Reporting season is (finally) over. What did we learn?

Bryce: [00:00:03]  Welcome to another episode of Equity Mates, a podcast where we follow 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 our equity body, Ren. How are you? 

Alec: [00:00:30] I'm very good, Bryce. I'm excited for this episode, but I am also excited because reporting season is finally over. 

Bryce: [00:00:39] Yes, it's been quite the journey over the last almost eight weeks. 

Alec: [00:00:44] But you know what the good news is, Bryce. We're recording this on the 1st of September. American reporting season kicks off in. 

Speaker 1: [00:00:51] October, but we still.

Bryce: [00:00:53] Haven't aligned on. Is it earnings.

Speaker 1: [00:00:55] Or reporting season? 

Alec: [00:00:57] Yeah, well, you know, we've just got through full year results in Australia. Before that we had Q2 results in America and Europe and we're about to hit Q3 results. [00:01:07][10.5]

Speaker 1: [00:01:08] Yes. Never stop, never stops. [00:01:10][2.0]

Bryce: [00:01:10] Never stops. So big episode today. We're covering what we've learnt this week. No guarantees on whether or not it's quality or not, but what we've learnt. [00:01:19][9.1]

Speaker 1: [00:01:20] At. [00:01:20][0.0]

Bryce: [00:01:20] The end of reporting season, what companies have caught our eye. Ren and I go head to head. Stick around for that. And then we're just going to close it out with our overall takeaways from reporting season around the world. It's been a fascinating few weeks. A month or two, really. [00:01:35][15.1]

Alec: [00:01:36] I mean, it never stops. There's a firehose of information and we've definitely contributed to that firehose in trying to keep people up to date on the podcast, what companies are reporting, what we're learning from it. But I think at this point we need to take a deep breath and say, Alright, what did we actually learn? Not from a company level, but just overall. [00:01:53][17.0]

Speaker 1: [00:01:55] Yes, yeah, yeah. [00:01:55][0.9]

Alec: [00:01:56] And then we can. [00:01:56][0.4]

Speaker 1: [00:01:57] Take a break and we can move on. [00:01:58][1.0]

Alec: [00:01:59] We can't take a break because Equity Mates. But this is getting released on a monday. We're recording it on a Thursday because Friday morning we're going on a plane to Macao for prices. [00:02:09][10.2]

Speaker 1: [00:02:09] But yeah, by the. [00:02:11][2.1]

Bryce: [00:02:11] Time this is released, we would be back. [00:02:12][1.2]

Alec: [00:02:13] Yeah, I won't be here on Monday. [00:02:14][1.1]

Bryce: [00:02:14] We will be doing so anyway. You probably. [00:02:17][2.3]

Alec: [00:02:17] Won't be here. [00:02:17][0.2]

Speaker 1: [00:02:17] On Monday. You guys will get out. [00:02:18][0.8]

Bryce: [00:02:18] You got get an update soon enough. All right, Ren. Let's kick it off. So what have I learnt this week? [00:02:24][5.8]

Speaker 1: [00:02:25] What have you learnt? [00:02:25][0.6]

Bryce: [00:02:26] Firstly, the programme is done for Fin first and I'm super pumped for it. [00:02:29][3.7]

Alec: [00:02:29] Yeah. Yeah. I think I made a joke yesterday that you and Emma will be getting a LinkedIn endorsement for event management after after this event comes off. A lot of work has been going into it, but the. [00:02:43][13.8]

Speaker 1: [00:02:44] Programme's. [00:02:44][0.0]

Bryce: [00:02:45] Done. Speaker Line up is ready. If you want to have a look at it, jump online. 50 plus experts from around Australia coming to share their wisdom and insights. There's some epic sessions coming. Andrew Brown has one that I cannot wait to listen to Charlie Viola, Michelle Hepworth, Nick Griffin, you name it. Equity Mates dot com slash vinfast. It is powered by stake. So thanks to the guys over at stake for supporting it, tickets are selling fast. They're only 47 bucks. But there are plenty of discount codes out there. [00:03:11][26.2]

Speaker 1: [00:03:11] This year on. [00:03:12][0.5]

Alec: [00:03:13] And for investors of any level, we've programmed it. So there will be, I guess different streams throughout the day. Yeah, beginner investors, more sort of intermediate ETFs and managed fund investors, individual stock investors and then I guess and then. [00:03:29][15.8]

Speaker 1: [00:03:30] To the mood to the market. [00:03:31][0.9]

Alec: [00:03:31] And then also we've got a number of sort of business leaders and we're going to talk entrepreneurship as well. So a massive line up, more sessions than you could ever dream of. Yeah, well, it depends how big you dream, I guess, but that should be exciting. But Price, is that really what you've learnt? [00:03:48][17.2]

Bryce: [00:03:49] There's no Ren. There's a couple of other things. We're not out of the woods just yet, but I think you're going to touch on that, so I won't delve too deeply into that. Just a reminder this week of how quickly things can turn one another little start. I found 109 days is the number Ren us is in drought. Do you have any idea what I'm talking about? [00:04:05][16.3]

Alec: [00:04:06] Well, there's a heat wave across the northern hemisphere. China's in drought. The Yangzi River's dried up hydroelectric shortages. In Europe, we've seen wildfires, wildfires and drought. And then at least a couple of weeks ago, 100 million Americans were suffering a heatwave. I assume that's what you mean. [00:04:23][17.2]

Bryce: [00:04:23] No, but that is all the literal drought. The US IPO market is in drought. [00:04:29][6.2]

Speaker 1: [00:04:30] Oh, right. Okay. [00:04:31][1.3]

Bryce: [00:04:32] 109 days is the longest streak since 2008 of no IPO's. [00:04:36][4.9]

Speaker 1: [00:04:37] No at all. [00:04:38][0.4]

Bryce: [00:04:38] Over 25 million bucks raising 25 million bucks essentially. Who goes to an IPO for raising less than 25 million. Well, not a lot. [00:04:45][7.2]

Alec: [00:04:45] We might up. [00:04:46][0.7]

Speaker 1: [00:04:46] With hopefully more. [00:04:48][1.1]

Bryce: [00:04:48] But it's interesting to say that it's absolutely dried up over in the States. Yeah well and playing out here as well in Australia the drought. Yeah. Yeah. Longest run of consecutive days since 2008. [00:04:59][10.4]

Alec: [00:04:59] So what, what do we learn from that. [00:05:01][1.3]

Bryce: [00:05:01] If we were ever to IPO. You want to go when the market's hot. [00:05:05][3.2]

Alec: [00:05:05] Yeah well they talk about an IPO window and you know, a lot of those companies listed those are. Flurry of listings in last year because the IPO window was open, investors were willing to put money into IPOs. I guess the IPO window is not open at the moment. [00:05:21][15.4]

Bryce: [00:05:21] Very much not. [00:05:22][0.5]

Speaker 1: [00:05:22] There's an interesting. [00:05:22][0.4]

Alec: [00:05:24] History of IPO windows opening and closing, though generally what you find is there's a big IPO that resets investors expectations. So I'm pretty sure out of the 2000, 2001 crash, it was Google in 2004, they they IPO. And that sort of was like, oh, okay, we can breathe. And people talk about the Facebook IPO, at least in the tech world, the Facebook IPO in 2012 being that moment out of the 0809 financial crisis as the sort of reset and the window starts to reopen. So I guess what we should be looking for is the low reset IPO probably in a year or two. [00:06:05][40.9]

Bryce: [00:06:05] My bold prediction stripe would be that. [00:06:08][2.4]

Alec: [00:06:08] Well, that's not that bold. [00:06:09][0.8]

Bryce: [00:06:09] But I mean, like. [00:06:10][0.7]

Alec: [00:06:10] That's actually really not. [00:06:11][1.3]

Speaker 1: [00:06:12] Bold. Short Gopuff that is false. I would say. [00:06:18][5.8]

Alec: [00:06:18] The likely candidate stripe in China you've got Shan and Bytedance. Reddit is one that's often talked about. Instacart looked like they were preparing for a big IPO. Equity Mates. [00:06:30][12.2]

Speaker 1: [00:06:31] Equity Mates. [00:06:32][0.4]

Alec: [00:06:32] But they're probably some of the bigger names. Space X won't go public. Oh, it could. That's not a big. [00:06:37][4.9]

Bryce: [00:06:38] It might at some point. Anyway, we're in drought. [00:06:40][2.3]

Speaker 1: [00:06:41] Okay, what's really interesting. [00:06:42][0.8]

Alec: [00:06:42] I looking I had no idea. [00:06:43][1.3]

Bryce: [00:06:43] We're looking for a drought breaker, but what I really learnt this week ran and it took me back to a conversation that we had with Michael Francis around his theory of investing in companies that are loved by their customers. Okay, he said Tesla is an example that Apple is an example where customers just are almost cult followers of the brand, okay, regardless of what they do. [00:07:04][21.0]

Alec: [00:07:05] But okay. [00:07:06][0.6]

Bryce: [00:07:06] And it led me to do a bit of digging. Two weeks ago, I think we spoke about when we spoke about Disney a fair bit. [00:07:12][5.4]

Alec: [00:07:12] Have you seen the latest things? I last week they were talking about getting into sports betting. This week they apparently have a secret project called Disney Prime. That's not what it will actually be called. But they want to make a knock off of Amazon Prime. [00:07:24][11.4]

Speaker 1: [00:07:24] Why? [00:07:24][0.0]

Alec: [00:07:25] Well, membership services are good. [00:07:26][1.6]

Bryce: [00:07:27] Yeah, but then they're like, I feel like my thing here is they should like what I've learnt this week is they should stick to parks. [00:07:34][7.0]

Speaker 1: [00:07:36] Okay. I mean some streaming. [00:07:39][3.3]

Alec: [00:07:40] Some may argue that they have a bit of success with making. [00:07:43][3.8]

Speaker 1: [00:07:44] Movies aside from that stream. [00:07:46][2.4]

Bryce: [00:07:47] That's just streaming. [00:07:47][0.4]

Alec: [00:07:48] Had fun at Disney on Ice. [00:07:49][0.9]

Speaker 1: [00:07:50] No, you. [00:07:50][0.6]

Bryce: [00:07:51] Suck the streaming. It's too much of a chain ball and chain at the moment. Anyway, what I. [00:07:55][4.3]

Speaker 1: [00:07:55] Want that is a bad one. I, what. [00:07:57][1.7]

Bryce: [00:07:57] I wanted to look at was what's actually going on with their parks because last week or a week before we spoke about the profits that they'd made and I think we said Parks aback, someone yelled that in the studio, Yeah. [00:08:08][10.3]

Alec: [00:08:08] Yeah, yeah. We might have edited it out, but yeah. [00:08:10][2.0]

Bryce: [00:08:11] But what does that mean? So they turned a profit of 5.4 billion. Sorry. Rather 5.4 and profit of 1.6. What have they done, though? Because we've got inflation, we've got economic pretty tough economic conditions. There's still restrictions at the parks. So levels are still lower than pre-pandemic levels. Attendance is down 17%, but revenue is up 17%. And this is an example of good companies just getting it done with a customer base that will spend whatever. So what they've done is jacked the prices. [00:08:40][29.7]

Speaker 1: [00:08:41] On every day. [00:08:42][0.9]

Alec: [00:08:43] I think they call it yield management. [00:08:44][1.3]

Bryce: [00:08:45] Yield management, that's exactly what they call it. And so they've done these small little things where you now pay to come into the park. But then there's everything else. There's an app that you download. [00:08:55][10.0]

Alec: [00:08:56] Jenny, Jenny. [00:08:56][0.5]

Bryce: [00:08:56] Jamie plot. [00:08:57][0.3]

Alec: [00:08:57] 1707. [00:08:57][0.0]

Bryce: [00:08:59] $17 a day per person. And what does that give you? It gives you the ability to skip unreserved lines, which used to be free if you paid a little extra for a total ticket. Okay. But then if you want to get to the front of a reserved line, you then have to have Jenny plus pay an additional 17 bucks. Then there's merchandise. There's all the food that's there. Here's an interesting stat, though. 50% of their parks revenue comes from annual ticket holders. [00:09:26][27.3]

Alec: [00:09:26] Right. Okay. [00:09:27][0.5]

Speaker 1: [00:09:27] These are. [00:09:28][0.2]

Bryce: [00:09:28] People that buy tickets, an annual pass to Disney for $600 a. [00:09:33][4.8]

Speaker 1: [00:09:33] Year and go. [00:09:34][0.8]

Bryce: [00:09:34] Upwards of 100 times. [00:09:35][1.0]

Speaker 1: [00:09:35] A year, a hundred times. [00:09:36][0.9]

Bryce: [00:09:38] What they do, they are putting stories of. And these are most loved customers. And in fact, Disney kind of hate them now because they don't spend anywhere near as much money as a family who comes in once. [00:09:47][9.1]

Alec: [00:09:49] Right. Okay. [00:09:49][0.5]

Bryce: [00:09:49] And so they kind of trying to get rid of all these annual passholders and swing it more to people who just come once. Because customers who come once it's a life drain, they'll max out credit cards. They'll spend five grand an annual pass holder who comes in once after work. Literally, they're like, I'll drive home from work, run in, grab a ride, grab an ice cream, go home. [00:10:08][19.1]

Alec: [00:10:09] It's a strange luck. Sorry for a company to decide they hate a customer segment. [00:10:13][4.8]

Bryce: [00:10:14] I know. It's fascinating. Anyway, the reminder for me and what I learnt was that there are these companies that despite what's going on in the macro environment, there were interviews with these customers of people who are spending thousands and thousands of dollars to live out these life dreams, spending whatever it takes to go there. And and Disney are leaning into it hard. Now, you could argue, is it fair will this lost? But I mean, I think it will. [00:10:40][26.2]

Speaker 1: [00:10:41] It gives me the ick. [00:10:42][0.8]

Bryce: [00:10:42] It is pretty. Yeah. [00:10:43][0.8]

Speaker 1: [00:10:44] Also, it's like yield. [00:10:45][1.8]

Alec: [00:10:46] Management, all this stuff. It's basically like we're just going to target the wealthiest customers and just just clean them out and we'll just we won't worry about the rest of our customers. [00:10:57][10.8]

Bryce: [00:10:57] The argument Disney make in this instance, because, yes, I felt the same. They're just like supply is outstripping demand. So we're just going to do it until our customers turn around and say, it's way too expensive. We're not going to come to your parks. [00:11:09][11.5]

Alec: [00:11:09] Yeah, but there's a there's a certain level of demand in elasticity where prices rise. But your kids still want to go. [00:11:16][6.8]

Speaker 1: [00:11:16] Yeah. True. Yeah. [00:11:17][1.0]

Bryce: [00:11:18] Anyway, it's fascinating. It just reminded me of that convo we had with Frances, who's just like, you know, there's an investment thesis you can make. And I'm not saying this is one for Disney, but just thinking about those companies that can have this somewhat pricing power based on that sort of cult following of a customer base and, you know, the profit that they're making here versus the competition they're facing in the streaming business. [00:11:42][23.2]

Alec: [00:11:42] But you would argue that there's a level of probably not cross-selling is the right word, but like the only reason the parks can stay as popular as they are is if the next generation of kids all fall in love with Disney characters. And how do you do that? Well, you have to be where they're watching and engaging with content. And the Disney Channel on Foxtel or cable TV isn't going to cut it anymore because that's not where the next generation of kids are watching. Yeah. So you would argue that without a good entertainment offering and a streaming service, they're just going to become a Six Flags or something. [00:12:16][33.6]

Speaker 1: [00:12:17] Right. So anyway, that's what I learnt. [00:12:20][2.4]

Bryce: [00:12:20] Ren, what have you got? [00:12:21][0.6]

Alec: [00:12:21] Fascinating. So my big learning this week is that in 2022, good news is bad news. [00:12:27][6.3]

Speaker 1: [00:12:28] Okay. [00:12:28][0.0]

Alec: [00:12:28] And I think this really sums up the macro environment and where the market is at an overall level. Two economic data points were released this week, last week when you're listening to this. Job openings in the US rose in July to 11.2 million. [00:12:42][13.4]

Bryce: [00:12:42] So many more jobs available. [00:12:43][1.0]

Alec: [00:12:44] 11.2 million jobs were being advertised. Companies were trying to hire 11.2 million people. That being up is a great sign for business. Businesses have the money, you have the revenue coming in, have the money in the bank to invest in growth and hire new people. So that's a really good sign of the health of the economy. The second job, the second data point, consumer confidence. So for three straight months, consumer confidence was declining as inflation was high, oil, gas prices were high, all of that stuff. The index was at 95 in July and it rose to 103 for August. So businesses are still hiring. Businesses were trying to fill more jobs in July than in June, and consumers were more confident in August than they were in July. Two great data points, but the stock market collapsed on that news chase. And the reason is that in 2022, good news is bad news because what it shows is that the economy is holding up, that the interest rate rises that we're seeing are being borne by businesses and the consumer, and they're still trying to hire and relatively confident. And what that means is they can raise interest rates more. [00:13:54][70.2]

Bryce: [00:13:54] Well, yeah, it means that what the Fed wants, which is to cool things down a bit, it's not having the current measures that they've put in place aren't having the effect that they want. [00:14:04][9.7]

Speaker 1: [00:14:04] Yeah, well I think. [00:14:05][0.5]

Alec: [00:14:05] Inflation I mean I don't want to say it's peaked, but it feels like the rate of growth is slowing. [00:14:10][5.2]

Bryce: [00:14:11] But is it. It's obviously still. [00:14:12][1.0]

Speaker 1: [00:14:13] Higher than it's. [00:14:13][0.6]

Alec: [00:14:13] Still high. Yeah. [00:14:14][0.5]

Bryce: [00:14:14] And then yeah, the Fed would, would. [00:14:16][1.6]

Speaker 1: [00:14:16] Would like. [00:14:16][0.2]

Alec: [00:14:17] Yeah. So I think it's having the interest rate rise you could say are having some effect. But people have often said that the Fed and central banks around the world have this very narrow path to walk between managing inflation but not tanking the economy in doing it. And we may only be a few steps down that path, but at this stage they're still on the path. [00:14:38][21.2]

Speaker 1: [00:14:39] Yeah. Yeah. [00:14:39][0.5]

Bryce: [00:14:39] Well, Jerome Powell at the time of recording last Friday, Australian Time or US time came came out and suggested that it's likely the interest rate approach is probably going to be a bit more aggressive from now than they anticipated. And if you're wondering why your portfolio has taken a beating over the last few days. [00:14:57][17.8]

Alec: [00:14:58] That's why Jerome Powell said that the market, the American stock market fell 3%. Yeah, tanked. Just to take a step back, the reason why higher interest rates so the economy is good. You would normally expect when the economy is good, the stock market goes up because people are feeling confident about the state of businesses. But the two reasons why the stock market falls is because when interest rates go up, the cost of money increases. It's more expensive to borrow money because you have to repay more in the interest. And so that will lead to less economic activity. Consumers will spend less because they'll borrow less. Businesses will spend less because they'll borrow less. So that's number one. And number two is that valuations will fall. The way that you value an asset is the present value of future cash flows as interest rates go up. The discount rate that you use to value those future cash flows also goes up. And so the present value decreases. [00:15:52][53.7]

Bryce: [00:15:53] So is the lesson here for the weaker end that any good news should be a shot at the market vibe? [00:15:57][4.6]

Speaker 1: [00:15:58] Well, I. [00:15:59][0.5]

Alec: [00:16:00] Don't short the market good. And I don't think you. [00:16:02][2.5]

Speaker 1: [00:16:03] Should take the test. [00:16:03][0.3]

Alec: [00:16:05] No, I think it's just like this is the explanation. Yeah, this is as much as we like to be individual, like bottom up, looking at companies right now, the overall state of interest rates and the macro economy is driving market movements. And this is why we're seeing some positive economic data. But then the stock market falls. The interesting thing is the inverse. Like, if we say shocking economic data, do people think, oh, well, the Fed won't raise interest rates and then does the stock market rise? [00:16:35][29.8]

Bryce: [00:16:35] No, I don't think so. [00:16:36][0.7]

Alec: [00:16:36] I'd have no idea. [00:16:37][0.4]

Speaker 1: [00:16:37] Yeah, well, maybe too many good news. [00:16:39][2.1]

Alec: [00:16:39] Is bad news, but bad news is also depends. [00:16:41][1.7]

Bryce: [00:16:41] How shocking, because if it's too bad news, then people will be like, Oh, the Fed's gone too far. We've killed the economy, we're going to recession. But if it's kind of like on the nose, bad news or this is where we want it, stocks could be like, Oh yeah, this. [00:16:55][14.0]

Alec: [00:16:56] Is the kind of. [00:16:56][0.5]

Speaker 1: [00:16:57] Insightful economic analysis. [00:16:58][1.1]

Alec: [00:16:58] People come to Equity Mates for anyway. [00:16:59][1.1]

Speaker 1: [00:17:00] That's what we've learnt. That's what. [00:17:01][1.2]

Bryce: [00:17:01] We've learnt. Love it. We'll bring something next week if we want something all round. As we said at the top, reporting season is finally over. So here are ten companies that have caught our eye. [00:17:11][9.8]

Alec: [00:17:11] Let's start with just a couple of general ones and then we've grouped resources, we've got dairy, which we'll get to and then retail corner. You're the retail whisperer. We'll always get that. But two companies that caught our eye, zip pay the buy now pay later. Company revenue up 57% to $620 million. Not bad. Yeah, but they made a loss of 1.1 billion. The important thing is, like a lot of tech companies, they're cutting costs. So they've pulled out of the United Kingdom and retreating back to Australia and the US that that's the story that we're seeing across a lot of tech businesses. [00:17:51][39.8]

Bryce: [00:17:52] All right. Ren nine entertainment here in Australia, revenue up 15% to 2.7 billion, profit up a staggering 71% to 315 million. And they push push that dividend up 27% to $0.07. However, Stan, their subscription video platform made a $381 million in revenue, rising 22% in the year. But the costs associated with running the service, particularly for Stan Sport, which I don't even really watch, meant Stan ended up with a $28 million in earnings, down 28% on the year. [00:18:26][34.6]

Alec: [00:18:27] Well you obviously don't watch the Wallabies I don't. Or tennis. [00:18:31][3.6]

Bryce: [00:18:32] I don't really know. [00:18:33][0.9]

Alec: [00:18:33] Because they're the two sports that they. [00:18:34][0.9]

Speaker 1: [00:18:34] Have. Yeah. [00:18:34][0.4]

Bryce: [00:18:35] They go. [00:18:35][0.2]

Speaker 1: [00:18:36] I. [00:18:36][0.0]

Alec: [00:18:37] Have a gripe with nine entertainment. So for people. [00:18:39][2.9]

Speaker 1: [00:18:40] For the people I'm not familiar. [00:18:43][2.6]

Alec: [00:18:43] With nine entertainment. That nine is one of our big TV stations here in Australia. They bought Fairfax, which is our second biggest news publisher. Like newspaper publisher. I hate that they kept entertainment. [00:18:56][13.0]

Bryce: [00:18:57] Wait, you mean the word? [00:18:58][0.9]

Alec: [00:18:59] Yeah. It would be like if the New York Times called themselves New York Times Entertainment. [00:19:03][4.1]

Bryce: [00:19:04] Oh, I see. [00:19:04][0.4]

Speaker 1: [00:19:05] Yeah. Okay. Yeah. [00:19:05][0.5]

Alec: [00:19:05] All like Wall Street Journal Entertainment. Oh, no. Rather than Fox News, Fox Entertainment. [00:19:10][4.6]

Speaker 1: [00:19:11] It's like, well, what does it matter? I don't know. It's like a it's a leg. It's like a legacy. [00:19:15][4.4]

Alec: [00:19:16] Established news business. It's not entertainment. And I know. [00:19:20][3.9]

Speaker 1: [00:19:20] Like news can be entertaining and I support the the perception that news is. [00:19:25][4.9]

Alec: [00:19:25] Entertainment is one of the biggest reasons that the quality of news has deteriorated over the last couple. [00:19:30][4.8]

Speaker 1: [00:19:30] Of decades. All right. [00:19:31][1.0]

Bryce: [00:19:32] Why don't you write a letter to the board? [00:19:33][1.4]

Speaker 1: [00:19:34] Well, this is an open letter to the board. Just change it. Just. Just call it non or just call it entertainment. No. [00:19:41][7.1]

Bryce: [00:19:43] All right. Let's move on. Resources, Ren lines. Revenue was up 88% to 920 million, and profit up a staggering 244% to 541 million. Do the maths on that margin line is reaped in average price. [00:19:59][15.8]

Alec: [00:19:59] It's about 60%. [00:19:59][0.5]

Speaker 1: [00:20:00] Yeah. [00:20:00][0.0]

Bryce: [00:20:01] Not bad line of throughput, an average price of $60.30 per kilogram for its rare earth oxide in 2000 and. 21 to 22. And for those unaware, Linus is a rare earth miner, which is pretty, pretty important. [00:20:16][14.4]

Alec: [00:20:17] In like electronics and. [00:20:18][1.2]

Bryce: [00:20:18] Or small tech. [00:20:19][0.9]

Alec: [00:20:19] Stuff. Yeah, China has a massive market share in the rare earth metals market. Linus is one of the few producers that are not in China. So we've got a oil company, an iron ore company and a coal company to go in resources. And I think the story that you hear is a similar story in all of them, rather not as much in iron ore. But let's start with the oil. Woodside Energy After the merger with BHP oil assets, the biggest oil company in Australia now revenue up 132% to $5.8 billion. Profit price. Profit up 414% to 1.6 billion. [00:21:00][40.9]

Speaker 1: [00:21:01] Up $0.02. [00:21:01][0.2]

Alec: [00:21:02] Dividend. Well, I'll tell you. [00:21:03][1.7]

Bryce: [00:21:04] Broadly speaking, a. [00:21:05][1.0]

Alec: [00:21:07] Dividend up 263% to a dollar and $0.09 profit surge. So they also have a number of natural gas assets. Natural gas prices have been surging. There's also a contribution for the part of the year post the merger. But yeah, oil companies, I feel like we've said it every week that we've been doing these earnings wraps. So that's oil. Talk to me about iron ore price. [00:21:28][20.9]

Bryce: [00:21:28] Fortescue Metals Company that's spoken about quite a bit in the Equity Mates community, revenue up 20% to 17.4 billion, profit up 52% to 6.2 billion. But they, they have reduced their dividend to the tune of almost 50%, down 43% to a dollar 21. Now we say this every time Andrew Forrest Twiggy, the founder of Fortescue, he'll take home a whopping $2.34 billion worth of dividends for the past year alone after the iron ore miner announced better than expected profits and dividends. It blows me away every year. [00:22:05][37.1]

Speaker 1: [00:22:07] On how. [00:22:07][0.5]

Bryce: [00:22:07] Much he claims in dividends. And this goes to an episode that we did on Get Started investing about the value of owning shares over a long period of time. He's he's absolutely killed it. [00:22:20][12.9]

Speaker 1: [00:22:20] Yes. [00:22:20][0.0]

Alec: [00:22:22] He's built an incredible business. [00:22:23][1.0]

Speaker 1: [00:22:23] Unbelievable. Unbelievable. [00:22:24][0.9]

Alec: [00:22:24] So we've covered rare earths. We've covered oil and gas. We've covered iron ore. Let's talk about coal. Yeah, Whitehaven Coal. They were unloved and right now they're back. They're back at least for some people. Revenue up 216% to just shy of $5 billion, profit up 459% to just shy of $2 billion. They're paying a dividend after not paying one last year. You would think so after almost a 500% increase in profit. Yeah, $0.40 dividend. Coal prices are just. [00:23:00][35.2]

Bryce: [00:23:01] On a tear on. [00:23:01][0.5]

Alec: [00:23:02] Its head and we'll talk about where commodities are going a little bit later in the episode. So let's leave it there. Price We've got two dairy companies. I'll talk about them then. You talk about the retail companies. I wouldn't dare talk about your retail companies. [00:23:13][11.7]

Speaker 1: [00:23:15] But we we want to. [00:23:16][1.5]

Alec: [00:23:16] Talk about dairy in particular, because I think this is a story of two companies, one that got access to the US market and one that didn't. Now the back story for people who aren't familiar. The US has been living through a infant formula shortage after Abbott Nutrition had a contamination scare in a lab in Michigan. The US market is incredibly concentrated, so as a result basically the US government started giving emergency authorisations for foreign companies to send infant formula to the United States. One Australian company got that authorisation Bubs. One Australian company did not. Well, one New Zealand company didn't get that authorisation. A2 Milk. Now let's talk about their results. Bubs reported revenue up 127% to $89 million. A2 Milk reported revenue up 20% to $1.4 billion. Bubs not profitable. Still, even with this massive demand coming from the US, their infant formula sales did jump 177% for the year, mainly because of the US. They have a number of goat milk products. They actually grow as well. 36% can't say I've ever drunk goat milk but still not profitable. A2 Milk didn't get the US US authorisation, so their revenue didn't grow as much. 20%. They are profitable though. Their profit was up 52/% to 123 million, which is impressive. They can't sell infant formula in America. They can sell milk. And the US liquid milk sales was up 30%, which is impressive in Australia and New Zealand, milk sales are up 2%, not as impressive. But while Bubs is capitalising on the American opportunity and it should be said that other Nutrition's factory is now back up and running. And so there will be an interesting, I guess watch this space do Bob. Maintain an authorisation to the U.S. so you can no longer sell here. That's in flux at the moment. Bob's relied on America, A2 milk, relied on China, and with COVID and the loss of Chinese buyers sending product back to China, their business there really dried up. So now they're trying to really build their China business again. But an interesting stat Bryce the number of births in China fell 12% in 2022. Oh, wow. So when you're thinking about a company that makes the infant formula, that's not a good long term trend. No. Well, that might just be a blip, but yeah. Surprise at 12%. That's a big. [00:25:45][148.9]

Bryce: [00:25:45] Fall. That is a big fall. [00:25:46][0.8]

Alec: [00:25:47] So anyway, that's the story of two Australia and New Zealand milk companies. And now let's get to retail. [00:25:53][6.2]

Speaker 1: [00:25:54] One, actually. [00:25:54][0.4]

Alec: [00:25:55] Let's take a quick break and keep people in suspense. And then we'll hear from the retail whisperer. [00:25:59][3.8]

Speaker 1: [00:25:59] How are you? [00:25:59][0.2]

Bryce: [00:26:02] R.N. so too, actually for companies. But we'll start with two and then you and I are going to go head to head to close out retail earnings. So the first one, Wesfarmers, they own Bunnings, Kmart, Target and Officeworks. Here in Australia, massive retailer revenue up 9% to 36.8 billion. Profit was down though 3%. Still they managed to get a profit of 2.35 billion and their dividend was up 1% to 1.8. What contributed to this were Bunnings revenue increased 5% to 17.7 billion, earnings increasing just on 1% though to 2.204 billion. Kmart and Target were a bit of a drag. Earnings for the first half of the financial year were significantly impacted by COVID or COVID related disruptions, I should say inventory for those that picked up on my inventory last week, supply chain, all of the stuff we've been saying in the news with almost 25% of trading lost across those two and Officeworks also contributed, with revenue up 4.6% for the year to 3.16 billion. I love Officeworks anyway. Yeah, yeah, I love it anyway. [00:27:14][72.6]

Speaker 1: [00:27:15] Okay. [00:27:15][0.0]

Bryce: [00:27:15] Adore Beauty Ran. We interviewed the founder Kate Morris a couple of years ago, online retailer for all things makeup and beauty. [00:27:25][9.2]

Alec: [00:27:26] It's in the name. It's called Adore. [00:27:27][1.0]

Speaker 1: [00:27:27] Beauty. It's very true. [00:27:29][2.5]

Bryce: [00:27:30] Revenue up 11% to 200 million, profit up 181% to 2.4 million. A couple of key stats active customers defined as those that bought things in the last 12 months were 872,000, up 7% on 2021. Returning customers were up 31% on last year. So more active, more returning and returning customers contributed to the majority of their revenue. [00:27:56][25.7]

Alec: [00:27:57] Yeah, it's an impressive result for a company that's probably been pretty under love. [00:28:01][4.4]

Bryce: [00:28:01] Yeah, it's been hammered a bit. So good to say to Neil O'Shaughnessy who the girls over in you're in good company also interviewed. So if you want to have a listen to Teneo, head over to their podcast. [00:28:12][10.4]

Alec: [00:28:12] Well, let's just include both of those links in our show deal. [00:28:14][2.1]

Bryce: [00:28:19] All right, it's time for you and I to go. It's time for you to go head to head the ultimate retail battle. And that is, of course, Coles versus Woolworths. You're going to take the Coles corner? I'm going to take the Woolworths corner and we're going to see which major retailer has come out on top. [00:28:37][17.9]

Alec: [00:28:37] Yes, well, for context, price used to work for Woolworths. I used to work for Coles. That's why we're taking our respective corners the to the supermarket duopoly. [00:28:45][7.8]

Speaker 1: [00:28:46] Yep. [00:28:46][0.0]

Alec: [00:28:46] We're now far enough away removed from our employment where we can acknowledge that it's a duopoly. [00:28:51][4.7]

Bryce: [00:28:52] Yes. Although I would love to know what is going on with Aldi at the moment. [00:28:56][3.8]

Alec: [00:28:56] When we were there, they like they were eating or just before we were there they were eating into market share pretty meaningfully. They got sort of 10% and then they really stalled and I think they stalled around sort of like 12. [00:29:06][9.9]

Speaker 1: [00:29:06] To 14%. [00:29:07][0.5]

Alec: [00:29:08] And they haven't really been able to make inroads since then. [00:29:10][2.5]

Bryce: [00:29:10] Now the conditions where they're making inroads. So that's why I want to I want to say, yeah, I'm exclusively. [00:29:15][4.1]

Speaker 1: [00:29:15] Aldi of them. Really. [00:29:16][0.5]

Bryce: [00:29:17] Yeah, actually we have been for like four years. [00:29:19][2.4]

Alec: [00:29:19] I've actually stayed loyal to Coles. [00:29:20][1.1]

Speaker 1: [00:29:21] Really? Yeah. Which one? [00:29:22][0.9]

Alec: [00:29:23] Well, square. But I don't actually go to the shops that much these days. [00:29:26][2.8]

Speaker 1: [00:29:27] I'm still at Hellofresh. Oh, well, that's unsponsored. Anyway, let's do it then. [00:29:32][5.4]

Alec: [00:29:33] All right. So starting with market cap, Woolworths is a lot bigger. $44 billion to 24 billion. [00:29:39][6.3]

Bryce: [00:29:40] We also have a higher share price around, but that doesn't mean anything. Number of stores. Woolworths outweighs. We have at 1086 stores in the network compared to Coles 836 net revenue. [00:29:52][12.1]

Alec: [00:29:53] Woolworths did $61 billion in revenue. Coles did 39 billion. [00:29:57][4.5]

Speaker 1: [00:29:58] I was shocked at that. [00:29:59][0.9]

Alec: [00:29:59] At what? [00:29:59][0.2]

Bryce: [00:30:00] Just the difference. [00:30:00][0.3]

Alec: [00:30:01] Well, I mean, they've got a different amount of stores. [00:30:03][2.2]

Bryce: [00:30:04] They do, but I just didn't think it was so far apart. $20 billion. [00:30:07][3.8]

Speaker 1: [00:30:08] More for. [00:30:09][0.9]

Bryce: [00:30:09] Only an extra 200. [00:30:10][0.7]

Speaker 1: [00:30:11] Stores. [00:30:11][0.0]

Alec: [00:30:11] Well, I mean, to Woolworths credit, on a per store basis, they've got more revenue. [00:30:16][5.1]

Bryce: [00:30:17] Okay. Yes. [00:30:17][0.4]

Speaker 1: [00:30:18] All right. So Woolworths. [00:30:19][1.5]

Alec: [00:30:20] Revenue growth, 9%, Coles revenue growth 2%. [00:30:22][2.6]

Speaker 1: [00:30:23] Oh oh. [00:30:25][1.3]

Alec: [00:30:26] But profit. Now the profit number was skewed a little bit because Woolworths sold Endeavour. So I'm pretty sure this profit number is ex Endeavour. [00:30:34][7.9]

Bryce: [00:30:35] And for those who were unaware, Endeavour was out liquor arm, it had Dan Murphy's and BWC. [00:30:41][5.8]

Speaker 1: [00:30:42] Yep. Yeah. [00:30:42][0.4]

Alec: [00:30:43] So $1.5 billion for Woolworths compared to 1 billion for Coles, but similar margins. Yeah, but Woolworths grew profit X the Endeavour sale 1%, Coles growth at 4%. [00:30:55][12.1]

Speaker 1: [00:30:56] Okay. [00:30:56][0.0]

Bryce: [00:30:57] And the reason for that is because you guys passed on more inflation. [00:31:00][2.7]

Alec: [00:31:00] We didn't know your revenue grew at 9%. [00:31:03][2.1]

Speaker 1: [00:31:04] 2%. I know. Look, all I'm saying. [00:31:09][4.7]

Alec: [00:31:09] Is if you're growing revenue at 9% and you're only growing profit at 1%, that is a story of no operating leverage. Yeah, that's costs. Whereas Coles. [00:31:17][8.2]

Speaker 1: [00:31:18] Didn't we have absorbed. [00:31:18][0.5]

Bryce: [00:31:19] The costs. [00:31:19][0.1]

Speaker 1: [00:31:19] We know this whole process. [00:31:20][1.2]

Alec: [00:31:21] Coles didn't grow revenue that much, which means top line. They weren't charging customers that much more. But profit grew, which shows a disciplined capital management and cost cutting programme. [00:31:31][10.2]

Bryce: [00:31:32] All it means if you're listening at home is that Coles doesn't care about the customer and they've passed on all of the inflation to your back pocket. [00:31:38][6.3]

Speaker 1: [00:31:39] What are you talking about? That is not what was inside. [00:31:42][2.9]

Bryce: [00:31:43] So who comes out on top room? [00:31:44][1.0]

Alec: [00:31:44] Well, I mean. [00:31:45][0.6]

Bryce: [00:31:46] It depends what numbers. [00:31:47][0.6]

Speaker 1: [00:31:48] The. [00:31:48][0.0]

Alec: [00:31:48] Similar business is in different colours. [00:31:49][1.2]

Speaker 1: [00:31:50] Literally. [00:31:50][0.0]

Alec: [00:31:51] Well, yeah, that's why I said it. Yeah, yeah, yeah. Slap a red on a supermarket's Coles, slap a grain on it's Woolworths. I mean like there's different reasons to like the businesses, but they're very similar businesses. Yeah. Coles has a brighter future with Ocado and Veda on that. [00:32:06][15.2]

Bryce: [00:32:07] Okay. [00:32:07][0.0]

Speaker 1: [00:32:08] Well, that's great. [00:32:09][0.3]

Bryce: [00:32:09] Let's keep moving. Let's tend to a wrap up and just go through some of the key takeaways that we've that we've taken from reporting season. [00:32:17][7.8]

Speaker 1: [00:32:17] Yeah. [00:32:17][0.0]

Alec: [00:32:18] Okay. So we've listed a lot of companies over the last few weeks, but let's pull out some major themes, some of the things that we think are worth noting down and then talk about a few of the companies that talk to that faces. And I think, Bryce, number one, for me the overall takeaway was it was a really good time to be in the resources business. But there's a question at the end, is the party over? [00:32:43][25.4]

Bryce: [00:32:44] Well, this this I guess the results have been pretty massive. Um, the world's largest oil producer, Saudi Aramco, pumped out of $48.4 billion profit in three months or three. [00:32:55][11.3]

Alec: [00:32:55] Months, which was almost double what they did the year before. [00:32:58][2.3]

Bryce: [00:32:58] It's crazy. BHP revenue was up 18%, profit was up 173. [00:33:02][4.3]

Alec: [00:33:03] Yeah, they. [00:33:03][0.2]

Bryce: [00:33:04] Had about Whitehaven Coal, I've spoken about Fortescue, we've spoken about Woodside and we spoke about Ampol last week. All seeing increases in profit. Increases in revenue in some instances. Instances. In the hundreds of percent. [00:33:18][14.6]

Alec: [00:33:19] Yeah. So we saw bumper profits. We saw bumper revenues. Biden had a quote that Exxon makes more money than God like that. So we're saying conversations about a windfall profits tax on oil and gas companies in the UK and in Ireland. There is a feeling that these resource companies just made too much money in some circles, but we can say that they made a lot of money. The question now is, was that the peak of the cycle? Because for some commodities we're seeing them soft and we're seeing the price of the commodity, the oil price, the iron ore price fall. So between early June and mid-August, the price of oil has come off 30%, which is great for us as drivers of cars. The price of iron ore was over $200 a tonne at the start of June. It's now back about $100 a tonne. So it's come off massively as well. On an earnings call, Alumina Limited said that their prices peaked at about $398 a tonne. It's now about $330 a tonne. So we're seeing softening of some commodities. The one outlier is coal. Coal continues to do well with energy crises around the world. We mentioned earlier in this episode that China's hydro, hydroelectric power dry, literally drying up because they're rivers because of the heat wave in Europe. They're looking for substitutes for Russian natural gas. They expect European coal demand to jump 7% this year in pretty, you know, forward thinking climate focus Europe to say coal jump is interesting. So the coal price remains the outlier, I guess. But the general question for the commodities market is have some of the prices peaked and will we say will the earnings season we've just gone through be able to be repaid it? So that's the number one. It was great. But will it continue to be great for resources. [00:35:17][118.5]

Bryce: [00:35:18] To be, say, number two? And despite inflation, the consumer remains relatively strong. We've seen some interesting results from retailers around the world. We've spoken about Walmart. We did Home Depot all experiencing revenue growth. Profits were down for some of them, though, as the impact of inflation on their goods and services came through. But discretionary retail ran the likes of JB Hi-Fi here in Australia, a electronics retailer. Their revenue was up 4%, profit also up Temple and Webster Furniture, their revenue was up 31%, although I do recall that they have had a pretty shocking start to the year. [00:35:57][38.7]

Speaker 1: [00:35:57] Yeah. [00:35:57][0.0]

Bryce: [00:35:58] And I think that's something that we're going to see in the next reporting season. A lot of these companies who are cycling great numbers are not super retail group revenue up, Nick Scali furniture revenue up been forever, which we spoke about last week, revenue up and profit also up. [00:36:13][14.7]

Alec: [00:36:13] So they're discretionary retailers. And as you were just alluding to, there we are. We saw good results, but we are seeing warning signs for the consumer big time. So you mentioned Temple and Webster. [00:36:23][9.7]

Bryce: [00:36:23] Yes, Temple and Webster. They're cycling numbers from Covid. And we're also now starting to see the purchasing habits of consumers changing. We're moving away from discretionary into more non-discretionary or private label sort of products. Yeah. And not so much on couches for our for our loungeroom or fixing up DIY. [00:36:44][21.1]

Speaker 1: [00:36:45] Yeah. [00:36:45][0.0]

Alec: [00:36:45] So the discretionary retail is the ones that you just listed there, plenty of others around the world that will be the ones to watch because that will be where revenue starts to dry up. First we have we saw Dollar Tree and Dollar General over in the US report strong numbers or decent numbers and the discount dollar stores as as the name suggests Wal-Mart reported that they were seeing customers trade down in terms of the quality of their goods. So we are seeing signs that the consumer is not as strong. But I think this earnings season showed that that weakness hasn't come through in the numbers yet. [00:37:20][34.4]

Speaker 1: [00:37:21] Yeah. [00:37:21][0.0]

Bryce: [00:37:21] Yet. [00:37:21][0.0]

Alec: [00:37:22] So number one. [00:37:23][0.5]

Bryce: [00:37:23] Coming. [00:37:23][0.0]

Alec: [00:37:23] No, it was great. It was a great time for resources. [00:37:25][1.9]

Speaker 1: [00:37:27] Number two. [00:37:27][0.3]

Alec: [00:37:28] The consumer is holding on. Number three, tech. [00:37:32][3.7]

Bryce: [00:37:32] Tech. [00:37:32][0.0]

Alec: [00:37:33] And tech is pulling back. And there's plenty of examples of this from around the world where the party is over for some of those unprofitable tech companies. We saw it in their share price from sort of November last year, and some of them are down like 80, 90% now. But now in this reporting season, we really started to see it in the business numbers as well. So Amazon reported its second quarterly loss in a row. They're really focussed on cost cutting there. As we mentioned earlier today, pulling out of the United Kingdom, Robinhood announced they're laying off 23% of their staff. SNAP announced that they're laying off 20% of their workforce and they also are scrapping the pixie drone, which is going to be a sad day when we can't throw a drone up in the sky and get it to take selfies. Of us in China. Alibaba and Tencent are focussed on cutting costs. Tencent reported their first ever revenue decline and Tencent are also selling stakes in some of the businesses that they've invested in to free up cash. F45 and Peloton. The two fitness start-ups. Maybe you don't really call these guys tech, but they certainly call themselves tech. They're scaling back operations. They both fired the CEO and founder. Even Microsoft Bryce is cutting back on expenses and focussing on corporate travel and business expenses. The CFO said she would be watching like a hawk. So I think the third big takeaway is that it's going to be harder to get a job in tech than it was a year ago. [00:39:01][87.8]

Bryce: [00:39:02] Yeah, well, a lot to unpack from the reporting earnings season that we've just been through. I'm really looking forward to the next one. As I said, it is just around the corner in terms of the states kicking off. So we're going to take a bit of a breather over the next few weeks. And we're not in terms of podcast money, in terms of earnings. So it's great to chat stocks. A reminder, as we said at the top, fin fest, tickets are available Equity Mates dot com slash fin fest, they're only 47 points. It's pretty much the best investment that you're going to make in the second half of this year. Yeah. As markets are down. 

Alec: [00:39:35] If for nothing else, we're not going to share any Bucks Party stories on the podcast, but if you say Bryce at Fin Fest or you say Fin first, you might be able to get some stories out of us that. 

Speaker 1: [00:39:47] Alone deal with the ticket price you pay for. 

Bryce: [00:39:49] All our own. Well, great to chat as always and we'll pick it up next week.

Alec: [00:39:53] Sounds good.