1 00:00:05,840 --> 00:00:09,000 Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. Yesterday, 2 00:00:09,080 --> 00:00:13,520 Sean Aylmer: former Virgin Australia boss Jayne Hrdlicka was announced as the incoming 3 00:00:13,640 --> 00:00:16,440 Sean Aylmer: CEO of Endeavour, the hospitality group that known as Dan 4 00:00:16,520 --> 00:00:20,040 Sean Aylmer: Murphy's and BWS liquor stores, as well as hundreds of 5 00:00:20,040 --> 00:00:22,840 Sean Aylmer: pubs around the country. Endeavour was spun out of Woolly's 6 00:00:22,880 --> 00:00:24,919 Sean Aylmer: in the middle of twenty twenty one and has had 7 00:00:24,960 --> 00:00:27,200 Sean Aylmer: a pretty challenging couple of years, in part due to 8 00:00:27,320 --> 00:00:30,640 Sean Aylmer: cost of living pressures hitting retail sales. So will an 9 00:00:30,640 --> 00:00:35,559 Sean Aylmer: experienced CEO like Jayne Hrdlicka be enough to turn it around? 10 00:00:35,800 --> 00:00:38,000 Sean Aylmer: And what's it all mean for investors? Remember this is 11 00:00:38,040 --> 00:00:41,200 Sean Aylmer: general information only and you should seek professional advice before 12 00:00:41,240 --> 00:00:45,800 Sean Aylmer: making investment decisions. Johannes Faul is the Director of Equity Research 13 00:00:45,840 --> 00:00:49,320 Sean Aylmer: ANZ at Morningstar. Johannes, welcome to Fear and Greed. 14 00:00:50,000 --> 00:00:52,159 Johannes Faul: Thanks for having me on the show today, Sean. 15 00:00:52,560 --> 00:00:54,400 Sean Aylmer: What did you make of the announcement yesterday? Was it 16 00:00:54,440 --> 00:00:58,200 Sean Aylmer: a surprise that Jayne Hrdlicka got the job? 17 00:00:58,800 --> 00:01:03,040 Johannes Faul: Well, it was to me for sure, and I think 18 00:01:03,080 --> 00:01:06,679 Johannes Faul: that now that Endeavour has has appointed the new CEO, 19 00:01:08,120 --> 00:01:12,880 Johannes Faul: that removes that uncertainty that arguably some investors have thoughts 20 00:01:12,920 --> 00:01:16,399 Johannes Faul: overhanging the stock. By today's share price reaction, probably not 21 00:01:16,480 --> 00:01:19,440 Johannes Faul: as much as some people have thought, but that removes 22 00:01:19,440 --> 00:01:22,200 Johannes Faul: that uncertainty of who's going to be the leader of 23 00:01:22,240 --> 00:01:27,000 Johannes Faul: this very large and the largest Australian retailer going forward. 24 00:01:27,959 --> 00:01:30,679 Sean Aylmer: What is the Endeavour story? So it listed, it was 25 00:01:30,680 --> 00:01:33,800 Sean Aylmer: spun out in June twenty twenty one. I think its 26 00:01:34,000 --> 00:01:38,479 Sean Aylmer: share price today is about two thirds what it was 27 00:01:38,720 --> 00:01:41,640 Sean Aylmer: when it first listed. Why has it performed so poorly? 28 00:01:42,920 --> 00:01:46,080 Johannes Faul: So the share price is pretty tightly linked to what's 29 00:01:46,080 --> 00:01:50,520 Johannes Faul: happening with earnings and it. Nevor has two businesses that 30 00:01:50,600 --> 00:01:55,080 Johannes Faul: we probably have to talk about individually, and the bigger 31 00:01:55,120 --> 00:02:00,280 Johannes Faul: one is their liquor retailing business. So that's the brands 32 00:02:00,280 --> 00:02:05,000 Johannes Faul: that everybody knows. That's Dan Murphy's and Bwis. Together they 33 00:02:05,480 --> 00:02:10,560 Johannes Faul: dominate the Australian at home liquor consumption. Round about half 34 00:02:10,600 --> 00:02:13,600 Johannes Faul: of all we drink at home we have purchased at 35 00:02:13,680 --> 00:02:16,960 Johannes Faul: other Dan Murphy's at BWS, So it's the biggest Australian 36 00:02:17,040 --> 00:02:22,280 Johannes Faul: liquor business. It's huge and what they've been experiencing after 37 00:02:23,680 --> 00:02:28,440 Johannes Faul: massive massive BINUNSA during COVID when we were all locked 38 00:02:28,520 --> 00:02:33,720 Johannes Faul: up at home. Is that all that that demand actually 39 00:02:33,840 --> 00:02:38,799 Johannes Faul: unwound again when pubs reopened. So I know that's going far, 40 00:02:38,880 --> 00:02:41,840 Johannes Faul: far back to something we all want to forget, but 41 00:02:41,960 --> 00:02:44,800 Johannes Faul: that's important in the context of what's been happening. So 42 00:02:44,840 --> 00:02:49,440 Johannes Faul: we saw massive increase in at home liquor consumption. Demand 43 00:02:49,480 --> 00:02:52,600 Johannes Faul: went through the roof. Sales went through the roof for 44 00:02:52,840 --> 00:02:56,799 Johannes Faul: all liquor retailers, including Endeavor. And then what we saw 45 00:02:57,240 --> 00:03:00,520 Johannes Faul: when the economy reopened and pubs reopened that people wanted 46 00:03:00,560 --> 00:03:05,960 Johannes Faul: to go out again, and those demand volumes we saw 47 00:03:06,560 --> 00:03:12,480 Johannes Faul: initially stagnating and then actually dialing back again. Now we're 48 00:03:12,520 --> 00:03:16,040 Johannes Faul: back to what we believe is the long term trend line. 49 00:03:16,160 --> 00:03:21,440 Johannes Faul: So all that hurt is behind us. That's the volumes. 50 00:03:22,160 --> 00:03:26,080 Johannes Faul: But then there's a second factor, and that's what are 51 00:03:26,120 --> 00:03:29,760 Johannes Faul: people drinking, what kind of apical volumes? And people are 52 00:03:29,840 --> 00:03:36,560 Johannes Faul: drinking cheaper options, and that's obviously hurting the top line, 53 00:03:36,560 --> 00:03:39,520 Johannes Faul: but it's also hurting margins. So that's happening in the 54 00:03:39,600 --> 00:03:45,640 Johannes Faul: retail business of Endeavor. What happened in hotels is almost 55 00:03:45,640 --> 00:03:48,360 Johannes Faul: a flip side. If you think going from the d 56 00:03:48,520 --> 00:03:53,440 Johannes Faul: merger or pretermergerding COVID. The pubs did very poorly because 57 00:03:53,480 --> 00:03:58,240 Johannes Faul: they couldn't be frequented, and then with the reopening they 58 00:03:58,280 --> 00:04:01,120 Johannes Faul: bounced back. So it's almost a mirror image what we 59 00:04:01,160 --> 00:04:04,840 Johannes Faul: saw with like a retailing. So there's that national hedge 60 00:04:05,040 --> 00:04:09,120 Johannes Faul: if you like. Hotels is a smaller part of this 61 00:04:09,200 --> 00:04:13,840 Johannes Faul: group though. So that's that's the past, and I'm sure 62 00:04:13,880 --> 00:04:16,440 Johannes Faul: we want to speak about the future too, we do. 63 00:04:16,600 --> 00:04:18,320 Sean Aylmer: I mean Jane her look at as a boss. She 64 00:04:18,440 --> 00:04:22,360 Sean Aylmer: obviously she'd a two milk successful, very successful in fact 65 00:04:22,360 --> 00:04:26,720 Sean Aylmer: at a two milk Virgin Australia, depends who you ask. Obviously, 66 00:04:26,760 --> 00:04:28,600 Sean Aylmer: the airline is up and running. That's a good thing, 67 00:04:28,920 --> 00:04:32,240 Sean Aylmer: though it didn't get a float away when she was CEO, 68 00:04:32,360 --> 00:04:36,599 Sean Aylmer: and she isn't always the most popular among investors. What 69 00:04:36,760 --> 00:04:39,000 Sean Aylmer: is it that she brings to the party for Endeavor 70 00:04:39,880 --> 00:04:42,960 Sean Aylmer: that you think can help her put it on a 71 00:04:43,320 --> 00:04:46,760 Sean Aylmer: trajectory where the share price actually turns around and starts 72 00:04:46,760 --> 00:04:47,480 Sean Aylmer: going the other way. 73 00:04:48,080 --> 00:04:51,800 Johannes Faul: That's a really good question, and I don't want to 74 00:04:51,839 --> 00:04:58,080 Johannes Faul: sound flimsy, but it almost doesn't matter too much. As 75 00:04:58,120 --> 00:05:02,200 Johannes Faul: I said earlier, Endeavor is a huge business. It's almost 76 00:05:02,240 --> 00:05:05,360 Johannes Faul: like a tanker so it's heading one way. The problems 77 00:05:05,360 --> 00:05:11,800 Johannes Faul: of retailing businesses having is industrywide. So the second largest operator, 78 00:05:12,320 --> 00:05:16,160 Johannes Faul: Coal's Liquor, has had a similar trajectory when you think 79 00:05:16,200 --> 00:05:21,599 Johannes Faul: about sales goals, So it's the macro. It's the aftermath 80 00:05:21,640 --> 00:05:26,840 Johannes Faul: of the pandemic plus interest rate hikes, plus cost pressures 81 00:05:26,920 --> 00:05:30,080 Johannes Faul: or cost of living pressures for the consumers that's really 82 00:05:30,520 --> 00:05:35,080 Johannes Faul: impacting sales, not so much the strategic decisions by the 83 00:05:35,120 --> 00:05:40,479 Johannes Faul: previous management team. And I would expect that unless there's 84 00:05:40,800 --> 00:05:44,960 Johannes Faul: big sweeping changes that this tanker, if you like, which 85 00:05:45,040 --> 00:05:50,520 Johannes Faul: is Endeavor, will continue its course. The question will be 86 00:05:50,600 --> 00:05:54,919 Johannes Faul: for Jane's Heard, Heard Liquor when she comes in early 87 00:05:55,040 --> 00:06:00,240 Johannes Faul: next year early twenty twenty six, is strategically word She 88 00:06:00,279 --> 00:06:04,000 Johannes Faul: want to set nuances. How does she think about investing 89 00:06:04,320 --> 00:06:07,279 Johannes Faul: in the hotel segment that we just spoke, the smaller one, 90 00:06:07,920 --> 00:06:11,960 Johannes Faul: and how does she think about online things like that? Again, 91 00:06:12,120 --> 00:06:16,080 Johannes Faul: I would say they're nuanced and circling back to your question, 92 00:06:16,160 --> 00:06:18,159 Johannes Faul: what does she bring to the table. She brings a 93 00:06:18,240 --> 00:06:20,960 Johannes Faul: raft of experience. She was on the World warst board 94 00:06:21,000 --> 00:06:24,960 Johannes Faul: for almost six years before and Devor spun out, so 95 00:06:25,279 --> 00:06:30,360 Johannes Faul: she knows those businesses in addition to leading two large 96 00:06:30,360 --> 00:06:34,080 Johannes Faul: and well known Australian companies, Vision Australia the airline, and 97 00:06:34,120 --> 00:06:37,320 Johannes Faul: also Well eight and Milks not in Australian business the 98 00:06:37,400 --> 00:06:40,360 Johannes Faul: key we almost pardon me, but too well now known 99 00:06:40,400 --> 00:06:44,680 Johannes Faul: businesses down here. So I would say to me, this 100 00:06:44,760 --> 00:06:47,200 Johannes Faul: announcement is positive in the sense that it removes that 101 00:06:47,279 --> 00:06:52,159 Johannes Faul: uncertainty in the sense what does she uniquely bring to 102 00:06:52,160 --> 00:06:57,080 Johannes Faul: this business that's vital for Endeavor's future. I don't see 103 00:06:57,080 --> 00:07:00,400 Johannes Faul: at this stage much. But is it that important? I 104 00:07:00,440 --> 00:07:01,640 Johannes Faul: put a question mark on that. 105 00:07:02,080 --> 00:07:03,760 Sean Aylmer: Stay with me, Johannah. I want to take a look 106 00:07:03,760 --> 00:07:06,359 Sean Aylmer: at the broader retail sector after the break. We'll be 107 00:07:06,440 --> 00:07:16,600 Sean Aylmer: back in a minute. I'm speaking to Johanna's fall from 108 00:07:16,840 --> 00:07:21,520 Sean Aylmer: morning Star leaving Endeavor asign. You mentioned Coal's liquor in 109 00:07:21,560 --> 00:07:23,840 Sean Aylmer: a moment ago. What about coals? What do you make 110 00:07:24,000 --> 00:07:28,120 Sean Aylmer: of sort of the coals Woolworth's battle at the moment. 111 00:07:28,360 --> 00:07:32,440 Johannes Faul: The ongoing battle coals versus lot of stuff. It never ends, 112 00:07:32,480 --> 00:07:35,240 Johannes Faul: does it? Coles and Woolies and also Endeavor. We just 113 00:07:35,240 --> 00:07:38,200 Johannes Faul: spoke about Endeavor. They're all what we would deem defend 114 00:07:38,200 --> 00:07:43,640 Johannes Faul: the stocks and what's happening right now with global trade. 115 00:07:44,360 --> 00:07:48,360 Johannes Faul: We would say this is within retail land the safest 116 00:07:48,360 --> 00:07:52,360 Johannes Faul: place to hide. We don't expect the terrace that we 117 00:07:52,520 --> 00:07:56,720 Johannes Faul: see in implemented or announced in the US, and that 118 00:07:57,000 --> 00:08:00,200 Johannes Faul: going back and forth. You know, I was supports going 119 00:08:00,240 --> 00:08:04,880 Johannes Faul: to end, but that uncertainty is certainly there. Now there 120 00:08:04,920 --> 00:08:07,280 Johannes Faul: is uncertainty in molible trade. It's going to impact it. 121 00:08:08,640 --> 00:08:11,680 Johannes Faul: What the terrors ultimately are going to be nobody knows. 122 00:08:12,000 --> 00:08:16,920 Johannes Faul: But we would say that defensive stocks like calls like 123 00:08:17,040 --> 00:08:22,520 Johannes Faul: WARL wars are are very much a safer haven than 124 00:08:22,520 --> 00:08:26,200 Johannes Faul: anything that's discretionary. Stick we call okay. 125 00:08:26,360 --> 00:08:28,160 Sean Aylmer: So now I'm going to ask you about a discretionary 126 00:08:28,160 --> 00:08:30,800 Sean Aylmer: stock and perhaps the market leader in terms of discretionary 127 00:08:31,000 --> 00:08:35,160 Sean Aylmer: JB High Phi. How do you think about JB High 128 00:08:35,160 --> 00:08:39,600 Sean Aylmer: Phi particularly we could benefit from imports into Australia out 129 00:08:39,600 --> 00:08:41,880 Sean Aylmer: of Asian economies not going to the US. They could 130 00:08:41,880 --> 00:08:44,600 Sean Aylmer: come to Australia. Maybe that benefits JB High Phi. Maybe 131 00:08:44,679 --> 00:08:48,760 Sean Aylmer: gets hit by a bunch of tariff related costs. I mean, 132 00:08:48,800 --> 00:08:50,880 Sean Aylmer: I don't know how to think about JB HIHI. And 133 00:08:50,920 --> 00:08:53,320 Sean Aylmer: it is as you say, it is not a defensive stock. 134 00:08:53,400 --> 00:08:55,280 Sean Aylmer: It is definitely a discretionary stock. 135 00:08:55,840 --> 00:09:00,640 Johannes Faul: Yes, that's a really interesting I guess backdrop and the 136 00:09:00,679 --> 00:09:03,120 Johannes Faul: way we think through it, and there's I'm sure there's 137 00:09:03,200 --> 00:09:07,880 Johannes Faul: many other sensible approaches, but we thought long and hard 138 00:09:07,880 --> 00:09:10,880 Johannes Faul: about this and debated this obviously at morning Star quite 139 00:09:10,920 --> 00:09:14,720 Johannes Faul: a bit. Impact of terrorsts on all sectors but also retailing, 140 00:09:15,040 --> 00:09:17,000 Johannes Faul: and the way we think about is this is that 141 00:09:17,800 --> 00:09:22,400 Johannes Faul: if there's less consumer electronics finding their way into the US, 142 00:09:23,400 --> 00:09:26,680 Johannes Faul: because there's less demand within the US generally, but also 143 00:09:27,080 --> 00:09:29,960 Johannes Faul: Chinese products will find it more difficult to compete in 144 00:09:29,960 --> 00:09:33,640 Johannes Faul: the US, there will be somewhat of glut. What that 145 00:09:33,640 --> 00:09:35,920 Johannes Faul: clot's going to be is going to be dependent on 146 00:09:36,240 --> 00:09:40,520 Johannes Faul: how high are the terrors, what's extent our iPhones extent 147 00:09:40,840 --> 00:09:44,720 Johannes Faul: like they look they are, and so forth, But there's 148 00:09:44,760 --> 00:09:47,480 Johannes Faul: going to be a glut somewhat of consumer products. That's 149 00:09:47,520 --> 00:09:52,000 Johannes Faul: our opinion. And what generally supply demand curves mean is 150 00:09:52,120 --> 00:09:55,160 Johannes Faul: when there's when there's an oversupply, it generally puts down 151 00:09:55,160 --> 00:09:58,400 Johannes Faul: with pressure on prices, and I'm talking about shelf prices 152 00:09:58,400 --> 00:10:03,920 Johannes Faul: for consumers. So that's really good news for consumers in 153 00:10:03,960 --> 00:10:07,760 Johannes Faul: Australia because we don't have any terrors that are higher, 154 00:10:08,320 --> 00:10:12,319 Johannes Faul: so we'll get the benefits as consumers. For Jbhi Fi, 155 00:10:13,640 --> 00:10:17,360 Johannes Faul: there's a few things moving part. The one is their 156 00:10:17,400 --> 00:10:22,000 Johannes Faul: cost of goods will most likely drop if there's more supply, 157 00:10:23,360 --> 00:10:27,360 Johannes Faul: but also is there going to be a lot more demand. 158 00:10:27,440 --> 00:10:30,800 Johannes Faul: And we're talking now the top line sales or revenue 159 00:10:30,800 --> 00:10:34,280 Johannes Faul: growth if you like, And what we found over past 160 00:10:34,360 --> 00:10:38,600 Johannes Faul: cycles is generally when the top line growth is sluggish 161 00:10:38,679 --> 00:10:44,000 Johannes Faul: or soft and costs still in flight, that generally puts 162 00:10:44,000 --> 00:10:50,080 Johannes Faul: pressure on margins. So our take really for cyclical retailers 163 00:10:50,679 --> 00:10:53,560 Johannes Faul: like jbhigh Fi is that if there is this flud 164 00:10:53,640 --> 00:10:57,120 Johannes Faul: that we expect, if there are lower prices which we expect, 165 00:10:57,520 --> 00:11:02,640 Johannes Faul: and demand doesn't increase, it's not fully elastic and doesn't 166 00:11:02,720 --> 00:11:07,640 Johannes Faul: increase to offset all those last sales that we expect, 167 00:11:08,720 --> 00:11:11,400 Johannes Faul: then it'll be a slight headwind for Jamie hi Fi 168 00:11:11,800 --> 00:11:14,480 Johannes Faul: and other consumer and drawings retails, but only for now. 169 00:11:15,160 --> 00:11:17,079 Sean Aylmer: It's going to be fun watching it. Hannahs, thank you 170 00:11:17,200 --> 00:11:18,640 Sean Aylmer: very much for talking to Fear and Greed. 171 00:11:19,120 --> 00:11:20,040 Johannes Faul: Great, thank you, Sean. 172 00:11:20,480 --> 00:11:23,400 Sean Aylmer: That was your Hannah's fall Director of Equery Research A 173 00:11:23,480 --> 00:11:25,480 Sean Aylmer: and Z at Morning Star. This is the Fear and 174 00:11:25,520 --> 00:11:28,520 Sean Aylmer: Greed Business Interview. Remember this is general information only, and 175 00:11:28,559 --> 00:11:32,280 Sean Aylmer: you should seek professional advice before making investment decisions. Join 176 00:11:32,400 --> 00:11:34,280 Sean Aylmer: us every morning for the full episode Our Fear and 177 00:11:34,320 --> 00:11:36,800 Sean Aylmer: Greed daily business use for people who make their own decisions. 178 00:11:36,800 --> 00:11:43,440 Sean Aylmer: I'm chan ailm enjoy day.