Friday Beers with Marc & Stuart: The one with 3 spectacular chip stocks

January 21, 2022

4DS, 4DS Memory, BKG, Booktopia, Brainchip, BRN, video, VN8, Vonex, WBT, Weebit, Weebit Nano

Summary

In this first episode of Friday Beers with Marc & Stuart in 2022:

 

– Should we rotate out of BrainChip (ASX:BRN) into the ReRAM players WBT and 4DS?
– The Love Doctors on when to sell a chip stock.
– Conan the Contrarian on Booktopia (ASX:BKG)
– The new super hero on the block: Ticker Man
– Stock of the Week: Vonex (ASX: VN8)
Big Sur from The Grifter Brewing Co.

 

 

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Transcription

 

Stuart: It’s Friday afternoon in Sydney. And that means it’s time for “Friday Beers with Marc, and Stuart.” I’m Stuart Roberts.

Marc: Marc Kennis.

Stuart: And we’re the founders of “Stocks Down Under,” that legendary publication that comes out four times a week, with three great ideas in every edition. And Marc, a lot of activity around BrainChip at the moment.

Marc: Yeah.

Stuart: But frankly, I can’t make headnotes out of BrainChip versus 4DS, so please enlighten us. What exactly is the difference between those two stories?

Marc: Yeah, look, so we’ve talked about these chip stocks quite a number of times right over…

Stuart: I already started on the beers before we started recording. It’s been a tough day at stocks.

Marc: As long as you don’t touch my beer.

Stuart: Do you want me to open it for you?

Marc: The first one in the New Year and he’s already starting…he’s nicking my beer. The heck.

Stuart: Open your beer Marc, it’s Friday.

Marc: So, BrainChip has gone through the roof, and it’s… Cheers.

Stuart: Cheers. Happy New Year to you.

Marc: You too.

Stuart: And Happy Australia Day, for next week. Go out there and party on the 26th of January, and celebrate living in the greatest country in the world.

Marc: I will say cheers to that.

Stuart: Right.

Marc: Anyway, BrainChip, versus the other chip stocks. So BrainChip has gone through the roof based on some news coming out of Mercedes, that it’s using Akida chip in its concept car, and obviously it is implied that Mercedes will use Akida in other models going forward. So that’s set off a massive rally in BrainChip.

Stuart: They’re talking about this car being driverless. So it’ll have driverless capability, I presume.

Marc: At some point, yeah, future models will have that at some point, I think. So yeah, BrainChip valuation peaked earlier this week around more than $4 billion actually. And obviously, you know, 40 cents is way too low for a stock like that. I think $2.30 or $2.35, whatever it was at the peak, it’s probably it start getting ahead of itself a bit too much. So at the current level and on Thursday, it actually came off a little bit already during the day. At this valuation, it probably makes sense to rotate actually into Weebit Nano, for instance, or 4DS. Because if you look at the valuation for Weebit, even yeah, Thursday went up as well, but it’s just $600 million versus $4 billion for BrainChip. And these companies are only about six months apart in terms of commercialization.

And I’ll say BrainChip’s got more potential longer term, and more types of products, and obviously Weebit’s got a great potential, but I’d say BrainChip’s got a little bit more even than that. But that difference in valuation is way too big, in my opinion. And then don’t even talk about 4DS. That’s just… I look it up 150 mil. Right?

Stuart: Right.

Marc: So, from where we are sitting, we think BrainChip probably got ahead of itself, it might actually make sense to rotate into Weebit or 4DS. 4DS is more risky, more speculative. Weebit’s got more…is further advanced in commercialization. So there’s a big gap in valuation, right now rotating into the cheaper ones might make a lot of sense.

Stuart: Right. Which brings us to… We’ve had some interesting letters to “The Love Doctors.” A couple of letters from some aggrieved people regarding BrainChip. Let me read them.

Marc: Oh, okay.

Stuart: So the first one came from…

Marc: Is it coincidence?

Stuart: …Petra, at Allambie Heights. She said… she doesn’t mince words, Petra here. “My husband is such an idiot, he held BrainChip stock before the peak and he sold. Now, I actually think he was persuaded by his business partner to do that. But what do I do to stop my husband selling too soon?”

Marc: Petra from Allambie Heights, you’re saying?

Stuart: Now it’s interesting, we then had another letter, Fifi from Murwillumbah [SP]. And she said, “My husband is such an idiot, he held BrainChip stock and he sold. Now, it’s gotta be his business partner, because Stuart’s too smart to…”

Marc: All right. We’ll let you in on a little secret. By the way, we still own Weebit Nano and 4DS, but we used to own BrainChip. We sold a bit too early in hindsight, but you know, in hindsight, everything is easy. We sold BrainChip at $1.11. I didn’t…

Stuart: Hindsight is 20/20, and you don’t wanna go back there.

Marc: Yeah, exactly. Even 2021 was pretty shitty. But anyway, we sold BrainChip, yeah. So we thought, I thought that, you know, $1.10, $1.11, was actually a pretty good price for the phase that the company’s in. I had no idea, obviously that the stock would spike to $2.30, you know, a week later or so. And yeah, so it’s my fault too. I’ll admit it. We still made money on BrainChip, 170%, in 3 months, but yeah, it could have been 400%.

Stuart: So Petra and Fifi should stop complaining with…

Marc: Stop complaining. Always…with these women, always complaining. But yeah, it’s a good question. When to sell a stock, right? With these speculative stocks, it’s always hard and there’s new flow coming out if you don’t expect like Mercedes announcing that they’re using Akida is completely sort of out of the blue, because there’s NDAs in place, non-disclosure agreements between companies, tech companies and their customers. So yeah, that stuff can happen anytime. I do think 2022, for Weebit Nano, by the way, will be an awesome year because they’re talking to a lot of people as well, so we expect announcements to come out. And by the way, our parent company Pitt Street Research has written about all these chip stocks. Right? So go to pittstreetresearch.com to get the latest info.

Stuart: We have had a track record with Conan the Contrarian of calling stocks that surprise everyone, often a little bit early. The one that’s on my radar screen, as a great contrarian play right now is Booktopia ASX:BKG. It’s an online bookstore, grew quite strongly as just a side hustle back, you know, 30 years ago. And now here it is as a leading Australian e-commerce company that ships about 40,000 items a day, from out of its warehouse in Western Sydney. So, had a great IPO when it first came on. Stock peaked at $3 back in the middle of last year, it’s now down closer to $1 in the meantime. And that’s in spite of the business continuing to grow quite strongly at the top line. The issue is Sydney. Now, Western Sydney, where the main distribution hub was impacted badly by COVID last year. That meant various supply chain disruptions, so they really couldn’t fulfill as quickly as they could. They actually had to cut shifts down at the existing distribution center. Now, what that means is you’re gonna have EBITDA come down on consensus numbers by about 30% in the FY22 year, which sounds. But…

Marc: It probably is bad.

Stuart: Well, it may sound bad, but think about that, the rebound on consensus that’s expected into FY23, is about 60%. So $10 million, to $16 million, to $23 million at the EBITDA line. It’s fair to say that Australians have not lost their love of books. Now, someone’s done a survey of reading habits around the world. It turns out Australians are bigger readers than Americans or [crosstalk 00:07:00.999], for example. So no surprises that Booktopia has been able to build a successful business in regular hard copy books and in the ebook type phenomena as well, which is obviously a big growth area.

They’ve started to publish original works in Australia. And the competitive advantage versus Amazon and others, is it’s based here. So they can get fulfillment just anywhere in Australia in a matter of days, instead of having to wait weeks for stuff to cross the Pacific with its competitors.

Marc: Yeah. So that’s my main question then for you, when it comes to Booktopia. Do you think that’s really a benefit for them? Because Amazon’s got their hubs in Sydney, now as well.

Stuart: Well, that’s right. So basically they’ve had enough time to build up their brand. You know that if your order from Booktopia, the book gets to you in a couple of days, and the catalog is fairly deep. So I think the brand’s built strong enough, and people wanna buy Australian. You know, do you want to enrich Jeff Bezos or do you want to help a little growing Australian company? Now, so, yeah, the challenge is, how are they gonna go in the renewed competitive environment.

The difference between Amazon, and Booktopia, is Amazon started with books, and now it’s the everything store. Booktopia was just books. And, you know, they inherited the catalog of Egg and Robertson, the Kyle bookstore as well. Now, the company hasn’t done itself any favors. So Tony Nash, their founder, sold some stock. He owns about 15% of the company. But he sold some stock on the 7th of December, just before the earnings update. So, this stock is stuck in a bad downtrend, but it’s flashing a few buy signals for me just lately. I think it’s gonna be a great contrarian performer in FY22.

Marc: All right. We’ll keep a close eye on it.

Stuart: Right.

Marc: All right. And now time for a new item. So Stu, we had a meeting a little while ago, and somehow in that meeting, we started talking about, you know, listed companies, companies on the ASX, and these people started shouting out tickers or codes of companies on the ASX. And you said, “Oh, I’m horrible with tickers.” But surprisingly, you knew an awful lot of them when they shouted them up.

Stuart: Right, right. Right. Back in the day, it was a great way to pick up girls. Is being able to show that you knew ASX tickets. Right.

Marc: At the establishment, I guess. And shoot. So we came up with the new item which is called Ticker Man.

Stuart: Ticker Man.

Marc: So this is Ticker Man, I’m Batman. So I’ve got 10 tickers for you, Stu.

Stuart: Okay.

Marc: And I’ll shoot ’em at you in rapid succession. Let’s see how many you get outta 10.

Stuart: Okay. Okay.

Marc: You ready?

Stuart: Okay, go.

Marc: BFL.

Stuart: Pass.

Marc: It’s a hard one because it’s recently listed.

Stuart: Okay.

Marc: It’s a BFP Financial.

Stuart: Okay.

Marc: All right. NMT

Stuart: That’s N for Nelly, right?

Marc: N for Nelly, M for Marc.

Stuart: Neometals.

Marc: That’s it, that’s one. WAF.

Stuart: That’s West African Gold.

Marc: Almost. I’ll count this one, it’s West African Resources.

Stuart: Okay.

Marc: WBT.

Stuart: Weebit Nano.

Marc: Wow. KCN.

Stuart: Kingsgate Consolidated.

Marc: Oh, there you go. That’s four. ASM.

Stuart: That’s… No, I give up on that one.

Marc: Australian Strategic Medals.

Stuart: Okay.

Marc: ALU.

Stuart: Alumina.

Marc: No. Altium.

Stuart: Okay.

Marc: Almost. Close. LEL.

Stuart: Lithium Energy.

Marc: That’s five. Nice. Last one. SNZ.

Stuart: That would be… No, I give up again.

Marc: Summerset Group.

Stuart: Okay. So five outta 10. That seems, right? Yeah.

Marc: That’s pretty good, actually.

Stuart: Okay.

Marc: Woo. Maybe one, another beer, I think.

Stuart: Right.

Marc: All right. That brings us to the last item of the day…of the week, actually.

Stuart: The beer.

Marc: No, almost. We’ve got…so, as you know, we publish, you know, articles, we have webinar, investor webinars with “Stocks Down Under.” We’ve got our topics, all available for subscribers. But we just wanna talk about, you know, our best pick of the week, basically, out of the “Stocks Down Under” publications this week. And we thought Vonex would be a good one.

Stuart: The standout small-cap stock to watch for 2022 as per this week’s edition of “Stocks Down Under” is Vonex ASX:VN8. Now there’s a code I knew. So, what’s to like about Vonex? There’s a whole lot of telecommunication startups, so people who can get you PBX, internet, mobile, all the basic tools of telecommunications trade that you as a smaller medium enterprise customer would like. One of the more successful in terms of implementing for their customers has been Vonex. So they’ve grown quite strongly over the years through various acquisitions. They’re now going national, in terms of they’re positioned in most parts of the country, and most parts of the telecommunications spectrum, more wholesale than retail.

But they’ve yet to put a foot wrong in terms of making an acquisition that hasn’t worked out. And they have a good way of being able to acquire a business and then cross-sell other customers. So not much consensus numbers around, but on the consensus numbers, this thing is heavily undervalued, it’s capped at only $38 million. But CEO, Matthew Fayhee has done a great job of bringing together a range of companies that serve the SME part of telecommunication space quite well. We think they’ve got a very good future. So go take a look at VN8, which we wrote about in small-cap stocks “Stocks Down Under” this week.

Marc: All right. Good stuff. Brings us to the beers. So talk us through this one.

Stuart: Yeah. So I can’t recall if we’ve looked at this beer before, right? This is Big Sur from the Grifter Brewing Company. Far away, my favorite…

Marc: Why do they call it Big Sur? That’s California, right?

Stuart: Big Sur. Big Sur is a mountains region of Central California, near a Simeon, where and… Between the towns of Carmel and Simeon, where Hearst Castle at Simeon. And I think Carmel was where John Steinbeck used to live. I think. So it’s a…

Marc: A lot of actors lives in Carmel, I think.

Stuart: Right. So…

Marc: Who was the mayor of Carmel, 20 years ago?

Stuart: Clint Eastwood, I think.

Marc: Clint Eastwood. Yeah, I think so. Yeah.

Stuart: Yeah.

Male Speaker: Go ahead. Make my day.

Stuart: So this is American IPA, obviously, named after an iconic part of West Coast. West Coast, IPA folk with a West Coast name. Two things to like about this is they’ve really ramped up the alcohol content here. We shouldn’t drink more than one before the afternoon is over beacuse we’ve still got work to do. But the other thing is I looked on the notes from the brewery, they said, “Our aim here was to get so many hops into this beer that would jam up the heat exchanger in the brewery.” Now, they didn’t jam up the heat exchanger, but what they managed to get in there was three really great American hops, Columbus, Citra, and I think Simcoe as well.

And the fruits of that is a very hoped up beer and very strong in the alcohol, but the malts, they used two different kind of malts to give it a firm of body than you’d get ordinarily for a West Coast IPA. I keep going back to it every time I visit Jim’s liquor store in White Tara, which is my local. I promise you, it’ll never let you down and I’ve never gotten tired of this one. So frankly, Grifter Brewing in Marrickville, that’s my favorite Sydney craft brewery. You can get a decent meal, and this beer is on tap down there in Marrickville. So if you’re looking for something on Saturday, go check it out.

Marc: All right.

Stuart: And that’s what we got time for at “Stocks Down Under.” And remember, if you haven’t subscribed to “Stocks Down Under”, do yourself a favor, more importantly, do your portfolio a favor, and subscribe to ” Stocks Down Under.”