Earnings season continues as we unpack a few companies that caught our eye

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 you going? 

Alec: [00:00:31] I'm very good. Bryce. God, there's a lot going on at the moment. 

Bryce: [00:00:34] There is so much going on. 

Alec: [00:00:36] Facebooks first ever revenue drop. Love it. Spotify killing. 

Bryce: [00:00:39] It. Yeah, I love that too

Alec: [00:00:41] F45 down. 70%. 

Bryce: [00:00:43] Equity Mates kiss of death.

Alec: [00:00:45] It was it it it wasn't in a day was yeah.

Bryce: [00:00:47] It, it died. 

Bryce: [00:00:47] Yeah. It's down 95% since.

Alec: [00:00:49] We'll get to that let's just go real lake results. Yeah. Fed raised rates 75 basis points again. Yeah. Sizzles in a trading halt. Yeah. 

Bryce: [00:00:59] Are you going to just go for everything else. Just taking the whole segment. It's like.

Alec: [00:01:03] There's so much going. 

Bryce: [00:01:05] On. Yeah, there is a lot going on and we're going to go through it all today. It's a big show. We're going to start with a market wrap and go around the grounds. There's plenty happening overseas in reporting season. We've had the IMF also give an update on growth. Then we're going to have a look at some of the unknown companies that caught our eye this earnings season. And then the second half of the episode, we're going to be joined by one of our favourite experts, and that is Nick Griffin from Munro Partners to get his thoughts on where we're at, both on the stock market and I guess some broader economic news as well. 

Alec: [00:01:36] Who went in who went to 40% cash in January? 

Bryce: [00:01:40] Yeah. Well, quite yeah. [00:01:41][1.3]

Bryce: [00:01:41] Well, implied managers. [00:01:42][0.7]

Alec: [00:01:42] Have gone to 40%. [00:01:43][0.4]

Bryce: [00:01:43] Cash. [00:01:43][0.0]

Bryce: [00:01:44] At one point for bill 40% cash in Jan. Absolutely called it and looking forward to chatting to him. As a reminder though, before we start, we are not experts, we're not the financial professionals and we are not licenced. So we're here learning just like you. And nothing on this podcast should be taken as advice. [00:02:01][17.1]

Alec: [00:02:02] Do not take financial advice from a podcast. [00:02:04][2.1]

Bryce: [00:02:04] That's it. Saran Let's kick off market wrap around the grounds. There's plenty going on. [00:02:11][7.3]

Alec: [00:02:12] It's earnings season, baby. [00:02:13][0.9]

Bryce: [00:02:13] Yes. [00:02:13][0.0]

Alec: [00:02:15] Well, let's let's start with the IMF because you got that is the first data point. And I actually have no idea what you're going to say here. Oh, really? Yeah. I'm bottom up. I'm only a company analysis. [00:02:24][9.5]

Bryce: [00:02:25] Oh, that's awesome. Well, the IMF has lowered their growth forecast for global GDP over the next year or so. That's it. [00:02:33][8.6]

Alec: [00:02:34] The start of this episode with such high energy. [00:02:36][2.1]

Bryce: [00:02:39] That's it around the ground. [00:02:40][0.8]

Alec: [00:02:40] Let's talk about earnings season. [00:02:41][1.1]

Bryce: [00:02:42] Yeah, let's talk about so. [00:02:43][0.8]

Alec: [00:02:43] Much has happened. [00:02:44][0.6]

Bryce: [00:02:44] You start. [00:02:44][0.2]

Alec: [00:02:45] All right. So let's start with Alphabet, the bellwether in the digital ads market that was apparently weak because of Snap's results. What weakness in the digital ads market? Google search revenue up 13%. YouTube revenue not as strong. I think it was up about 5%. The stock jump 8%. [00:03:04][19.2]

Bryce: [00:03:05] Yeah, I think it might be one of the only ones in the ad market that have actually it is. [00:03:09][4.5]

Bryce: [00:03:10] The ad market better. [00:03:11][1.7]

Bryce: [00:03:12] Which will get. Yeah so Microsoft they missed revenue and earnings but had quote shockingly strong outlook plus 7%. [00:03:19][7.6]

Alec: [00:03:20] 7%. [00:03:20][0.0]

Bryce: [00:03:21] Stock price was up as well. [00:03:22][1.2]

Alec: [00:03:22] Shopify remember this company is down 70%. So keep that in mind. Users up 19% to 433 million, paid users up 14% to 188 million. Share price up 12% as a result. Love it. What the yeah. What is it, down 70%. [00:03:41][19.2]

Bryce: [00:03:43] Well, everything's down, Ryan. Obviously, UBS, they joined the long list of banks to miss expectations earnings of $2.1 billion versus the expected 2.4 billion visa. [00:03:54][11.2]

Alec: [00:03:55] Now, this is a company that knows what's going on with consumer spending. Their profit is up 32%. Not bad. But most interesting quote from their CEO, Paul Kelly. Based on our numbers, we haven't seen any evidence of consumers pulling back spending in our markets. Yeah, it was actually I listened to the Spotify earnings call and Daniel EK had similar commentary as well and I haven't seen any consumer weakness there. It might be a yet conversation and some of the other companies will talk about will give us a view of what's going on with consumers. But it's interesting. Well, the. [00:04:30][34.8]

Bryce: [00:04:30] Big push for visa, there was everyone returning in a big way. Back to. [00:04:34][4.4]

Alec: [00:04:34] Travel. Back to travel. [00:04:35][0.7]

Bryce: [00:04:35] Yeah. So Rio here in Australia underlying profit down 29%, dividend down 52% and 53% of revenue is coming from China. [00:04:47][11.4]

Alec: [00:04:47] Came out important single customer risk. Rio also in the UK. We should be clear. Yeah, yeah, yeah. But yeah, 53% of revenue comes from China. China goes through a lockdown. That hurts commodity prices also hurts the key customers surprises that they came out and backed it though they said We think that China is going to be an advantage for us over time. So we'll wait and say there if 45 we. Flagged this at the top, down 70% in a day after a shocking earnings result. Revenue of 120 million. They forecast 255 million. New gym openings, 350. They forecast 1500. You can say, well, the start of a new gym openings plunged 70,000. [00:05:33][46.4]

Bryce: [00:05:34] Listed at $16 and it's now at $0.79. Mark Wahlberg is a was a shareholder. [00:05:40][5.8]

Bryce: [00:05:41] He still. [00:05:42][0.5]

Bryce: [00:05:42] Is. [00:05:42][0.0]

Bryce: [00:05:42] Small, smaller. [00:05:43][0.5]

Bryce: [00:05:44] He has sold down a fair chunk of his over between January and March. I think he got it. He saw the writing on the wall. [00:05:51][6.6]

Alec: [00:05:51] Sold it in like the $11 range. $9, right? [00:05:54][3.1]

Bryce: [00:05:54] Yeah. [00:05:54][0.0]

Bryce: [00:05:55] So now it's at $0.79. [00:05:56][1.0]

Alec: [00:05:57] CEO Adam Gilchrist, not the cricketer. [00:05:59][2.0]

Bryce: [00:06:01] Is also out on his way out. Yeah. Coke revenue is up 12%. Inflation helped. They were up 5%. [00:06:06][5.4]

Alec: [00:06:07] What consumer weakness? [00:06:08][0.7]

Bryce: [00:06:08] Yeah, forecast 8% growth. [00:06:10][2.0]

Bryce: [00:06:10] So again, some strong consumer. [00:06:12][1.4]

Alec: [00:06:12] Demand. Speaking of strong consumer demand, McDonald's now Bryce. Listen, today's numbers. We are from a retail background. We love same store sales, same store sales for Macca's in the US up 3.7%. Not bad. [00:06:27][14.4]

Bryce: [00:06:27] Decent. [00:06:27][0.0]

Alec: [00:06:28] Low inflation, but not bad outside the US, 13%. [00:06:31][3.6]

Bryce: [00:06:33] That's good. 13% for McDonald's. Yeah. [00:06:35][2.0]

Bryce: [00:06:36] Wow. And they and they moved out of Russia as well, which was a pretty significant. [00:06:40][3.9]

Alec: [00:06:41] Well, that wouldn't be calculated in the same store sales. [00:06:43][2.4]

Bryce: [00:06:44] Yeah. [00:06:44][0.0]

Bryce: [00:06:44] Okay. So Adidas, China has absolutely destroyed this company, not destroyed, but has had a significant impact. Adidas have cut revenue guidance by 12% and they've also cut earnings guidance by 30%, blaming lockdowns in China and a growing inventory. Yep so yeah not great for added. [00:07:06][22.3]

Alec: [00:07:07] Us so Bryce to to go metta Facebook revenue of 28.8 billion down from 28.9 billion this time last year first ever revenue drop in their history. [00:07:21][13.9]

Bryce: [00:07:21] Yeah pretty significant I think of all of them. This is the one that caught my eye. They are still adding users though. [00:07:27][5.8]

Alec: [00:07:27] Yeah. Up to 1.97 billion. Jason like a quarter of the world. [00:07:32][4.4]

Bryce: [00:07:32] Yeah, it's. [00:07:32][0.4]

Bryce: [00:07:33] Nuts. And then to close out Shopify, no earnings. [00:07:36][3.4]

Alec: [00:07:37] I think yet by the time people listen to this, they will have. [00:07:40][3.1]

Bryce: [00:07:41] That will come out. But they have announced that they're cutting 10% of their workforce and a reminder that source of revenue matters. Yeah, a company like Shopify. [00:07:50][9.1]

Alec: [00:07:50] I think Shopify is a classic example of a great product, great company with an unstable customer base, because when you relying on unprofitable e-commerce companies as your key customers, there's a risk when we go into an e-commerce winter like we have this year. And so it doesn't say anything about Shopify core product, but weakness in the e-commerce market when third flows through to them. And that's what we're saying at the moment. Mhm. [00:08:19][28.8]

Bryce: [00:08:20] So yeah, interesting times we the S&P has rallied about 10%, I think the Nasdaq has rallied about 13% since its bottom. [00:08:28][7.4]

Bryce: [00:08:28] So bottoms. [00:08:29][1.2]

Bryce: [00:08:31] In, in mid-June. Are we out. And I'm not going to make a call on that at all, but it certainly feels like that we're going through a reporting season. [00:08:39][8.1]

Bryce: [00:08:39] So it certainly feels like we're going into the reporting season and certainly feels like, well. [00:08:45][5.7]

Bryce: [00:08:45] There's mixed there's mixed messages coming through. So it'll all shake out in the next few weeks. [00:08:50][4.6]

Alec: [00:08:50] I just think it's really important that we call out the concept of a bear market rally in all of these big stock market declines in history. There are bear market rallies, sometimes known as a dead cat bounce, where the market goes up a little bit and then continues its decline. And generally, those bear market rallies sit around the 10% number. We're about 10% up from the lows. Yeah. So I think it's just important that some of these results are really pleasing. Some of the guidance for future quarters is also looks really good quote Microsoft's shockingly strong guidance but it's just a watch out that we've seen bear market. [00:09:29][39.4]

Bryce: [00:09:30] Lose an. [00:09:30][0.2]

Bryce: [00:09:30] Analyst who said. [00:09:31][0.7]

Alec: [00:09:31] Shocking it was yeah it was an out yeah it's not much else. [00:09:34][2.9]

Bryce: [00:09:34] To say. It's shockingly strong. [00:09:36][2.3]

Alec: [00:09:37] But it was like, you know, as a Wall Street analyst. [00:09:39][2.2]

Bryce: [00:09:39] Yeah yeah. [00:09:40][0.3]

Bryce: [00:09:40] And yeah. Stay stay tuned in because we'll have Nick later this episode of who I think is on that vibe of there's still there's still some some pain to come. [00:09:50][9.8]

Alec: [00:09:51] Yeah yeah. But maybe we're all wrong. [00:09:53][2.3]

Bryce: [00:09:54] Maybe. [00:09:54][0.0]

Alec: [00:09:54] Yeah, it's either good time. [00:09:55][1.1]

Bryce: [00:09:56] Of all of it. [00:09:57][0.7]

Alec: [00:09:57] Yeah. Anyway, one other thing that caught my eye. Bryce. Every asset class seems to be down. Even Australian property was down 0.02%. But Jordan's the sneakers. Yeah, down 30%. [00:10:11][13.9]

Bryce: [00:10:13] Wow. [00:10:13][0.0]

Alec: [00:10:13] Yeah. [00:10:13][0.0]

Bryce: [00:10:14] Based on, like what. [00:10:15][0.8]

Alec: [00:10:16] I. [00:10:16][0.0]

Bryce: [00:10:16] Think stock Starbucks. [00:10:17][0.7]

Alec: [00:10:17] Yeah, yeah, yeah. I just heard it on the podcast. [00:10:19][1.4]

Bryce: [00:10:20] Everything's down. [00:10:20][0.5]

Bryce: [00:10:20] Nice. [00:10:20][0.0]

Alec: [00:10:22] To myself, prepared to the market. [00:10:23][1.1]

Bryce: [00:10:25] Nice. Well, they got plenty happening. Next week. We'll have another market wrap from around the grounds as earnings season continues. [00:10:31][6.3]

Alec: [00:10:40] All right, Bryce. We covered a lot of the big names, the McDonald's, the visas, the Microsoft, the alphabet. But there's so many companies reporting at the moment. And we wanted to take a moment to talk about a few of the unknown companies that caught our eye. A few that I certainly didn't know about. I don't know if you've heard of any of these companies. No. And I'm pretty confident many in the Equity Mates community won't have either. We've chosen three different reasons. Not all of them. Good. First one, vertical aerospace. You heard of this one before? [00:11:13][32.2]

Bryce: [00:11:13] I haven't. I love it. [00:11:14][1.1]

Alec: [00:11:15] Up 177% in the past two weeks. That caught our eye. [00:11:20][5.2]

Bryce: [00:11:21] I'm sorry. [00:11:21][0.2]

Alec: [00:11:22] It was a SPAC merger. So we start there. Red flag immediately. It is a vertical take off electric zero carbon aircraft. What do you think? [00:11:34][12.5]

Bryce: [00:11:34] I love it. [00:11:35][0.8]

Bryce: [00:11:36] Okay. [00:11:36][0.0]

Bryce: [00:11:37] I think it's one of those companies that if it has if it figures out this technology, who knows where it can go? [00:11:44][6.8]

Alec: [00:11:44] Well, on the dive. Last week, we did an episode on Saudi Arabia's new city that they're trying to build Neom. Yes, I've been pumped with Twitter ads about it. They go which is where that the advertising, well, they're building it, but they want to have flying taxis, so maybe they need to connect. [00:12:01][16.2]

Bryce: [00:12:01] This is the wheelhouse. [00:12:01][0.4]

Bryce: [00:12:02] Yeah, but the. The. [00:12:04][1.9]

Alec: [00:12:05] Okay, let's talk about the aircraft as they've explained it. So the vehicle for will transport a pilot and up to four passengers travelling over 100 miles, achieving speeds of over 200 miles per hour, minimal noise, zero emissions. And if people are in front of the people, can't Google it at the moment. Think of it as like a like a plane with helicopter propellers. Propellers. Rotors. [00:12:32][27.3]

Bryce: [00:12:33] Yeah. [00:12:33][0.0]

Bryce: [00:12:33] Rotors. Normal rotor plane that then just go vertical when it needs to go up and down and flex horizontal when it needs to go forward. [00:12:39][6.2]

Bryce: [00:12:40] Easy. Yeah. [00:12:41][0.5]

Bryce: [00:12:43] You can picture it. It's just what you see in all those movies where you see these type of planes. [00:12:47][4.9]

Alec: [00:12:48] Yeah, sci fi movies. [00:12:49][1.1]

Bryce: [00:12:50] I find movies. [00:12:50][0.3]

Bryce: [00:12:51] That don't exist, but. [00:12:52][1.1]

Bryce: [00:12:52] The technology's definitely possible. [00:12:53][1.0]

Alec: [00:12:54] Yeah, well, I mean, the U.S. military can. [00:12:55][1.6]

Bryce: [00:12:57] Jump the landing. Yeah, yeah, yeah. [00:12:58][1.2]

Alec: [00:12:59] So the company still down 25% in the last year, as with so many of these specs, hasn't been good, but up 177%. So I was like, why? Why is that? 15th of July was a really good day for them. They had two big announcements. I want to tell you the announcements and then I want to I want to ask you to over on the right. [00:13:19][19.9]

Bryce: [00:13:20] Okay. [00:13:20][0.0]

Alec: [00:13:20] So 15th of July, American Airlines did the first payment for the first. They did like the first part of a payment for the first 50 of these aircraft. They've ordered 250. So the market, like the fact that someone was actually paying them for they say yes. On the same day Europe's leading business jet operate, a flying group also conditionally pre-ordered up to 50, quote, conditionally pre-ordered up to. [00:13:48][27.5]

Bryce: [00:13:48] Yeah. [00:13:48][0.0]

Alec: [00:13:50] So American Airlines put the first payment for the first 50 another 50 orders came through that brought the order book up to 1400 aircraft reportedly with a the value of if all those orders go through 5.6 billion. [00:14:07][17.3]

Bryce: [00:14:08] Yeah. [00:14:08][0.0]

Alec: [00:14:08] So a flying plane that doesn't exist yet, 1400 have been ordered over under. Will a 100 get delivered and paid for? [00:14:18][9.9]

Bryce: [00:14:19] Yes. Okay. [00:14:20][0.6]

Alec: [00:14:22] Follow up question. Will we get a chance of a ride in one? [00:14:24][2.4]

Bryce: [00:14:26] Maybe. I don't know if we'll get a chance to ride in this particular vehicle for. [00:14:30][4.2]

Bryce: [00:14:30] Okay, I have no. [00:14:31][0.7]

Alec: [00:14:31] Vehicles for. [00:14:32][0.4]

Bryce: [00:14:33] It. I have no. [00:14:33][0.4]

Bryce: [00:14:33] Doubt in our lifetime we will experience something. [00:14:37][3.3]

Alec: [00:14:37] Similar. Okay. Yeah. All right. Well, look, that was the first one that caught my eye. I love it. Anyway, let's let's keep it rolling. [00:14:43][5.8]

Bryce: [00:14:43] 000. Not a lot of revenue to date for those guys that. [00:14:46][2.8]

Bryce: [00:14:46] So of course, Hastings says it's still not a lot, around 177%. [00:14:52][6.2]

Bryce: [00:14:54] Wow. They go a lot of expectation. [00:14:56][1.7]

Bryce: [00:14:57] Oh, so a lot of expectation. [00:14:58][1.1]

Bryce: [00:14:59] All right. The next one, Coupang up almost 100% in the past two months here in the New York Stock Exchange ticker for Coupang, which is South Korean e-commerce giant is C, P and J. Also would caveat that vertical aerospace is also listed on the New York Stock Exchange a veto if you're interested. But Coupang is a little bit more established than vertical aerospace, $30 billion market cap, and they are the Amazon of South Korea. We have spoken about these guys very briefly on the show before. [00:15:32][33.3]

Bryce: [00:15:32] Yeah. Yeah, sir. [00:15:33][0.9]

Bryce: [00:15:33] And before we get to results, what the interesting thing here is that they seem to be one of the world's leaders in. Emulation. [00:15:40][7.0]

Bryce: [00:15:42] Yes, you could say that. [00:15:43][1.0]

Bryce: [00:15:43] And regulation. [00:15:44][0.2]

Alec: [00:15:44] So when you say they are the Amazon of South Korea, they are the Amazon of South Korea. [00:15:50][5.3]

Bryce: [00:15:50] Literally. So let's just quickly take a look at what we mean by that. They're an online retailer, the largest online marketplace in South Korea. Amazon vibes. They have a rocket delivery, which is same day and next day. Delivery for items ordered before midnight, delivered overnight similar to prime prime vibes. Then they have a rocket. Wow. Which is a membership very similar to Amazon Prime. They have coupang eights. Similar to over eights. They've got Coupang Flex, similar to Amazon Flex Coupang play the Netflix of South Korea, which. [00:16:24][33.6]

Alec: [00:16:24] Also comes free with your rocket. Wow. Membership which. Okay, bring in Amazon. [00:16:29][5.2]

Bryce: [00:16:30] Prime. [00:16:30][0.0]

Bryce: [00:16:30] Yes Rocket Fresh, which is a fresh fruit food delivery service similar to plenty of options both domestically here and over in the States. Yeah, Hellofresh comes to mind here. [00:16:42][11.5]

Alec: [00:16:42] I was actually thinking more like. [00:16:43][1.1]

Bryce: [00:16:44] You know, Laila's or milk. [00:16:45][1.0]

Alec: [00:16:46] Yeah, yeah, yeah. I actually don't know the business model there. [00:16:48][2.1]

Bryce: [00:16:48] And then Rocket direct they purchase foreign. [00:16:50][2.4]

Alec: [00:16:51] Goods it allows you to purchase. [00:16:52][1.3]

Bryce: [00:16:53] Similar to the Alibaba vibes that you can get wholesale prices on on large large items so look great emulation strategy if it works. Fair play. [00:17:04][11.6]

Alec: [00:17:05] I mean they've got a $30 billion market. [00:17:06][1.4]

Bryce: [00:17:07] Right now. [00:17:08][0.6]

Alec: [00:17:09] In a sea of terrible e-commerce results. We need to celebrate those that are doing a little less poorly. [00:17:15][6.8]

Bryce: [00:17:16] Well, 2002 until the 11th of May, they were down 66%, but since the 11th of May they are up 80%. So a bit of a rebound. Let's take a look at what has happened from that point in time. [00:17:28][12.2]

Alec: [00:17:28] Well, why was the 11th of May, the inflexion point down 66% year to date and then up 80% from there. [00:17:34][5.8]

Bryce: [00:17:35] The answer is Q1 results. [00:17:36][1.0]

Alec: [00:17:37] What up? [00:17:37][0.2]

Bryce: [00:17:37] Expectations customers 18.1 million, which was up 13%. Revenue of 5.1 billion, which was up 22%. GROSS profit of a just over a billion, up 42%. Yet they're still making a loss of $209 million. But they do have $3.4 billion in cash on their balance sheet so they can absolutely sustain these losses for a while. [00:18:04][26.9]

Alec: [00:18:04] Yeah, I actually think there's a nuanced there. I think a lot of that cash is going going out in accounts payable. Yeah. You know how like the best retailers in the world sell the goods before they have to pay their suppliers? What Woollies were famous for? Yeah, yeah. I think a lot of I think these guys have a similar they'll sell the goods and then pay this okay retail. [00:18:23][18.7]

Bryce: [00:18:24] So if you. [00:18:24][0.4]

Alec: [00:18:25] Yeah okay well you met that out they got like I think they've got 3.4 billion cash on the balance sheet. You're like, oh yeah, well then three points. But then I think it's 3.3 billion in accounts payable. Okay. [00:18:35][10.6]

Bryce: [00:18:36] So then they. [00:18:37][1.0]

Bryce: [00:18:37] Have no. [00:18:37][0.1]

Bryce: [00:18:37] Cash. Oh, no. [00:18:39][2.2]

Alec: [00:18:42] One thing to note. So you said customers 8.1 million. I just googled the population of South Korea. About 50. [00:18:49][6.6]

Bryce: [00:18:49] Million US. Wow, that's pretty significant. [00:18:50][1.3]

Alec: [00:18:51] So I think Coupang have started opening up some other markets but not a heap, just as a percentage of population serviced. That's pretty. [00:19:02][11.3]

Bryce: [00:19:03] Yes, very impressive. Very impressive. Nice. So we've had we've had a vertical aerospace company literally called Vertical Aerospace. We've had an e-commerce giant also listed on the stock exchange. [00:19:14][11.2]

Alec: [00:19:14] Before you introduced it. I just want to make the point that investing in America gives us opportunities to access all these companies, not in America. Coupang is a classic example of that. But, you know, like, say, limited. [00:19:26][11.3]

Bryce: [00:19:26] Verticals, those are. [00:19:27][0.6]

Bryce: [00:19:27] British. [00:19:27][0.0]

Alec: [00:19:28] Well, there you go. Yeah. But see, LTD is South East Asian is is go to the Indonesian one. It's listed in Indonesia. It might be secondary listing in the US. I don't think it is. Yeah, not. [00:19:39][11.2]

Bryce: [00:19:39] Yet. Yeah. [00:19:39][0.4]

Alec: [00:19:40] But there are others. What's the what's the other big Southeast Asian ones. See and grab. Yeah. [00:19:44][4.9]

Bryce: [00:19:45] Grab holdings. [00:19:45][0.3]

Bryce: [00:19:45] It's yesterday. [00:19:45][0.2]

Alec: [00:19:46] Yeah. And so they're all like saying grab listed in the US Kupang listed in the US, but some of the bigger players in South East Asia, US or in Asia. So it's just an interesting reminder that the market that you're listed in isn't necessarily where your companies are located. Yeah, well, mainly just for Americans companies. Yeah, American listed company. Anyway, let's get on to the third company that caught our eye. This one we talk a lot about the American entrepreneurs, the business in the mosque. I want to introduce this company, Bryce, and then I want to ask you about this entrepreneur, because he tried to bribe a world leader. I'll get to that. All right. So the company is called Cigna. Sports United was down 50% start the year, but is up 20% the last two weeks. German company again this team of companies all over the world listing in the US it's listing New York. Sue another spark merger. Now, the business model here is interesting. It's a great regional sports e-commerce website roll up. So basically, they take a tiny little e-commerce website, roll them up, and they've rolled them up into a $2 billion company. [00:20:59][73.5]

Bryce: [00:21:00] Well-played. [00:21:00][0.0]

Alec: [00:21:01] Bryce. I'm going to give you a list of e-commerce websites and you tell me if you've heard of any of them. Okay. Baxter no tennis point, no caps with a Z, no outfitter, no pro bike shop, no wiggle. [00:21:15][13.7]

Bryce: [00:21:15] Yes. [00:21:15][0.0]

Alec: [00:21:16] Oh, you actually, huh? Yeah. I'll have you used it? [00:21:18][1.7]

Bryce: [00:21:18] Yes. Yes. [00:21:19][1.1]

Alec: [00:21:20] Tennis pro. [00:21:20][0.4]

Bryce: [00:21:21] No. [00:21:21][0.0]

Alec: [00:21:22] Chain reaction cycle. [00:21:23][1.1]

Bryce: [00:21:23] I love bikes and tennis. [00:21:24][0.8]

Alec: [00:21:25] Yeah. And Tennis Express. No ball side. I'd like to know. Well, Bryce those websites and a few others roll up into a $2 billion company with 2500 employees. [00:21:37][12.7]

Bryce: [00:21:38] I like the roll out. [00:21:39][0.8]

Alec: [00:21:40] Roll ups have historically struggled. Okay. The return on invested capital gets. [00:21:46][6.2]

Bryce: [00:21:46] Less and less as. [00:21:47][1.0]

Alec: [00:21:47] They get bigger and bigger. But then there are some conglomerates that buck that trend. But all together they've got 100 different web shops, as they call them, in over 20 countries, 7 million customers and 500 million online visitors annually. Including you, apparently. [00:22:04][16.9]

Bryce: [00:22:05] Yes, we go. We go. [00:22:06][1.3]

Alec: [00:22:07] What's so good about it? [00:22:08][0.7]

Bryce: [00:22:08] UK, I think pretty. Pretty good range, decent prices. [00:22:11][3.0]

Bryce: [00:22:12] I mean, what more can you ask for a naked. [00:22:13][1.6]

Bryce: [00:22:14] Bunnings of online via ecovacs to. [00:22:16][2.0]

Alec: [00:22:16] That's a. [00:22:17][0.3]

Bryce: [00:22:17] Big deal. And moving on. Let's keep going. [00:22:19][2.2]

Alec: [00:22:20] The reason that I wanted to raise this, though, is the entrepreneur Rene Benko and of him. [00:22:26][5.9]

Bryce: [00:22:26] No. [00:22:26][0.0]

Alec: [00:22:27] So he's Austrian started a small real estate business in the late 1990s, now worth over $5 billion. [00:22:33][6.4]

Bryce: [00:22:33] Love that. [00:22:34][0.3]

Alec: [00:22:34] Real estate. Then he got into this e-commerce. He's also got into bricks and mortar retail and owns a whole bunch of shopping centres. This role, this roll up, spun it into a separate company through a SPAC merger, which is now listed. I don't know how much of it is still owns. He's got like the ex general manager of eBay Germany running it. But and I was looking at this guy Rene Benko in 2012 he tried to bribe the Croatian prime minister up. [00:23:00][26.0]

Bryce: [00:23:02] Ran a bit of a spicy opinion. What and if it's spicy or not that I'm of the belief that to be worth over $1,000,000,000, there's no way that you haven't pushed tried to push the boundaries. [00:23:15][12.7]

Alec: [00:23:15] Well. [00:23:15][0.0]

Bryce: [00:23:17] No way. [00:23:17][0.2]

Alec: [00:23:18] We've spoken to billionaires on this show before. [00:23:19][1.7]

Bryce: [00:23:20] Have we yet? Yeah. Hi, Ms.. Douglas. [00:23:21][1.6]

Bryce: [00:23:22] Yeah, I'm. I'm just saying I'm not saying that. I'm not I'm not putting it in anyone's mouth. I just reckon that he's not the only billionaire to try and bribe a PM. Uh. [00:23:31][9.7]

Alec: [00:23:32] I think there is a quote. I think it's in the Godfather book Behind every great fortune. There's a great crime. [00:23:38][6.0]

Bryce: [00:23:39] They go, Yeah. So really, you're. [00:23:43][4.1]

Alec: [00:23:43] Asking everybody, should we? [00:23:44][1.2]

Bryce: [00:23:45] I don't know. [00:23:45][0.3]

Bryce: [00:23:45] No, no, I don't. [00:23:45][0.4]

Alec: [00:23:46] Episode where we go through every. [00:23:47][1.4]

Bryce: [00:23:48] Time you name their crime. [00:23:49][1.5]

Bryce: [00:23:50] I'm not saying it's a crime. I'm not saying that there's a crime. No. [00:23:53][2.7]

Alec: [00:23:53] Bribing trying to bribe a prime minister is a crime. [00:23:55][2.3]

Bryce: [00:23:56] I know that. But what I'm saying is that there's there's boundary pushing. [00:24:00][4.0]

Alec: [00:24:01] For. [00:24:01][0.0]

Bryce: [00:24:01] Billionaires that you have. [00:24:02][1.0]

Alec: [00:24:02] To. That's an important listing. [00:24:03][0.7]

Bryce: [00:24:03] You have to. [00:24:04][0.3]

Bryce: [00:24:04] Yeah. Yeah. [00:24:05][0.5]

Bryce: [00:24:05] Anyway, there you go. So three companies that caught our attention during reporting season that weren't in the usual fang stocks and everything that whipped through. So again next week we'll we'll try and bring a few of these. [00:24:17][11.4]

Alec: [00:24:17] Let's this is fun. [00:24:18][0.8]

Bryce: [00:24:18] Let's bring a few of these to the companies. [00:24:20][1.8]

Bryce: [00:24:21] Now, after the break, we're really excited as we're sitting down with Nick Griffin from Munro Partners to get his thoughts on the market and how he's positioning his portfolio after going to 40% cash. Another reason we're really excited is that Monroe Partners are going to be at Fin Fest. They're going to be one of the the speakers on the day, along with many other experts from around the country, plenty of which have appeared on this show before, which we're really excited about. Time is ticking. We're getting closer and closer to the event. It is here in Sydney on Saturday 15th of October and tickets are only $47. So you're going to get access to plenty of experts. There's going to be the buzz, there's going to be entertainment, plenty of opportunity to connect with the community as well. And we've just secured the location for our afterparty. So if the festival isn't enough, there is an afterparty kicking on late into the evening as well where there'll be no discussion of stocks party. [00:25:16][55.0]

Bryce: [00:25:16] Only you can discuss. You can discuss stocks. [00:25:18][1.7]

Alec: [00:25:18] Well, if someone in our office is really trying to angle for a drink and buy all themselves. [00:25:23][4.9]

Bryce: [00:25:24] Through. [00:25:24][0.0]

Bryce: [00:25:25] Henry Jennings drunken. [00:25:26][0.7]

Bryce: [00:25:26] Violence. [00:25:26][0.0]

Bryce: [00:25:26] So we haven't put him in the hot seat. But anyway, tickets, as I said, only $47. Head to Equity Mates dot com slash fin fest to grab your ticket. Now they are selling out. We would love to see you there. But anyway, after this, we're going to be sitting down with Nick Griffin. So we'll pick it up in. So we are really excited to be joined by founding partner and chief investment officer at Munro Partners, Nick Griffin. Nick, welcome back to Equity Mates. [00:25:55][28.8]

Nick Griffin: [00:25:56] Thanks guys, for having me. [00:25:56][0.8]

Bryce: [00:25:57] So we're going to close out, closing out this episode with a bit of a conversation with you, Nick, around you. Your thoughts on current market conditions and particularly portfolio positioning. Last week there was an article that was came out in the AFR titled Here's the Bad News Equities Boss Warns of ongoing correction. And it was something that you'd penned. And of course headlines are sensationalist, but there was some pretty interesting commentary from you in that article. So let's start at the top. How are you feeling and thinking about the markets here and now? [00:26:30][33.1]

Nick Griffin: [00:26:30] Yeah. So, I mean, I think, okay, so all of you and all of your listeners are probably now across the fact that we're sort of in a bear market. So bear markets are an unfortunate fact of investing. They're a perfectly natural and normal thing, and they are generally good in the long run and they're good in the long run because they clean out speculation. They take away excessive valuations. They stop capital going to places that it shouldn't be going. And they ultimately allow the market and also economic policy, interest rate policy to reset on a more sustainable path. And so they set you up for a bull market, which is what we all love. And we had there for a long time. And so your average bear market, you know, can go for about 300 days and control anywhere between 20 and 40%. But don't forget your average bull market last 64 months. And and you don't actually need to pick the bottom. So. So, yeah, what what I think, you know, right from the outset, you know, we are clearly in a bear market and what everyone's trying to work out is how long it's going to go for and how deep is going to break. [00:27:33][62.3]

Alec: [00:27:33] Before we ask you that question. One fact caught our eye and that was the fact that you went to 40% cash in January. Bryce and I were lamenting off Mike that we wish we had gone to 40% cash in January. What were like, what was the key thinking there? And the fact is that you were looking at there then that push you to 40% cash. How are they looking now? Yeah. [00:27:57][23.8]

Nick Griffin: [00:27:58] We'll get into this as this goes on. So look how you what creates a bear market like. It's always the same things, you know, there's usually a lot of speculation and then, you know, the interest rate environment changes very quickly, which leads to the economic environment to change very quickly. And so from our point of view, I think the thing that really changed and bass and caught us massively by surprise, by the way, is we sort of all went away for Christmas and COVID was a thing and we all got back after Christmas and COVID was over. And and I know it wasn't over either, but I'm across and came along and everyone got it. And you realise that COVID was dead and you know, the lockdowns were never going to happen again and you know that we'd all rapidly get back to doing what we were before. And you know, it's June or July and I'll go back to school holidays and I think half of Australia went to Europe over the school holidays and so, so like everything just went back to normal really, really quickly. And I know it doesn't feel normal then, but it has been charging back to normal really quickly. We've been jumping on planes, we've been travelling, we've been eating and drinking. And so what that meant is the Fed was miles behind the curve, the central banks were miles behind the curve. And so the RBA, you know, was happily telling you that went at a high grade until 2024. And now suddenly they're hiking rates every meeting and like 50, 75 basis points. Okay, so and so is the Fed. And so that's like that's part of the problem. You can't pretend that's good, you know, if interest rates go from 0 to 3% really quickly and you were told that they weren't going to go up at all for three years, people are going to get caught offside. And they did. They got caught offside in speculative assets because they did it up the valuations too much thinking rates were going to be lower for longer and you know, they're going to get caught offside in the real economy as well. And you see that with, you know, retailers that have ordered too much stuff and now they have to discount it. Amazon's built too many warehouses, yadda, yadda, yadda. So in January, it became really clear that the Fed was behind the curve. The market started the year by just going straight down and we had a lot of internal risk controls that were going up. So we'd like to call it by the end, actually going off all over the place and we needed to do something about it. And so what we did is we observed a whole bunch of stop losses that we we run to try and observe these things and we raised a bunch of cash. So it was a it wasn't a conscious decision. It was a decision that was borne out of processes that we run here have run for about 15 years. And I think I've talked on your podcast before about running stop losses and, you know, and having a reaction function to deal with when things changed. You know, our reaction function forced us to focus on cash. [00:30:22][144.0]

Bryce: [00:30:22] Yeah, I love that. It's it's something that we haven't discussed as as much on the show recently as the the the value of a stop loss or at least considering exit positions. But now we're at a point, I guess, where for those who have gone to cash, they've got some dry powder sitting on the sidelines. How are you thinking about getting back into the market or is it a time of just reflection? I think in the. Article you mentioned three factors that you're watching to to get ready to deploy. [00:30:50][27.6]

Nick Griffin: [00:30:50] Yes. Correct. And yes. So and I think, you know, the article probably came across a little bit more bearish than we would like to do, at least the headline did. Of the three factors, you know, so, so like we raised 40% cash and people go, yeah, that's great. Well, the other 60% went down a lot. Like a lot, a lot more than we want to, a lot more than we wanted it to. And so we should have raised more cash. We should have. But in the end, you know, we had this 40% and it is, in our opinion, too late to rise any more. And so now you're thinking about your entry point. And the three things we're looking for are pretty simple. One is you need long term interest rates to peak. Okay? So this is really important. So remember, what caused the problem is interest rates backing up. Why? Because every asset in the world is valued on a risk free rate, you know, to some sort of discounted value. If it moves from 1 to 3, then the value of everything falls a lot. That's that's sort of happened. But the point is now it appears we are peaking at 3% and we always thought this would be the case. You know, the reality is, as interest rates are low, I'm sure a lot of you have parents or old people that you hang around who will tell you some amazing story, how they used to borrow money to buy their house. You know, interest rates were 15% and you know how tough it was for them. Well, guess what? I don't think it can ever get back to 15%. Why? Because we've raised too much debt. And so so in my investment career, every time something goes wrong, we lower interest rates, we raise too much debt. And so the actual peak level of interest rates that are going to cause the slowdown, cause inflation to go away, all the things that central banks want, we think is about 3%. We are now getting close to that. So the Fed last night got to 250. The long bond has sort of steadied at 3%. And so the risk free rate that we can value things off has stabilised at three. That's a massive tick. So that's that's positive. That's really positive. And so from that point of view, that's your first tick. Second thing is, unfortunately, rates going up is going to cause earnings to collapse for a lot of companies and we're already seeing this happening. So Walmart big warning this week. You know, Sherwin-Williams, a big company, warned last night the semiconductor companies are starting to warn, you know, we saw Target before that. So you can expect lots of profit warnings now for the next two quarters, at least between now and the end of the year. Earnings estimates have to come down dramatically in the US and Australia. But the good news is, is the market knows this, it's already priced a good chunk of is in and so that was the bad news bit of what I said. So there's good news, bad news. The good news is the markets paid, interest rates are paid. The bad news is earnings have to come down. And the third thing you're looking for is time. And so remember I said at the start, you know, generally, you know, people like me or or other guys who've been around a bit and seen bear markets before, they don't normally only last three months, like like nobody normally last, you know, 12, sometimes up to 18 months. This one's seven months long. And sometimes it just pays to just be a little bit patient and and not, you know, just just wait and see what we would talk about. You know, the bodies come to the surface. So, you know, when the tide goes out, who's not wearing anybody, as Warren Buffett would say? And so normally around these times, you know, something else bad happens now. It hasn't happened yet and maybe it won't happen. And so if you put those three things together, but it does pay sense to be a bit a little bit patient. So if you put those three things together, we reckon we've got about one half of the things we're looking for to get to three, which would be spend all the 40%. And so from our point of view, if you say had $100 on the sidelines right now, you know, and you're pretty safe to go spend 2530. And why? Because those first one and a half things are done. We can talk about we can talk about where you spend it. But over that hundred dollars, you spend 30 and you probably keep 70 back just in case something else happens. Because remember, you don't actually have to pick the bottom. Yeah, the bull market is going to last a long time. You know, you don't have to be a hero here, but of that $100 yet, we'd be spending 30. [00:34:40][229.9]

Bryce: [00:34:41] Mm. Love that. [00:34:41][0.8]

Alec: [00:34:42] Now, one thing that that caught our eye in the article was where you would be spending about 30 because, you know, the companies that I guess you were investing in in 2020 and 2021, you've sold off some of them, but the companies that you'd be looking to deploy may not be those same companies. So can you can you add a little bit of colour to that and tell us some of the companies that are catching your eye at the moment? [00:35:07][25.5]

Nick Griffin: [00:35:08] Okay. So that's a great question. And so for the listeners, I would encourage them to think about you were in an uncertain economic environment. It's not going to get less certain any time soon. But, you know, valuations are at a point that you probably should be putting some capital to work. We fall of 2020 5%. The US, you know, is going to fall 37, you know, at least more than half like that. And, you know, you might control that last bit. So when you're putting that capital to work, you should be investing in the biggest and safest and most stable companies you can think of. You have a rare opportunity here to build a high quality portfolio of companies that you know will be here in ten years time and that, you know. Again, a growth for this environment. And so right at the top of that list is Microsoft. I know it's boring, but guess what? It's 23 times earnings and it's going to grow and nothing's going to go wrong. And then you can break down to Google. You can work down to Amazon, you could buy GTA, you could buy AMD, you buy ASML, you could buy Costco. You know, these are big companies, most of them 100 billion market cap or more, all of them with strong balance sheets, most of them more than 20% off their highs and perfectly good investments at this point in time. And they will sell value through what's coming next. It will be very tempting to go and buy the company with an 80%, you know, the Shopify, the Spotify, the Atlassian, etc.. And I'm not saying they're bad ideas. I'm just saying I wouldn't buy them first. And I don't think that they will be good buys until later on this year or maybe next year. And the reason why I say that, don't go back to the ones that are full. That 80% is purely because we don't really know what's going to happen in the second half of the year. And they you know, these companies are what we'd call young and somewhat undercapitalised. So they they've lost their access to capital markets. A lot of them been using capital markets to compete with the big guys. They now can't get that money. They're going to have to compete with a whole bunch of other companies that made money. And this is just going to favour the big guys. So, so from that point of view, I get that that's a long way and they look really solid on the chart. I would restrain yourself on those ones just for another 3 to 6 months. [00:37:09][121.8]

Bryce: [00:37:10] Love that. Plenty of those companies that you mentioned that had fallen 80% in my portfolio. So yeah, look, I think some great pieces of advice that Nick and I also would want to just throw in that bit of a disclaimer. Everything that we discussed here is generally in nature with you and you are a licenced professional. So I just want to sort of close we saw some rhetoric coming from the White House this week that suggested that the definition of a recession is not what everyone believes is two consecutive quarters of GDP growth. What are your thoughts on on the sort of the macro picture? Are we heading recession? Do you even consider that in your investing approach? At the moment? It's something the way debate here at Equity Mates, you know, a lot of the headlines around oil prices and all of this sort of macro stuff. Does it really matter? What are your sort of closing thoughts on that? [00:38:02][52.0]

Nick Griffin: [00:38:02] So the markets are already pricing in a reasonably big slowdown or slash recession. The central banks would be happy to force the economy into a recession to get rid of inflation. Don't think that that won't happen. They will happily do that. From our point of view, we don't really care. There's mild recessions. It is really bad recessions. I sort of joke and say you're sort of guaranteed a mild recession next year because you can't possibly spend as much money as you've spent this year. And I think all of us have that problem. I you know, I'm long I've got like three ways, three years worth of holidays that I have to go on because I won't get the money back. So you can't possibly spend any more money than you spend this year. So in theory, you will get some sort of recession next year. The key thing is that it's a mild one and I think that's reasonably priced in already. What still goes wrong from here is, is what I was talking about before is, you know, generally recessions, slowdowns, if they hang around, we can't get rid of inflation. Then you've got to get these big credit blow-ups, whether it's a company or a bank or a country, has some sort of credit blow up. Inflation hangs around you. You get these sort of food riots in certain countries. So there are bad things out there that could definitely happen. And that's why, you know, we're not spending all our money and that's why we're spending on the guys that we know will be safest. But those are the sort of things I don't think you're debating, whether it's a recession or not any more. You're just biting somebody. That's going to be a really bad one. But you will you will get a slowdown and you'll probably get three quarters of negative growth. 

Bryce: [00:39:34] A technical recession, not according to the White House. Correct. But, Nick, we have we have run out of time, but thank you so much for joining us. Some really clear, I guess, pieces of advice there for those that are thinking about how to position a portfolio, getting into some of those biggest, safest companies that you can think of and potentially not deploying all the cash if it is sitting on the sidelines. So. Absolute pleasure chatting with you and catching up. And we're looking forward to having Monroe at Fin Fest by yourself or another representative. I'm sure it's going to be awesome. And yeah, we do really appreciate your time today. Thank you very much. 

Nick Griffin: [00:40:11] Thanks for having me, guys. Appreciate. 

Bryce: [00:40:14] Hey, 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. We're on Instagram, YouTube and slowly making our way as an influencer on Tik-tok. That's Ren. So come and say hello and join the community. We'd love to welcome you. Until next time.