've been able to do. 

Alec: [00:42:59] Yeah, crazy. And then final question, John, if you think back to your early days as a 20 year old investing in plum roles Australia. What advice would you give your younger self? 

John Sevior: [00:43:13] Oh, that is a really tough question. I think start investing, get investing early, try and educate yourself. It's incredibly rewarding. And every now and then I'm reminded what an incredible privilege it is to do this job. When we had this young work experience student in the other day, and as I said earlier, what what did you learn? I learnt that the indexes is a whole lot of different stories. And I remember I love those stories when I started as a 21 year old. We didn't have a computerised system. We had a card system, and my job was to transcribe the profit results of nearly 300 companies on this card system every result period. And I learnt about 300 different names that I'd never, really I'd never really known about. So I think it's been a constant source of curiosity and learning and fun and obviously some mishaps along the way. But it's been rewarding financially. It's been rewarding intellectually. It's been rewarding in terms of the people I've met along the way. So get educated, get investing and also try and and you're not going to do it initially because you don't. This only comes with maturity. Try and understand what your temperament is, and as an investor, don't try and imply. Don't try and play someone else's game. What is your what is your temperament as an investor? 

Bryce: [00:44:45] Love that. Don't play someone else's game. Great way to great way to finish. So thank you so much, John, for your time today. I know that so much of our community would have taken a lot from that interview. I certainly did, and I'm sure ended as well. So we appreciate it. We will certainly be touching base with you at some point to invite you back on to get your thoughts on markets and how how everything's going. So thank you so much. 

John Sevior: [00:45:08] Thanks, guys. I've enjoyed it. 

Bryce: [00:45:10] Now, thanks for listening to this episode of Equity Mates, we love hearing from you, so drop us a line at contact@equitymates.com or even better, go to your podcast player and leave a five star review. Also, a reminder that the Equity Mates content train doesn't stop when you've run out of episodes to binge. We've got a brand new website, a Facebook discussion group where on Instagram, YouTube and slowly making our way as an influencer on Tik-tok. Well, that's Ren. So come and say hello and join the community. We'd love to welcome you. Until next time.