1 00:00:05,600 --> 00:00:08,240 Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Sean Alma. 2 00:00:08,400 --> 00:00:11,320 Speaker 1: We're now into the final week of reporting season and 3 00:00:11,400 --> 00:00:13,560 Speaker 1: it's going to be a very big week. Indeed, BHP, 4 00:00:13,720 --> 00:00:17,360 Speaker 1: Willis Cole Fortescue, West Farmers cottas flights that are just 5 00:00:17,360 --> 00:00:20,800 Speaker 1: to name a few they're announcing over the next five days. 6 00:00:20,800 --> 00:00:22,960 Speaker 1: But there have been some terrific stories out of reporting 7 00:00:23,000 --> 00:00:26,000 Speaker 1: the season already, a few surprises, plenty of winners, and 8 00:00:26,079 --> 00:00:29,040 Speaker 1: of course plenty of losers. Remember this is general information only, 9 00:00:29,080 --> 00:00:32,080 Speaker 1: and you should seek professional advice before making investment decisions. 10 00:00:32,320 --> 00:00:35,199 Speaker 1: Roger Montgomery is the founder and chief investment officer at 11 00:00:35,280 --> 00:00:38,800 Speaker 1: Montgomery Investment Management. Roger, welcome back to Fear and Greed. 12 00:00:39,280 --> 00:00:40,280 Speaker 2: Great to be with you, Sean. 13 00:00:40,800 --> 00:00:42,480 Speaker 1: Is this your busiest time of year? Roger? 14 00:00:43,479 --> 00:00:47,960 Speaker 2: Look, it is for all fund managers, and that's because 15 00:00:48,320 --> 00:00:53,120 Speaker 2: there are so many companies reporting. And I guess, I 16 00:00:53,159 --> 00:00:56,920 Speaker 2: guess two things happen during reporting season. Number One, analyst 17 00:00:56,960 --> 00:01:01,480 Speaker 2: want to know whether or not they need to change 18 00:01:02,000 --> 00:01:05,839 Speaker 2: their perception of a company and how it's how it's going. 19 00:01:06,560 --> 00:01:09,720 Speaker 2: And the probably the most important thing is the outlook 20 00:01:09,720 --> 00:01:13,960 Speaker 2: statements and that leads to upgrades and downgrades to forecasts 21 00:01:13,959 --> 00:01:18,160 Speaker 2: for the following year. So those two things are really important. 22 00:01:18,560 --> 00:01:21,240 Speaker 2: The other thing to remember is that there's all sorts 23 00:01:21,240 --> 00:01:25,120 Speaker 2: of measurement issues. Now with macroeconomic measures, you've got seasonality, 24 00:01:25,200 --> 00:01:28,600 Speaker 2: structural changes. Makes it really really hard to know how 25 00:01:28,600 --> 00:01:32,319 Speaker 2: the economy is actually going, and so more and more 26 00:01:32,400 --> 00:01:36,360 Speaker 2: now when companies themselves report, they're proving to be the 27 00:01:36,400 --> 00:01:41,080 Speaker 2: best gauges on various trends in the broader economy. So 28 00:01:41,600 --> 00:01:44,440 Speaker 2: you know, I think I think this time of year 29 00:01:44,480 --> 00:01:47,400 Speaker 2: and also February, when companies report their half year results 30 00:01:47,480 --> 00:01:49,400 Speaker 2: or the bulk of them are reporting half year results, 31 00:01:49,800 --> 00:01:51,880 Speaker 2: you know that gives us a lot of insight not 32 00:01:51,920 --> 00:01:55,280 Speaker 2: only into those individual companies, but into the economy more generally. 33 00:01:56,280 --> 00:01:58,960 Speaker 1: Okay, so what I mean We'll jump into to some 34 00:01:59,040 --> 00:02:02,720 Speaker 1: specific companies in a moment, but broadly, what do you 35 00:02:02,760 --> 00:02:04,360 Speaker 1: make of profit season so far? 36 00:02:05,520 --> 00:02:09,760 Speaker 2: Well, we're seeing on the revenue level, you know, there's 37 00:02:09,800 --> 00:02:14,160 Speaker 2: probably just as many companies that are meeting expectations as 38 00:02:14,200 --> 00:02:19,359 Speaker 2: those that are missing expectations. But when you actually look 39 00:02:19,480 --> 00:02:23,400 Speaker 2: down at results, at their profit results, for example, you 40 00:02:23,400 --> 00:02:26,520 Speaker 2: know that there are more companies beating than missing at 41 00:02:26,560 --> 00:02:29,240 Speaker 2: the EBIT line, as well as on dividend payments. And 42 00:02:29,280 --> 00:02:33,399 Speaker 2: then in terms of outlooks, positive earning surprises are slightly 43 00:02:33,480 --> 00:02:37,880 Speaker 2: beating the negative outlook surprises. I think one, you know, 44 00:02:38,000 --> 00:02:40,720 Speaker 2: one of the major takeaways at the moment is that 45 00:02:40,960 --> 00:02:45,840 Speaker 2: the interest rates have what appear to be topped out, 46 00:02:46,400 --> 00:02:49,120 Speaker 2: but the expectation is that they might be cut. However, 47 00:02:49,680 --> 00:02:52,240 Speaker 2: they're staying higher for longer at the moment, so those 48 00:02:52,240 --> 00:02:55,480 Speaker 2: cuts might not come through for a while. And that's 49 00:02:55,960 --> 00:02:58,760 Speaker 2: that's affecting a bunch of companies. For example, if you know, 50 00:02:58,800 --> 00:03:02,200 Speaker 2: you take the bank by way of example, you know, 51 00:03:02,800 --> 00:03:04,560 Speaker 2: it's all it's been very good for them on the 52 00:03:04,600 --> 00:03:07,720 Speaker 2: net interest margin side. These stability in rates, that's really 53 00:03:07,760 --> 00:03:10,880 Speaker 2: helped them. But we're seeing a spike in non performing 54 00:03:10,919 --> 00:03:13,920 Speaker 2: loans now and that may lead to you know, that 55 00:03:13,960 --> 00:03:16,239 Speaker 2: may lead to bad debts down the track, but we'll 56 00:03:16,240 --> 00:03:18,920 Speaker 2: have to wait and see and then I guess, you know, 57 00:03:18,960 --> 00:03:21,160 Speaker 2: the other thing that we're seeing in terms of in 58 00:03:21,240 --> 00:03:24,720 Speaker 2: terms of the impact from rates is that we're seeing 59 00:03:24,760 --> 00:03:28,799 Speaker 2: more turnover of assets. So the number of houses being 60 00:03:28,840 --> 00:03:31,200 Speaker 2: listed for sales gone up. That was reported by both 61 00:03:31,240 --> 00:03:34,519 Speaker 2: Area Group and domain. And we also know that car 62 00:03:34,600 --> 00:03:37,800 Speaker 2: sales they're they're telling a similar story that we're seeing 63 00:03:38,200 --> 00:03:41,440 Speaker 2: elevated interest rates persuading dealers to move their inventory a 64 00:03:41,480 --> 00:03:45,040 Speaker 2: lot faster, and they're discounting in order to achieve that. 65 00:03:45,720 --> 00:03:48,280 Speaker 2: And that's all because interest rates are staying higher for 66 00:03:48,360 --> 00:03:50,800 Speaker 2: longer and then probably that you know, one of the 67 00:03:50,800 --> 00:03:54,040 Speaker 2: more painful share price reactions was to Origin's result a 68 00:03:54,080 --> 00:03:57,040 Speaker 2: couple of weeks ago, and you know, the cost of 69 00:03:57,080 --> 00:04:00,520 Speaker 2: living pressures are really affecting their ability to meet cost 70 00:04:00,560 --> 00:04:02,840 Speaker 2: reduction targets are not able to do that because people 71 00:04:02,840 --> 00:04:03,840 Speaker 2: are suffering so much. 72 00:04:04,960 --> 00:04:08,280 Speaker 1: What about consumer discretionary, There's been some interesting results, and 73 00:04:08,320 --> 00:04:09,920 Speaker 1: I know we'll probably talk about Breville in a moment, 74 00:04:10,040 --> 00:04:13,560 Speaker 1: but what I have. I mean, there's certainly in cost 75 00:04:13,600 --> 00:04:16,280 Speaker 1: inflation going on in a bunch of those companies, and 76 00:04:16,400 --> 00:04:18,720 Speaker 1: some of them have been slightly disappointing. But there's also 77 00:04:18,800 --> 00:04:20,320 Speaker 1: been a few that have come out and said, well, 78 00:04:20,560 --> 00:04:22,760 Speaker 1: the first training in July or the last six or 79 00:04:22,800 --> 00:04:27,000 Speaker 1: seven weeks has actually been pretty good. And I wonder 80 00:04:27,040 --> 00:04:28,680 Speaker 1: where that's got much to do with the July one 81 00:04:28,720 --> 00:04:32,240 Speaker 1: tax cuts or kind of consumer discretionary seems to be 82 00:04:32,320 --> 00:04:32,839 Speaker 1: very mixed. 83 00:04:34,040 --> 00:04:36,719 Speaker 2: Yeah, Look, the companies that we tend to follow where 84 00:04:36,720 --> 00:04:41,240 Speaker 2: we're tending to follow high quality businesses generally, So the 85 00:04:41,279 --> 00:04:44,320 Speaker 2: companies that we're seeing or that we're watching that we 86 00:04:44,360 --> 00:04:47,880 Speaker 2: take particular interest in, they've done reasonably well, you know, 87 00:04:48,000 --> 00:04:52,720 Speaker 2: but that's not because the consumer. That's not related necessarily 88 00:04:52,760 --> 00:04:56,000 Speaker 2: to the consumer directly. So if you look at the 89 00:04:56,120 --> 00:05:01,000 Speaker 2: Full Drive aftermarket Parts and Accessories business AARB, that business 90 00:05:01,279 --> 00:05:04,320 Speaker 2: grew its revenue by just over three percent, which you 91 00:05:04,360 --> 00:05:09,160 Speaker 2: know isn't particularly exciting. But what's probably more exciting is 92 00:05:09,200 --> 00:05:14,839 Speaker 2: that their OEM revenue, so their original equipment manufacturing deals 93 00:05:14,880 --> 00:05:17,599 Speaker 2: that they've done with Ford and with Toyota in the 94 00:05:17,680 --> 00:05:19,880 Speaker 2: United States, where a lot of their future growth is 95 00:05:19,920 --> 00:05:23,080 Speaker 2: going to come from. You know, that jumped about forty percent. 96 00:05:23,760 --> 00:05:26,480 Speaker 2: It's only a small component of the business at the moment, 97 00:05:26,960 --> 00:05:31,520 Speaker 2: but that excited investors. So that's a classic example of 98 00:05:31,520 --> 00:05:36,360 Speaker 2: a business that the narrative has really always been the 99 00:05:36,400 --> 00:05:40,440 Speaker 2: cyclicality of its domestic business. So when times are good, 100 00:05:40,680 --> 00:05:44,120 Speaker 2: people are spending money on blinging their full will drives. 101 00:05:44,640 --> 00:05:47,120 Speaker 2: When times are tough, they don't. And the business has 102 00:05:47,160 --> 00:05:49,880 Speaker 2: really been tied for a long time. Its valuation and 103 00:05:49,920 --> 00:05:54,200 Speaker 2: its story has been tied to that cyclical domestic element. 104 00:05:54,640 --> 00:05:58,039 Speaker 2: But as it grows its overseas business, what we'll find 105 00:05:58,200 --> 00:06:01,560 Speaker 2: is that that will become less important. And you know 106 00:06:01,600 --> 00:06:04,040 Speaker 2: I mentioned I mentioned Area a moment ago. You know 107 00:06:04,080 --> 00:06:07,600 Speaker 2: that that's another example where there's a cyclical component to 108 00:06:07,680 --> 00:06:11,839 Speaker 2: its story in terms of listings. Remember, its business revenue 109 00:06:12,000 --> 00:06:16,240 Speaker 2: isn't directly related to house prices. What it's related to 110 00:06:16,440 --> 00:06:19,119 Speaker 2: is the number of houses being listed for sale because 111 00:06:19,160 --> 00:06:22,719 Speaker 2: it gets advertising revenue for those houses being listed. But 112 00:06:22,960 --> 00:06:27,320 Speaker 2: its revenue story is really not defined by you know, 113 00:06:27,360 --> 00:06:31,320 Speaker 2: the last ten years declines in overall listings. Its story 114 00:06:31,400 --> 00:06:34,080 Speaker 2: is related to the fact that it is the dominant 115 00:06:34,120 --> 00:06:37,800 Speaker 2: portal in Australia and even though it charges the most, 116 00:06:38,320 --> 00:06:41,720 Speaker 2: it has the most houses available for sale listed, and 117 00:06:41,760 --> 00:06:47,520 Speaker 2: it keeps increasing its price for its existing tiers of advertising, 118 00:06:47,760 --> 00:06:51,080 Speaker 2: and it always adds more expensive tiers. So you know, 119 00:06:51,400 --> 00:06:54,320 Speaker 2: it had a standard tier many years ago, and then 120 00:06:54,320 --> 00:06:57,800 Speaker 2: it had something called a Featured tier, but since then 121 00:06:58,160 --> 00:07:03,479 Speaker 2: it's added Premiere prem All, Premiere Plus, and now it's 122 00:07:03,520 --> 00:07:08,120 Speaker 2: now it's going with a tier called Lux for you know, 123 00:07:08,279 --> 00:07:11,320 Speaker 2: more expensive homes. So and it all charge more for 124 00:07:11,400 --> 00:07:14,160 Speaker 2: all of those. So again, you know, there's two stories. 125 00:07:14,200 --> 00:07:18,600 Speaker 2: By the way, I would rank Area and ARB, as 126 00:07:18,800 --> 00:07:21,720 Speaker 2: you know, in the top ten companies in Australia in 127 00:07:21,800 --> 00:07:25,040 Speaker 2: terms of quality. And you know they've got they've got 128 00:07:25,040 --> 00:07:29,000 Speaker 2: a nuanced story that's unrelated to the consumer discretionary space. 129 00:07:29,600 --> 00:07:31,480 Speaker 1: Stay with me. Roger will be back in a minute. 130 00:07:37,560 --> 00:07:42,920 Speaker 1: I'm speaking to Roger Montgomery from Montgomery Investment Management. Okay, 131 00:07:43,200 --> 00:07:46,400 Speaker 1: let's talk about Brevel then, and this is probably more 132 00:07:46,880 --> 00:07:50,880 Speaker 1: related relatable to ARB because their top line, their revenue 133 00:07:50,880 --> 00:07:53,280 Speaker 1: growth seems to very strong and they're in a local 134 00:07:53,280 --> 00:07:55,880 Speaker 1: company who have done a really good job overseas. 135 00:07:56,760 --> 00:08:00,000 Speaker 2: Yeah, people, for a long time, people misunderstood that business. 136 00:08:00,320 --> 00:08:03,160 Speaker 2: They're not. They don't have any retail stores of their own, 137 00:08:03,440 --> 00:08:06,200 Speaker 2: they don't have any manufacturing of their own. They're a 138 00:08:06,240 --> 00:08:10,960 Speaker 2: design company and you know, they leave the distribution to others, 139 00:08:11,160 --> 00:08:14,240 Speaker 2: they leave the manufacturing to others. So they're really a 140 00:08:14,400 --> 00:08:17,960 Speaker 2: brand and they're great story. And by the way, they're 141 00:08:18,000 --> 00:08:22,920 Speaker 2: also an example of a company that demonstrates why companies 142 00:08:22,960 --> 00:08:27,800 Speaker 2: shouldn't listen to analysts. Back in February, I'll just tell 143 00:08:27,840 --> 00:08:30,160 Speaker 2: you just by way background back in feb when they 144 00:08:30,200 --> 00:08:32,480 Speaker 2: reported their half year results. You know, their analysts who 145 00:08:32,480 --> 00:08:35,280 Speaker 2: were saying, you know, we're a bit disappointed with their 146 00:08:35,320 --> 00:08:39,000 Speaker 2: sales because they should have discounted their product, they should 147 00:08:39,000 --> 00:08:41,800 Speaker 2: have done more promotions and that would have helped their 148 00:08:41,840 --> 00:08:44,920 Speaker 2: top line. And what's actually happened now is their top 149 00:08:44,960 --> 00:08:48,160 Speaker 2: line has grown and their margin has gone up dramatically 150 00:08:48,200 --> 00:08:50,640 Speaker 2: as well. So don't listen to analysts who have never 151 00:08:50,720 --> 00:08:55,680 Speaker 2: run a business. But the story for Brevel, what's exciting 152 00:08:55,679 --> 00:08:59,199 Speaker 2: about that particular business is that a lot of their 153 00:08:59,200 --> 00:09:01,960 Speaker 2: growth is going to get come now from coffee machines 154 00:09:02,120 --> 00:09:04,400 Speaker 2: in the United States. Now, you might think a big deal. 155 00:09:04,440 --> 00:09:08,439 Speaker 2: Why you know, sure, it's a big market, but America 156 00:09:08,679 --> 00:09:12,680 Speaker 2: is way way behind Australia in terms of bringing that 157 00:09:13,240 --> 00:09:18,960 Speaker 2: barista coffee experience home and making your own really nice 158 00:09:18,960 --> 00:09:23,319 Speaker 2: cappuccino at home or double espresso or double Machiata or 159 00:09:23,320 --> 00:09:25,760 Speaker 2: whatever it is that you like. America is a long 160 00:09:25,800 --> 00:09:29,079 Speaker 2: way behind doing that. They've really just got on to 161 00:09:29,200 --> 00:09:32,719 Speaker 2: the barista coffee thing in the last decade and they 162 00:09:32,720 --> 00:09:36,120 Speaker 2: haven't really thought about bringing that home. Now, Rerevel is 163 00:09:36,160 --> 00:09:40,439 Speaker 2: exciting because it is going it's dominating potentially with a 164 00:09:40,480 --> 00:09:44,480 Speaker 2: premium product that market of bringing that Barista experience home. 165 00:09:44,760 --> 00:09:46,480 Speaker 2: So that's what's exciting about that one. 166 00:09:46,880 --> 00:09:48,400 Speaker 1: We're all math out of time, but we've got to 167 00:09:48,400 --> 00:09:50,000 Speaker 1: ask you about one of the big companies. And I 168 00:09:50,040 --> 00:09:52,240 Speaker 1: know you've been watching CSL, which is a really interesting 169 00:09:52,280 --> 00:09:54,400 Speaker 1: company because lots of debate whether that's going through a 170 00:09:54,440 --> 00:09:57,320 Speaker 1: rerating period or not. What do you make of the 171 00:09:57,320 --> 00:09:58,320 Speaker 1: blood Plasma group? 172 00:09:59,200 --> 00:10:02,319 Speaker 2: Yeah, look, the story there is you know, there was 173 00:10:02,360 --> 00:10:05,360 Speaker 2: eleven percent rise in sales, which is great, and everyone 174 00:10:05,400 --> 00:10:08,240 Speaker 2: looks at that. I think that the most important story 175 00:10:08,280 --> 00:10:11,679 Speaker 2: though there again is in the United States where blood 176 00:10:11,679 --> 00:10:15,960 Speaker 2: plasma collections went back to normal levels post COVID and 177 00:10:16,040 --> 00:10:20,480 Speaker 2: so in fact the increase in sales seventy percent of 178 00:10:20,480 --> 00:10:24,880 Speaker 2: that increase really just came from their bearing segment, which 179 00:10:24,960 --> 00:10:30,400 Speaker 2: is the immunoglobular derived blood plasma products, and the ramp 180 00:10:30,480 --> 00:10:32,920 Speaker 2: up in collections really was the major contributor to the 181 00:10:33,000 --> 00:10:34,040 Speaker 2: growth in sales there. 182 00:10:34,440 --> 00:10:36,720 Speaker 1: Okay, this week, what are you looking out for? What 183 00:10:36,760 --> 00:10:37,840 Speaker 1: are you wanting to see? 184 00:10:38,280 --> 00:10:40,560 Speaker 2: Well, you know, here's the interesting thing so so far, 185 00:10:41,240 --> 00:10:44,840 Speaker 2: and I'll speak broadly, so far what we've seen is 186 00:10:45,559 --> 00:10:48,520 Speaker 2: not even half the company's report. But because it's the 187 00:10:48,600 --> 00:10:50,839 Speaker 2: bigger companies that tend to report. At the start of 188 00:10:50,920 --> 00:10:54,760 Speaker 2: reporting season, more than half of the market cap has reported. 189 00:10:55,120 --> 00:10:56,880 Speaker 2: But what we're going to see now is a larger 190 00:10:57,040 --> 00:11:00,800 Speaker 2: number of companies reporting. And remember right start of our 191 00:11:00,920 --> 00:11:04,160 Speaker 2: chat today, I was saying that these company results really 192 00:11:04,160 --> 00:11:07,240 Speaker 2: give us a good insight into the economy or because 193 00:11:07,240 --> 00:11:10,400 Speaker 2: we're going to have a larger number of companies reporting 194 00:11:10,400 --> 00:11:12,800 Speaker 2: in the second half, second part, in these last two 195 00:11:12,840 --> 00:11:16,320 Speaker 2: weeks or thereabouts, we're going to get some more insights 196 00:11:16,320 --> 00:11:18,640 Speaker 2: into the economy and how it's tracking with interest rates 197 00:11:19,160 --> 00:11:21,520 Speaker 2: being elevated for much longer than everyone had hoped. 198 00:11:22,080 --> 00:11:23,760 Speaker 1: Roger, thank you for talking to Fear and Greed. 199 00:11:24,120 --> 00:11:25,920 Speaker 2: Always a pleasure, Sean, look forward to talking to you 200 00:11:25,960 --> 00:11:26,480 Speaker 2: again soon. 201 00:11:26,960 --> 00:11:29,880 Speaker 1: That was Roger Montgomery, founder and chief investment officer at 202 00:11:29,880 --> 00:11:33,320 Speaker 1: Montgomery Investment Management. This is the Fear and Greed Business Interview. 203 00:11:33,440 --> 00:11:35,800 Speaker 1: Remember this is general information only, and you should see 204 00:11:35,840 --> 00:11:39,439 Speaker 1: professional advice before making investment decisions. Join us every morning 205 00:11:39,440 --> 00:11:41,559 Speaker 1: for the full episode of Fear and Greed. Daily business 206 00:11:41,640 --> 00:11:43,880 Speaker 1: news from people who make their own decisions. I'm Sean 207 00:11:43,920 --> 00:11:46,439 Speaker 1: almont Enjoy your day.