The Most Overlooked Commodity Opportunity? (Vas Piperoglou)
Summary
In today’s episode, we’re joined by value investor Vas Piperoglou. Vas is the co-founder and chief investment officer of Collins St …
Transcript
JD, when I ask you of the fund managers that you really have similar investing style to, one of the people you always name is Vass Bednar of Collins Street. And lucky us, we got to speak with him in the very flesh. That's true, mate. We love talking with Vass. We really like their style of how they go about their business at Collins Street Value, as you'll get from the show. And being the third time we've now spoken with him, I find it fascinating to see how a lot of the themes have evolved as you'll pick upon in the conversation. So, let's jump into our chat with Vass Bednar. We pulled out a new theme for him as well at the end. Stay tuned. All right, Vass. Thank you for joining us. We're We're over in Melbourne again. We're excited to be chatting with you. There's There's never a shortage of things happening in this this wider world. And as I mentioned to you just before, I was I was listening back to our conversation about a year ago. And some of your calls were just fantastic. They were spot-on. And it does leave me wondering with about what is happening in some of the big themes that we love to follow, namely gold to start with. You made the comment that when silver goes crazy, you know we're pretty close to the top. And we were already reflecting back then that we might be, you know, at least halfway through that sort of cycle. So, let's start with gold in the big picture. How you seeing that play out right now? Um Well, I mean, I can tell you what we've done, which I guess is reflective of how we're seeing things. So, we we have taken quite a bit of profit off the table. Um I did get very nervous when silver went parabolic. And uh for the gold fund, that's that's predominantly when we took our first sell down. Um Yeah, look. I don't even know where to start in in the crazy world we're in. I I I think it's easy to say, you know, some of the easy gains have been made, clearly. When it's in the newspapers every day, when as you were saying before, when when people were lining up um at ABC wanting to buy, um you know, uh usually usually that's that's a sign that everyone's already on to kind of the trade or the thematic, but but, um, you know, I don't think it's, you know, I don't think it's about to collapse, but but, you know, certainly the easy money's been made. We've taken quite a bit off the table. We still have exposure, but nowhere near as much as we did previously. Um, but I think it's fair to say that the ironic thing is I still think institutional ownership, and I don't have a figure in my head, but I still think from a historical basis they're still underweight to the sector. So, yeah, it's, uh, it's interesting. Yeah, you you you hear that number that got flashed around quite a bit of people starting to think maybe you need 10, maybe you need 20% of your port- portfolio in gold. We're nowhere near that kind of happening, but another number you threw out was that through this cycle you might see gold 5x, and we did that from the low you mentioned at 1,000. We hit we smashed through 5,000 earlier earlier this year. Now, granted, you know, history rhymes, it doesn't repeat, but it's quite a cycle. >> Yeah, look, again, my the the figures of 5x, you know, uh, from memory, it was based on the last three previous gold cycles from trough peak. I think the lowest the lowest was a 5x, and so to be conservative, you know, we're we're normally conservative investors, we thought, all right, let's pick the lowest. Um, I think gold trough in this cycle, I think it was slightly above 1,000, but we just rounded it down to 1,000, and then times it by five, it was 5,000, and and yeah, we did reach that level. Um, and yeah, I mean, if I had to think as a percentage, we've we've we've taken three quarters off the table. Um, so yeah, it's it's it's been interesting, but but but and and why I still I still think there is asymmetry, as crazy as the gold price has gone, um I think it's fair to say, and if you disagree, happy to hear it, but but the equities have clearly still underperformed the move in the commodity in general. Uh sure, you can get anomalies um out there, but yeah, so so I still think the equities, assuming gold doesn't collapse or fall much further from now, you still think the equities, and and especially with the analysts are putting in their forward go you know, kind of forecast, they're they're still not using, in my opinion, gold price that reflects current reality. Yeah, these sell-side analysts aren't known to be too conservative, either. So, it is it is kind of interesting to to marry up those points. You look at previous cycles, and these things were marked on two times NAV, three times NAV at times. Well, you you did pick up a number of the the smaller players within the portfolio, as well as some larger names, as well, but would you have expected more M&A this this sort of far into the journey, or you think we're kind of par for the course there, as well? Um would I expected more M&A? I I >> [clears throat] >> To be honest, uh I think I think, in my opinion, I didn't expect the bull market to move as quickly as it did. Like I mean, it was only a year ago, right? Like um I think for our precious metals gold fund, uh you know, we we only set it up a couple of years ago, and and did I expect the thesis to pan out within a couple of years, and you know, us return three quarters of money to investors? No. So, so so, it's happened quicker than I would have thought, which then means, clearly, uh there hasn't been enough time for the M&A to play out. So, I still think it would be playing out. Um am I surprised it hasn't happened as quickly? Yeah, not not really. I you know, you could argue maybe it's moved so quickly that it's caught everyone off guard. I'm a big fan of these these special situations, you know, theme specific funds. I mean I mean the the resounding kind of theme across your your investing like experience today is is is being earlier along these like cyclical themes, of course. Uranium, then you know, oil services and gold. So, it's been three times, yep. And and these are these are these are capital intensive like industries. The the reason that they're exciting in a special situation is because you're at the wrong end of the capital cycle. You can be patient and then wait for the incredibly exciting turnaround which can happen faster than you expect, but these vehicles they they they have to expire definitionally because there's a a cycle the cycle changes. So, it changes your whole mentality as an allocator of capital where you're normally just trying to accrue as much fund as possible because it's it's a different way to think of it. Yeah, well, I won't mention the name, but we last week we we spoke to one of the rating agencies that it might be rating Actually, we just launched a global long only equities fund and we're looking to get that rated and and they they didn't understand how we've returned so much to our investors. I was like, "You're So, you're shrinking your business." And I'm like, "Well, yeah, if you want to look at it that way, but but the intention from the start was always to return as a closed ended fund, right? And hopefully you return more than not, which means you've made your your investors a lot of money. Yeah, I think I think the special situation funds and again, it's only been three times we've played thematics over really been 10 years. So, Coller Capital has been around for 10 years. I think it's in my opinion the perfect vehicle for playing, as you said, capital intensive cycles. Um And yeah, we're I wish I I before today's meeting I tried to think of what what do I think's the next thematic? I actually don't have one. So, That was one of my questions. >> [laughter] >> I don't have one, but when I do, I'll let you know. Yeah. Yeah. Well, I mean, it's that how you structure the fund. Trev mentioned before how excited I am whenever I get back from having spoken with you because that how you set up the fund from the beginning, having the alignment with the the with how you think about management fees and these sorts of things always made it such a um such a contrast to many of the other funds out there and and it made it really really interesting and there's a there's another investor we we spoke not too long ago. I think there's a lot of commonality um from the school of thought of like Marathon Asset Management, the Capital Cycles book. Yeah, yeah. And there and >> Good book. Yeah. And there it was one on on the shelf behind us when we we spoke last time. So, I would have thought there's a lot kind of in common. If we look at one of the other ones, the oil services, >> Yeah. another comment you made is I would expect more consolidation and that one had a bit of a pause in it. >> It did. >> And and it's picked up again. It did. It in fact, so if we if I with that fund, um it's actually actually gone longer than I would have expected because of the lull we've seen over the last year and a bit. And to be honest, there was one holding in our fund, uh which we were hoping uh there would be some M&A and it it it took a year longer than we would have thought. Uh Matrix. >> Matrix, yeah. And and uh I mean, I don't think I'm talking out of school. Yeah. Before the deal was inked, we we were pretty instrumental in making that price happen. Um So, we were kind of involved. Uh but but yeah, it took took 12 at least 12 months longer than I would have thought. Um but yeah, that industry uh I mean, Valaris um and uh Transocean, um obviously recently uh decided to come together. Obviously, Matrix getting taken over by um AIH I just know the stock code, AIH. Yeah. Um and so, yeah, it it was a lull, but I think Oh, I don't know if we thank Trump or not, but it's back with a vengeance. Yeah. All the way to the big end of town like I think Schlumberger was a holding previously in the fund. It might still be. >> Yeah, it's still It's actually still in the fund. Um but we once Matrix um gets taken over and I think it's the deal's likely to uh conclude end of July, but then we're going to be closing that fund um and and be selling the underlying investments and and we we only have I think four holdings left and yeah, Schlumberger is still in there. Yeah. That that Matrix position I do want to I do want to like untangle like the thesis going into it and also Collins Street's role in that deal because the ultimate acquirer and Ascent might have been a few um iterations of things, but but there was a call option involved. >> Yeah, yeah, so I mean, it's in the public domain, so it's I'm happy to just kind of disclose how that came about. So, well, I'll take a step back. Originally, the reason why we got interested in Matrix one of the things as a fund manager as opposed to PA Investments is, you know, you got to be cognizant of how much money you're managing and and kind of target opportunities that Yeah, I'm not saying all mega caps, but are liquid enough to buy enough to make a difference. So, Matrix actually originally was just a PA position and it was uh it was a weird situation where you know, we I could witness the downturn in the in the offshore oil services sector. Um specifically with the buoyancy products that Matrix um obviously uh produces and sells. And and so, clearly huge downturn in the industry. I was starting to see green shoots. So, then I I I called the management of Matrix, quizzed them a bit and I'm like, okay, I think this industry is about to turn. It's it's uh very liquid. How do I even get stock? I'm not even going to waste my time for Collins Street. So, it was I literally at the time, I think it was Paradise and Forager. And, uh, I'm like, I called my broker. I said, "Look, I don't expect they're going to be selling, but can you just approach Paradise and Forager? I'm interested to buy the shares." I think it was myself and my father, PIA. So, I remember it was 13 cents. I said, "I just bid them 13 cents." Not expecting to get anything. And, I got a call back saying, "Yeah, they both of them want to sell everything. Do you want to?" I'm like, >> [laughter] >> "Oh, shit. Okay." Um, so that was that was the initial kind of, uh, thesis behind Matrix. And then, obviously, I do believe in, you know, whatever you own, whether it's for the right or the wrong reasons, you do get to know more intimately, right? Cuz you own it. Um, then we started looking in further, then, uh, made a call to Matrix. I'm like, "Well, they obviously need some capital to grow. The equity market still didn't believe the sector had turned, even though you saw green shoots." So, we we offered them money in a convertible note. Um, which they took. Um, and then after that, we did buy some shares, uh, for the offshore oil services fund. I think there was a raising. Can I curve over the prices? I think it was 18 cents, uh, an equity raising. Um, and then fast forward to probably 12 to 18 months ago. So, yeah, it was clear to me that, uh, IIH wanted, uh, to look at consolidating, um, that sector. And, I think the difficulty was at the time they they weren't listed. So, they were privately owned, um, a UK company. And, the the the original offer was complicated because it was predicated on a successful listing. Um, and the price they wanted to list at it was quite hefty. I think for Memory originally they wanted to list at 10 times EV to EBITDA. And we're like, "Mhm." So so they had too many conditionalities to that. So then uh I think rightly the board of Matrix kind of didn't engage even though the headline price was 40 cents. But it was 40 cents based on AIH actually listing at 10 times EV to EBITDA. So yeah, I think Matrix management did the right decision. They they they you know, they didn't engage. Um they decided to wait till it actually did list. Um and they actually did list, but I think they listed at eight times instead of 10 times even though earnings were going up. Um and then uh recently they approached AIH approached the largest shareholders uh I believe at the time. Um um and I think it was a direct reach out. They they wanted kind of shareholder support before they approached the company. And yeah, they uh they came uh to myself. Um and uh yeah, they offered a price that I I didn't think it was acceptable and um and they said, "What do you want?" I said, "What What What was the previous price?" I said, "40 cents." Well, I said, "40 cents." And they said, "What did you base it off?" And I think I said "Just 40 cents or you can go away." Um and then and then they came back and they said, "All right, well, if it's 40 cents, but we want to lock in your shares uh um through uh an options deal. And we don't normally do that cuz we don't normally like to get locked in because what happens if there's a competing bid or Sure. you know, but yeah, they locked us in. We thought there was a low likelihood of a competing bid at that level. Uh the options obviously would force management to take the bid seriously. Um and it was cash by the way. It was a cash bid. It wasn't um script bid. Um and so yeah, that's kind of the background of of the deal. Did Did you think at any point it'd be interesting taking stock AIH stock along So So, I was actually open-minded uh for my personal and family holdings to consider script. Um I'm going to have to disclose. We're We're actually Collins Street Value Fund is actually a shareholder. We've bought stock on market. So, we actually like AIH. Think there's huge synergies with Matrix. Very good management. And always like when industries no one cares about goes from uh three competitors down to two. Um You know, if with pricing power and all that, but uh so, I was open-minded personally, but because the offshore oil services fund I knew was, you know, we wanted to wind it up. You know, clearly cash was more preferable. Um and I think what actually happened was because AIH is below its uh listing price of a dollar, I think they themselves thought they were cheap and didn't want to issue their script um at a low price. So, the cash component actually came from them. So, Vash just there talking about great alignment with unit holders, people invested in his funds. Made me think of another group that we love to talk about, Trav. Alignment is a hard thing to get right. Exceed Capital, they have thought about this diligently. And that I think they I think they've got a a model of commercial property investment vehicle that has very strong alignment with its investors. You know why? Cuz they are investors in a very meaningful way. That's true. As well as the management fees that only go to them if you make money on your investments. They are targeting a 7 to 8% cash return paid out via monthly distributions, and that doesn't even include the capital uplift you see on the property as well. It's a private investment vehicle. The Collective Flagship Fund, five commercial properties in there. Check it out on the website, Money Miners. Go Exceed Capital. So, in in your latest quarterly >> Mhm. I think there was a a headline to to a piece that was written there that oil was set to explode before all this started. I'd love to hear your framework about that right now. Yeah. Um so our view was and I guess it still is is I think a lot of people miss I guess you could argue on on on all commodity cycles and thematics. People always miss and everyone's concentrated on the the demand the demand the demand but you know, usually speaking most commodities the demand you know, on average is pretty easy um to model out and it's usually increasing population growth. Uh it's the supply side. So again, I don't know the figures people are quoting but you know, billions of dollars a day in uh uh CapEx that should be spent just so that the supply of global oil remains constant. Obviously, oil um is a depleting asset and so you've got to constantly invest just to make sure that you you you know, you stay constant on the supply side and and I still think uh because of the shale revolution uh which I think is on its legs just because the the best oils um has already been taken out of the ground. I still think there's an under investment in supply and so I you know, I guess the premise of that uh that comment in our most recent quarterly was it was always going to come home to roost. So when the supply side is always not catching up it's always there's always going to be a trigger. So what is the trigger? You know, you never know what the the catalyst is but but you know, the Iran war could be the catalyst to eventually get supply to wake up. The the cornerstone of the capital cycles book we we referenced before focus on supply not on the demand. Yeah. But that's with everything and I I don't know it's like to me it's e- it's easy to see it but I don't know. Yeah, I I think the hard part is you can see it and you can be right, but if you're sitting there for 5 years and then eventually get proven, well, are you right or you wrong? Time value of money. I think the the key the key is that catalyst, finding the catalysts whilst the prices are still cheap. So, whilst the market's still asleep, I think that's generally the key. It is yeah, it's reminiscent of your your uranium trade where you were certainly too early. You know, it could be it could be argued, but um We were too early. That the the I guess it's if you had to choose between being too early or too late, you'd probably be too early. But then in that thematic, where we were wrong, not wrong, but what we missed out and I guess still to this day there's no way of anyone actually putting their finger on it was the amount of inventory just out there. Because it's strategic, cuz you know, it's associated with nuclear weapons, I guess, and you know, confidentiality and it's you know, it's a very efficient commodity like, you know, um you know, unlike bulk commodities where you need a lot of room to store, you know, because the value is is a low value item. Obviously, uranium, yeah, no one actually knows how much inventory there is on a world basis. And I think that's why it took 3 years effectively from when we entered to when it actually started to move. But then I remember then 6 months, I think everything fired back. There was nothing for 3 years. Goldberg hitting me on the shoulder saying, "Are you sure we're right? Are you sure we're right?" And then in 6 months it fired back. I want to I want to ask Bass we're fresh off a conversation with with Rusty and um I know that you know Rusty well as, you know, both both being substantial quite large shareholders of of Canavan together. And in fact, at one point the both both Nero and and Colin Street jointly um yeah, jointly declared an association for purposes of of challenging the the board dynamics at Carnarvon. So, a clear kind of activist intent. Then things have have since changed. There is different a different board at Carnarvon. Rusty was fighting the good fight for for the merits of Dorado to to move ahead on our podcast recently. So, I I do want to like firstly just ask about your investment in Carnarvon right now. Did you think it would take as long as as you think the share price would still be, you know, roughly kind of net cash and liquids as it is right now? I mean, the answer is no to both. Am I happy? No. Did I think it would take as long? No. Yeah, look. I guess again there's always a risk in all projects where if you're a minority partner that the majority holder or operator calls the shots. So, so uh did I envisage Santos to be so slow and to not show that you know, one of Australia's I think best um oil prospects ever found in the last 50 or 60 years, did I still think nothing would happen? No. Um so I am very surprised by that. Uh and I guess you know if you look at the current Carnarvon share price clearly no one cares. As you said, it's it's if you add the value of their Strike investment plus cash plus 90 million US free carry um you know and these are hard assets, right? Well you know, it's significantly above the current share price and that's not even valuing the economics of the 10 their 10% share in Dorado. You know, so yes, it's frustrating. Uh I still believe uh eventually something's going to get done um on Dorado. Again, I I don't know if there's much truth to it, but I've seen quotes and I think Carnarvon had a presentation yesterday or the day before where they quoted um the CEO of Santos saying, "Oh, now it's a priority." Um after the Iran war Okay, mate. Thank you. Um Uh so, I I think something will happen. The timing is very disappointing. Um obviously, it's hurt our IRR on that investment. Um But yeah, it's uh you know, nothing has happened and then when it will, it will, you know, in my opinion, happen overnight and everyone will be like, "Oh, that's interesting. The stock doubled." Well, yeah. Well, it's uh it's cheap. Yeah. I And yeah, I I always describe Carnarvon like that to people. It's like you could wake up one day and the stock's up 300% because the catalyst that was required I mean, you could look at it another way. And again, I wish our average price was where the current price is, but it's not. Um I think average is about 16. So, it's not that bad, but it's still not good. Um you know, you you flip it. If you believe that, you know, we're going to need oil for the foreseeable future, um and you you like to invest in asymmetry and asymmetry obviously low downside, reasonable upside. You know, I don't I don't know what the downside based on hard assets and cash and investments in Carnarvon is. Uh but it's it's you would think there's not much downside. Um Again, it's not investment advice, but just based on mathematics. So, you know, it's pretty asymmetry. Um frustrating. Um but I guess I guess you got to take the good with the bad, right? Like that one's taken a lot longer than expected and on the flip side, I guess the gold the gold's moved quicker than we would have um expected as well, so Sometimes you can be too early, sometimes sometimes just in time. >> But but you know, always what I like to do with investments um is when you make an investment, it's always good to look back at, you know, the the information at the time for you to make your judgment and and again, you know probably still would have made the same decision um cuz we just never would have thought that again, one of Australia's best oil finds over the last 60 years with with the lowest the lowest opex. I think they they break even is like $15 a barrel. Um just never thought Santos would be so slow and uh not a personal thing, but yeah, I'm just not the biggest fan and and not not not necessarily related to Dorado. I just think um everything he's done I'm not the biggest fan of the current CEO of Santos. If if I yeah, I think of the the Carnarvon precedent um to to us at least but there was an observation that okay, like Collins Street has some some some activist still when required to oriented on their investments and Carnarvon's not the only time that's come come out publicly there's um yeah, clearly been some some some joint support for for the campaign at home group as well Oh, yes. joining with um Jeremy. Yes. So, I I I do want to >> That's a live one. It is a live one. Um I wasn't sure if we're going to jump into this. >> It's particularly interesting. >> Yeah. But I really before you address that that that specifically, I do just want to understand how you think of of of activism. How you think of you know, the the times where Collins Street >> That's a good It's a good question. I'll be honest and people might be be I actually hate doing it. Uh like again, we're human beings, right? We're lazy. I'd much rather just buy a share, sit at my desk and watch it go up. You know? You know, I'd much rather work with management. So, it's a rarity for us. But, but we're willing to do it. Where I think a lot of other fund managers aren't willing to do it. Whether I don't know why, but they think it's bad for their reputation or they can't be bothered or they don't want to spend the money. Um so, we're willing to roll our sleeves up, but it's it's like Put Let me put it this way. I had no inclination when we first invested in Harmed that I would ever be doing this. So, you know? But, we're in it. Um you know, we're we're I guess pot-committed. So, you know, when when circumstances change and we we feel like that we we need to make a stand, um we will. How much does the lack of liquidity play into this? The fact that it can be difficult for for a fund to to get out of these kind of positions. Uh that's a good question. Well, I think it's fair to say due to a I mean usually speaking, if if it's not the most liquid company, then it's obviously not the most not the largest company. And we don't manage billions. I think we manage I can't remember about 400 million at the moment. So, so if it wasn't liquid, then we probably wouldn't have a larger stake to actually have a voice. That's number one. Um number two, you know, a lot of the times, we're not scared to to sell a stock, whether it's liquid or or illiquid, at a loss if we thought our our thesis was incorrect. We've done it, you know, not often, but we've done it. And and so, you know, it's fair to say that I you know, if the fundamentals don't stack up and it's an illiquid stock, you know, we're not going to be just agitating, just trying to make money. Um and so we still believe in in in the business of Harm. We still think there's huge value. It's still trading at huge discount. Unfortunately, we think the discount is there maybe because of um you know, what management have done. Um um So, yeah, I mean, that's yeah, Harm Harm's a Harm's a live one. How's it end? Um Well, I think there's two two outcomes, right? We we either uh we either come to an agreement with management to kind of you know, have a have a resolution where we're happy and and and they're a little bit happy and and and you know, maybe maybe we call the meeting off. Or on the flip side, we continue uh it's fair to say obviously, I know the numbers, right? We're so so this general meeting that we've called, I think it was called a two 249F where we call the meeting we use our own share registry, votes come to us. And so, uh all I can say is we've got a lot of support and and there will be management change um if it heads to the vote. The the difficulty is the vote keeps getting delayed because of this crazy takeovers panel process that's been really elongated. Um um And so, I've actually lost track. I think the meeting's meant to be held next week. But, it might get delayed again. Yeah. If I If I Yeah. To elaborate JDs comment on on liquidity. Mhm. One observation I have about um some of the most phenomenal investments that Collins Street has made is they are often in illiquid companies, but those are positions that were acquired by virtue of a convertible note which allowed um allowed Collins Street to maybe maybe get a a s a s like a sizable claim on the equity upside while also protecting the downside in these illiquid names which subsequently became very liquid when the cycle turned. >> Yeah, that's true. That's true, but but I think and why we haven't done many convertible notes you know, over the last one or two years, we did a lot more before then. I still think the market right now still in general I think hates I don't know, hates convertible notes because they always feel like there's going to be that overhang once you convert. And so, you know, in in normal times convertible notes are brilliant because obviously your downside is limited because, you know, you're effectively a um a secured debt holder of company, but then you've got equity like upside. So, you got unlimited in theory unlimited upside, good downside. But, I just feel now convertible notes and again why we haven't done a lot recently is you tend to find you don't actually get that upside. Like I'll give you an example like Matrix we did it. And you know, they paid us out at the end. Shares never really went that crazy when we were holding the convertible note um for us to convert. Like I would love to convert. Um especially take 40 cents on the AIH deal, but but it it didn't happen. The the note came up for maturity. Um and at the time I think the shares were trading at 25 cents. Our conversion was 30 cents. Yeah. It's like well you know, we're a fund manager. How can we convert an order and straight away you know, be behind. And so, yeah, they paid us back. And then and then a couple of months after that's when I IOH Yeah. approached us. >> It's an overhang and I even think of GBZ as well where like really interesting deposit the Colin Street convertible note, big overhang the moment it was kind of cleaned up the stock the stock would drop like that. That's another good example. Um funny thing, another example we got lucky actually. So, the one of the more successful ones was we had a convertible note in a gold company called Vango Mining. Mhm. Uh or Vango Gold, Vango something. Uh and and Vango got taken over by Catalyst. >> Mhm. And then and then our note, yeah, then we converted. We took the risk, right? We converted and then once the overhang was gone, um you know, it did go for a bit of a run. Um I mean, don't get me wrong that Catalyst has done an amazing job. Um from minnow to a decent size company. But yeah, that's another example. The market just doesn't like that overhang. You you've sparked my memory there talking about Catalyst. Another company we spoke about last time was Meka as well and a potential tie-up. Like Meka had a fantastic run and then it's it's really peeled back of of late as they try and uh get to get to name plate capacity. How do you see that neck of the woods playing out? I still reckon there's going to be further M&A. Yeah. Um for sure. Yeah, I I actually was looking at Meka the other day. Um yeah, I I obviously you know, hindsight it went too fast too quickly and and you know, a lot a lot of a lot of good gold operations now that we just think of always been amazing have have had ramp-up issues. That's the nature of mining. Um Yeah, I I I I I I do believe I I think I think for your your question earlier on M&A, I think a less volatile gold Um so it's just range-bound within a you know small range is very conducive to um M&A. I can't shake since we spoke with with Mark Connelly chairperson at uh at at Catalyst the feeling that they're on the block as well. This there's hardly a company he's chaired that he hasn't sold along the way. So I agree. I agree. He's uh yeah, he's a wheeler and dealer. Absolutely. Absolutely. It makes it It makes it a really interesting spot. I want to zoom out as well, Farris, because I think a couple years to go now you started the the global fund. So Mhm. from you know, the first 8 years you you had a an Aussie mandate and then you went global and I remember the first time we spoke you were licking your lips about some of these opportunities in China. Mhm. jd.com and and other kind of such names and then you finally got the opportunity actually play it in in the fund. So how do you think about where valuations are across the world and where are pockets of of really interesting opportunities? Yeah, so yeah, so our global fund we did launch I think February 2024. Throughout that period we have bought and sold um uh couple of um I mean Hong Kong listed but predominantly China domiciled revenue and earnings companies. We've taken some good profits off the table. Um I think currently uh the only stock that is listed on the Hong Kong but it's really a a Chinese company that we we currently own in a in a reasonable way is uh um um jd.com. Um so that's the you know the Amazon of China. I still think that's ridiculously cheap. Um Look, valuations globally I think obviously you know if I had to generalize America the US is still very very expensive. It's like you know. So most of the value is ex the US. Um and you know it depends on pockets and sectors, but you know there's some value in China Hongkong listed but Chinese domiciled companies. I think Europe um and and I mean that I think I think it's an amazing company. It's listed on the Nasdaq. And you probably think it's you know it's an interesting jurisdiction. Why would Collins Street be there? But I think our third largest holding is a company called Kaspi. I was so curious about this one. Yeah. Kazakhstan? Kazakhstan, Barat. Yeah. Tell us more. Yeah, so so Kaspi is effectively um They've got a banking business. They've got a online payments business um and they have a fintech arm. So effectively the best way to describe Kaspi is uh it's kind of like a monopoly in Kazakhstan. I'll give you an example. Um if you need to make uh a payment online for your utility bills have to use Kaspi. Um if you go to any terminal on any retail store so all the um terminals for the cards the Kaspi machine. Um now it doesn't mean you and then they've got a bank as well. So, they're fully integrated um and and the Kaspi, if you just look at its earnings, so the earnings growth of Kaspi uh have been between 15 to 20% per annum compounding. Um so, strong earnings growth. They're they're growing. They they they had a I think 12 months ago they got a Turkish banking license, so they're growing in Turkey. Um they've got logistics. So, they're they're actually Kaspi is beating Amazon in Turkey. The um kind of online logistics services. Um it's just a just a really smart, well-run company. It is trading at six times earnings. Uh they just turned their dividend back on. So, they they they turned their dividend off to make sure they had enough capital to reinvest in new initiatives such as the the Turkish banking license. But now they're making so much money that they've decided to turn the dividend back on. And we were surprised. We're like we thought the shares would would pop. So, they've turned the dividend back on. Um I believe the payout ratio is 60% of earnings. Um and so effectively it's a 10% dividend yield based on current price. Um it's only 60% of earnings and it's trading at six times and it's listed on the Nasdaq. Um and I think the market cap is So, it's not a small company. The market cap is about 16 US billion. Um and you say, "Well, how did you get interested?" So, so the stock was doing pretty well until um Russia invaded Ukraine. Now, this sounds crazy. So, Russia invaded Ukraine and then there was a fear, I don't know if you guys remember at the start that then Russia might invade Kazakhstan. Hm. I don't know where that came from, even though they're they're kind of Kazakhstan's kind of neutral, friendly with Russia, but friendly with the world. Um so, there was a fear that Russia would invade Kazakhstan and cuz Kaspi was Kazakhstan based. The stock uh effectively halved because of that and it's never recovered the stock, but the earnings kept going up. So, our view is if the Russian war in Ukraine continues and there's still a fear that Kazakhstan might be next, well, well, then hopefully the continued earnings growth should reflect in the price or on the flip side if and when the Russian war in Ukraine they come to an agreement and then there's peace I think it will get a kick straight away. So, yeah, Kaspi's is an interesting one. Six times PE for a monopoly is a remarkable thought. >> Yeah, yeah, the risk I guess the risk with that is it's such a strong business and good monopoly I guess that that as Kazakhstan becomes more democratic maybe something you know, might happen to some of their licenses, but but the the founder who I think has 30% of Kaspi is very very very friendly with the president of Kazakhstan and I think president is locked in till I think 2030. So, my gut tells me you know between now and 2030 hopefully we've realized that investment. You've sparked some sort of thinking with with your comments on on on yields on on dividends on on where investors are finding returns and it it takes me back home to Australia to think about the the the rate cycle so over the past year cutting and then appreciating uh again to to a pretty recent upgrade again so where do you think we are with with the the rate hiking cycle now and what that means for for valuation? Uh well, I I if I if you don't mind I want to first touch upon um our lovely government um Please do. and you know, tax changes and uh what they've recently disclosed on CGT. I don't I don't I think it's terrible. I don't think it's a good thing. I think you know I guess I'm fortunate enough that you know, I've done reasonably well and and you know, I don't get paid like my my income's from fully franked dividends, right? But but if I was an employee and I look at some of my employees, doesn't matter how much they make with bonuses and that, they they're getting paid in their names, right? So so you know, nearly half the money they make needs to get paid to tax. And then when it's in their name, right? Just think about this. When it's in their name on cash that they've already paid all their tax, there is literally no incentive to then invest. Like well, if you're going to get rid of the capital gains tax, right? If you can't negative gear in a property, um you know, what what are what are employees that are on decent income, whether they're young or they're old, where's the incentive to invest in this country? Um you know, so I'm I'm disappointed for the nation and I think it's just a terrible idea what they're thinking about doing. Um And so I think that's going to have some serious you know, mid to long-term effects in this country. And then on the flip side, inflation you know, inflation and interest rates, again, sorry to bring up politics, but but if we believe inflation is slowly getting ingrained in in Australian society, right? Well, surely all this government spending and handouts and trying to buy votes isn't helping, right? So So if you separate the the the oil price and surely the oil price, yes, it's high and yes, it's spiked, but but you know, I guess the trajectory and how quickly it's gone up that you know, you would you would assume it's going to come down a little bit once, you know, if if and when there's a kind of a ending to the Iran crisis. So so you know, that part of that inflation is you could argue cyclical, but the structural stuff, you know, the government's not helping. So, so yeah, if they continue to do what you know, they've announced you know, last night what they're going to be doing, it's it's not going to help and and and inflation yeah, I don't think there is a you know, interest rates is a blunt tool, but I don't think there's any other way to try and stop you know, inflation being you know, rampant and permanent and and you know, inflation high inflation for a long period is obviously very bad on the average person. I I found it pretty notable looking at um Michelle Bullock's comments on on warning government over over fiscal policy. Like I contrast that with what we see in other countries and it it did stick out to me. >> Yeah, I think I think she I mean, clearly she said it for a reason to to to make a stand and um yeah, I don't know how Uncle Uncle Jim Chalmers is is an interesting cat. Interesting times. as we speak from studio in the failed state of Australia. Yeah, quite promising like freebies every day. Yeah, so so it's counterproductive what they're trying to do. I don't I just you know, I don't know. I guess I'm just what am I? I'm a dumb fund manager, but >> [laughter] >> but you know, it's not good. Um I don't know what the solution is. Is is Wait. Yeah, I don't know what the solution is, but but uh you know, it's very disappointing. Um but it's disappointing cuz to me it's obvious. It's obvious what they shouldn't be doing you know, to to effectively help on the inflation front. So, yeah. You you mentioned um pretty pretty early vast that you don't have a next good idea for for For asymmetric cyclical divergence. Um Can I Can I Can I throw something in the wind and see if you think there's any merit to this? You think on the the flip side of this like SAS apocalypse that um there'll be some interesting opportunities there? Uh will I have to disclose? I guess you could call it thematic. >> [laughter] >> We We did sorry in in in the international fund we did buy two businesses that were hit because of the SAS apocalypse. And they were online um uh online classifieds businesses. Mhm. Yes, was one of these a London listed? >> Yeah, they're both London listed. So Rightmove and Auto Trader. So effectively the car sales and the realestate.com of the UK. Um yeah, I guess you could think of that as a thematic. Um yeah, I yes to answer your question. Yes. Uh obviously there's lots of moving parts with what AI can do. But but I think people if I specifically think about an online classifieds business and not necessarily Auto Trader or Rightmove but just online classifieds you know, you've got the front end where obviously the consumer um logs online and checks whether it's cars or whatever cars and houses. But But I feel like the market's missed the back end. Um and I'll explain why. So the back end not that easy to replicate. Like there's a reason why car sales is good in Australia but nowhere else. There's a reason why Auto Trader is good in the UK but nowhere else. Um I don't know what the American equivalent is for car sales but there's a reason why they're number one. And so so even dominant online classifieds businesses in a certain region, they can't replicate that in another region. And you say, "Well, why?" Because the back-end, it's like for Autotrader, I think they have contracts with 4,000 independent car dealerships. So, they're still sending reps on the road. I think they've got 250 reps um on the road to visit car dealers to lock them in contracts, to help them with the photos and the inventory and all that stuff. So, that stuff's still pretty physical. Mhm. Um and for for real estate portals as well, I'm pretty I mean I don't know how many independent real estate agents there are, but but you still need to engage with these agencies, you know, meet up with them, help them. So, so I think the market's kind of missed the back-end Mhm. part of classifieds business. So, that's why we felt pretty comfortable with the classifieds. And then why we did the UK and not Australian stocks or American stocks or UK stocks, it was just from a valuation perspective. Because of how terrible the UK economy's been. Um uh so, I think there's three stocks we own in the UK. The two online classifieds and also Domino's UK. Mhm. So, I think there's a disconnect with the UK price earnings multiples. Um um and so, yeah, I I guess that's a thematic. I think it's I think it's really interesting because the the bootstrapping liquidity is going to be incredibly hard for any, you know, it's easy to be might be easy to build software, but actually like getting buyers and sellers to converge, especially when you're tying the physical world stuff. >> Yeah. There's There's a lot of resilience to that business model. I think so. I think so. And I think what again I other businesses, my view is if you're already an incumbent and you've already got the customer contracts and connections, you know, why couldn't they themselves implement and utilize AI in their services and products, which I think they're doing? I think I where I do think it may have an effect is maybe pricing and margins. And when I say that is if if you're an incumbent, you probably have to spend more on your own AI initiatives just to earn the same dollar of revenue. So, I guess maybe margins will come down a bit, but entire business models ending tomorrow cuz of AI. Yeah, I don't I don't I don't think it's that easy. One last commodity to to talk about that. I think it's a commodity we've never spoken about on the show before, almonds, Select Harvest and Aussie business. I've I've read a few papers on it and and done a bit of reading on on the company itself. It's a it's a really fascinating setup the almond market where you've only got certain pockets of the world where it's appropriate, water challenges, uh land issuing challenges, permitting, these sorts of things. I'm curious to to get the quick sort of 101 on on why you like it. Well, I think you've caught me up twice here on thematics. I guess you could argue it's thematics. Uh so so, put it this way, if there were more than one way to play the almond market, we probably would have a special situation fund. Yeah. But, it's hard to have a special situation fund when there's only one way to play it. You could set up a private thing and just go to the other little farms that aren't even listed Maybe. So so, yes. Yes, uh we like, if you want to call it the almond thematic, um there's only one way to play it in from our knowledge in the listed space and that's through Select Harvest. So So uh Yeah. So almonds have elongated booms and busts. Um obviously the previous boom induced a lot of supply and then clearly there was an oversupply. Um and then the bust happened. And then what happened during the bust phase is um So wh- when you plant an almond tree, it takes between 3 to 4 years for um almonds to the first bear. And so, what's happened is effectively so, almond demand on average apparently goes up roughly 4% per annum. So, so it's not a demand question. So, um a lot of people eating almonds and uh drinking almond milk um and I think a lot of demand comes from China. The growth in demand globally has come from China, um India, and surprisingly, um the Gulf region. I don't know why they eat so many almonds. Not just an inner north Melbourne thing, so No, so between those three regions, um they're growing very strongly. Um and so, the thematic is relatively simple. So, uh supply, I think this is the second second year in a a row where supply has fallen. Um and you say, "Well, how has it fallen?" Because uh either trees have reached their maturity and and a tree that an almond plantation that's between 15 to 20 years old, after that, they become less and less efficient, so they produce less almonds. Um so, effectively, supply's going down because of the age of the existing trees. And then, on the flip side, a lot of people have been um rip ripping them out because it's been such a bear market and and and doing other things. And because California uh is the world's largest region for supply, I think California's about 70% of world almond supply, they're having a bit of water issues. Um and I think it's 30 roughly 30 to 32 uh liters of water needed for one almond. Um and so they've got water issues um and there's been rules and regulations where um certain regions in California just don't have enough water. So, they're they're ripping out plants as well. And so, you've got a scenario where supply is coming off, demand is continuing to go up. And the almond price um is certainly off its lows. So, it's not near its high like high as from the previous bull market. I think the almond price is is is it 60 or 80% off its lows? Um Select Harvest has cleaned its balance sheet. Um they have a um pretty good balance sheet. Um They have uh Yeah, they have farms um throughout Australia in in in various states. And yeah, I I I think the their earnings will continue to inflect. Um I think it's trading at half its half its book value, replacement value of its infrastructure. Um And so, yeah, I'm I'm pretty bullish uh Select Harvest. Um and and what I like about it is as I said, long periods of long bull markets and bear markets. I think we're you know, 1 or 2 years into this almond bull market, if you want to call it. Um It's uh demand for almonds is also uh pretty resilient. So, even in downturns, people still eat almonds. Um Now, if the almond price goes up double or triple from where it is, you know, would we see a decrease in demand? Maybe, but but I still think there'll be growth, but maybe instead of 4% growth, it might be 1% growth, but doesn't really matter if if if demand falls 3%, but you're getting twice or three times the revenues. Um you know, it hits the bottom line. Um So, yeah, we we like Select Harvest. A discount to to replacement or book value is is always a fascinating place to to look for value and and hunt around, especially for capital-intensive sectors, yes. Yeah. Yeah. Vass, we could talk for for hours, but really appreciate your your time coming on, chatting through the the the way you view the world, the situations in in front of us, and looking forward to doing it again in future. Thank you, gentlemen. Thank you, Vass. How do you reflect on that combo with Vass, mate? I'm going to go do some digging on almonds. What about you? I am I'm I'm I'm definitely going to eat a few almonds. I'll [music] drink some almond milk coffee. >> Drink some almond milk coffee. >> about almonds. Very good. Thank you to Vass, and a big thank you to Sanity Ground Support, Introlinks, Focus, the platform by Market Tech, Metals Hub, and Exceed Capital. Hooroo. Hooroo. Now, remember, I'm an idiot, JD's an idiot. If you thought any of this was anything other than entertainment, you're an idiot, and you need to read our disclaimer.
The Most Overlooked Commodity Opportunity? (Vas Piperoglou)
Summary
In today’s episode, we’re joined by value investor Vas Piperoglou. Vas is the co-founder and chief investment officer of Collins St …Transcript
JD, when I ask you of the fund managers that you really have similar investing style to, one of the people you always name is Vass Bednar of Collins Street. And lucky us, we got to speak with him in the very flesh. That's true, mate. We love talking with Vass. We really like their style of how they go about their business at Collins Street Value, as you'll get from the show. And being the third time we've now spoken with him, I find it fascinating to see how a lot of the themes have evolved as you'll pick upon in the conversation. So, let's jump into our chat with Vass Bednar. We pulled out a new theme for him as well at the end. Stay tuned. All right, Vass. Thank you for joining us. We're We're over in Melbourne again. We're excited to be chatting with you. There's There's never a shortage of things happening in this this wider world. And as I mentioned to you just before, I was I was listening back to our conversation about a year ago. And some of your calls were just fantastic. They were spot-on. And it does leave me wondering with about what is happening in some of the big themes that we love to follow, namely gold to start with. You made the comment that when silver goes crazy, you know we're pretty close to the top. And we were already reflecting back then that we might be, you know, at least halfway through that sort of cycle. So, let's start with gold in the big picture. How you seeing that play out right now? Um Well, I mean, I can tell you what we've done, which I guess is reflective of how we're seeing things. So, we we have taken quite a bit of profit off the table. Um I did get very nervous when silver went parabolic. And uh for the gold fund, that's that's predominantly when we took our first sell down. Um Yeah, look. I don't even know where to start in in the crazy world we're in. I I I think it's easy to say, you know, some of the easy gains have been made, clearly. When it's in the newspapers every day, when as you were saying before, when when people were lining up um at ABC wanting to buy, um you know, uh usually usually that's that's a sign that everyone's already on to kind of the trade or the thematic, but but, um, you know, I don't think it's, you know, I don't think it's about to collapse, but but, you know, certainly the easy money's been made. We've taken quite a bit off the table. We still have exposure, but nowhere near as much as we did previously. Um, but I think it's fair to say that the ironic thing is I still think institutional ownership, and I don't have a figure in my head, but I still think from a historical basis they're still underweight to the sector. So, yeah, it's, uh, it's interesting. Yeah, you you you hear that number that got flashed around quite a bit of people starting to think maybe you need 10, maybe you need 20% of your port- portfolio in gold. We're nowhere near that kind of happening, but another number you threw out was that through this cycle you might see gold 5x, and we did that from the low you mentioned at 1,000. We hit we smashed through 5,000 earlier earlier this year. Now, granted, you know, history rhymes, it doesn't repeat, but it's quite a cycle. >> Yeah, look, again, my the the figures of 5x, you know, uh, from memory, it was based on the last three previous gold cycles from trough peak. I think the lowest the lowest was a 5x, and so to be conservative, you know, we're we're normally conservative investors, we thought, all right, let's pick the lowest. Um, I think gold trough in this cycle, I think it was slightly above 1,000, but we just rounded it down to 1,000, and then times it by five, it was 5,000, and and yeah, we did reach that level. Um, and yeah, I mean, if I had to think as a percentage, we've we've we've taken three quarters off the table. Um, so yeah, it's it's it's been interesting, but but but and and why I still I still think there is asymmetry, as crazy as the gold price has gone, um I think it's fair to say, and if you disagree, happy to hear it, but but the equities have clearly still underperformed the move in the commodity in general. Uh sure, you can get anomalies um out there, but yeah, so so I still think the equities, assuming gold doesn't collapse or fall much further from now, you still think the equities, and and especially with the analysts are putting in their forward go you know, kind of forecast, they're they're still not using, in my opinion, gold price that reflects current reality. Yeah, these sell-side analysts aren't known to be too conservative, either. So, it is it is kind of interesting to to marry up those points. You look at previous cycles, and these things were marked on two times NAV, three times NAV at times. Well, you you did pick up a number of the the smaller players within the portfolio, as well as some larger names, as well, but would you have expected more M&A this this sort of far into the journey, or you think we're kind of par for the course there, as well? Um would I expected more M&A? I I >> [clears throat] >> To be honest, uh I think I think, in my opinion, I didn't expect the bull market to move as quickly as it did. Like I mean, it was only a year ago, right? Like um I think for our precious metals gold fund, uh you know, we we only set it up a couple of years ago, and and did I expect the thesis to pan out within a couple of years, and you know, us return three quarters of money to investors? No. So, so so, it's happened quicker than I would have thought, which then means, clearly, uh there hasn't been enough time for the M&A to play out. So, I still think it would be playing out. Um am I surprised it hasn't happened as quickly? Yeah, not not really. I you know, you could argue maybe it's moved so quickly that it's caught everyone off guard. I'm a big fan of these these special situations, you know, theme specific funds. I mean I mean the the resounding kind of theme across your your investing like experience today is is is being earlier along these like cyclical themes, of course. Uranium, then you know, oil services and gold. So, it's been three times, yep. And and these are these are these are capital intensive like industries. The the reason that they're exciting in a special situation is because you're at the wrong end of the capital cycle. You can be patient and then wait for the incredibly exciting turnaround which can happen faster than you expect, but these vehicles they they they have to expire definitionally because there's a a cycle the cycle changes. So, it changes your whole mentality as an allocator of capital where you're normally just trying to accrue as much fund as possible because it's it's a different way to think of it. Yeah, well, I won't mention the name, but we last week we we spoke to one of the rating agencies that it might be rating Actually, we just launched a global long only equities fund and we're looking to get that rated and and they they didn't understand how we've returned so much to our investors. I was like, "You're So, you're shrinking your business." And I'm like, "Well, yeah, if you want to look at it that way, but but the intention from the start was always to return as a closed ended fund, right? And hopefully you return more than not, which means you've made your your investors a lot of money. Yeah, I think I think the special situation funds and again, it's only been three times we've played thematics over really been 10 years. So, Coller Capital has been around for 10 years. I think it's in my opinion the perfect vehicle for playing, as you said, capital intensive cycles. Um And yeah, we're I wish I I before today's meeting I tried to think of what what do I think's the next thematic? I actually don't have one. So, That was one of my questions. >> [laughter] >> I don't have one, but when I do, I'll let you know. Yeah. Yeah. Well, I mean, it's that how you structure the fund. Trev mentioned before how excited I am whenever I get back from having spoken with you because that how you set up the fund from the beginning, having the alignment with the the with how you think about management fees and these sorts of things always made it such a um such a contrast to many of the other funds out there and and it made it really really interesting and there's a there's another investor we we spoke not too long ago. I think there's a lot of commonality um from the school of thought of like Marathon Asset Management, the Capital Cycles book. Yeah, yeah. And there and >> Good book. Yeah. And there it was one on on the shelf behind us when we we spoke last time. So, I would have thought there's a lot kind of in common. If we look at one of the other ones, the oil services, >> Yeah. another comment you made is I would expect more consolidation and that one had a bit of a pause in it. >> It did. >> And and it's picked up again. It did. It in fact, so if we if I with that fund, um it's actually actually gone longer than I would have expected because of the lull we've seen over the last year and a bit. And to be honest, there was one holding in our fund, uh which we were hoping uh there would be some M&A and it it it took a year longer than we would have thought. Uh Matrix. >> Matrix, yeah. And and uh I mean, I don't think I'm talking out of school. Yeah. Before the deal was inked, we we were pretty instrumental in making that price happen. Um So, we were kind of involved. Uh but but yeah, it took took 12 at least 12 months longer than I would have thought. Um but yeah, that industry uh I mean, Valaris um and uh Transocean, um obviously recently uh decided to come together. Obviously, Matrix getting taken over by um AIH I just know the stock code, AIH. Yeah. Um and so, yeah, it it was a lull, but I think Oh, I don't know if we thank Trump or not, but it's back with a vengeance. Yeah. All the way to the big end of town like I think Schlumberger was a holding previously in the fund. It might still be. >> Yeah, it's still It's actually still in the fund. Um but we once Matrix um gets taken over and I think it's the deal's likely to uh conclude end of July, but then we're going to be closing that fund um and and be selling the underlying investments and and we we only have I think four holdings left and yeah, Schlumberger is still in there. Yeah. That that Matrix position I do want to I do want to like untangle like the thesis going into it and also Collins Street's role in that deal because the ultimate acquirer and Ascent might have been a few um iterations of things, but but there was a call option involved. >> Yeah, yeah, so I mean, it's in the public domain, so it's I'm happy to just kind of disclose how that came about. So, well, I'll take a step back. Originally, the reason why we got interested in Matrix one of the things as a fund manager as opposed to PA Investments is, you know, you got to be cognizant of how much money you're managing and and kind of target opportunities that Yeah, I'm not saying all mega caps, but are liquid enough to buy enough to make a difference. So, Matrix actually originally was just a PA position and it was uh it was a weird situation where you know, we I could witness the downturn in the in the offshore oil services sector. Um specifically with the buoyancy products that Matrix um obviously uh produces and sells. And and so, clearly huge downturn in the industry. I was starting to see green shoots. So, then I I I called the management of Matrix, quizzed them a bit and I'm like, okay, I think this industry is about to turn. It's it's uh very liquid. How do I even get stock? I'm not even going to waste my time for Collins Street. So, it was I literally at the time, I think it was Paradise and Forager. And, uh, I'm like, I called my broker. I said, "Look, I don't expect they're going to be selling, but can you just approach Paradise and Forager? I'm interested to buy the shares." I think it was myself and my father, PIA. So, I remember it was 13 cents. I said, "I just bid them 13 cents." Not expecting to get anything. And, I got a call back saying, "Yeah, they both of them want to sell everything. Do you want to?" I'm like, >> [laughter] >> "Oh, shit. Okay." Um, so that was that was the initial kind of, uh, thesis behind Matrix. And then, obviously, I do believe in, you know, whatever you own, whether it's for the right or the wrong reasons, you do get to know more intimately, right? Cuz you own it. Um, then we started looking in further, then, uh, made a call to Matrix. I'm like, "Well, they obviously need some capital to grow. The equity market still didn't believe the sector had turned, even though you saw green shoots." So, we we offered them money in a convertible note. Um, which they took. Um, and then after that, we did buy some shares, uh, for the offshore oil services fund. I think there was a raising. Can I curve over the prices? I think it was 18 cents, uh, an equity raising. Um, and then fast forward to probably 12 to 18 months ago. So, yeah, it was clear to me that, uh, IIH wanted, uh, to look at consolidating, um, that sector. And, I think the difficulty was at the time they they weren't listed. So, they were privately owned, um, a UK company. And, the the the original offer was complicated because it was predicated on a successful listing. Um, and the price they wanted to list at it was quite hefty. I think for Memory originally they wanted to list at 10 times EV to EBITDA. And we're like, "Mhm." So so they had too many conditionalities to that. So then uh I think rightly the board of Matrix kind of didn't engage even though the headline price was 40 cents. But it was 40 cents based on AIH actually listing at 10 times EV to EBITDA. So yeah, I think Matrix management did the right decision. They they they you know, they didn't engage. Um they decided to wait till it actually did list. Um and they actually did list, but I think they listed at eight times instead of 10 times even though earnings were going up. Um and then uh recently they approached AIH approached the largest shareholders uh I believe at the time. Um um and I think it was a direct reach out. They they wanted kind of shareholder support before they approached the company. And yeah, they uh they came uh to myself. Um and uh yeah, they offered a price that I I didn't think it was acceptable and um and they said, "What do you want?" I said, "What What What was the previous price?" I said, "40 cents." Well, I said, "40 cents." And they said, "What did you base it off?" And I think I said "Just 40 cents or you can go away." Um and then and then they came back and they said, "All right, well, if it's 40 cents, but we want to lock in your shares uh um through uh an options deal. And we don't normally do that cuz we don't normally like to get locked in because what happens if there's a competing bid or Sure. you know, but yeah, they locked us in. We thought there was a low likelihood of a competing bid at that level. Uh the options obviously would force management to take the bid seriously. Um and it was cash by the way. It was a cash bid. It wasn't um script bid. Um and so yeah, that's kind of the background of of the deal. Did Did you think at any point it'd be interesting taking stock AIH stock along So So, I was actually open-minded uh for my personal and family holdings to consider script. Um I'm going to have to disclose. We're We're actually Collins Street Value Fund is actually a shareholder. We've bought stock on market. So, we actually like AIH. Think there's huge synergies with Matrix. Very good management. And always like when industries no one cares about goes from uh three competitors down to two. Um You know, if with pricing power and all that, but uh so, I was open-minded personally, but because the offshore oil services fund I knew was, you know, we wanted to wind it up. You know, clearly cash was more preferable. Um and I think what actually happened was because AIH is below its uh listing price of a dollar, I think they themselves thought they were cheap and didn't want to issue their script um at a low price. So, the cash component actually came from them. So, Vash just there talking about great alignment with unit holders, people invested in his funds. Made me think of another group that we love to talk about, Trav. Alignment is a hard thing to get right. Exceed Capital, they have thought about this diligently. And that I think they I think they've got a a model of commercial property investment vehicle that has very strong alignment with its investors. You know why? Cuz they are investors in a very meaningful way. That's true. As well as the management fees that only go to them if you make money on your investments. They are targeting a 7 to 8% cash return paid out via monthly distributions, and that doesn't even include the capital uplift you see on the property as well. It's a private investment vehicle. The Collective Flagship Fund, five commercial properties in there. Check it out on the website, Money Miners. Go Exceed Capital. So, in in your latest quarterly >> Mhm. I think there was a a headline to to a piece that was written there that oil was set to explode before all this started. I'd love to hear your framework about that right now. Yeah. Um so our view was and I guess it still is is I think a lot of people miss I guess you could argue on on on all commodity cycles and thematics. People always miss and everyone's concentrated on the the demand the demand the demand but you know, usually speaking most commodities the demand you know, on average is pretty easy um to model out and it's usually increasing population growth. Uh it's the supply side. So again, I don't know the figures people are quoting but you know, billions of dollars a day in uh uh CapEx that should be spent just so that the supply of global oil remains constant. Obviously, oil um is a depleting asset and so you've got to constantly invest just to make sure that you you you know, you stay constant on the supply side and and I still think uh because of the shale revolution uh which I think is on its legs just because the the best oils um has already been taken out of the ground. I still think there's an under investment in supply and so I you know, I guess the premise of that uh that comment in our most recent quarterly was it was always going to come home to roost. So when the supply side is always not catching up it's always there's always going to be a trigger. So what is the trigger? You know, you never know what the the catalyst is but but you know, the Iran war could be the catalyst to eventually get supply to wake up. The the cornerstone of the capital cycles book we we referenced before focus on supply not on the demand. Yeah. But that's with everything and I I don't know it's like to me it's e- it's easy to see it but I don't know. Yeah, I I think the hard part is you can see it and you can be right, but if you're sitting there for 5 years and then eventually get proven, well, are you right or you wrong? Time value of money. I think the the key the key is that catalyst, finding the catalysts whilst the prices are still cheap. So, whilst the market's still asleep, I think that's generally the key. It is yeah, it's reminiscent of your your uranium trade where you were certainly too early. You know, it could be it could be argued, but um We were too early. That the the I guess it's if you had to choose between being too early or too late, you'd probably be too early. But then in that thematic, where we were wrong, not wrong, but what we missed out and I guess still to this day there's no way of anyone actually putting their finger on it was the amount of inventory just out there. Because it's strategic, cuz you know, it's associated with nuclear weapons, I guess, and you know, confidentiality and it's you know, it's a very efficient commodity like, you know, um you know, unlike bulk commodities where you need a lot of room to store, you know, because the value is is a low value item. Obviously, uranium, yeah, no one actually knows how much inventory there is on a world basis. And I think that's why it took 3 years effectively from when we entered to when it actually started to move. But then I remember then 6 months, I think everything fired back. There was nothing for 3 years. Goldberg hitting me on the shoulder saying, "Are you sure we're right? Are you sure we're right?" And then in 6 months it fired back. I want to I want to ask Bass we're fresh off a conversation with with Rusty and um I know that you know Rusty well as, you know, both both being substantial quite large shareholders of of Canavan together. And in fact, at one point the both both Nero and and Colin Street jointly um yeah, jointly declared an association for purposes of of challenging the the board dynamics at Carnarvon. So, a clear kind of activist intent. Then things have have since changed. There is different a different board at Carnarvon. Rusty was fighting the good fight for for the merits of Dorado to to move ahead on our podcast recently. So, I I do want to like firstly just ask about your investment in Carnarvon right now. Did you think it would take as long as as you think the share price would still be, you know, roughly kind of net cash and liquids as it is right now? I mean, the answer is no to both. Am I happy? No. Did I think it would take as long? No. Yeah, look. I guess again there's always a risk in all projects where if you're a minority partner that the majority holder or operator calls the shots. So, so uh did I envisage Santos to be so slow and to not show that you know, one of Australia's I think best um oil prospects ever found in the last 50 or 60 years, did I still think nothing would happen? No. Um so I am very surprised by that. Uh and I guess you know if you look at the current Carnarvon share price clearly no one cares. As you said, it's it's if you add the value of their Strike investment plus cash plus 90 million US free carry um you know and these are hard assets, right? Well you know, it's significantly above the current share price and that's not even valuing the economics of the 10 their 10% share in Dorado. You know, so yes, it's frustrating. Uh I still believe uh eventually something's going to get done um on Dorado. Again, I I don't know if there's much truth to it, but I've seen quotes and I think Carnarvon had a presentation yesterday or the day before where they quoted um the CEO of Santos saying, "Oh, now it's a priority." Um after the Iran war Okay, mate. Thank you. Um Uh so, I I think something will happen. The timing is very disappointing. Um obviously, it's hurt our IRR on that investment. Um But yeah, it's uh you know, nothing has happened and then when it will, it will, you know, in my opinion, happen overnight and everyone will be like, "Oh, that's interesting. The stock doubled." Well, yeah. Well, it's uh it's cheap. Yeah. I And yeah, I I always describe Carnarvon like that to people. It's like you could wake up one day and the stock's up 300% because the catalyst that was required I mean, you could look at it another way. And again, I wish our average price was where the current price is, but it's not. Um I think average is about 16. So, it's not that bad, but it's still not good. Um you know, you you flip it. If you believe that, you know, we're going to need oil for the foreseeable future, um and you you like to invest in asymmetry and asymmetry obviously low downside, reasonable upside. You know, I don't I don't know what the downside based on hard assets and cash and investments in Carnarvon is. Uh but it's it's you would think there's not much downside. Um Again, it's not investment advice, but just based on mathematics. So, you know, it's pretty asymmetry. Um frustrating. Um but I guess I guess you got to take the good with the bad, right? Like that one's taken a lot longer than expected and on the flip side, I guess the gold the gold's moved quicker than we would have um expected as well, so Sometimes you can be too early, sometimes sometimes just in time. >> But but you know, always what I like to do with investments um is when you make an investment, it's always good to look back at, you know, the the information at the time for you to make your judgment and and again, you know probably still would have made the same decision um cuz we just never would have thought that again, one of Australia's best oil finds over the last 60 years with with the lowest the lowest opex. I think they they break even is like $15 a barrel. Um just never thought Santos would be so slow and uh not a personal thing, but yeah, I'm just not the biggest fan and and not not not necessarily related to Dorado. I just think um everything he's done I'm not the biggest fan of the current CEO of Santos. If if I yeah, I think of the the Carnarvon precedent um to to us at least but there was an observation that okay, like Collins Street has some some some activist still when required to oriented on their investments and Carnarvon's not the only time that's come come out publicly there's um yeah, clearly been some some some joint support for for the campaign at home group as well Oh, yes. joining with um Jeremy. Yes. So, I I I do want to >> That's a live one. It is a live one. Um I wasn't sure if we're going to jump into this. >> It's particularly interesting. >> Yeah. But I really before you address that that that specifically, I do just want to understand how you think of of of activism. How you think of you know, the the times where Collins Street >> That's a good It's a good question. I'll be honest and people might be be I actually hate doing it. Uh like again, we're human beings, right? We're lazy. I'd much rather just buy a share, sit at my desk and watch it go up. You know? You know, I'd much rather work with management. So, it's a rarity for us. But, but we're willing to do it. Where I think a lot of other fund managers aren't willing to do it. Whether I don't know why, but they think it's bad for their reputation or they can't be bothered or they don't want to spend the money. Um so, we're willing to roll our sleeves up, but it's it's like Put Let me put it this way. I had no inclination when we first invested in Harmed that I would ever be doing this. So, you know? But, we're in it. Um you know, we're we're I guess pot-committed. So, you know, when when circumstances change and we we feel like that we we need to make a stand, um we will. How much does the lack of liquidity play into this? The fact that it can be difficult for for a fund to to get out of these kind of positions. Uh that's a good question. Well, I think it's fair to say due to a I mean usually speaking, if if it's not the most liquid company, then it's obviously not the most not the largest company. And we don't manage billions. I think we manage I can't remember about 400 million at the moment. So, so if it wasn't liquid, then we probably wouldn't have a larger stake to actually have a voice. That's number one. Um number two, you know, a lot of the times, we're not scared to to sell a stock, whether it's liquid or or illiquid, at a loss if we thought our our thesis was incorrect. We've done it, you know, not often, but we've done it. And and so, you know, it's fair to say that I you know, if the fundamentals don't stack up and it's an illiquid stock, you know, we're not going to be just agitating, just trying to make money. Um and so we still believe in in in the business of Harm. We still think there's huge value. It's still trading at huge discount. Unfortunately, we think the discount is there maybe because of um you know, what management have done. Um um So, yeah, I mean, that's yeah, Harm Harm's a Harm's a live one. How's it end? Um Well, I think there's two two outcomes, right? We we either uh we either come to an agreement with management to kind of you know, have a have a resolution where we're happy and and and they're a little bit happy and and and you know, maybe maybe we call the meeting off. Or on the flip side, we continue uh it's fair to say obviously, I know the numbers, right? We're so so this general meeting that we've called, I think it was called a two 249F where we call the meeting we use our own share registry, votes come to us. And so, uh all I can say is we've got a lot of support and and there will be management change um if it heads to the vote. The the difficulty is the vote keeps getting delayed because of this crazy takeovers panel process that's been really elongated. Um um And so, I've actually lost track. I think the meeting's meant to be held next week. But, it might get delayed again. Yeah. If I If I Yeah. To elaborate JDs comment on on liquidity. Mhm. One observation I have about um some of the most phenomenal investments that Collins Street has made is they are often in illiquid companies, but those are positions that were acquired by virtue of a convertible note which allowed um allowed Collins Street to maybe maybe get a a s a s like a sizable claim on the equity upside while also protecting the downside in these illiquid names which subsequently became very liquid when the cycle turned. >> Yeah, that's true. That's true, but but I think and why we haven't done many convertible notes you know, over the last one or two years, we did a lot more before then. I still think the market right now still in general I think hates I don't know, hates convertible notes because they always feel like there's going to be that overhang once you convert. And so, you know, in in normal times convertible notes are brilliant because obviously your downside is limited because, you know, you're effectively a um a secured debt holder of company, but then you've got equity like upside. So, you got unlimited in theory unlimited upside, good downside. But, I just feel now convertible notes and again why we haven't done a lot recently is you tend to find you don't actually get that upside. Like I'll give you an example like Matrix we did it. And you know, they paid us out at the end. Shares never really went that crazy when we were holding the convertible note um for us to convert. Like I would love to convert. Um especially take 40 cents on the AIH deal, but but it it didn't happen. The the note came up for maturity. Um and at the time I think the shares were trading at 25 cents. Our conversion was 30 cents. Yeah. It's like well you know, we're a fund manager. How can we convert an order and straight away you know, be behind. And so, yeah, they paid us back. And then and then a couple of months after that's when I IOH Yeah. approached us. >> It's an overhang and I even think of GBZ as well where like really interesting deposit the Colin Street convertible note, big overhang the moment it was kind of cleaned up the stock the stock would drop like that. That's another good example. Um funny thing, another example we got lucky actually. So, the one of the more successful ones was we had a convertible note in a gold company called Vango Mining. Mhm. Uh or Vango Gold, Vango something. Uh and and Vango got taken over by Catalyst. >> Mhm. And then and then our note, yeah, then we converted. We took the risk, right? We converted and then once the overhang was gone, um you know, it did go for a bit of a run. Um I mean, don't get me wrong that Catalyst has done an amazing job. Um from minnow to a decent size company. But yeah, that's another example. The market just doesn't like that overhang. You you've sparked my memory there talking about Catalyst. Another company we spoke about last time was Meka as well and a potential tie-up. Like Meka had a fantastic run and then it's it's really peeled back of of late as they try and uh get to get to name plate capacity. How do you see that neck of the woods playing out? I still reckon there's going to be further M&A. Yeah. Um for sure. Yeah, I I actually was looking at Meka the other day. Um yeah, I I obviously you know, hindsight it went too fast too quickly and and you know, a lot a lot of a lot of good gold operations now that we just think of always been amazing have have had ramp-up issues. That's the nature of mining. Um Yeah, I I I I I I do believe I I think I think for your your question earlier on M&A, I think a less volatile gold Um so it's just range-bound within a you know small range is very conducive to um M&A. I can't shake since we spoke with with Mark Connelly chairperson at uh at at Catalyst the feeling that they're on the block as well. This there's hardly a company he's chaired that he hasn't sold along the way. So I agree. I agree. He's uh yeah, he's a wheeler and dealer. Absolutely. Absolutely. It makes it It makes it a really interesting spot. I want to zoom out as well, Farris, because I think a couple years to go now you started the the global fund. So Mhm. from you know, the first 8 years you you had a an Aussie mandate and then you went global and I remember the first time we spoke you were licking your lips about some of these opportunities in China. Mhm. jd.com and and other kind of such names and then you finally got the opportunity actually play it in in the fund. So how do you think about where valuations are across the world and where are pockets of of really interesting opportunities? Yeah, so yeah, so our global fund we did launch I think February 2024. Throughout that period we have bought and sold um uh couple of um I mean Hong Kong listed but predominantly China domiciled revenue and earnings companies. We've taken some good profits off the table. Um I think currently uh the only stock that is listed on the Hong Kong but it's really a a Chinese company that we we currently own in a in a reasonable way is uh um um jd.com. Um so that's the you know the Amazon of China. I still think that's ridiculously cheap. Um Look, valuations globally I think obviously you know if I had to generalize America the US is still very very expensive. It's like you know. So most of the value is ex the US. Um and you know it depends on pockets and sectors, but you know there's some value in China Hongkong listed but Chinese domiciled companies. I think Europe um and and I mean that I think I think it's an amazing company. It's listed on the Nasdaq. And you probably think it's you know it's an interesting jurisdiction. Why would Collins Street be there? But I think our third largest holding is a company called Kaspi. I was so curious about this one. Yeah. Kazakhstan? Kazakhstan, Barat. Yeah. Tell us more. Yeah, so so Kaspi is effectively um They've got a banking business. They've got a online payments business um and they have a fintech arm. So effectively the best way to describe Kaspi is uh it's kind of like a monopoly in Kazakhstan. I'll give you an example. Um if you need to make uh a payment online for your utility bills have to use Kaspi. Um if you go to any terminal on any retail store so all the um terminals for the cards the Kaspi machine. Um now it doesn't mean you and then they've got a bank as well. So, they're fully integrated um and and the Kaspi, if you just look at its earnings, so the earnings growth of Kaspi uh have been between 15 to 20% per annum compounding. Um so, strong earnings growth. They're they're growing. They they they had a I think 12 months ago they got a Turkish banking license, so they're growing in Turkey. Um they've got logistics. So, they're they're actually Kaspi is beating Amazon in Turkey. The um kind of online logistics services. Um it's just a just a really smart, well-run company. It is trading at six times earnings. Uh they just turned their dividend back on. So, they they they turned their dividend off to make sure they had enough capital to reinvest in new initiatives such as the the Turkish banking license. But now they're making so much money that they've decided to turn the dividend back on. And we were surprised. We're like we thought the shares would would pop. So, they've turned the dividend back on. Um I believe the payout ratio is 60% of earnings. Um and so effectively it's a 10% dividend yield based on current price. Um it's only 60% of earnings and it's trading at six times and it's listed on the Nasdaq. Um and I think the market cap is So, it's not a small company. The market cap is about 16 US billion. Um and you say, "Well, how did you get interested?" So, so the stock was doing pretty well until um Russia invaded Ukraine. Now, this sounds crazy. So, Russia invaded Ukraine and then there was a fear, I don't know if you guys remember at the start that then Russia might invade Kazakhstan. Hm. I don't know where that came from, even though they're they're kind of Kazakhstan's kind of neutral, friendly with Russia, but friendly with the world. Um so, there was a fear that Russia would invade Kazakhstan and cuz Kaspi was Kazakhstan based. The stock uh effectively halved because of that and it's never recovered the stock, but the earnings kept going up. So, our view is if the Russian war in Ukraine continues and there's still a fear that Kazakhstan might be next, well, well, then hopefully the continued earnings growth should reflect in the price or on the flip side if and when the Russian war in Ukraine they come to an agreement and then there's peace I think it will get a kick straight away. So, yeah, Kaspi's is an interesting one. Six times PE for a monopoly is a remarkable thought. >> Yeah, yeah, the risk I guess the risk with that is it's such a strong business and good monopoly I guess that that as Kazakhstan becomes more democratic maybe something you know, might happen to some of their licenses, but but the the founder who I think has 30% of Kaspi is very very very friendly with the president of Kazakhstan and I think president is locked in till I think 2030. So, my gut tells me you know between now and 2030 hopefully we've realized that investment. You've sparked some sort of thinking with with your comments on on on yields on on dividends on on where investors are finding returns and it it takes me back home to Australia to think about the the the rate cycle so over the past year cutting and then appreciating uh again to to a pretty recent upgrade again so where do you think we are with with the the rate hiking cycle now and what that means for for valuation? Uh well, I I if I if you don't mind I want to first touch upon um our lovely government um Please do. and you know, tax changes and uh what they've recently disclosed on CGT. I don't I don't I think it's terrible. I don't think it's a good thing. I think you know I guess I'm fortunate enough that you know, I've done reasonably well and and you know, I don't get paid like my my income's from fully franked dividends, right? But but if I was an employee and I look at some of my employees, doesn't matter how much they make with bonuses and that, they they're getting paid in their names, right? So so you know, nearly half the money they make needs to get paid to tax. And then when it's in their name, right? Just think about this. When it's in their name on cash that they've already paid all their tax, there is literally no incentive to then invest. Like well, if you're going to get rid of the capital gains tax, right? If you can't negative gear in a property, um you know, what what are what are employees that are on decent income, whether they're young or they're old, where's the incentive to invest in this country? Um you know, so I'm I'm disappointed for the nation and I think it's just a terrible idea what they're thinking about doing. Um And so I think that's going to have some serious you know, mid to long-term effects in this country. And then on the flip side, inflation you know, inflation and interest rates, again, sorry to bring up politics, but but if we believe inflation is slowly getting ingrained in in Australian society, right? Well, surely all this government spending and handouts and trying to buy votes isn't helping, right? So So if you separate the the the oil price and surely the oil price, yes, it's high and yes, it's spiked, but but you know, I guess the trajectory and how quickly it's gone up that you know, you would you would assume it's going to come down a little bit once, you know, if if and when there's a kind of a ending to the Iran crisis. So so you know, that part of that inflation is you could argue cyclical, but the structural stuff, you know, the government's not helping. So, so yeah, if they continue to do what you know, they've announced you know, last night what they're going to be doing, it's it's not going to help and and and inflation yeah, I don't think there is a you know, interest rates is a blunt tool, but I don't think there's any other way to try and stop you know, inflation being you know, rampant and permanent and and you know, inflation high inflation for a long period is obviously very bad on the average person. I I found it pretty notable looking at um Michelle Bullock's comments on on warning government over over fiscal policy. Like I contrast that with what we see in other countries and it it did stick out to me. >> Yeah, I think I think she I mean, clearly she said it for a reason to to to make a stand and um yeah, I don't know how Uncle Uncle Jim Chalmers is is an interesting cat. Interesting times. as we speak from studio in the failed state of Australia. Yeah, quite promising like freebies every day. Yeah, so so it's counterproductive what they're trying to do. I don't I just you know, I don't know. I guess I'm just what am I? I'm a dumb fund manager, but >> [laughter] >> but you know, it's not good. Um I don't know what the solution is. Is is Wait. Yeah, I don't know what the solution is, but but uh you know, it's very disappointing. Um but it's disappointing cuz to me it's obvious. It's obvious what they shouldn't be doing you know, to to effectively help on the inflation front. So, yeah. You you mentioned um pretty pretty early vast that you don't have a next good idea for for For asymmetric cyclical divergence. Um Can I Can I Can I throw something in the wind and see if you think there's any merit to this? You think on the the flip side of this like SAS apocalypse that um there'll be some interesting opportunities there? Uh will I have to disclose? I guess you could call it thematic. >> [laughter] >> We We did sorry in in in the international fund we did buy two businesses that were hit because of the SAS apocalypse. And they were online um uh online classifieds businesses. Mhm. Yes, was one of these a London listed? >> Yeah, they're both London listed. So Rightmove and Auto Trader. So effectively the car sales and the realestate.com of the UK. Um yeah, I guess you could think of that as a thematic. Um yeah, I yes to answer your question. Yes. Uh obviously there's lots of moving parts with what AI can do. But but I think people if I specifically think about an online classifieds business and not necessarily Auto Trader or Rightmove but just online classifieds you know, you've got the front end where obviously the consumer um logs online and checks whether it's cars or whatever cars and houses. But But I feel like the market's missed the back end. Um and I'll explain why. So the back end not that easy to replicate. Like there's a reason why car sales is good in Australia but nowhere else. There's a reason why Auto Trader is good in the UK but nowhere else. Um I don't know what the American equivalent is for car sales but there's a reason why they're number one. And so so even dominant online classifieds businesses in a certain region, they can't replicate that in another region. And you say, "Well, why?" Because the back-end, it's like for Autotrader, I think they have contracts with 4,000 independent car dealerships. So, they're still sending reps on the road. I think they've got 250 reps um on the road to visit car dealers to lock them in contracts, to help them with the photos and the inventory and all that stuff. So, that stuff's still pretty physical. Mhm. Um and for for real estate portals as well, I'm pretty I mean I don't know how many independent real estate agents there are, but but you still need to engage with these agencies, you know, meet up with them, help them. So, so I think the market's kind of missed the back-end Mhm. part of classifieds business. So, that's why we felt pretty comfortable with the classifieds. And then why we did the UK and not Australian stocks or American stocks or UK stocks, it was just from a valuation perspective. Because of how terrible the UK economy's been. Um uh so, I think there's three stocks we own in the UK. The two online classifieds and also Domino's UK. Mhm. So, I think there's a disconnect with the UK price earnings multiples. Um um and so, yeah, I I guess that's a thematic. I think it's I think it's really interesting because the the bootstrapping liquidity is going to be incredibly hard for any, you know, it's easy to be might be easy to build software, but actually like getting buyers and sellers to converge, especially when you're tying the physical world stuff. >> Yeah. There's There's a lot of resilience to that business model. I think so. I think so. And I think what again I other businesses, my view is if you're already an incumbent and you've already got the customer contracts and connections, you know, why couldn't they themselves implement and utilize AI in their services and products, which I think they're doing? I think I where I do think it may have an effect is maybe pricing and margins. And when I say that is if if you're an incumbent, you probably have to spend more on your own AI initiatives just to earn the same dollar of revenue. So, I guess maybe margins will come down a bit, but entire business models ending tomorrow cuz of AI. Yeah, I don't I don't I don't think it's that easy. One last commodity to to talk about that. I think it's a commodity we've never spoken about on the show before, almonds, Select Harvest and Aussie business. I've I've read a few papers on it and and done a bit of reading on on the company itself. It's a it's a really fascinating setup the almond market where you've only got certain pockets of the world where it's appropriate, water challenges, uh land issuing challenges, permitting, these sorts of things. I'm curious to to get the quick sort of 101 on on why you like it. Well, I think you've caught me up twice here on thematics. I guess you could argue it's thematics. Uh so so, put it this way, if there were more than one way to play the almond market, we probably would have a special situation fund. Yeah. But, it's hard to have a special situation fund when there's only one way to play it. You could set up a private thing and just go to the other little farms that aren't even listed Maybe. So so, yes. Yes, uh we like, if you want to call it the almond thematic, um there's only one way to play it in from our knowledge in the listed space and that's through Select Harvest. So So uh Yeah. So almonds have elongated booms and busts. Um obviously the previous boom induced a lot of supply and then clearly there was an oversupply. Um and then the bust happened. And then what happened during the bust phase is um So wh- when you plant an almond tree, it takes between 3 to 4 years for um almonds to the first bear. And so, what's happened is effectively so, almond demand on average apparently goes up roughly 4% per annum. So, so it's not a demand question. So, um a lot of people eating almonds and uh drinking almond milk um and I think a lot of demand comes from China. The growth in demand globally has come from China, um India, and surprisingly, um the Gulf region. I don't know why they eat so many almonds. Not just an inner north Melbourne thing, so No, so between those three regions, um they're growing very strongly. Um and so, the thematic is relatively simple. So, uh supply, I think this is the second second year in a a row where supply has fallen. Um and you say, "Well, how has it fallen?" Because uh either trees have reached their maturity and and a tree that an almond plantation that's between 15 to 20 years old, after that, they become less and less efficient, so they produce less almonds. Um so, effectively, supply's going down because of the age of the existing trees. And then, on the flip side, a lot of people have been um rip ripping them out because it's been such a bear market and and and doing other things. And because California uh is the world's largest region for supply, I think California's about 70% of world almond supply, they're having a bit of water issues. Um and I think it's 30 roughly 30 to 32 uh liters of water needed for one almond. Um and so they've got water issues um and there's been rules and regulations where um certain regions in California just don't have enough water. So, they're they're ripping out plants as well. And so, you've got a scenario where supply is coming off, demand is continuing to go up. And the almond price um is certainly off its lows. So, it's not near its high like high as from the previous bull market. I think the almond price is is is it 60 or 80% off its lows? Um Select Harvest has cleaned its balance sheet. Um they have a um pretty good balance sheet. Um They have uh Yeah, they have farms um throughout Australia in in in various states. And yeah, I I I think the their earnings will continue to inflect. Um I think it's trading at half its half its book value, replacement value of its infrastructure. Um And so, yeah, I'm I'm pretty bullish uh Select Harvest. Um and and what I like about it is as I said, long periods of long bull markets and bear markets. I think we're you know, 1 or 2 years into this almond bull market, if you want to call it. Um It's uh demand for almonds is also uh pretty resilient. So, even in downturns, people still eat almonds. Um Now, if the almond price goes up double or triple from where it is, you know, would we see a decrease in demand? Maybe, but but I still think there'll be growth, but maybe instead of 4% growth, it might be 1% growth, but doesn't really matter if if if demand falls 3%, but you're getting twice or three times the revenues. Um you know, it hits the bottom line. Um So, yeah, we we like Select Harvest. A discount to to replacement or book value is is always a fascinating place to to look for value and and hunt around, especially for capital-intensive sectors, yes. Yeah. Yeah. Vass, we could talk for for hours, but really appreciate your your time coming on, chatting through the the the way you view the world, the situations in in front of us, and looking forward to doing it again in future. Thank you, gentlemen. Thank you, Vass. How do you reflect on that combo with Vass, mate? I'm going to go do some digging on almonds. What about you? I am I'm I'm I'm definitely going to eat a few almonds. I'll [music] drink some almond milk coffee. >> Drink some almond milk coffee. >> about almonds. Very good. Thank you to Vass, and a big thank you to Sanity Ground Support, Introlinks, Focus, the platform by Market Tech, Metals Hub, and Exceed Capital. Hooroo. Hooroo. Now, remember, I'm an idiot, JD's an idiot. If you thought any of this was anything other than entertainment, you're an idiot, and you need to read our disclaimer.