1
00:00:05,680 --> 00:00:08,240
Speaker 1: Welcome to Fear and Greed. Some are investing series brought

2
00:00:08,280 --> 00:00:11,600
Speaker 1: to you by Vanta, specialists in compliance led growth. I'm

3
00:00:11,640 --> 00:00:15,000
Speaker 1: Sean Almer. We're all about explaining jargon and terminology on

4
00:00:15,040 --> 00:00:18,040
Speaker 1: this podcast, and that applies to investing as well. You

5
00:00:18,160 --> 00:00:21,800
Speaker 1: might have heard of some of part's valuations, a strategy

6
00:00:21,840 --> 00:00:24,520
Speaker 1: for figuring out the value of a company. It's a

7
00:00:24,560 --> 00:00:26,720
Speaker 1: great tool for investors and today we're getting an insight

8
00:00:26,840 --> 00:00:29,000
Speaker 1: into how to use it. As always, this is general

9
00:00:29,040 --> 00:00:32,160
Speaker 1: information only and you should seek independent advice before making

10
00:00:32,200 --> 00:00:35,159
Speaker 1: investment decisions. Brian Hand is the director of Equery's Research

11
00:00:35,200 --> 00:00:37,839
Speaker 1: Australia New Zealand at Morning Star, a great friend of

12
00:00:37,880 --> 00:00:41,000
Speaker 1: ours at Pifear and Greed. Brian, welcome back, Hello, Sean.

13
00:00:41,760 --> 00:00:44,400
Speaker 1: Explain some of the parts valuations.

14
00:00:45,600 --> 00:00:47,880
Speaker 2: Sure, Let's say you find the company or a stock

15
00:00:47,920 --> 00:00:50,159
Speaker 2: that's really cheap, and then you look into it and

16
00:00:50,159 --> 00:00:53,120
Speaker 2: you realize that this company is made up of several

17
00:00:53,280 --> 00:00:57,600
Speaker 2: discreet businesses that are jumbled together. And then you think

18
00:00:57,640 --> 00:01:00,280
Speaker 2: to yourself, hey, wait a minute. If all these companies

19
00:01:00,400 --> 00:01:04,880
Speaker 2: were separately valued or separately listed, and for each business

20
00:01:05,040 --> 00:01:08,679
Speaker 2: there are comparable businesses now out on the stock market

21
00:01:08,720 --> 00:01:11,399
Speaker 2: where the market is already attributing your value. Then you

22
00:01:11,440 --> 00:01:14,039
Speaker 2: will think to yourself, Okay, what if I did a

23
00:01:14,160 --> 00:01:17,120
Speaker 2: richerd gear character in Pretty Woman and break up this

24
00:01:17,720 --> 00:01:20,920
Speaker 2: company spare parts by spare parts, would the sum or

25
00:01:20,920 --> 00:01:23,520
Speaker 2: those parts be greater than what the market is attributing

26
00:01:23,600 --> 00:01:26,840
Speaker 2: value to this company? And that, in essence is what

27
00:01:27,360 --> 00:01:29,120
Speaker 2: some of the parts break up valuation is.

28
00:01:29,600 --> 00:01:32,520
Speaker 1: So there's some easy ones to think of, whol Pats,

29
00:01:33,000 --> 00:01:35,240
Speaker 1: West Farmers and other ones that West Farmers. People know

30
00:01:35,280 --> 00:01:38,400
Speaker 1: office works, they know Bunning's, they know the chemicals business,

31
00:01:38,400 --> 00:01:42,240
Speaker 1: there's fertilizer. So the sum of parts that I kind

32
00:01:42,240 --> 00:01:45,440
Speaker 1: of get, you can very discrete businesses. But can you

33
00:01:45,560 --> 00:01:49,280
Speaker 1: do it for another large company? Maybe a bank, I

34
00:01:49,320 --> 00:01:51,640
Speaker 1: don't know because they've got insurance, have not so much

35
00:01:51,640 --> 00:01:54,520
Speaker 1: insurance anymore. But maybe an industrial or something like that.

36
00:01:54,640 --> 00:01:57,000
Speaker 1: Or is it just the big conglomerates you're talking about.

37
00:01:57,240 --> 00:01:59,880
Speaker 2: Well, those are very good example sewn, but the old

38
00:02:00,040 --> 00:02:02,720
Speaker 2: if you're a couple, that's very close to your hardshorn

39
00:02:02,840 --> 00:02:06,880
Speaker 2: given that, given your background, let's say Channel nine nine Entertainment.

40
00:02:07,360 --> 00:02:09,560
Speaker 2: Now when you look at this company right now, it's

41
00:02:09,680 --> 00:02:12,400
Speaker 2: worth two billion dollars on the stock market right now

42
00:02:12,440 --> 00:02:16,359
Speaker 2: at current prices, if you take sixty percent of his

43
00:02:16,480 --> 00:02:21,280
Speaker 2: shareholding in domain, the property portal business, that's already one billion.

44
00:02:22,200 --> 00:02:24,320
Speaker 2: So you're saying the rest of the businesses are worth

45
00:02:24,400 --> 00:02:26,680
Speaker 2: one billion dollars. Now, what if I ask you, Sean,

46
00:02:27,400 --> 00:02:31,200
Speaker 2: SENDNY Morning Herald and the Age. You can't sell that

47
00:02:31,360 --> 00:02:34,120
Speaker 2: to some billionaire to use as a soapbox for four

48
00:02:34,200 --> 00:02:37,600
Speaker 2: hundred million dollars, I think you can. What about AFR

49
00:02:38,080 --> 00:02:39,600
Speaker 2: You can't sell that for two Don't tell me you

50
00:02:39,639 --> 00:02:41,600
Speaker 2: can't sell that for two hundred million dollars to some

51
00:02:41,680 --> 00:02:46,160
Speaker 2: private equity person and seduce him with the demographic of

52
00:02:46,240 --> 00:02:49,480
Speaker 2: the readership, and especially in Australia where there is a

53
00:02:50,240 --> 00:02:54,280
Speaker 2: humongous super pool. And then that's not even counting stand

54
00:02:54,360 --> 00:02:57,679
Speaker 2: Australia's answers to Netflix, which makes fifty million dollars a

55
00:02:57,760 --> 00:02:59,920
Speaker 2: year and growing. You can't tell me that that is

56
00:03:00,240 --> 00:03:03,000
Speaker 2: it's not worth at least five hundred million dollars. And

57
00:03:03,120 --> 00:03:06,560
Speaker 2: after all of that, you're still left with Channel nine,

58
00:03:07,040 --> 00:03:11,360
Speaker 2: which older people still watch, and nine now which younger

59
00:03:11,400 --> 00:03:16,000
Speaker 2: people still use to stream TV shows like Married a

60
00:03:16,040 --> 00:03:17,720
Speaker 2: First Yle, which I know Sean is one of your

61
00:03:17,720 --> 00:03:22,680
Speaker 2: favorites Brian love island my ca of course, how did

62
00:03:22,720 --> 00:03:24,520
Speaker 2: I forget that? So when you look at all of that,

63
00:03:24,600 --> 00:03:28,119
Speaker 2: you can easily say, take out the domain stake, rest

64
00:03:28,120 --> 00:03:31,040
Speaker 2: of the business. It's worth much more than one billion

65
00:03:31,080 --> 00:03:34,359
Speaker 2: dollars that the market is attributing to. So that's example

66
00:03:34,560 --> 00:03:37,880
Speaker 2: of a sump of parts valuation in action.

67
00:03:39,280 --> 00:03:43,120
Speaker 1: I suppose the question then is why doesn't Channel nine

68
00:03:43,400 --> 00:03:46,280
Speaker 1: split itself up? Then, like, if you can only get

69
00:03:46,320 --> 00:03:49,360
Speaker 1: two billion of value on the share market as one

70
00:03:49,440 --> 00:03:52,560
Speaker 1: big organization, why not split up? And maybe there's an

71
00:03:52,640 --> 00:03:53,560
Speaker 1: argument for that, Brian.

72
00:03:54,440 --> 00:03:59,240
Speaker 2: One reason is because there I guess averse to spinning

73
00:03:59,280 --> 00:04:03,920
Speaker 2: out things at asset value lows when people sentiments are

74
00:04:04,920 --> 00:04:09,119
Speaker 2: at blows and they just don't want to sell off

75
00:04:09,200 --> 00:04:12,080
Speaker 2: things at bottom of the cycle. And right now it

76
00:04:12,160 --> 00:04:14,320
Speaker 2: is bottom of the cycle in terms of the advertising

77
00:04:14,400 --> 00:04:17,520
Speaker 2: market and in terms of people centnament towards nine generally.

78
00:04:17,600 --> 00:04:20,120
Speaker 2: I mean, we've had new stories about how there is

79
00:04:20,240 --> 00:04:24,400
Speaker 2: some cultural issues in that company. So I think companies

80
00:04:24,400 --> 00:04:28,080
Speaker 2: need to be very careful, really nearly breaking up companies

81
00:04:28,240 --> 00:04:31,120
Speaker 2: just to appease the market. I mean, they do need

82
00:04:31,160 --> 00:04:33,919
Speaker 2: to do this and be very careful about extracting full value,

83
00:04:34,120 --> 00:04:37,400
Speaker 2: So I think that is one. And secondly, I do

84
00:04:37,480 --> 00:04:41,039
Speaker 2: feel that if the advertising market does the cycle does turn,

85
00:04:41,240 --> 00:04:44,640
Speaker 2: I think Cinnamon will turn around very quickly and they

86
00:04:44,680 --> 00:04:47,160
Speaker 2: will be able to sell these assets off much higher

87
00:04:47,279 --> 00:04:49,839
Speaker 2: multiples than if they try to do it right now.

88
00:04:50,279 --> 00:04:52,960
Speaker 1: So Samerpart's valuation. Often think about resource companies like that,

89
00:04:53,000 --> 00:04:55,800
Speaker 1: and we know late last year Riotinto pushed very heavy

90
00:04:55,800 --> 00:04:59,360
Speaker 1: into lithium, particularly in Argentina. They've got big exposure there.

91
00:04:59,400 --> 00:05:03,040
Speaker 1: They've got iron obviously in the pilbro plus a bunch

92
00:05:03,120 --> 00:05:07,360
Speaker 1: of other commodities. Do when you're valuing resource companies, do

93
00:05:07,440 --> 00:05:10,920
Speaker 1: you do it as a summer parts valuation because you

94
00:05:11,000 --> 00:05:12,680
Speaker 1: might have copper, you might have iron ore, you might

95
00:05:12,720 --> 00:05:17,160
Speaker 1: have lithium whatever. Or a resource company is just valued

96
00:05:17,200 --> 00:05:19,000
Speaker 1: as what we think their earnings are going and get

97
00:05:19,040 --> 00:05:20,520
Speaker 1: because that's what they told us last time.

98
00:05:20,960 --> 00:05:24,800
Speaker 2: Well, sure, I'm not quite as closely tied to resources company,

99
00:05:24,800 --> 00:05:26,960
Speaker 2: but I can tell you for a fact that many

100
00:05:27,040 --> 00:05:31,279
Speaker 2: analysts when they value resources companies, they do value according

101
00:05:31,320 --> 00:05:34,160
Speaker 2: to the commodities that they have. So as you say,

102
00:05:34,200 --> 00:05:37,800
Speaker 2: if a company has iron ore and copper, they would say, okay,

103
00:05:37,960 --> 00:05:41,400
Speaker 2: let's isolate the iron ore part of them. How much

104
00:05:41,520 --> 00:05:43,360
Speaker 2: profit do they make out of it? And let's put

105
00:05:43,360 --> 00:05:46,000
Speaker 2: a multiple on that. Oh, what multiple should I use

106
00:05:46,120 --> 00:05:49,160
Speaker 2: A Let's choose PHP or RIO and then the copper

107
00:05:49,160 --> 00:05:52,000
Speaker 2: one they'll do exactly the same and say, okay, let's

108
00:05:52,000 --> 00:05:54,560
Speaker 2: not choose PHP R RIO because they're their copper exposures

109
00:05:54,600 --> 00:05:57,240
Speaker 2: not as big. But there is that other company that's

110
00:05:57,240 --> 00:05:59,800
Speaker 2: got a real big copper expersion, let's use that. So

111
00:06:00,320 --> 00:06:03,560
Speaker 2: it is a very common practice for commodities or mining

112
00:06:03,600 --> 00:06:07,920
Speaker 2: analysts to use THEIRS all parts to justify higher valuations

113
00:06:07,960 --> 00:06:09,080
Speaker 2: for some of the stocks.

114
00:06:09,279 --> 00:06:11,200
Speaker 1: Fantastic, Brian, thanks for your time today.

115
00:06:11,520 --> 00:06:12,119
Speaker 2: Thank you, Sean.

116
00:06:12,560 --> 00:06:15,800
Speaker 1: That was Brian Hand, director of Equeri's Research Australia, New

117
00:06:15,880 --> 00:06:18,839
Speaker 1: Zealand at morning Star. Remember to get your own independent

118
00:06:18,880 --> 00:06:21,480
Speaker 1: advice before making decisions. This is Fear and Greed Summer

119
00:06:21,560 --> 00:06:25,120
Speaker 1: Investing series brought to you by Vanta. Vanta automates compliance

120
00:06:25,120 --> 00:06:29,680
Speaker 1: for frameworks like ISO twenty seven one, SoC two, CPS

121
00:06:29,720 --> 00:06:31,760
Speaker 1: two three four in essential eate saving time and money

122
00:06:31,800 --> 00:06:35,120
Speaker 1: while building trust. Join over eight thousand companies like Atlasian,

123
00:06:35,200 --> 00:06:38,120
Speaker 1: Dovetail and fire Ant, managing real time risk in one

124
00:06:38,120 --> 00:06:41,760
Speaker 1: thousand dollars off at vanta dot com slash fear and greed.

125
00:06:41,920 --> 00:06:44,840
Speaker 1: I'm Sean Elmer. Enjoy your day.