1 00:00:03,320 --> 00:00:06,410 Sean Aylmer: Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. 2 00:00:06,680 --> 00:00:09,050 Sean Aylmer: Last week was a big week for the tech stocks 3 00:00:09,170 --> 00:00:12,350 Sean Aylmer: and it was all thanks to Afterpay. The thirty-nine billion 4 00:00:12,350 --> 00:00:15,380 Sean Aylmer: dollars sale, or potential sale at least, of the buy now, 5 00:00:15,380 --> 00:00:18,530 Sean Aylmer: pay later market leader to US giant Square lit a 6 00:00:18,530 --> 00:00:21,980 Sean Aylmer: fire under the tech sub-index on the ASX. I wanted 7 00:00:21,980 --> 00:00:23,630 Sean Aylmer: to have a look at how the technology stocks are 8 00:00:23,630 --> 00:00:27,440 Sean Aylmer: travelling now and where the opportunities might be. Elise Kennedy 9 00:00:27,440 --> 00:00:30,620 Sean Aylmer: is the Vice President of Equity Research at Jarden Group. Elise, 10 00:00:30,620 --> 00:00:31,100 Sean Aylmer: welcome back to Fear and Greed. 11 00:00:31,970 --> 00:00:33,500 Elise Kennedy: Thanks for having me on the show, Sean. 12 00:00:33,770 --> 00:00:35,520 Sean Aylmer: So what did you reckon of the Afterpay deal? 13 00:00:36,110 --> 00:00:40,190 Elise Kennedy: Look, I previously talked about Square potentially being a player 14 00:00:40,220 --> 00:00:42,770 Elise Kennedy: in the space, but I hadn't thought that it would 15 00:00:42,770 --> 00:00:46,370 Elise Kennedy: be by inorganic means and taking out one of the 16 00:00:46,370 --> 00:00:50,690 Elise Kennedy: largest market leaders in the space with Afterpay. I think 17 00:00:50,690 --> 00:00:53,300 Elise Kennedy: it's clear, though, from the earnings call that the two 18 00:00:53,300 --> 00:00:57,140 Elise Kennedy: corporate leaders, they've been liaising for a period of time 19 00:00:57,140 --> 00:00:59,720 Elise Kennedy: and they've got a shared vision of what they want 20 00:00:59,720 --> 00:01:02,540 Elise Kennedy: to create and the culture, they seem to be quite 21 00:01:02,540 --> 00:01:04,819 Elise Kennedy: aligned there. And, you know, if you look at where 22 00:01:04,819 --> 00:01:08,780 Elise Kennedy: the stocks traded following the deal, looks as though investors 23 00:01:08,780 --> 00:01:13,070 Elise Kennedy: of both Afterpay and Square received it positively. So our 24 00:01:13,069 --> 00:01:15,650 Elise Kennedy: first take there is as long as they can get 25 00:01:15,650 --> 00:01:18,830 Elise Kennedy: that regulatory and shareholder approvals and a few other caveats 26 00:01:18,830 --> 00:01:22,160 Elise Kennedy: that they mentioned, it's likely that it'll go ahead. Less 27 00:01:22,160 --> 00:01:24,140 Elise Kennedy: inclined to think that there's probably going to be another 28 00:01:24,170 --> 00:01:27,890 Elise Kennedy: bidder just given the alignment. And it seems those conversations 29 00:01:27,890 --> 00:01:28,940 Elise Kennedy: have gone for a while. 30 00:01:29,540 --> 00:01:31,369 Sean Aylmer: What do you think of the price? And I say 31 00:01:31,370 --> 00:01:34,690 Sean Aylmer: that with the view that not that long ago, Afterpay 32 00:01:34,790 --> 00:01:37,220 Sean Aylmer: was trading above $150 dollars, and maybe it was a little 33 00:01:37,220 --> 00:01:39,590 Sean Aylmer: overvalued at that point, but was it, is that a 34 00:01:39,590 --> 00:01:40,459 Sean Aylmer: fair price, do you think? 35 00:01:41,000 --> 00:01:45,110 Elise Kennedy: I think the fairness really comes down to at the 36 00:01:45,110 --> 00:01:47,570 Elise Kennedy: end of the day, you still participate in the upside. 37 00:01:47,840 --> 00:01:51,260 Elise Kennedy: So if you believe the journey of Afterpay, it's not 38 00:01:51,260 --> 00:01:54,620 Elise Kennedy: as though you're forgoing that higher price of $160 as 39 00:01:54,620 --> 00:01:58,100 Elise Kennedy: you mentioned that it hit historically. You've now got a bigger 40 00:01:58,100 --> 00:02:02,150 Elise Kennedy: company because of their merge with Square that you, if 41 00:02:02,150 --> 00:02:05,600 Elise Kennedy: you can hold that stock, actually might see your value 42 00:02:05,600 --> 00:02:07,730 Elise Kennedy: of that go higher than that share price. I think 43 00:02:07,730 --> 00:02:10,970 Elise Kennedy: that's where investors are largely thinking that, look, it's an 44 00:02:10,970 --> 00:02:11,710 Elise Kennedy: OK deal. 45 00:02:12,050 --> 00:02:14,960 Sean Aylmer: Fair enough. Now, look, some of the other buy now, pay later stocks 46 00:02:14,960 --> 00:02:17,810 Sean Aylmer: have done well as a result. Zip Co's the obvious one. 47 00:02:17,810 --> 00:02:19,670 Sean Aylmer: You keep an eye on Zip Co and Sezzle, I believe. 48 00:02:19,880 --> 00:02:22,070 Elise Kennedy: Yeah, we do Look at those two stocks. So Zip 49 00:02:22,070 --> 00:02:25,489 Elise Kennedy: aims to be a first payment choice everywhere every day. 50 00:02:25,490 --> 00:02:29,330 Elise Kennedy: And they have a high amount of transaction frequency because 51 00:02:29,330 --> 00:02:32,420 Elise Kennedy: they've rolled out the Zip Everywhere product. That's a short 52 00:02:32,419 --> 00:02:36,019 Elise Kennedy: term loans. And also you just look at the trading multiple. 53 00:02:36,020 --> 00:02:39,889 Elise Kennedy: They trade on around nine times next 12 months EV (Enterprise Value) sales, 54 00:02:39,889 --> 00:02:42,440 Elise Kennedy: whereas you look at Afterpay it was on twenty-four times 55 00:02:42,440 --> 00:02:45,740 Elise Kennedy: and the deals even higher. So I think that that's 56 00:02:45,740 --> 00:02:48,650 Elise Kennedy: more of our value play that we watch. Sezzle, it's a 57 00:02:48,650 --> 00:02:51,680 Elise Kennedy: smaller operator and even again, it doesn't have a global 58 00:02:51,680 --> 00:02:55,760 Elise Kennedy: footprint like Zip does. They're North American focused with a 59 00:02:55,760 --> 00:02:59,210 Elise Kennedy: longer-term strategy for Europe and other emerging markets. I think 60 00:02:59,210 --> 00:03:02,530 Elise Kennedy: for us with those guys, the challenge is the size, 61 00:03:02,540 --> 00:03:06,050 Elise Kennedy: especially when you've got really big players now of Afterpay 62 00:03:06,050 --> 00:03:08,960 Elise Kennedy: and Square and you've got Apple in the space, you've 63 00:03:08,960 --> 00:03:12,619 Elise Kennedy: got PayPal, it just becomes increasingly hard for those domestic-only 64 00:03:12,919 --> 00:03:16,310 Elise Kennedy: players to really sell their value proposition to merchants of 65 00:03:16,310 --> 00:03:17,500 Elise Kennedy: extra customers. 66 00:03:17,810 --> 00:03:21,260 Sean Aylmer: Yeah, I often wonder about the Splitit's, Openpay, Payright, there's 67 00:03:21,260 --> 00:03:24,350 Sean Aylmer: a bunch of them and Klarna of course, it's getting very 68 00:03:24,350 --> 00:03:26,239 Sean Aylmer: crowded in that sector. 69 00:03:26,750 --> 00:03:28,730 Elise Kennedy: Yeah, I have to agree with you on that. I mean, 70 00:03:28,730 --> 00:03:30,950 Elise Kennedy: on the back of the M&A (Mergers and Acquisitions) activity that we saw with 71 00:03:31,520 --> 00:03:34,070 Elise Kennedy: Afterpay the whole by now, pay later space went up. 72 00:03:34,340 --> 00:03:37,490 Elise Kennedy: But if you step back and you think logically about it, 73 00:03:37,490 --> 00:03:39,680 Elise Kennedy: you just had one of the strongest competitors in the 74 00:03:39,690 --> 00:03:42,440 Elise Kennedy: space just get stronger with the tie-up of one of 75 00:03:42,470 --> 00:03:45,440 Elise Kennedy: the largest fintechs in the space. So it's actually getting 76 00:03:45,440 --> 00:03:48,080 Elise Kennedy: harder for some of those smaller players to compete that 77 00:03:48,080 --> 00:03:51,210 Elise Kennedy: it seems counterintuitive to me that all that buy now, pay later 78 00:03:51,650 --> 00:03:56,510 Elise Kennedy: space went up. So it's increasingly crowded and competitive, especially 79 00:03:56,510 --> 00:03:59,360 Elise Kennedy: if the deal goes ahead, that from our standpoint, we 80 00:03:59,360 --> 00:04:03,440 Elise Kennedy: think you probably prefer to reach those with global footprint 81 00:04:03,440 --> 00:04:05,000 Elise Kennedy: rather than those smaller players. 82 00:04:05,360 --> 00:04:07,970 Sean Aylmer: Now, of course, the tech market here has done really 83 00:04:07,970 --> 00:04:10,490 Sean Aylmer: well in the last couple of years. And the tech index, 84 00:04:10,490 --> 00:04:12,590 Sean Aylmer: which you're going to correct me here, I'm sure, but 85 00:04:12,590 --> 00:04:14,990 Sean Aylmer: it's probably eighteen months to two years old. I don't know, 86 00:04:15,230 --> 00:04:17,210 Sean Aylmer: but it certainly seems to have done well. What about 87 00:04:17,210 --> 00:04:20,330 Sean Aylmer: some of those other names like WiseTech Global and Altium? 88 00:04:20,630 --> 00:04:22,880 Elise Kennedy: Yes, so the tech space, it has done well and is 89 00:04:22,880 --> 00:04:27,529 Elise Kennedy: increasingly contributing to the overall index, as you've noted. So 90 00:04:27,529 --> 00:04:29,240 Elise Kennedy: there's a few other stocks in there, as you mentioned. 91 00:04:29,240 --> 00:04:33,050 Elise Kennedy: So WiseTech, logistics software tapping into a large addressable market 92 00:04:33,050 --> 00:04:38,060 Elise Kennedy: of around twenty-one billion dollars. We view them as ability 93 00:04:38,060 --> 00:04:42,200 Elise Kennedy: to grow their revenue organically, around twenty per cent over the 94 00:04:42,200 --> 00:04:46,600 Elise Kennedy: next five years, driven by increasing module usage, global rollouts, 95 00:04:46,610 --> 00:04:51,140 Elise Kennedy: some of those acquisitions that they made adopting that CargoWise platform, 96 00:04:51,140 --> 00:04:53,810 Elise Kennedy: which is the name of their software, and also just 97 00:04:53,810 --> 00:04:57,230 Elise Kennedy: into this result because they are reporting over this reporting 98 00:04:57,230 --> 00:05:01,130 Elise Kennedy: season freight trade volumes, which they're leveraged to are at 99 00:05:01,130 --> 00:05:04,710 Elise Kennedy: all time highs. So they've had a really strong recovery, and 100 00:05:04,710 --> 00:05:08,339 Elise Kennedy: that should be a benefit for WiseTech. And then Altium, 101 00:05:08,339 --> 00:05:11,490 Elise Kennedy: they're really pretty guarded in their result. The challenge we 102 00:05:11,490 --> 00:05:13,890 Elise Kennedy: see for that stock, even though it is a tech stock, 103 00:05:14,160 --> 00:05:16,940 Elise Kennedy: is again going back to the addressable market. It's, in 104 00:05:16,950 --> 00:05:19,739 Elise Kennedy: our view, a bit too small at $1.2 billion to be 105 00:05:19,740 --> 00:05:24,420 Elise Kennedy: able to sustain the multiple that it currently trades on. Essentially, 106 00:05:24,420 --> 00:05:26,970 Elise Kennedy: you think if you have to deliver over 20 per cent 107 00:05:26,970 --> 00:05:30,870 Elise Kennedy: revenue growth to justify the 16 times EV sales multiple 108 00:05:30,870 --> 00:05:33,270 Elise Kennedy: that it's on but to do that, it means that 109 00:05:33,270 --> 00:05:34,830 Elise Kennedy: they essentially have to have about one hundred per cent of 110 00:05:34,830 --> 00:05:37,980 Elise Kennedy: their market. So it doesn't really make sense where valuations 111 00:05:37,980 --> 00:05:40,710 Elise Kennedy: trading and it hasn't pulled back from a bid that 112 00:05:40,710 --> 00:05:43,500 Elise Kennedy: they got. So it's still quite expensive. I think it's 113 00:05:43,510 --> 00:05:46,500 Elise Kennedy: a good company, good management, but it's just valuation that's hard 114 00:05:46,500 --> 00:05:47,360 Elise Kennedy: to stack up there. 115 00:05:47,730 --> 00:05:49,200 Sean Aylmer: So that one might be a bit small, but one 116 00:05:49,200 --> 00:05:51,090 Sean Aylmer: who is no longer small has done a great job 117 00:05:51,089 --> 00:05:52,320 Sean Aylmer: in recent times is Xero. 118 00:05:52,589 --> 00:05:56,640 Elise Kennedy: Yeah, look, that stock's from little Kiwi space to now 119 00:05:56,640 --> 00:06:00,810 Elise Kennedy: a large contributor to the overall index and continuing to grow. 120 00:06:00,810 --> 00:06:03,300 Elise Kennedy: It is one of our top picks here at Jarden. It's 121 00:06:03,300 --> 00:06:07,800 Elise Kennedy: got a $74 billion dollar runway for growth and adoption 122 00:06:07,800 --> 00:06:11,010 Elise Kennedy: of accounting software is still less than 20 per cent. And 123 00:06:11,010 --> 00:06:14,279 Elise Kennedy: they've shown their ability to really compete in that space, 124 00:06:14,279 --> 00:06:16,560 Elise Kennedy: especially even against some of the incumbents. You think when 125 00:06:16,560 --> 00:06:19,799 Elise Kennedy: they came to Australia, we had MYOB, which is now 126 00:06:19,800 --> 00:06:25,050 Elise Kennedy: taken private. They were a very strong, formidable competitor. And yet, 127 00:06:25,350 --> 00:06:29,250 Elise Kennedy: with that, Xero was still able to take a strong 128 00:06:29,250 --> 00:06:32,370 Elise Kennedy: foothold in the market. And then they're also now pursuing 129 00:06:32,370 --> 00:06:35,310 Elise Kennedy: other areas of growth like platform revenue. And they just 130 00:06:35,310 --> 00:06:38,010 Elise Kennedy: released the other day that they're going to start charging 131 00:06:38,250 --> 00:06:40,739 Elise Kennedy: for the App Store again, that should just drive the 132 00:06:40,740 --> 00:06:44,279 Elise Kennedy: combination of more subscribers, higher pricing with those add on 133 00:06:44,279 --> 00:06:47,969 Elise Kennedy: cross-sell products and helpful for the margin as well because 134 00:06:47,970 --> 00:06:49,830 Elise Kennedy: you're selling to the existing customers. 135 00:06:50,020 --> 00:06:52,669 Sean Aylmer: Yeah, I mean, I always think Xero and you mentioned MYOB, 136 00:06:53,370 --> 00:06:57,450 Sean Aylmer: Intuit QuickBooks, it seems like there's enough room for almost 137 00:06:57,450 --> 00:06:58,560 Sean Aylmer: all the players in that one. 138 00:06:59,010 --> 00:07:01,530 Elise Kennedy: Well, that's what we think as well. Everyone says, oh, 139 00:07:01,529 --> 00:07:04,920 Elise Kennedy: do you worry about the competitive landscape of Intuit and 140 00:07:04,920 --> 00:07:06,630 Elise Kennedy: a few of the others? And I think if you 141 00:07:06,630 --> 00:07:10,200 Elise Kennedy: look across the landscape of devices and software that you use, 142 00:07:10,200 --> 00:07:13,560 Elise Kennedy: for example, you've got people that like Apple better than Android. 143 00:07:13,560 --> 00:07:16,620 Elise Kennedy: I think of this space similarly in that, you know, 144 00:07:16,650 --> 00:07:20,040 Elise Kennedy: you don't need to have a one player eats all model. 145 00:07:20,040 --> 00:07:22,280 Elise Kennedy: It can be a healthy oligopoly. 146 00:07:22,680 --> 00:07:24,930 Sean Aylmer: Stay with me, Elise, we'll be back in a minute. 147 00:07:30,140 --> 00:07:32,840 Sean Aylmer: My guest this morning is Elise Kennedy, Vice President of 148 00:07:32,840 --> 00:07:36,920 Sean Aylmer: Equity Research at Jarden. Now, Elise, what about the property plays or 149 00:07:36,920 --> 00:07:40,489 Sean Aylmer: the online property plays, REA and Domain? Now, I worked 150 00:07:40,490 --> 00:07:41,780 Sean Aylmer: at Fairfax for a long time and had a lot 151 00:07:41,780 --> 00:07:44,360 Sean Aylmer: to do with Domain so it's always close to my heart, 152 00:07:44,570 --> 00:07:46,970 Sean Aylmer: though I must say REA has done a cracking job 153 00:07:46,970 --> 00:07:48,820 Sean Aylmer: in that space. What do you think of those two? 154 00:07:49,170 --> 00:07:54,410 Elise Kennedy: Yeah, they are very well held household names, excuse the pun, there, 155 00:07:54,470 --> 00:07:58,380 Elise Kennedy: but we are positive on the housing market as a whole, 156 00:07:58,400 --> 00:08:00,980 Elise Kennedy: just driven by the view of house price growth. And 157 00:08:00,980 --> 00:08:04,040 Elise Kennedy: that tends to drive the listings volumes, which is you 158 00:08:04,040 --> 00:08:06,890 Elise Kennedy: think more listings on there, the more money these guys 159 00:08:06,890 --> 00:08:10,100 Elise Kennedy: can make, because that's how they make their revenue, particularly 160 00:08:10,100 --> 00:08:12,680 Elise Kennedy: as you start to see or you might get stamp 161 00:08:12,680 --> 00:08:15,530 Elise Kennedy: duty changes. Again, that's something that bodes well on listings 162 00:08:15,530 --> 00:08:19,310 Elise Kennedy: volumes because it should increase housing turnover. The only caveat, 163 00:08:19,310 --> 00:08:22,690 Elise Kennedy: I think, to those stocks right now is in lockdown. 164 00:08:22,940 --> 00:08:25,790 Elise Kennedy: We don't know when that ends. The market's holding up 165 00:08:25,790 --> 00:08:30,020 Elise Kennedy: well so far. Consumer sentiment is still positive, but we just 166 00:08:30,020 --> 00:08:32,939 Elise Kennedy: don't necessarily know where that's going to pan out longer term. 167 00:08:33,230 --> 00:08:35,600 Sean Aylmer: OK, so going through all those, Xero is almost your 168 00:08:35,600 --> 00:08:38,780 Sean Aylmer: top pick, I think you said. Why is the Australian 169 00:08:38,780 --> 00:08:42,350 Sean Aylmer: tech sector so much better now than it was five 170 00:08:42,350 --> 00:08:43,970 Sean Aylmer: years ago or have I got that wrong? 171 00:08:45,260 --> 00:08:48,319 Elise Kennedy: They're definitely making a bigger contribution. I think it's just 172 00:08:48,320 --> 00:08:52,189 Elise Kennedy: a matter of the adoption curve. So, you know, if 173 00:08:52,190 --> 00:08:57,020 Elise Kennedy: you think about early-stage technology in the environment, if you 174 00:08:57,020 --> 00:09:01,010 Elise Kennedy: go back several years, you weren't necessarily using your computer 175 00:09:01,010 --> 00:09:03,180 Elise Kennedy: and a lot of the add ons that you might 176 00:09:03,179 --> 00:09:07,340 Elise Kennedy: be using today. So I think what we're seeing is us, 177 00:09:07,340 --> 00:09:11,570 Elise Kennedy: from our standpoint as consumers, really starting to adopt technology, 178 00:09:11,570 --> 00:09:15,470 Elise Kennedy: use it and therefore pay for it. That has, as a result, 179 00:09:15,480 --> 00:09:19,820 Elise Kennedy: seen these companies start to make larger contributions. And also 180 00:09:19,850 --> 00:09:22,730 Elise Kennedy: a lot of them as well have started to really 181 00:09:22,730 --> 00:09:26,300 Elise Kennedy: get a foothold globally and find that playbook. So I 182 00:09:26,300 --> 00:09:30,920 Elise Kennedy: think that we're still yes, it's larger than it was historically, 183 00:09:30,920 --> 00:09:32,870 Elise Kennedy: but I still think we've got a real long way 184 00:09:32,870 --> 00:09:36,080 Elise Kennedy: to go with the tech sector. And you'll see from Australia, 185 00:09:36,080 --> 00:09:39,120 Elise Kennedy: we're putting a lot of investment into growing that space. 186 00:09:39,460 --> 00:09:43,880 Sean Aylmer: OK, what about the, I mean, retailers come to mind. The e-commerce plays, 187 00:09:43,880 --> 00:09:46,430 Sean Aylmer: I'm not sure whether they're quite tech stocks, but they seem to 188 00:09:46,429 --> 00:09:51,449 Sean Aylmer: be heading towards tech stock status. And Kogan.com, Temple & Webster, I know that 189 00:09:52,309 --> 00:09:54,080 Sean Aylmer: they still sell products, but I always think of them 190 00:09:54,080 --> 00:09:55,110 Sean Aylmer: as tech stocks almost. 191 00:09:55,640 --> 00:09:58,700 Elise Kennedy: Yeah, I have to say that there is some elements 192 00:09:58,700 --> 00:10:01,280 Elise Kennedy: that's tech to them, especially the utilisation of some of 193 00:10:01,309 --> 00:10:05,390 Elise Kennedy: the data and ensuring that they can use AI (Artificial Intelligence) to 194 00:10:05,390 --> 00:10:11,439 Elise Kennedy: tailor their offerings to you as an individual. I do, though, note, however, 195 00:10:11,690 --> 00:10:16,360 Elise Kennedy: often they're challenged to some extent because they're often localised. 196 00:10:16,640 --> 00:10:18,740 Elise Kennedy: Now you think you've got Amazon. It is global, but 197 00:10:18,740 --> 00:10:21,170 Elise Kennedy: it does have that stronger footprint over in the US. 198 00:10:21,440 --> 00:10:24,650 Elise Kennedy: Kogan's more domestic here. So tech plays, but there's probably 199 00:10:24,650 --> 00:10:27,620 Elise Kennedy: a few other unit economics that make them not as 200 00:10:27,620 --> 00:10:30,170 Elise Kennedy: high valuation as perhaps some of those others that can 201 00:10:30,170 --> 00:10:32,210 Elise Kennedy: easily roll out their model globally. 202 00:10:32,510 --> 00:10:34,579 Sean Aylmer: Fantastic. Elise, thank you very much for talking to Fear 203 00:10:34,580 --> 00:10:35,329 Sean Aylmer: and Greed this morning. 204 00:10:35,600 --> 00:10:37,040 Elise Kennedy: Great to be on the show. Thanks, Sean. 205 00:10:37,520 --> 00:10:40,460 Sean Aylmer: That was Elise Kennedy, Vice President of Equity Research at 206 00:10:40,460 --> 00:10:41,329 Sean Aylmer: the Jarden Group. 207 00:10:41,600 --> 00:10:43,460 Sean Aylmer: This is a Fear and Greed Daily Interview. Join me 208 00:10:43,460 --> 00:10:46,250 Sean Aylmer: every morning for the full Fear and Greed podcast with 209 00:10:46,250 --> 00:10:48,540 Sean Aylmer: all the business news you need to know. I'm Sean Aylmer. 210 00:10:49,160 --> 00:10:49,880 Sean Aylmer: Enjoy your day.