The celebrations continue… We review another 10 Order Pad picks 🎂 Pt II

Candice: [00:00:10] Hello and welcome to talk money to me. This is your need to know financial podcasts. Thanks so much for joining us. I'm Candice Bourke. 

Felicity: [00:00:17] And I'm Felicity Thomas. And we're actually back for part two of our one year anniversary. Now, last week was part one of our review of order pad stocks we had in the first year of the show. It's been a tricky first year, right? So we started in September last year and we've ended in September this year. So it's been a bit of a wild ride. Today, we'll be giving you an update on the ten remaining stocks. So we have Ulta Beauty on On Holdings, Magellan Financial Group, Pinnacle Investments, Walt Disney Gaming Resources, which is now actually Deep Yellow Elder's Independence Group, Place Side and Microsoft. 

Candice: [00:00:53] That's right. Now, before we get into all of that, please remember, although, listen, I have financial advisors at Shaw and Partners and of course, our order pad episodes are the special ones that we like to talk about companies outlook earnings and such like. Please note that our discussion today does not constitute as personal financial advice, nor is it a financial. Products are always go out there guys, and seek your own independent financial advice before you make your investment decisions. 

Felicity: [00:01:18] And do your own research.

Candice: [00:01:19] Totally. Now, remember last week, Felicity, I mentioned that I was keen to see the full dusk fy22 report. 

Felicity: [00:01:26] Yes. So what was the report like? 

Candice: [00:01:28] Well, when we pretty much wrapped the episode a few days later, they release their full result, which was largely in line, you know, given with the pre-announcement they made back in July 2022, which were the numbers I was quoting in our last episode being part one. Now, they didn't give really an update for FY 23 guidance, which was also expected, given that this business is quite skewed towards the Christmas period being their biggest sales period. But pleasingly the first eight weeks trading update so far in FY 23 year to date is, you know, yielding pretty strong numbers and very robust of about 33% increase in sales on the previous period. So that's positive. 

Felicity: [00:02:08] That is positive. Good to see. 

Candice: [00:02:09] And look, it's tough in the retail environment. So a positive is a positive. Right. And the key takeaways for me, there's there's a few, but I'm just going to focus on a couple. The five year like for like sales average is up 12%, they're rolling out new stores. Remember that was one thing that I was looking for. So that's good. And they're optimising their promotions. So their Mother's Day sales strength is going really well. They're enjoying nice price increases, they're managing their cost inflation, they're managing their inventory and the rewards subscription penetration is going well. I'm a member. Hopefully other people have signed up to that. So it's important to remember that, you know, given the context and the environment, given the context of the markets and the retail sector, it is pretty tough out there. A lot of businesses are in the same boat, which is their cycling of really great COVID, you know, growth period. Now they're just coming back to Earth. So when you put it into context, dusk has reported pretty good results in my opinion. You know the stock actually rallied on that day about 9% and you know, like we mentioned in our order pad and sort of chatted about last week, so great position long term for growth. It's got a very addressable large market won't be surprise in five years time if the company's gained even further market share being already a category leader and continues to drive scale, you know, it's really capitalise like you said, I think you said also last week, it's it's great position for growth, no debt. I love that. No debt and paying a 7% dividend yield. So just wanted to give you that quick update, guys. 

Felicity: [00:03:49] So it's still a buy. That's good. We keep it on the order pad for now. 

Candice: [00:03:53] Still Abi. That's right. Not we haven't actually removed anything from the order pad. Now also last week we wrapped pretty quickly on CrowdStrike because it hadn't yet reported. So what's the update there? 

Felicity: [00:04:02] Yeah, so I guess a few key takeouts before we get into the second part of this episode. So as expected, there were really strong results in line with our high expectations. They actually put up a really another really strong quarter with a 4% revenue beat and 2% are beat solid margin outperformance and an increase to FY 23 guide in excess of the second quarter beat. I think most importantly is management sounded really confident on the business outlook. So like other cybersecurity businesses, CrowdStrike cited increased budget scrutiny but has not seen this translate into slip deals or longer sales cycles. Now the pricing environment is actually getting more competitive. We do expect CrowdStrike to stay competitive. Apples to apples. However, they continue to find success selling a broader platform of endpoint centric solutions than some of their peers. So for me, again, this is probably one of my top picks and I love cybersecurity because, you know, there's always. So many different hacks and it's so important in this new age. So all in all, it's a really solid result for one of our top picks. Now let's get into the rest of the stocks we pick. So during the month of February 2022, we added two more international ideas to our order pad. So Candace went with Ulta Beauty and I picked on holding. So Kenneth, can you give us a little bit of an update on Ulta Beauty? 

Candice: [00:05:22] Yes, definitely so. Just before that, a quick reminder, this business is a US based beauty wellness retail business, essentially the code being Ulta. And I was chatting about Ulta back when the stock was trading around sort of 360 US per share level. So since then the stock's, you know, rallied when we were first talking about it, Felicity up about nearly 8%. So that's always lovely. But I think the reason why if you unpack it, you know, it just sort of gave you the update on task. It is a pretty tough environment, but I guess the retailers that are managing their inventory balance sheet looks good and they're still growing in this tough environment when consumers are kind of watching their wallets, that signals to me this is a pretty unique business opportunity. So for me, the company pleasingly gave an update to the markets and the story is really stepping in the right direction. So in Q2 it was really broad based growth across all their sectors. Just want to highlight a few things. When you look at retail, you look at same store sales, hence why the market calls it SS. That was up 14.4%, which was above market expectations, which was sitting around 12 largely the same store sales growth was due to the strong demand in core beauty and wellness trends and product innovation. I guess being a female, I would argue, look, beauty products are are an essential item right now. It doesn't really matter what goes on in the household budget. You still need a lot of these staff to to just be a woman at the end of the day.

Felicity: [00:06:50] So I think we need them. 

Candice: [00:06:52] Well, that's great marketing, right? But, you know, you can see it in the numbers. Notably, three year same store sales trends is really accelerating. It's nearly up about 10% in the previous quarter. So management reiterated that they haven't actually seen a witness to the slowdown in the recent quarter. Spending trends, at least in the US, this is where it's based across all income cohorts held up well, but they did see some softness in June given the macro backdrop that we saw another aspect this which is similar to dusk. So if I compare apples to apples or beauty products and, you know, discretionary items like that, similarly, Ulta had membership growth of 10% in the period. So that's. 

Felicity: [00:07:35] Great, great double digit take that. 

Candice: [00:07:37] Also similarly to task ulta's rolling out in two different retailers in the U.S. So they've added 59 target shops. They launched their evening media and they're increasing their e-com order sales to 25% of the total sales. That's actually up 20% year on year. So all in all, it's a beat on expectations up and down the panel for Ulta. 

Felicity: [00:07:57] Okay. So that does sound really positive. So it seems like retail in the beauty segment is really holding up strongly spot on. 

Candice: [00:08:04] So I think in summary, I'm sort of more comfortable in that side of the retail sector and I think Ulta is well positioned to achieve the high end of its outlook. In terms of valuations, UBS actually have a price target of 530, that's up from previous, which was 500 and consensus because we like to look at that. They have an overweight call on the stock with a price target in 12 months to reach 483. So still really liking Ulta. [00:08:29][25.7]

Felicity: [00:08:30] Fantastic. And so my international pick was actually on holding so the code is own own on the New York Stock Exchange. It was pitched around 27.80 and it's currently around $20, so we're currently down about 28%. However, the results show a really strong outlook for the athletic footwear and retail space, with demand actually continuing despite ongoing macro challenges. So a few highlights for me where they actually delivered a big second quarter sales in a bit update. It also raised its FY22 sales and above our guidance to levels which exceed current street estimates. So tick there. The report shows some fundamentals are very strong and above expectations. So the beat and raise despite major inflation, global supply chain congestion, Russia's invasion of Ukraine China lockdowns as well as big swings. I'm not sure if you've noticed that, but they've been huge. Now, we think investors have been mistakenly actually lumping on on in with profitless growth tech stocks, which has really been hurting sentiment because net sales actually rose 67% year on year. So for us we're reiterating a buy and think on's continued focus and innovation performance athlete sports direct to consumer selling and maintaining its really premium full price brand image will lead to industry leading sales growth and earnings beat. So with that being said, UBS is 12 month. Price tag is $25. Consensus is 2850. The most bullish is actually $32 and bearish is $24. So even the most bearish outlook is higher than what it's trading at now. [00:10:11][101.2]

Candice: [00:10:11] Yeah, always good to say. [00:10:12][0.7]

Felicity: [00:10:13] Now Candace. Your second one for the second half is Magellan and this is actually the first sell. So what are your thoughts on Magellan now? [00:10:20][7.9]

Candice: [00:10:21] That's right. When I first put the sell thought on Magellan back in 22, it was trading around $21 levels and it last traded at 12.44 levels. So unfortunately, I got this call right now. To be clear, I wasn't talking about short selling the stock more, though. If I was a holder of Magellan, I just thought it was time to sell out, hopefully in profits. If that was your personal case, I'm still sticking with the conviction for that. So reason for the following reasons. Magellan delivered a soft fy22 result with about a 4% miss on our guidance in terms of its core funds management business. They reported base management fee growth was actually down 7% for the full FY 22 year, largely driven by fee margin pressure. That appears to be mostly kind of impacted in the institutional repricing. And also the new CEOs only really had about a month in the new role. So it's there's not really much information we can go off in respect to their strategic direction outlook. But, you know, maybe that will be reiterated or given some sort of update in the AGM. So look out for that. However, though a lot of these financial stocks, you know, they are really well capitalised. So what is good to say is the balance sheet is looking very strong, lots of cash, you know, on the books in that sense. And it's important to remember that fund managers, it's really hard to always be the top performing fund manager, right? Like I think only 3% or something like a silly stat like that stay in the top performing funds. But you know, since IPO back in 2012, it has been one of Australia's fastest growing fund managers. I'm just not a buyer at these levels and I think that the outlook is going to be tough for the next few years with likely lower fee margin pressures, particularly on the institutional clients and potentially more outflows. So consensus agrees with me with an underwhelming, I guess, sell valuation of $11.50 per share. So that implies a little bit more downside of about 10% on the current share price. [00:12:21][120.2]

Felicity: [00:12:22] Yes. So a bit more downside to come. So hopefully listeners got out of that one when we had the sell. It really has actually been a really tough time for fund managers and I guess you need to be quite selective on what managers you do have in the portfolio because there's so many great companies out there. Is it the right time to be investing in fund managers? I'm not sure. Now, my second pick here was actually Pinnacle Investment Management. Part II is the code on the ASX. They actually had a fairly positive report for their base fees driven by a mix shift. So what do I mean by that? So the combination of retail versus instow, domestic vast offshore internet affiliate slash asset class mix actually drove the base fee margin up 5.1 bips. So that's interesting. Although there's been a lower than average FUM inflows now, there has been expense growth, supporting strategies that should drive net flows. So hopefully things turn around in the future. Penny's Fund, subject to performance, has also increased from 36% to 31% year on year. I think because Pinnacle actually has a really good mix of fund managers. [00:13:30][67.9]

Candice: [00:13:30] Yeah, it's well diversified, right across different asset classes, well diversified. [00:13:33][2.9]

Felicity: [00:13:34] They've got our favourite metrics there. They've got Hyperion, which has been hit hard, but again, fantastic manager. So underlying trends I guess like the higher base fee margin, increased share FUM capable of generating performance fees and the Horizon two investments also have the potential to drive earnings ahead of expectations down the track. Now most brokers on this report have actually raised the price target on and I based on this update. So for me it's a bit of a hold at the moment. So UBS has a price target of 12.20 per share. Consensus is 12.41, the most bullish is 1470 and most bearish is 10.26. But for me, it's it's a hold we've got other investments that I'd rather put a bit more money into at the moment. [00:14:21][47.1]

Candice: [00:14:22] Yeah. And one of them being I think is my pick that we had. Next up, right, so recently Walt Disney. And when I'd say recently on the 10th of August, in fact, Disney posted better than expected results on both the top and bottom line. And a key standout for me was increased spending at domestic theme parks. So that's a positive for me. Yay, Disneyland is back where you. [00:14:45][24.0]

Felicity: [00:14:46] Although I actually did see an article recently where a family was gobsmacked about how much it cost them for a day out in Disneyland. But I guess that's good if you're a Disneyland shareholder. [00:14:56][9.5]

Candice: [00:14:56] Yeah. Monopolised business that family still went to. Disneyland is the point and they still paid the prices. And also the parks have increased their prices and they still stayed and had a great time. So and that's why I really like the business and I think this update in particular really reflects that. So quick stats for you, earnings per share was reported a dollar oh nine, in fact, versus consensus, which was $0.96. So beat and revenue came in at a whopping 21.5 billion versus about 20 billion expected. So Bob, check out the CEO actually wrapped it really nicely on the recent Q3 results earnings call. And what he said was this is me quoting him now, Disney Plus is still a young business and we're still learning more and more every day about the services ability to attract new fans to our powerhouse franchises, powerhouse franchises. [00:15:46][49.4]

Felicity: [00:15:47] So that is a good summary. [00:15:47][0.6]

Candice: [00:15:48] So I'm just gonna let that sink in. I think that statement in particular really summarises why I like Disney, and I think it's the reason why I'm going to hold Buy More Whole Buy More for the long term. So firstly, Disney Plus was only launched back in November 2019 and it's already catching up into such a crowded space. Subscriptions rose for Disney plus to 152.1 million during the third quarter, higher than the market expectation of about 147. Meanwhile, over at Netflix, pompom boom subscriptions are in decline since inception for Walt Disney. Back in the 1920s, the company has constantly reinvented itself to remain relevant for families. Started off in films, then parks, merchandise, online streaming. Now they're into sports. Where to next space? You know it's now. So Walt Disney Company is actually responsible for 47% of the sports hours watched by 18 to 49 in their demo of Q3. So their NHL deal I think is massive and it's actually increased ownership by 60% in 2021. And then the third point I think, which was really what he was summarising in that statement, is you can't deny that the board and the management team of Disney have just nailed the monopolisation of this industry. Their original content is very compelling. I think Star Wars and and everything that they're rolling out on Disney, plus they're winning all the awards as well in the media and film industry. And they also have their massive branding power and balance sheet to just buy up the next attractive franchise anyways. So for me, I think it's a great result. That's really the update is continue to watch Disney. UBS places a valuation to reach $145 per share in 12 months. Similarly, the market agrees with UBS core with an overweight recommendation pretty much around the same levels 139 and $0.50, but last traded price was 111. So, you know, since IPO, Disney were down about nine and a half percent. But I'm not worried given these levels. I think it's, you know, pretty much just by hold, whatever you can do, stay the journey. I'm a believer in the company, the outlook long term. Well, it's. [00:18:00][132.3]

Felicity: [00:18:00] One of those classics, right? Like an Apple or Microsoft that you just buy and hold, maybe take some profits along the way when we've got a really good bull market, but it's one that you don't want to sell out of. [00:18:11][10.6]

Candice: [00:18:11] Exactly. Now, this next company, in the same order, that episode Felicity pitched has been one of our best performing companies. So what is the update on Vimy Resources? [00:18:21][9.5]

Felicity: [00:18:22] That's right. So this one's been quite exciting. So since we pitched it, there's actually been a merger now. We pitched it at nine and a half cents. Vimy Resources was actually merged with Deep Yellow Ltd, so the new code is D while on the ASX. Now you should be up around 65 to 83% depending on when you bought it. A little recap of Vimy for everyone. They're actually a Perth based resource development company. Their flagship project is the Mulga Rock Project and it's actually one of Australia's largest underdeveloped uranium resources. And you know how much we're loving our uranium play at the moment? [00:18:58][36.4]

Candice: [00:18:59] We certainly are. So what actually happened with the merger? Give us the details. [00:19:02][3.1]

Felicity: [00:19:03] Okay. So Deep Yellow acquired 100% of the fully paid ordinary shares of Vimy. Now Vimy shareholders received 0.294 new, fully paid ordinary shares in deep yellow, which actually implied a valuation of 0.28 $0.05 per share. So this was a 35% premium. [00:19:23][19.9]

Candice: [00:19:23] Tony, you love how confusing sometimes the mergers are. So. All right, let's break it down. What's a real life example that we can all relate to? [00:19:31][7.4]

Felicity: [00:19:31] Okay. I had 30,000 Vimy shares, right? With a cost basis, $0.17. Now my return on the merger was 65%. I now have 8820 deep yellow shares with a new cost base of $0.58 and the current share price now is 1.8 cents. I'm now up around 83%, so why I think this is still a really compelling business and why I would actually be buying more. Is the uranium industry is really well-positioned for significant potential in value uplift with the sanctions on uranium as a result of the Russia-Ukraine war. There's been further rise in the spot price. Now investor sentiment towards uranium is also increasing, driven by the acceleration in the clean energy thematic and decarbonisation, which is so important. So the merger at this point in the cycle actually provides huge opportunity for significant value accretion. The merged group now has the largest attributable resource investor amongst its listed peers. It also has a really strong balance sheet size enabled by the merged group to also have increased funding, flexibility and decisively target tangible merger and acquisition opportunities. So watch this company. It's definitely a buy from me and a hope for our listeners, and I'll be buying some more. So it's trading at the dollar rate as we speak, and there's only one broker that actually covers it now, and Sean no longer covers Diplo or Vimy. The price target is a dollar 71, so bit upside here. [00:21:07][95.4]

Candice: [00:21:07] And that's an example when it makes sense for companies to join forces. Right, because now they can be a bigger player in that space. So next up in the next or iPad that we dropped, which was around April 20, 22, I was pitching Elder's Group, which is the Australian Agricultural Business. It was around about the $14.20 levels. Last traded price more recently is around 11 points. So yes, we're down about 17%, but I'm not worried long term in terms of the business, nothing's really changed my opinion. If not, maybe the outlook is a little bit better than previously when I was talking about it and the share price reaction I think is short lived. [00:21:45][38.3]

Felicity: [00:21:46] Yeah, and look, since he pitched Elders, the biggest news has been the outbreak of foot and mouth disease. [00:21:51][5.0]

Candice: [00:21:52] Exactly. So literally, like a week later in the early parts of May 2022, the news broke of the outbreak of foot and mouth disease or FMD for short. [00:22:00][8.7]

Felicity: [00:22:01] I love that timing, right? Yeah. [00:22:02][1.6]

Candice: [00:22:03] Such great time always happens to me. But what you don't know is you don't know at the time and you just, you know, stick to the reasons why you like the business long term. So broke out in cattle actually in Indonesia and then it was quickly spreading, if you remember, to other parts of the world, in particular Bali. But the disease is not in Australia and it's still not today in fact, but nevertheless it's a risk to the ag sector. So the share price naturally reacted. But like I said, I think the selling, you know, so far has been probably overdone. And I actually think it's a buying opportunity and let me tell you why. So firstly, the Australian state and Federal Governments are doing everything they can to, you know, in terms of a range of activities to manage the biosecurity risks posed by FMD. So they're doing things like tighter increased international border control measures for passengers and goods arriving in Australia from Indo. They're looking at providing vaccines, they're boosting biosecurity, education and awareness. Go to also remember that North America, Central America, Australia and New Zealand and some of the countries in Europe have not actually had FMD outbreaks in the last 50 years. So we are low risk in that sense and we are very good at keeping it at bay. If you look at the business, livestock represents about 22% of all elders fy22 total gross margin in fact, and animal health represents a further 5% and feed and processing around 2%. Now obviously if FMD did, you know, breach Australian borders, it would have a direct impact to the business model. But having said that, elders gross margin composition is reasonably well diversified, with around 70% coming from non livestock related activities, at least directly. [00:23:48][104.9]

Felicity: [00:23:49] Okay, that's interesting. So what do you mean by non livestock related activities? [00:23:52][3.9]

Candice: [00:23:53] I mean different parts of their business like fertilisation for example, other retail, ag cam, wholesale products and real estate. These are all key different generators for the company profits at the end of the day, which is basically largely not linked to livestock profits. So therefore, FMD is is low risk given the diversification of their revenues. And then finally, Felicity, I think what's really interesting about elders and and I think why the share price reaction has been short lived is because the upcoming winter crop season, combined with North American, you know, supply chain issues that we keep hearing about this should result in solid earnings growth for Aussie farmers over the next 12 to 24 months. So I think these conditions are bigger than then what the company can control, but they're well positioned to increase earnings over time. [00:24:45][51.7]

Felicity: [00:24:45] Yeah, and look, what I read this morning is that the Australian Bureau of Agricultural Resource Economics and Sciences actually released their September 22 crop report. Now first impressions were circa 9%. Upgrade to the winter crop forecast and another strong summer crop also forecasted. So I guess our first impressions are that the data bodes well at the Australian agricultural sector and elders, right? [00:25:10][24.8]

Candice: [00:25:11] Yeah. Hence why I'm sticking with the by conviction. So it's probably not fallen enough off its perch for me personally to to buy more because I think this overreaction, fear, investor sentiment, like I said, is temporary, I believe. So. I won't be surprised if the share price bounced back pretty quickly once calm is restored. I'm not alone in this belief. So consensus places an overweight call on elders to reach a 12 month price target of $16.14 levels. Obviously, our analyst at Shriram Partners is really bullish on the name. Feel has a valuation of $20 per share. [00:25:48][36.7]

Felicity: [00:25:48] Let's hope he's right. [00:25:49][0.5]

Candice: [00:25:49] Let's hope he's right. And last traded price was 11.50. So he's still not convinced. Guys, go back to the episode that we hosted with Mark Allison from Elders on our show a couple of weeks back because he really just lays out the land, you know, of why the business is a bit of a no brainer. They control what they can control. They're diversified and who doesn't love supporting Aussie farmers at the end of the day. [00:26:12][22.7]

Felicity: [00:26:13] That's it. And I think, you know, confidence in management is really important and a lot of confidence in him. Now my pick for this episode was actually Independence Group. So another resource pick code is ego. It was pictured about 14.28. It's currently around 12.78, so it's down about 10%. This has been a real good year because timely acquisitions have really met with commodity tailwinds. So woo to this one, a few highlights from me. Are they actually posted a record FWA EBITA of 717 million. The Tesla venture delivered an inaugural dividend to Argo of 71 million in June. This was this really strong first year contribution from the lithium joint venture delivering Argo a share of the net profit. So that was 177 million. These are very big numbers here. Now at their Kwinana, the first production of battery grade lithium hydroxide during the quarter was a really another important milestone, allowing for qualification processes to commence with respective offtake customers. So watch this space. Another interesting point for me was really that it completed the acquisition of Western areas via scheme of arrangement on the 20th of June 2022. Now the net assets of Western areas have been included in issues accounts from this date onwards, including cash acquired of 94 million. There was a bit of net cash outflows of 19 million for the ten days to 30th June 2022 and a nice little dividend of $0.05 per share, fully franked. So this is a safer bet. I think for me it's really kudos to the team of Argo for adding two very timely and commercial acquisitions in the space of two years and now banking the cash flow benefit and bankrolling nickel and lithium growth. So for me, it's a buy or to buy more, take advantage of this market volatility. [00:28:08][115.8]

Candice: [00:28:09] I think it's lovely that companies start rewarding shareholders right when when their play starts to play off with with a dividend. So that's great. So give us the rundown on valuations as it stands right now. Okay. [00:28:21][12.0]

Felicity: [00:28:22] So the share price target is about $14. Consensus is 1449, the most bullish is 21.3. So I hope they're right. And the most bearish is actually $8.40. But I think this is one of those companies kind of like I mean resources are a BHP or a Fortescue that I think will keep going from strength to strength. And a little story here is we had one client who's been a very long term supporter of Argo, they've actually got a cost base of a dollar are six now in the Kovac crash, it was as low as $3.20. So I think what an opportunity and I think this is really important to think about at times like this. It really does show that long term investing can pay off if you back the right businesses, quality businesses. [00:29:05][43.2]

Candice: [00:29:06] Exactly. And have conviction just to stay in the long haul. And they topped it up right in the COVID crash. [00:29:11][5.1]

Felicity: [00:29:12] They did top it up. Yeah. So their cost base is actually even lower than a dollar six. Yeah, but they had to buy more shares as you do because a lot of people like to buy. If companies continue to hit their milestones, they actually like to add to quality positions. You don't have to wait until there is a sell off to do so. It's a guess. It's just different ways of managing portfolios. Now, Candace, this is our last two stocks for the order pad. What did you pick? [00:29:40][27.4]

Candice: [00:29:40] Yeah, sort of say when you think about it, that we've had a year of adding stocks to the order pad, given it's one year anniversary. But the last one for me also was a large cap, you know, sticking to my sticking to my theme and what I like as an investor personally. So that was Microsoft we're up about. Nearly 5% when I first joined it to the autumn had. So I guess the recent update in Q4 that they gave to the market, which was announced in July. The stock did rally on the back of that announcement about 10%, so clearly the market liked what they had to say. So what do the reports say? Okay, well, quarterly revenue was up 51.9 billion, which is a 12% increase or 16% in constant currency. Microsoft like to kind of give a constant currency, you know, given that they are in lots of different markets. Earnings per share was delivered at 2.23, which is an increase of 3%, and Microsoft Cloud surpassed 25 billion in the quarterly revenue. That was actually the for the first time it was up more than 28%. So that all sounds pretty good, right? [00:30:49][68.9]

Felicity: [00:30:50] Yeah, it does sound great. [00:30:51][1.2]

Candice: [00:30:51] But in actual fact Microsoft turned out one of the slowest revenue growth periods since 2020. So it just goes to show that the party, you know, is overall slowing. And it really has been a tough environment for a whole range of businesses across a whole bunch of different sectors, even mega-cap apps like Microsoft. So the update for me really is that Microsoft is signalling macro pressures across most of its segments, but the Q4 June results and the FY23 importantly, that outlook was actually better than feared and it will likely result in sentiment tailwind for other software firms, which we're seeing across the sector. So for me, the outlook, it's reaffirmed as the company guided for double digits, revenue growth in both constant currency and us d even if Microsoft removed the adjective healthy from double digits growth comment. It all points to conclusion that the macro impact is actually going to be less than feared, which is good. So more than anything, I think that explains why the market rallied after the report. [00:31:55][64.4]

Felicity: [00:31:56] Okay. So you're really still keen on Microsoft? [00:31:58][1.6]

Candice: [00:31:59] Still keen on Microsoft in terms of valuation? Microsoft trades at a calendar year 23 estimate multiple 25 times, which is a slight premium to other large cap SAS peers out there, given it's, you know, got a durable portfolio, but I'm happy to pay a little bit more of that premium given it's Microsoft. And I think it's going to hold its position as the market leader in the sector. But don't underestimate some of its peers. Felicity, like a company I know you like Snowflake, for example, they reported very good numbers and the share price rocketed or, you know, caught up downhill. Snowball got bigger, so to speak, 23% on day of reporting. Do you like what I did there? The snow all got bigger. [00:32:41][42.2]

Felicity: [00:32:42] Oh, gosh. Now, what is the UBS price target then for Microsoft? [00:32:46][3.7]

Candice: [00:32:46] So it's still healthy at 330 over the long term being 12 months consensus agrees they place a buy rating with a price target about 327, so pretty much in line last traded price around 256 levels. So still still holding on. Still really like the business. No brainer in my opinion. Microsoft, right. Can't argue with. [00:33:06][19.8]

Felicity: [00:33:06] That. Can't argue with Microsoft. Well, my final stock is kind of on the other end of the spectrum. So Shore partners have also just picked up coverage on this one. So I'm very excited. It's play site. The code is why on the ASX now I've actually been in this company personally since around 33, $0.35 when it listed back in December 2020. So it hasn't been listed very long. I pictured at $0.63 now it's currently around 66, $0.68. So we're up a little bit about eight and a half per cent. It's had highs of a dollar 42 within the last 12 months. So it's been a bit of a wild ride. But I think with Play Side is they've really built a unique position as Australia's largest independent video game development studio with dual capabilities across their work from hire and the production of its own gaming IP. [00:33:56][49.7]

Candice: [00:33:56] All right. So what about some highlights since you first talked about Peel, why? [00:34:01][4.4]

Felicity: [00:34:02] Okay. So a few highlights for me are it's a founder led with an eye for quality and talent. So they've built up an enviable position as Australia's largest independent game development studio. They've also got some global aspirations now in sight, led by the motivated founder led executive team. And we're also very excited to say that we're actually going to have Jeffrey on the show soon, so wait for that episode. They've also leveraged their position as a destination employer to reach the scale and capability required to deliver a deep pipeline of original titles, as well as a contract project for leading international studios. So if we want to look at some numbers, we can expect both of these business lines can grow considerably, driving at 26%, KKR through to Y 25 with further optionality in potential success of the recently launched play side publishing division. So this is all really. Citing. I also think that it's a really rare opportunity to own a local incumbent with the early attributes of a significant developer at an undemanding valuation before it goes big. So this could be a really big winner in your portfolios. [00:35:11][69.7]

Candice: [00:35:13] So what I did notice in their recent report was that the pipeline looks pretty good. So what are your thoughts on the NY 23 pipeline and beyond, I guess? [00:35:21][8.2]

Felicity: [00:35:21] Yeah, so they're basically releasing a record 13 new gaming titles, which will drive an impressive 83% underlying revenue growth rate, which is a really good catalyst for FY 23. [00:35:32][10.8]

Candice: [00:35:33] That's great. So do we know what these new releases might be? [00:35:36][2.8]

Felicity: [00:35:36] Yeah. So like I said in the order pad previously, we've got The Godfather, Legally Blonde Age of Darkness, which are really exciting. They should materially outperform. Then we have the other side, right? Which is the work for hire deals with big name studios that validate players capabilities. And this would be your activation blizzard and two K games and they've also got a 15.7 million contracted backlog of work, which it will be substantially realised in FY 23. So for me, play is a buy or a buy more consensus is a dollar O3 bullish is a dollar 30 bearish $0.85 and shares and your price target is $0.90. So I guess even the bears have upside from current prices. So we see a lot of blue sky upside potential with play. It's a buy, buy, buy. [00:36:25][48.8]

Candice: [00:36:25] Buy, buy, buy or play, play, play. In fact. [00:36:27][1.7]

Felicity: [00:36:28] That's it. We hope you enjoy this episode before we sign off. The reporting season here in Australia has a now wrapped, so we actually wanted to give you a few key takeaways from what we observed this earnings season. [00:36:38][10.7]

Candice: [00:36:39] So these are just our thoughts and feedbacks. Obviously different research companies will have different opinions, but what we have generally noticed is that obviously companies have experienced a challenging prior 12 month period, but overall Australian corporates have actually fared pretty well, which is really good to say. [00:36:55][16.1]

Felicity: [00:36:55] Now many companies reported higher costs within their businesses and the majority chose to pass them on to consumers. [00:37:01][5.2]

Candice: [00:37:02] Exactly. Pricing power 1i1, you want to look out for those. And then the other point that we noticed was revenues held up relatively well as per, you know, the first comment. And if you break it down across the range, an increase of about 10.6% roughly in revenue versus 8% rise in cost more broadly. So hence the revenues are looking not too bad. [00:37:23][21.9]

Felicity: [00:37:24] Now cash levels did fall in respect to historical levels given the inflation interest rate rises and a tougher economic climate. [00:37:31][6.7]

Candice: [00:37:31] Overall, 80% of companies issued a dividend, which is nice, always nice to reward shareholders, but a fair few of them actually did cut their dividend about 30% of companies. So it does signal, you know, they're being smart with balance sheet at the moment. 

Felicity: [00:37:44] Yikes. So I guess a lot of companies were signalling a likely labour market to remain tight in the outlook, inflationary concerns to hang around and of course, supply chain issues. So the challenges won't stop overnight. So companies which can stay ahead of these issues will be rewarded in the long run. [00:38:01][17.1]

Candice: [00:38:02] Exactly. So that's a wrap for our show today. We hope you enjoyed it. This is part two of one year anniversary special order bad episode. Before we say goodbye, please remember although for less in our financial advisors at Shaw and Partners and of course Autopilot episodes are a lot of fun. Or we chat about lots of different financial figures and the outlook in the markets. Please remember that our discussion today, as always, does not constitute as personal financial advice, nor is it a financial product. 

Felicity: [00:38:30] And everything we've discussed is based on facts known at the time, which is the 6th of September 2022. We'd love to hear from you, so please feel free to reach out to us on our social media channels or send us an email which is displayed in the show notes below. Also, make sure you follow us on app, Talk Money to Me podcast for daily market updates. And it goes without saying please like share and review our show five stars, please. Until next time.

Candice: [00:38:56] See you then. 

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