1 00:00:05,200 --> 00:00:07,840 Sean Aylmer: Welcome to the Fear and Greed business interview. I'm Sean Aylmer. 2 00:00:08,119 --> 00:00:12,440 Sean Aylmer: With the ASX recently entering correction territory, albeit briefly. There 3 00:00:12,440 --> 00:00:14,920 Sean Aylmer: were plenty of calls to buy the dip. After all, 4 00:00:15,000 --> 00:00:17,680 Sean Aylmer: it was Warren Buffett who's said to be fearful when 5 00:00:17,720 --> 00:00:20,279 Sean Aylmer: others are greedy, and greedy when others are fearful. But 6 00:00:20,360 --> 00:00:22,480 Sean Aylmer: it might not be as simple as that, particularly when 7 00:00:22,520 --> 00:00:25,960 Sean Aylmer: plenty of companies are still potentially overvalued. I wanted to 8 00:00:26,000 --> 00:00:28,640 Sean Aylmer: look today at buying in a market pullback to citing 9 00:00:28,680 --> 00:00:31,080 Sean Aylmer: fair value and whether it's time to make a move. 10 00:00:31,160 --> 00:00:34,840 Sean Aylmer: Of course, this information is general in nature and doesn't 11 00:00:34,840 --> 00:00:37,600 Sean Aylmer: take into account your own circumstances. You should always do 12 00:00:37,600 --> 00:00:40,680 Sean Aylmer: your own research and see professional advice before making investment decisions. 13 00:00:40,800 --> 00:00:45,200 Sean Aylmer: Lochlan Halloway is the equity market strategist at Morningstar. Lachlan, 14 00:00:45,280 --> 00:00:46,360 Sean Aylmer: welcome back to Fear and Greed. 15 00:00:47,120 --> 00:00:47,720 Lochlan Halloway: Good to be back. 16 00:00:48,200 --> 00:00:50,360 Sean Aylmer: Buying the dips. Not quite as easy as it sounds, 17 00:00:50,440 --> 00:00:50,680 Sean Aylmer: is it? 18 00:00:51,760 --> 00:00:54,480 Lochlan Halloway: Yeah, that's right. I mean when we think about just looking 19 00:00:54,480 --> 00:00:56,480 Lochlan Halloway: at what the price has done, I think we need 20 00:00:56,520 --> 00:00:59,120 Lochlan Halloway: to go a bit further. So if you're just going 21 00:00:59,120 --> 00:01:02,040 Lochlan Halloway: to buy something because price has fallen X percent in 22 00:01:02,080 --> 00:01:04,880 Lochlan Halloway: a trading session. You kind of have to make two assumptions 23 00:01:04,920 --> 00:01:08,520 Lochlan Halloway: if you care about valuations. Firstly, that the fundamental picture didn't change 24 00:01:08,560 --> 00:01:12,200 Lochlan Halloway: and that that dip was not reflecting something genuine about 25 00:01:12,200 --> 00:01:15,119 Lochlan Halloway: the business and its outlook. And secondly, if you're looking 26 00:01:15,160 --> 00:01:17,880 Lochlan Halloway: for value, you have to assume that the new price 27 00:01:17,920 --> 00:01:20,440 Lochlan Halloway: of which it is trading offers some value, that it 28 00:01:20,520 --> 00:01:23,120 Lochlan Halloway: is now undervalued and now in that sense worth buying. 29 00:01:23,120 --> 00:01:25,560 Lochlan Halloway: If something is thirteen percent overvalued and it corrects ten percent, 30 00:01:26,000 --> 00:01:29,200 Lochlan Halloway: you're still buying something expensive, less expensive, but expensive all 31 00:01:29,200 --> 00:01:30,920 Lochlan Halloway: the same. So I think when we hear about when 32 00:01:30,920 --> 00:01:32,240 Lochlan Halloway: you talk about buying the dip, I think we have 33 00:01:32,280 --> 00:01:33,759 Lochlan Halloway: to keep those two points in mind. 34 00:01:34,560 --> 00:01:37,440 Sean Aylmer: Okay, so how do you work out then whether it's 35 00:01:37,520 --> 00:01:38,720 Sean Aylmer: expensive or not. 36 00:01:39,520 --> 00:01:41,560 Lochlan Halloway: Yeah, that's a good question, and it comes to the 37 00:01:41,560 --> 00:01:45,160 Lochlan Halloway: core of the way we look at markets, our valuation methodology. 38 00:01:45,360 --> 00:01:47,920 Lochlan Halloway: So we look at individual companies globally, but in this 39 00:01:48,080 --> 00:01:50,480 Lochlan Halloway: in this office in Australia and New Zealand, and we look 40 00:01:50,480 --> 00:01:52,680 Lochlan Halloway: at them on a discounted cash flow basis. So how 41 00:01:52,760 --> 00:01:55,320 Lochlan Halloway: much cash effective do you think this business will generate 42 00:01:55,440 --> 00:01:58,760 Lochlan Halloway: from now into perpetuity. It's a fairly standard approach to valuations. 43 00:01:58,960 --> 00:02:02,440 Lochlan Halloway: We consider things like the company's industry, the company itself, 44 00:02:02,480 --> 00:02:06,080 Lochlan Halloway: it's idiosyncratic competitive advantages, or its economic moats, and we 45 00:02:06,160 --> 00:02:09,040 Lochlan Halloway: project those out. Obviously different approaches to different companies, but 46 00:02:09,080 --> 00:02:11,400 Lochlan Halloway: that's broadly speaking the way we look at it. That 47 00:02:11,400 --> 00:02:14,040 Lochlan Halloway: gives us a company level valuation or fair value estimate. 48 00:02:14,080 --> 00:02:15,840 Lochlan Halloway: But we can also roll that up. You know, we 49 00:02:15,919 --> 00:02:19,960 Lochlan Halloway: cover two hundred ASX and NZX listed stocks, and we 50 00:02:20,000 --> 00:02:22,800 Lochlan Halloway: can build that up to a market level picture to 51 00:02:22,840 --> 00:02:26,600 Lochlan Halloway: get a sense of, well, okay, overall, where do valuations 52 00:02:26,600 --> 00:02:28,080 Lochlan Halloway: sit across those two exchanges? 53 00:02:28,840 --> 00:02:30,760 Sean Aylmer: Okay, now, I am going to... I might be Lachlan 54 00:02:30,800 --> 00:02:36,520 Sean Aylmer: asking the impossible - without too much maths, explain the market 55 00:02:36,960 --> 00:02:39,440 Sean Aylmer: cap weight method of valuing a company. 56 00:02:39,840 --> 00:02:43,519 Lochlan Halloway: Sure. So again going back to that view of rolling 57 00:02:43,600 --> 00:02:46,959 Lochlan Halloway: up these fair value estimates, these companies to evaluations. There's 58 00:02:46,960 --> 00:02:48,880 Lochlan Halloway: a couple of ways we can do that, and you 59 00:02:48,960 --> 00:02:51,359 Lochlan Halloway: point out one, which is to weight them by their 60 00:02:51,440 --> 00:02:54,280 Lochlan Halloway: market capitalization. I understand this is going to give more 61 00:02:54,680 --> 00:02:58,119 Lochlan Halloway: more emphasis on larger companies. If we did a very, 62 00:02:58,200 --> 00:03:00,760 Lochlan Halloway: very simple example, we'll take two, you know, fairly well 63 00:03:00,760 --> 00:03:05,400 Lochlan Halloway: known ASX companies, retailer Wesfarmers. The congolmerate Wesfarmers and oil and gas 64 00:03:05,440 --> 00:03:08,720 Lochlan Halloway: producer Santos. Wesfarmers, it's about an eighty billion dollar company, 65 00:03:09,000 --> 00:03:11,480 Lochlan Halloway: Santos about a twenty billion dollar company. If we just 66 00:03:11,520 --> 00:03:14,040 Lochlan Halloway: said that was the entire market, Wesfarmers would be eighty 67 00:03:14,040 --> 00:03:17,440 Lochlan Halloway: percent of that market and Santos the remaining twenty percent. Now, 68 00:03:17,480 --> 00:03:21,040 Lochlan Halloway: we can put valuations on those two businesses, and at 69 00:03:21,080 --> 00:03:24,160 Lochlan Halloway: the moment, we see Wesfarmers at a fairly steep premium 70 00:03:24,200 --> 00:03:25,960 Lochlan Halloway: to what we think it should be trading at about 71 00:03:25,960 --> 00:03:28,320 Lochlan Halloway: sixty percent. And on the other side of things, we 72 00:03:28,360 --> 00:03:31,240 Lochlan Halloway: see Santos is undervalued. It's almost a forty percent discount 73 00:03:31,280 --> 00:03:34,320 Lochlan Halloway: to its fair value estimate in our opinion. Now, if 74 00:03:34,360 --> 00:03:36,680 Lochlan Halloway: we wanted to find a valuation for that market as 75 00:03:36,720 --> 00:03:39,480 Lochlan Halloway: a whole, we would take West Farmers fair value estimate, 76 00:03:39,520 --> 00:03:42,120 Lochlan Halloway: we'd multiply it by its eighty percent waiting, and we'd 77 00:03:42,440 --> 00:03:45,880 Lochlan Halloway: take Santos's fair value estimate the discount, multiply it by 78 00:03:45,920 --> 00:03:48,320 Lochlan Halloway: it's twenty percent, and we'd roll it up into a 79 00:03:48,360 --> 00:03:50,160 Lochlan Halloway: headline number for the market as a whole. And at 80 00:03:50,160 --> 00:03:53,440 Lochlan Halloway: the moment it would still be on those two basic companies, 81 00:03:53,440 --> 00:03:55,040 Lochlan Halloway: it would still be of overvalued about forty percent of 82 00:03:55,160 --> 00:04:00,800 Lochlan Halloway: value because that Wesfarmers premium dominates in a market cap index. 83 00:04:00,960 --> 00:04:02,840 Lochlan Halloway: So if we look at the market like that, and 84 00:04:02,880 --> 00:04:06,200 Lochlan Halloway: if I generalize this to our our true comprehensive cover 85 00:04:06,280 --> 00:04:09,400 Lochlan Halloway: to the ASX, we still see the market as overvalued, 86 00:04:09,760 --> 00:04:12,880 Lochlan Halloway: even after the ten percent correction over the last couple of 87 00:04:12,880 --> 00:04:16,880 Lochlan Halloway: weeks. So it was about twenty percent overvalued before the correction. 88 00:04:17,320 --> 00:04:20,480 Lochlan Halloway: It's now about ten percent overvalued. So it's pulled back, 89 00:04:20,520 --> 00:04:22,080 Lochlan Halloway: it's not as expensive as it was, but it is 90 00:04:22,080 --> 00:04:24,240 Lochlan Halloway: still in general overvalued, and that's primarily because of the 91 00:04:24,240 --> 00:04:25,679 Lochlan Halloway: influence of those larger companies. 92 00:04:25,960 --> 00:04:29,400 Sean Aylmer: Yeah, so the market cap weight method, is it things 93 00:04:29,480 --> 00:04:31,680 Sean Aylmer: like banks and that which have such a huge weighting 94 00:04:31,880 --> 00:04:35,000 Sean Aylmer: in the local market that gives the premium to the 95 00:04:35,000 --> 00:04:35,720 Sean Aylmer: local market. 96 00:04:36,640 --> 00:04:39,240 Lochlan Halloway: That's absolutely right, to look at it that way. So obviously 97 00:04:39,360 --> 00:04:41,400 Lochlan Halloway: you're putting more emphasis on the big companies when you 98 00:04:41,440 --> 00:04:44,040 Lochlan Halloway: wait things by their market cap. The ASX two hundred 99 00:04:44,080 --> 00:04:46,320 Lochlan Halloway: bench mark index is a market weighted index, so it's 100 00:04:46,360 --> 00:04:49,520 Lochlan Halloway: going to have a high allocation to bigger companies. Banks, 101 00:04:49,880 --> 00:04:51,919 Lochlan Halloway: you know, the four majors make up about twenty percent 102 00:04:51,960 --> 00:04:54,880 Lochlan Halloway: of the index by market cap. CBA alone is about 103 00:04:54,880 --> 00:04:57,599 Lochlan Halloway: ten percent. So if you have that particular sector of 104 00:04:57,600 --> 00:05:00,479 Lochlan Halloway: the market looking expensive and in general we think it does. 105 00:05:00,960 --> 00:05:03,200 Lochlan Halloway: You wouldn't be surprised to find that the market overall 106 00:05:03,480 --> 00:05:04,400 Lochlan Halloway: looks overvalued. 107 00:05:04,760 --> 00:05:07,360 Sean Aylmer: Okay, So another option is to talk about an equal 108 00:05:07,640 --> 00:05:10,600 Sean Aylmer: weight methodology. So we've been talking about market weight equal weight. 109 00:05:10,640 --> 00:05:14,920 Sean Aylmer: Presumably in your example, Wesfarmers and Santos get fifty percent waiting. 110 00:05:15,680 --> 00:05:17,640 Lochlan Halloway: That's right, Yeah, and that very simple example, they would. 111 00:05:17,800 --> 00:05:20,400 Lochlan Halloway: Again if we use the numbers from earlier, that Wesfarmers 112 00:05:20,480 --> 00:05:23,599 Lochlan Halloway: is quite overvalued and Santos is quite undervalued. If I 113 00:05:23,680 --> 00:05:25,520 Lochlan Halloway: did the fifty to fifty weighting to each, then the 114 00:05:25,520 --> 00:05:28,640 Lochlan Halloway: market would come out as slightly overvalued because in this example, 115 00:05:28,720 --> 00:05:31,000 Lochlan Halloway: you know, Wesfarmers is more expensive than Santos is cheap, 116 00:05:31,560 --> 00:05:34,280 Lochlan Halloway: but it would be a significantly lower premium to fair 117 00:05:34,400 --> 00:05:38,400 Lochlan Halloway: value under that approach, because we're weighting the two companies equally, 118 00:05:38,480 --> 00:05:41,240 Lochlan Halloway: rather than having the valuation dominated by the very large 119 00:05:41,240 --> 00:05:44,240 Lochlan Halloway: company of the two, Wesfarmers. Now, what that does is 120 00:05:44,279 --> 00:05:46,919 Lochlan Halloway: it allows us to take a little bit more of 121 00:05:46,920 --> 00:05:49,800 Lochlan Halloway: a look, more of a comprehensive look across valuations over 122 00:05:49,839 --> 00:05:51,880 Lochlan Halloway: the entire market. It is not just skewed by very 123 00:05:51,960 --> 00:05:54,880 Lochlan Halloway: large companies. So if you are a big institutional investor, 124 00:05:54,880 --> 00:05:57,279 Lochlan Halloway: you're probably going to be holding things you know, close 125 00:05:57,360 --> 00:05:59,600 Lochlan Halloway: enough to market cap weight, that may be looking at 126 00:05:59,640 --> 00:06:02,200 Lochlan Halloway: on a market cap basis the right way to assess value. 127 00:06:02,360 --> 00:06:05,039 Lochlan Halloway: But if you're an individual investor or, you're unconstrained, you 128 00:06:05,080 --> 00:06:08,719 Lochlan Halloway: can hold small caps, you can hold the market in 129 00:06:08,720 --> 00:06:10,680 Lochlan Halloway: an equal way to proportion. You have a lot more 130 00:06:10,720 --> 00:06:13,680 Lochlan Halloway: flexibility and diversity there. So looking at it on an 131 00:06:13,680 --> 00:06:16,360 Lochlan Halloway: equal weighted basis might give you a bit more of 132 00:06:16,400 --> 00:06:18,640 Lochlan Halloway: a sense. So well, actually how much opportunity lies across 133 00:06:18,680 --> 00:06:22,320 Lochlan Halloway: the entire ASX and not just focusing on the large companies. 134 00:06:22,640 --> 00:06:24,480 Sean Aylmer: Okay, I want to talk about how investors can now 135 00:06:24,600 --> 00:06:27,719 Sean Aylmer: use these methods to inform their strategies and get a 136 00:06:27,720 --> 00:06:29,359 Sean Aylmer: couple of stocks to keep an eye on. We'll be 137 00:06:29,400 --> 00:06:35,279 Sean Aylmer: back in a minute. 138 00:06:36,440 --> 00:06:39,640 Sean Aylmer: My guest this morning is Lochlan Halloway, equity market strategist 139 00:06:39,720 --> 00:06:43,080 Sean Aylmer: at Morningstar. So we left talking about the benefit of 140 00:06:43,600 --> 00:06:48,239 Sean Aylmer: equal weight methodology, particularly for individual investors. Would you recommend 141 00:06:48,279 --> 00:06:50,600 Sean Aylmer: one over the other at any certain time? 142 00:06:51,279 --> 00:06:54,560 Lochlan Halloway: Look, it's going to depend on how the investor likes 143 00:06:54,560 --> 00:06:57,039 Lochlan Halloway: to look at the market. There's not really a preference. 144 00:06:57,040 --> 00:06:59,000 Lochlan Halloway: I mean, they are two different ways of looking at 145 00:06:59,000 --> 00:07:01,400 Lochlan Halloway: the market, of assessing valuations. Not to say that you 146 00:07:01,440 --> 00:07:04,400 Lochlan Halloway: will always follow one investment strategy or the other, but 147 00:07:04,480 --> 00:07:07,599 Lochlan Halloway: it gives you two different benchmarks to assess; is the 148 00:07:07,640 --> 00:07:10,800 Lochlan Halloway: Australian equity market overvalued or undervalued or fairly value at 149 00:07:10,840 --> 00:07:13,800 Lochlan Halloway: any given time. Now, obviously there are certain products that 150 00:07:14,000 --> 00:07:16,200 Lochlan Halloway: you know are available for investors that are market cap 151 00:07:16,200 --> 00:07:19,400 Lochlan Halloway: weighted products like just simple ASX two hundred benchmark tracking 152 00:07:19,400 --> 00:07:20,541 Lochlan Halloway: ETFs for example. 153 00:07:21,560 --> 00:07:21,666 Sean Aylmer: Yes. 154 00:07:21,666 --> 00:07:26,440 Lochlan Halloway: There are also equal weighted Australian and global products and ETF. So, you 155 00:07:26,520 --> 00:07:28,960 Lochlan Halloway: can invest like that if you want, and if you 156 00:07:29,040 --> 00:07:33,560 Lochlan Halloway: look through into the underlying constituents at a very very 157 00:07:33,560 --> 00:07:36,000 Lochlan Halloway: simple level, if we have large companies that you see 158 00:07:36,120 --> 00:07:38,360 Lochlan Halloway: is very expensive, like we do in Australia at the moment, 159 00:07:38,440 --> 00:07:41,080 Lochlan Halloway: then perhaps you'd say, well, let's try and diversify away 160 00:07:41,400 --> 00:07:44,440 Lochlan Halloway: from those companies, reduce the concentration risk and have something 161 00:07:44,680 --> 00:07:48,280 Lochlan Halloway: like more closer to an equal weight allocation across asset classes. 162 00:07:48,280 --> 00:07:50,840 Lochlan Halloway: Obviously that's not you know, this is your general approach, 163 00:07:50,960 --> 00:07:53,280 Lochlan Halloway: but that might be more attractive when you see large 164 00:07:53,280 --> 00:07:54,640 Lochlan Halloway: cap companies looking expensive. 165 00:07:54,840 --> 00:07:57,720 Sean Aylmer: Okay, let's remind listeners this is not investment advice. Of course, 166 00:07:57,760 --> 00:07:59,640 Sean Aylmer: go and speak to a financial planner if you want 167 00:07:59,680 --> 00:08:02,920 Sean Aylmer: to investment advice. Let's bring small caps into it, because 168 00:08:03,440 --> 00:08:05,709 Sean Aylmer: what you're sort of inferring here is that we are 169 00:08:05,709 --> 00:08:08,400 Sean Aylmer: at a time now where small caps are trading at 170 00:08:08,400 --> 00:08:11,239 Sean Aylmer: a discount to large caps and have done for quite 171 00:08:11,280 --> 00:08:14,880 Sean Aylmer: some time, then one methodology in this instance the equal 172 00:08:14,920 --> 00:08:17,520 Sean Aylmer: weight might actually be a better option than the market 173 00:08:17,520 --> 00:08:17,920 Sean Aylmer: cap weight. 174 00:08:18,760 --> 00:08:21,360 Lochlan Halloway: Yeah, like, I think that's fair. It will give you a 175 00:08:21,400 --> 00:08:25,040 Lochlan Halloway: relatively higher exposure to smaller companies if you're investing, choose 176 00:08:25,080 --> 00:08:26,640 Lochlan Halloway: to invest like that. I think you have to be 177 00:08:26,880 --> 00:08:29,480 Lochlan Halloway: careful when you do invest in small caps. I mean, 178 00:08:29,760 --> 00:08:31,920 Lochlan Halloway: often there's a reason why they're small. They might be 179 00:08:31,960 --> 00:08:34,640 Lochlan Halloway: at the start of their journey and they haven't established 180 00:08:34,640 --> 00:08:35,679 Lochlan Halloway: a mode, or they might be on their way to 181 00:08:35,720 --> 00:08:38,120 Lochlan Halloway: establishing a mode or a competitive advantage, or they might 182 00:08:38,160 --> 00:08:40,800 Lochlan Halloway: have been a former large cap that has fallen out 183 00:08:40,800 --> 00:08:43,480 Lochlan Halloway: of favor for reasons that might be justified or not. 184 00:08:44,000 --> 00:08:45,959 Lochlan Halloway: So there is a bit more risk there, and I 185 00:08:46,000 --> 00:08:49,960 Lochlan Halloway: think particularly in the Australian context, our small cap, our 186 00:08:49,960 --> 00:08:53,640 Lochlan Halloway: Small Ords Index has a fairly poor track record or performance 187 00:08:53,760 --> 00:08:57,160 Lochlan Halloway: because of the way the listing rules about companies here 188 00:08:57,160 --> 00:08:58,960 Lochlan Halloway: and the fact that we have a lot of smaller 189 00:08:59,000 --> 00:09:01,960 Lochlan Halloway: exploratory miners in that part of the index that don't 190 00:09:02,000 --> 00:09:04,520 Lochlan Halloway: have a great track record of performance. So I don't think 191 00:09:04,559 --> 00:09:07,800 Lochlan Halloway: the sort of shotgun spray approach there makes a lot 192 00:09:07,800 --> 00:09:10,840 Lochlan Halloway: of sense, because you you probably should be applying in 193 00:09:10,920 --> 00:09:12,440 Lochlan Halloway: our opinion, the way we look at it, I should 194 00:09:12,440 --> 00:09:14,240 Lochlan Halloway: say is that you should look at things based on, 195 00:09:14,920 --> 00:09:17,640 Lochlan Halloway: you know, their intrinsic valuations, their qualities as a company, 196 00:09:17,679 --> 00:09:20,040 Lochlan Halloway: and just sort of indiscriminently going into a certain part 197 00:09:20,040 --> 00:09:22,079 Lochlan Halloway: of market may not be the best approach. 198 00:09:22,280 --> 00:09:24,240 Sean Aylmer: Okay. So let's talk about a few small caps that 199 00:09:24,320 --> 00:09:27,080 Sean Aylmer: I know you've mentioned recently in a note. Domino's Pizza, 200 00:09:27,120 --> 00:09:29,640 Sean Aylmer: which might have been a mid sized cap at one point. 201 00:09:29,640 --> 00:09:31,959 Sean Aylmer: It's probably now a small cap that isn't at the 202 00:09:31,960 --> 00:09:33,760 Sean Aylmer: start of its journey. But why do you like it? 203 00:09:34,600 --> 00:09:38,160 Lochlan Halloway: Yeah. Look, that's probably in the bucket of stocks that 204 00:09:38,200 --> 00:09:40,840 Lochlan Halloway: I alluded to earlier, which is companies that were formerly, 205 00:09:41,280 --> 00:09:44,760 Lochlan Halloway: in Domino's case, a market darling that has fallen at least 206 00:09:44,760 --> 00:09:48,040 Lochlan Halloway: now, as the market, on hard times. We think that the selldown 207 00:09:48,160 --> 00:09:51,719 Lochlan Halloway: is unwarranted. Domino's, it's a moated brand in our opinion, it's 208 00:09:51,880 --> 00:09:56,120 Lochlan Halloway: a globally successful brand, strong store concept, it has a 209 00:09:56,120 --> 00:10:00,920 Lochlan Halloway: strong track record before this recent period of cost inflation and 210 00:10:01,000 --> 00:10:04,839 Lochlan Halloway: sales slowdown of you know of store growth outstripping you know, 211 00:10:04,960 --> 00:10:07,640 Lochlan Halloway: cost growth, which is what you look for in a 212 00:10:07,679 --> 00:10:12,320 Lochlan Halloway: strong brand. Yes, coming out of COVID, they overexpanded. This 213 00:10:12,440 --> 00:10:15,480 Lochlan Halloway: is Domino's in Australia. That is the Domino's Pizza which 214 00:10:15,520 --> 00:10:17,280 Lochlan Halloway: is a master franchise in Australia but also has as 215 00:10:17,320 --> 00:10:20,560 Lochlan Halloway: operations over in Europe and Japan. But we think that 216 00:10:20,760 --> 00:10:23,760 Lochlan Halloway: represents more sort of short term cyclical issues that we're 217 00:10:23,800 --> 00:10:26,360 Lochlan Halloway: seeing across the consumer environment more broadly. This is a 218 00:10:26,360 --> 00:10:29,160 Lochlan Halloway: tough time to be a retailer. Things look like they're 219 00:10:29,160 --> 00:10:31,280 Lochlan Halloway: getting better, but it is still difficult. And we think 220 00:10:31,280 --> 00:10:34,000 Lochlan Halloway: Domino's brand is still there and its growth outlook is 221 00:10:34,040 --> 00:10:36,360 Lochlan Halloway: still intact, and the market takes a different view. So 222 00:10:36,360 --> 00:10:38,520 Lochlan Halloway: that's why we see Domino's Pizza as undervalued. 223 00:10:38,800 --> 00:10:41,079 Sean Aylmer: Another one Bapcorp, which many people that well they may 224 00:10:41,080 --> 00:10:43,679 Sean Aylmer: not know that the head company, but you know Burson's, Autobarn, 225 00:10:44,080 --> 00:10:47,400 Sean Aylmer: Midas that organisation. You quite like that one too? 226 00:10:47,920 --> 00:10:49,800 Lochlan Halloway: Yeah, that's right. Again, probably to some agree in a 227 00:10:49,800 --> 00:10:52,640 Lochlan Halloway: similar bucket to Domino's. There are concerns there around what 228 00:10:52,679 --> 00:10:55,960 Lochlan Halloway: the rise of electric vehicles might mean for autoparts retailers. 229 00:10:56,160 --> 00:10:59,680 Lochlan Halloway: That's fair. We think, again, these are sort of overblown concerns. 230 00:10:59,800 --> 00:11:02,440 Lochlan Halloway: It's had a slowdown recently. We think it has a 231 00:11:02,480 --> 00:11:05,920 Lochlan Halloway: cost advantage over many of the smaller competitors in that environment. 232 00:11:05,960 --> 00:11:08,840 Lochlan Halloway: We think that, again, protects it and should allow it 233 00:11:08,880 --> 00:11:11,120 Lochlan Halloway: to earn economic profit in the long run. So, again, 234 00:11:11,160 --> 00:11:13,840 Lochlan Halloway: I put that in a similar bucket to Domino's in that 235 00:11:13,880 --> 00:11:16,520 Lochlan Halloway: it looks like an oversold company that has, you know, 236 00:11:16,520 --> 00:11:18,400 Lochlan Halloway: it's fundamentals broadly speaking, are intact. 237 00:11:18,679 --> 00:11:19,840 Sean Aylmer: And finally, Siteminder. 238 00:11:20,360 --> 00:11:23,040 Lochlan Halloway: Yeah, that's right. So Siteminder. They're an interesting one and they're 239 00:11:23,040 --> 00:11:25,480 Lochlan Halloway: probably a little bit different the other two that I mentioned, 240 00:11:25,559 --> 00:11:28,200 Lochlan Halloway: because this is really looks like an up and comer 241 00:11:28,400 --> 00:11:31,719 Lochlan Halloway: as opposed to something that's been unfairly treated. Siteminder they're 242 00:11:31,720 --> 00:11:36,000 Lochlan Halloway: an ecommerce software provider for the hotel industry, particularly sort 243 00:11:36,000 --> 00:11:39,040 Lochlan Halloway: of at that smaller and mid sized hotel is end 244 00:11:39,040 --> 00:11:42,000 Lochlan Halloway: of the market. The SaaS business model looks like it 245 00:11:42,040 --> 00:11:44,760 Lochlan Halloway: will really work quite well there because you don't have 246 00:11:44,800 --> 00:11:46,840 Lochlan Halloway: to develop something in house. It's something that they can 247 00:11:46,920 --> 00:11:50,120 Lochlan Halloway: roll out quickly, you know, with incremental profits on not 248 00:11:50,400 --> 00:11:52,199 Lochlan Halloway: a lot of additional investment, which is a great business 249 00:11:52,200 --> 00:11:55,120 Lochlan Halloway: model in general. They're metrics on how much it costs 250 00:11:55,120 --> 00:11:58,520 Lochlan Halloway: them to acquire a customer versus the lifetime value of 251 00:11:58,559 --> 00:12:01,480 Lochlan Halloway: that customer base on the subscription that they'll received look really, 252 00:12:01,520 --> 00:12:04,280 Lochlan Halloway: really strong and much higher than the sort of benchmark 253 00:12:04,320 --> 00:12:07,160 Lochlan Halloway: across the software as a service industry. So we think 254 00:12:07,160 --> 00:12:09,960 Lochlan Halloway: they're at the start of a really positive growth journey 255 00:12:10,000 --> 00:12:12,520 Lochlan Halloway: and that's another one of the small cap picks that 256 00:12:12,559 --> 00:12:13,679 Lochlan Halloway: we see at the moment. 257 00:12:14,000 --> 00:12:15,760 Sean Aylmer: Lochlan, thank you for talking to Fear and Greed. 258 00:12:16,520 --> 00:12:17,319 Lochlan Halloway: Great to be here. Thanks. 259 00:12:17,559 --> 00:12:21,280 Sean Aylmer: That was Morningstar equity market strategist Lochlan Hallaway. This is 260 00:12:21,320 --> 00:12:23,800 Sean Aylmer: the Fear and Greed Business Interview. Remember this is general 261 00:12:23,840 --> 00:12:26,720 Sean Aylmer: information only and you should see professional advice before making 262 00:12:26,760 --> 00:12:29,840 Sean Aylmer: investment decisions. Join us every morning for the full episode 263 00:12:29,840 --> 00:12:31,960 Sean Aylmer: of Fear and Greed, daily business news for people who 264 00:12:32,040 --> 00:12:35,120 Sean Aylmer: make their own decisions. I'm Sean Aylmer. Enjoy your day.