1 00:00:05,640 --> 00:00:07,920 Speaker 1: Welcome to the Fear and Greed business Interview. I'm sure 2 00:00:08,000 --> 00:00:13,159 Speaker 1: ale THEASX rebounded yesterday somewhat stabilizing after its plummet the 3 00:00:13,240 --> 00:00:15,240 Speaker 1: day before and the day before that for that matter. 4 00:00:15,480 --> 00:00:18,480 Speaker 1: While it hasn't yet recovered all the ground lost, investors 5 00:00:18,520 --> 00:00:21,239 Speaker 1: do appear to be jumping back in to buy the dip. 6 00:00:21,640 --> 00:00:24,520 Speaker 1: So what are they buying and where are those opportunities 7 00:00:24,560 --> 00:00:27,000 Speaker 1: in the weeks and months ahead. Remember this is general 8 00:00:27,000 --> 00:00:30,280 Speaker 1: information only. You should always see professional advice before making 9 00:00:30,320 --> 00:00:34,159 Speaker 1: investment decisions. Sam Kosh is a senior investment analyst at 10 00:00:34,200 --> 00:00:37,920 Speaker 1: Wilson Asset Management with a focus on small to MidCap stock. Sam, 11 00:00:38,000 --> 00:00:39,200 Speaker 1: welcome back to Fear and Greed. 12 00:00:39,680 --> 00:00:41,040 Speaker 2: Thanks for having me on Sean. 13 00:00:41,240 --> 00:00:43,440 Speaker 1: Quite the week. What have you made of it so far? 14 00:00:43,479 --> 00:00:45,599 Speaker 1: I've had quite the last three sessions. 15 00:00:45,640 --> 00:00:49,360 Speaker 2: Really, it's been quite hysteric actually, to be honest, we 16 00:00:49,400 --> 00:00:51,760 Speaker 2: haven't seen an eight and a half percent intra day 17 00:00:51,800 --> 00:00:53,920 Speaker 2: swing in the S and P five hundred for a 18 00:00:54,000 --> 00:00:59,040 Speaker 2: long time since COVID and GFC. Really, so, I think 19 00:00:59,040 --> 00:01:01,160 Speaker 2: a lot of people wi labeling this historic, and it's 20 00:01:01,240 --> 00:01:03,480 Speaker 2: historic for a number of reasons. We've got VIX over 21 00:01:03,560 --> 00:01:06,360 Speaker 2: forty five well over forty five as well, So. 22 00:01:06,360 --> 00:01:08,840 Speaker 1: It's just VIX being the volatility index. 23 00:01:08,920 --> 00:01:12,240 Speaker 2: Correct the volatility index, and it highlights how uncertain the 24 00:01:12,319 --> 00:01:13,720 Speaker 2: macro environment is at the moment. 25 00:01:14,120 --> 00:01:16,440 Speaker 1: Okay, and the local market here. Have you seen these 26 00:01:16,440 --> 00:01:20,119 Speaker 1: sorts of swings without having a pandemic or without having 27 00:01:20,160 --> 00:01:22,880 Speaker 1: a global financial crisis. It's pretty amazing. 28 00:01:23,640 --> 00:01:27,160 Speaker 2: Yeah, you'd think Australia are only copying a ten percent tariff. 29 00:01:27,920 --> 00:01:31,920 Speaker 2: You know, we might be somewhat insulated from market movements globally, 30 00:01:32,000 --> 00:01:35,119 Speaker 2: but to be honest, closer to home, Australia is sort 31 00:01:35,160 --> 00:01:38,800 Speaker 2: of down fifteen percent peak to trough, and the small 32 00:01:38,800 --> 00:01:41,959 Speaker 2: industrials which we focus on within the small to mid 33 00:01:42,000 --> 00:01:45,880 Speaker 2: cap funds have fared even worse than that. So there's 34 00:01:45,920 --> 00:01:49,520 Speaker 2: a lot of noise, the markets reacting first without really 35 00:01:49,600 --> 00:01:53,120 Speaker 2: understanding the impacts, and there's a lot of volatility out there, 36 00:01:53,160 --> 00:01:57,240 Speaker 2: but we're seeing opportunities. You know, our funds are focused 37 00:01:57,280 --> 00:02:01,240 Speaker 2: in on the small cap industrials and typically are exposed 38 00:02:01,280 --> 00:02:06,320 Speaker 2: to the domestic economy and with all the volatility, we've 39 00:02:06,360 --> 00:02:11,560 Speaker 2: actually seen rate cut expectations, so expectations of lower interest 40 00:02:11,639 --> 00:02:15,360 Speaker 2: rates play out within Australia of the balance of calendar 41 00:02:15,400 --> 00:02:16,560 Speaker 2: year twenty twenty five. 42 00:02:16,760 --> 00:02:20,720 Speaker 1: So that helps some of those small caps you're talking. 43 00:02:20,440 --> 00:02:23,000 Speaker 2: About exactly things could be looking a little bit better 44 00:02:23,480 --> 00:02:24,440 Speaker 2: for the Aussie consumer. 45 00:02:24,800 --> 00:02:30,040 Speaker 1: Okay, before we jump into any specifics, what broadly are 46 00:02:30,080 --> 00:02:35,320 Speaker 1: you looking for among among those small caps? What features 47 00:02:35,600 --> 00:02:36,160 Speaker 1: do you like? 48 00:02:37,040 --> 00:02:40,160 Speaker 2: Yeah, we're looking for like a really strong management team, 49 00:02:40,440 --> 00:02:43,880 Speaker 2: a strong balance shed. We're looking for, you know, earnings 50 00:02:43,919 --> 00:02:47,080 Speaker 2: growth as well, driven typically driven by the top line, 51 00:02:47,639 --> 00:02:52,560 Speaker 2: and our investment process is following trying to identify undervalued 52 00:02:52,680 --> 00:02:54,800 Speaker 2: growth companies with a catalyst. So it really needs to 53 00:02:54,800 --> 00:02:58,560 Speaker 2: have a catalyst to change the markets perception of the business. 54 00:02:59,520 --> 00:03:01,880 Speaker 2: You know, right here in the present, I would say 55 00:03:01,880 --> 00:03:05,200 Speaker 2: that the fund has you know, reasonably high cash levels, 56 00:03:05,520 --> 00:03:09,399 Speaker 2: but also a lot of the exposures to domestic cyclicals 57 00:03:09,480 --> 00:03:12,160 Speaker 2: and we've been trying to position the portfolio that way 58 00:03:12,200 --> 00:03:14,760 Speaker 2: for the better part of three months to be honest. 59 00:03:15,360 --> 00:03:17,800 Speaker 2: We've got a bunch of names in there, like Judo Bank, 60 00:03:18,400 --> 00:03:20,800 Speaker 2: you know, api Is, which is the largest car dealership 61 00:03:20,800 --> 00:03:25,200 Speaker 2: in Australia, EVT, which operates cinemas and hotels, and a 62 00:03:25,240 --> 00:03:28,399 Speaker 2: lot of these companies aren't exposed to tariffs and arguably 63 00:03:28,520 --> 00:03:31,359 Speaker 2: could benefit from a better consumer in Australia. 64 00:03:31,639 --> 00:03:32,960 Speaker 1: Just I mean, I want to get into some of 65 00:03:32,960 --> 00:03:35,800 Speaker 1: those in a moment. How important is management? I mean 66 00:03:35,840 --> 00:03:37,760 Speaker 1: when you gave me your category, it sounds like a 67 00:03:37,880 --> 00:03:41,080 Speaker 1: very Jeff Wilson Wilson asset management style category to have 68 00:03:41,160 --> 00:03:43,160 Speaker 1: to be to be honest, But like, right now, how 69 00:03:43,160 --> 00:03:45,520 Speaker 1: important is management when you're in the midst of turmoil? 70 00:03:46,000 --> 00:03:48,360 Speaker 2: Oh, it's critical. At the end of the day, we're 71 00:03:48,400 --> 00:03:51,360 Speaker 2: just analysts trying to analyze how a company's going and 72 00:03:51,840 --> 00:03:54,040 Speaker 2: the trajectory of their earnings. At the end of the day, 73 00:03:54,440 --> 00:03:58,560 Speaker 2: these management teams are navigating, you know, the volatility that 74 00:03:58,600 --> 00:04:02,440 Speaker 2: they're seeing, whether it's in current markets, whether it's you know, tariffs, 75 00:04:03,240 --> 00:04:06,240 Speaker 2: you name it. It's a very dynamic business environment at 76 00:04:06,240 --> 00:04:08,960 Speaker 2: the moment and you have to have good management. So 77 00:04:09,000 --> 00:04:10,320 Speaker 2: it's critical in small gaps. 78 00:04:10,760 --> 00:04:13,280 Speaker 1: Okay, So let's jump into Judo Bank. Was the first 79 00:04:13,320 --> 00:04:16,839 Speaker 1: one you mentioned a moment ago. Why Judo Bank? What's 80 00:04:16,920 --> 00:04:18,560 Speaker 1: different about that one? 81 00:04:18,600 --> 00:04:22,599 Speaker 2: It's fascinating. It's a challenger in the SME lending business 82 00:04:22,600 --> 00:04:25,680 Speaker 2: banking side of things, and it's rapidly been taking share 83 00:04:25,760 --> 00:04:29,480 Speaker 2: from the major four banks. These guys ultimately will benefit 84 00:04:29,760 --> 00:04:34,760 Speaker 2: as the consumer and also business confidence in Australia improves 85 00:04:34,800 --> 00:04:37,159 Speaker 2: over the course of the calendar of twenty twenty five 86 00:04:37,200 --> 00:04:39,440 Speaker 2: and into twenty twenty six, when we get those rate 87 00:04:39,480 --> 00:04:43,520 Speaker 2: cards at the markets expecting so we can see that 88 00:04:43,560 --> 00:04:47,120 Speaker 2: the bank will continue to grow its loan book well 89 00:04:47,120 --> 00:04:50,680 Speaker 2: above market. Theoretically the credit metrics are going to be 90 00:04:50,720 --> 00:04:54,080 Speaker 2: getting better as well. And as they're rolling off from 91 00:04:54,400 --> 00:04:57,200 Speaker 2: the old term TFF funding arrangement that they had a 92 00:04:57,200 --> 00:04:59,640 Speaker 2: couple of years ago, you could get nim expansion too. 93 00:04:59,720 --> 00:05:02,880 Speaker 2: So we really like it. It's trading on nine times 94 00:05:02,880 --> 00:05:07,480 Speaker 2: price to earnings ratio. It's one of those where you know, 95 00:05:07,560 --> 00:05:09,800 Speaker 2: the small cap market doesn't have a lot of banks 96 00:05:10,160 --> 00:05:12,360 Speaker 2: and if they look at exposure and they're seeing CBA 97 00:05:12,520 --> 00:05:15,200 Speaker 2: trade it, you know, close to three times book, then 98 00:05:15,279 --> 00:05:18,400 Speaker 2: where can you get some undervalue growth in the small 99 00:05:18,400 --> 00:05:20,240 Speaker 2: cap market And that's a key pick for us. 100 00:05:20,760 --> 00:05:23,600 Speaker 1: And the catalyst in that instance is rates. 101 00:05:24,360 --> 00:05:28,480 Speaker 2: Catalysts is its rates, but also its earnings upgrades, as 102 00:05:28,600 --> 00:05:31,400 Speaker 2: as the market isn't really expecting to the extent to 103 00:05:31,440 --> 00:05:33,720 Speaker 2: which they can actually grow the loan book. Correct. 104 00:05:33,960 --> 00:05:35,480 Speaker 1: Say with me, Sam, I want to talk to you 105 00:05:35,520 --> 00:05:38,080 Speaker 1: about some of the other stocks and the border outlook 106 00:05:38,080 --> 00:05:39,960 Speaker 1: for smaller midcaps in a moment. We'll be back in 107 00:05:40,000 --> 00:05:51,080 Speaker 1: a minute. I'm speaking to Sam Kush from Wilson Asset Management. Okay, 108 00:05:51,120 --> 00:05:54,919 Speaker 1: we're talking about Judo. The next one I think you 109 00:05:54,960 --> 00:05:57,760 Speaker 1: said was the Eager's Automotive. Interesting company. It's got lots 110 00:05:57,800 --> 00:06:01,120 Speaker 1: of dealerships, particularly Long East case to my right in 111 00:06:01,160 --> 00:06:05,160 Speaker 1: saying that that's correct. Yeah, Why, it's kind of an 112 00:06:05,160 --> 00:06:07,839 Speaker 1: interesting one that it sort of has done had done 113 00:06:08,000 --> 00:06:12,200 Speaker 1: quite well. Not that car sales are particularly strong at 114 00:06:12,200 --> 00:06:14,320 Speaker 1: the moment. Why why do you like Eagers? 115 00:06:15,320 --> 00:06:19,160 Speaker 2: Yeah, Egers is fascinating and we really like it for 116 00:06:19,200 --> 00:06:22,600 Speaker 2: a number of reasons. As the scale player in Australia, 117 00:06:22,640 --> 00:06:26,359 Speaker 2: it's the largest auto dealership in Australia. It's really highlighting 118 00:06:26,360 --> 00:06:30,440 Speaker 2: how well they've benefited from that scale. Their return on oh, 119 00:06:30,440 --> 00:06:33,880 Speaker 2: their profit before tax margins are three times the like 120 00:06:33,920 --> 00:06:37,320 Speaker 2: of their closest peers and well ahead of the rest 121 00:06:37,320 --> 00:06:39,599 Speaker 2: of the industry, and in some cases the industry that 122 00:06:39,760 --> 00:06:43,560 Speaker 2: is unlisted is actually loss making, so you know that's 123 00:06:43,640 --> 00:06:47,080 Speaker 2: that's demonstrating the scale of their business. Secondly, they've got 124 00:06:47,120 --> 00:06:51,120 Speaker 2: a really close relationship with BYD. BYD has been rapidly 125 00:06:51,120 --> 00:06:54,039 Speaker 2: gaining share in Australia and overtaking the likes of Tesla, 126 00:06:54,600 --> 00:06:56,880 Speaker 2: and we think that's a really strong partnership that could 127 00:06:56,880 --> 00:07:00,719 Speaker 2: grow well into the future. And then lastly, as the 128 00:07:00,800 --> 00:07:03,880 Speaker 2: scale operator, they have the opportunity to make a number 129 00:07:03,880 --> 00:07:09,360 Speaker 2: of acquisitions which could continue to increase that but also potentially, 130 00:07:09,400 --> 00:07:12,960 Speaker 2: given they're about eleven percent of the market here in Australia, 131 00:07:13,120 --> 00:07:17,040 Speaker 2: they could potentially expand offshore as well, and their partnerships 132 00:07:17,080 --> 00:07:20,600 Speaker 2: with the likes of Toyota and other OEMs would back 133 00:07:20,640 --> 00:07:23,200 Speaker 2: them in doing that. So we really like it. It's 134 00:07:23,240 --> 00:07:26,120 Speaker 2: owned by thirty percent by Nick Polaitis, and he's made 135 00:07:26,880 --> 00:07:30,320 Speaker 2: shareholders a lot of money over the years, and it's 136 00:07:30,360 --> 00:07:33,120 Speaker 2: trading about thirteen times p In the catalysts there are 137 00:07:33,920 --> 00:07:36,960 Speaker 2: M and A and earnings upgrades, and for context, I 138 00:07:36,960 --> 00:07:40,480 Speaker 2: think to finish on this point for ap is, every 139 00:07:40,520 --> 00:07:44,600 Speaker 2: twenty five basis point rate cut in interest rates is 140 00:07:44,640 --> 00:07:49,000 Speaker 2: about a two percent improvement in their bottom line. So 141 00:07:49,080 --> 00:07:51,240 Speaker 2: if the market's right in saying that we're going to 142 00:07:51,240 --> 00:07:53,760 Speaker 2: get another four interest rate cuts for the balance of 143 00:07:53,800 --> 00:07:57,840 Speaker 2: calendar year twenty five, that's close to ten percent earnings 144 00:07:57,880 --> 00:07:59,880 Speaker 2: upgrade just by that alone. 145 00:08:00,120 --> 00:08:03,560 Speaker 1: And what's the risk. Every stock has risk associated with it. 146 00:08:03,640 --> 00:08:05,640 Speaker 1: For ap egs, what's the concern. 147 00:08:06,120 --> 00:08:08,960 Speaker 2: The concern there is that the consumer might have a 148 00:08:09,000 --> 00:08:12,280 Speaker 2: protracted downturn, that they might not be buying as many 149 00:08:12,320 --> 00:08:15,000 Speaker 2: cars as they were a couple of years ago. And 150 00:08:15,280 --> 00:08:18,000 Speaker 2: in that case, what happens to sort of margins for 151 00:08:18,080 --> 00:08:22,440 Speaker 2: the industry. I'd argue the industry margins at the moment 152 00:08:22,480 --> 00:08:25,680 Speaker 2: are really at a tough point, at a trough half 153 00:08:25,720 --> 00:08:29,120 Speaker 2: the industry is probably losing money. And so I think 154 00:08:29,200 --> 00:08:32,720 Speaker 2: the OEM's being the you know, the toyotas and like 155 00:08:32,760 --> 00:08:36,400 Speaker 2: need to support the car dealership industry and make it sustainable. 156 00:08:36,960 --> 00:08:40,559 Speaker 1: Okay. The third one, EVT was that right? The cinema 157 00:08:40,720 --> 00:08:42,160 Speaker 1: leisure operator. 158 00:08:42,160 --> 00:08:46,760 Speaker 2: Correct previously known as Event Group EVT. Now it owns 159 00:08:46,920 --> 00:08:50,280 Speaker 2: Event Cinemas, a large hotel chain or a couple of 160 00:08:50,280 --> 00:08:54,160 Speaker 2: hotel chains, and Threadbow for everyone for anyone that loves skiing. 161 00:08:55,240 --> 00:08:59,360 Speaker 2: So EVT for a long time has sort of traded 162 00:08:59,440 --> 00:09:01,960 Speaker 2: around about the value of its property. It has a 163 00:09:01,960 --> 00:09:04,440 Speaker 2: market cap of about two billion dollars, but it has 164 00:09:04,480 --> 00:09:07,240 Speaker 2: two billion dollars in net property assets on the balance 165 00:09:07,280 --> 00:09:10,600 Speaker 2: sheet as well, so you're almost implying zero for the 166 00:09:10,640 --> 00:09:14,360 Speaker 2: operating business. That's because the market's always been skeptical of 167 00:09:14,480 --> 00:09:18,800 Speaker 2: cinema and the sustainability of hotel earnings in the context 168 00:09:18,800 --> 00:09:23,240 Speaker 2: of Netflix and everything else that happens in February, for 169 00:09:23,280 --> 00:09:26,400 Speaker 2: the first time in a while, they decided to divest 170 00:09:26,480 --> 00:09:29,800 Speaker 2: one of their core assets, one of their property assets, 171 00:09:29,840 --> 00:09:32,600 Speaker 2: and we can see the opportunity for them to slowly 172 00:09:32,640 --> 00:09:36,120 Speaker 2: divest those those property holdings and reinvest back into the 173 00:09:36,160 --> 00:09:41,600 Speaker 2: hotel business at much higher margins. Again, it's a play 174 00:09:41,679 --> 00:09:44,640 Speaker 2: on the Aussie consumer in a lot of respects given 175 00:09:45,200 --> 00:09:50,720 Speaker 2: the entertainment assets Threadbow hotels, cinemas and so theoretically benefit 176 00:09:51,080 --> 00:09:52,080 Speaker 2: in that environment too. 177 00:09:52,920 --> 00:09:56,560 Speaker 1: More broadly, just to finish out small caps going forward 178 00:09:56,760 --> 00:10:00,360 Speaker 1: with many have promised an outperformance of small caps probably 179 00:10:00,400 --> 00:10:03,360 Speaker 1: for the last couple of years, it hasn't happened for 180 00:10:03,480 --> 00:10:06,160 Speaker 1: all sorts of reasons. What do you think the prognosis 181 00:10:06,280 --> 00:10:09,559 Speaker 1: is for small caps in the next twelve twenty four months. 182 00:10:10,679 --> 00:10:13,599 Speaker 2: I think if people are looking for, you know, certainty 183 00:10:14,120 --> 00:10:18,079 Speaker 2: and the opportunity for earnings growth amongst the Aussie market 184 00:10:19,320 --> 00:10:24,040 Speaker 2: when you've got the likes of tariff uncertainty and currency volatility. 185 00:10:24,080 --> 00:10:26,840 Speaker 2: Then I think there's a lot to be said about, 186 00:10:26,960 --> 00:10:29,880 Speaker 2: you know, domestic exposure, and when you think about small 187 00:10:29,880 --> 00:10:34,920 Speaker 2: cap industrials, the predominant exposure there is you know, to 188 00:10:34,960 --> 00:10:39,640 Speaker 2: the domestic economy. So yes, small caps always get unfairly 189 00:10:39,720 --> 00:10:44,960 Speaker 2: tarnished in times of volatility. You know, shoot first, ask 190 00:10:45,080 --> 00:10:48,720 Speaker 2: questions later. But in this environment, I think they should 191 00:10:48,760 --> 00:10:52,120 Speaker 2: mean revert a little bit quicker because of that that 192 00:10:52,200 --> 00:10:55,840 Speaker 2: opportunity there, So we're constructive on the law, look for 193 00:10:56,000 --> 00:11:00,200 Speaker 2: small cap industrials and just just to I guess us 194 00:11:00,679 --> 00:11:05,760 Speaker 2: a piece on volatility in the market. Now, theoretically, if 195 00:11:05,800 --> 00:11:09,200 Speaker 2: you're working and saving and you're building your net wealth, 196 00:11:09,880 --> 00:11:14,280 Speaker 2: then lower equity prices, lower share prices are an opportunity 197 00:11:14,360 --> 00:11:17,080 Speaker 2: rather than a risk. And so as long as people 198 00:11:17,080 --> 00:11:19,920 Speaker 2: have done their homework, they're either backing fund active fund 199 00:11:19,920 --> 00:11:22,920 Speaker 2: managers or thinking about the market more broadly, you know, 200 00:11:23,440 --> 00:11:27,120 Speaker 2: you want lower share prices rather than the opposite to 201 00:11:27,200 --> 00:11:30,160 Speaker 2: take advantage of that. So I think, yeah, that's how 202 00:11:30,160 --> 00:11:31,120 Speaker 2: we're thinking about things. 203 00:11:31,440 --> 00:11:33,160 Speaker 1: Sam, thank you for talking to fear and greed. 204 00:11:33,559 --> 00:11:34,079 Speaker 2: Thanks Sean. 205 00:11:34,400 --> 00:11:37,680 Speaker 1: That's Sam Cost, senior investment analyst at Wilson Asset Management. 206 00:11:37,960 --> 00:11:40,240 Speaker 1: This is the Fear and Greed Business Interview. Remember this 207 00:11:40,320 --> 00:11:43,120 Speaker 1: is general information only, and you should see professional advice 208 00:11:43,160 --> 00:11:46,160 Speaker 1: before making investment decisions. Join us every morning for the 209 00:11:46,200 --> 00:11:48,959 Speaker 1: full episode of Fear and Greed. Daily business news for 210 00:11:49,040 --> 00:11:52,280 Speaker 1: people who make their own decisions. I'm sure Mail enjoy 211 00:11:52,280 --> 00:11:54,120 Speaker 1: your day.