Friday Beers with Marc & Stuart: Lock Down Under

This week in Friday Beers with Marc & Stuart:

 

0.28 We’re changing our name to Lock Down Under
1.25 Stormy weather for AfterPay?
5.15 Introducing Stocks Down Under’s Watchlist
6.55 The Love Doctors help Petra from Balgowlah Heights
9.11 Top Pick Weebit Nano is going places
10.46 Groundhog Haze…for Groundhog lockdowns

See full transcription below.

 

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Transcription

 

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

Marc: I’m Marc Kennis.

Stuart: And [crosstalk 00:00:19] we’re the founders of “Stocks Down Under,” one of the greatest investment publications ever to have appeared in the English-speaking world since Ben Graham was a young student. Marc…

Marc: We should call our company LockDown Under. I’m just fed up with this lockdown and the way this is being handled by the Federal and State government. So, anyway, I’m just, you can tell I’m slightly frustrated about this.

Stuart: I’m almost tempted not to vote for the re-election of Gladys Berejiklian’s government after the way in which they’ve locked us down. There are gonna be winners and losers coming out of this lockdown, and one of the winners has gotta be Shaver Shop because you can see my hair’s starting to get pretty outta control if you’re…I’m starting to look like a hippie.

Marc: I was actually growing a lockdown beard, but I wasn’t getting a lot of love from my wife, so, I had to shave it off.

Stuart: So, Marc, company that’s not getting a lot of love out there that got nothing to do with lockdown and that’s the Buy Now, Pay Later sector, what’s going on there?

Marc: Yeah. So, big news the other day when Apple announced that it’s entering that space with the Apple Pay, and so you can basically pay in installments. But the trick is you need to have an iPhone which is, you know, at the same time is the weakness of the whole proposition because anyone on Android can’t use it.

Stuart: Right.

Marc: But it was enough to send the Afterpay shares down 9% on Wednesday and yesterday it went down a little bit as well. But, yeah, some of the mainstream media are predicting doom and gloom for the Buy Now, Pay Later space where I think really, if you look at the proposition for Apple, yes, it’s a big company, it’s got deep pockets, but it’s only on iOS. Market share of iOS in the U.S. is 58%, but in Europe, Android’s got 69%, so, you know, 31% of the market, that’s what Apple is missing in Europe as an example. And then you’ve got India where I think iOS is only 3% of the market, right? So, it will definitely impact the Buy Now, Pay Later players, but competition was always part of the proposition for us. So, I’m not saying you should buy apps that pay right now, because I think there’s some more downside, but I think, you know, the tone in the media is very exaggerated.

Stuart: Yeah. And I wanna add to this just a personal experience as well, I’d never used Afterpay before, up until last week. So, my daughter gets in touch and says, “Dad, I wanna buy some thread to make some bangles on eBay, can you buy it for me?” I said, “What’s in it for me?” And she said, “Well, if you use Afterpay, it’s $10 off what you’re normally expected to pay.” Now, how genius is that for marketing? $26 for this thread, but only $16 if I bought using Afterpay.

Marc: And now sure you’re paying $4 every two weeks. Is that it?

Stuart: Right.

Marc: Right.

Stuart: So, I log in expecting to have to jump through endless hoops to onboard with Afterpay. And they don’t require any details from me other than a few basic details, but within five minutes, I’m an Afterpay customer.

Marc: Yeah, it’s pretty straightforward actually.

Stuart: Yeah. And within 10 minutes, I’m the proud owner of 300 pieces of thread to make bangles for my daughter.

Marc: Right. You won’t be bored in lockdown then, that’s for sure.

Stuart: So…

Marc: It’s an important point where PayPal launched its Buy Now, Pay Later proposition as well in Australia, and in the U.S. as well, I think. But PayPal is not a marketing machine, like Afterpay is, right? So, Afterpay drives a lot of traffic to these merchants’ websites, which…

Stuart: Wait, I’m a classic case of that. I would never have bought that thread had my daughter not made Afterpay available to me.

Marc: Exactly. And that’s why I think retailers are pretty happy paying that relatively high merchant fee compared to PayPal, for instance, because it drives traffic, it drives volume for them.

Stuart: Right. Now, Marc, on another matter, at Stocks Down Under we’ve introduced the Watchlist…

Marc: By the way Stu, we shouldn’t forget to mention our sort of price target for Afterpay. You remember we said it was a sale at…

Stuart: Yeah.

Marc: …$144.

Stuart: Yeah.

Marc: This was about four, five months ago.

Stuart: And didn’t we get that one, right?

Marc: Yeah, exactly. And we’re looking to get back in, and our model basically suggests anywhere between $70 and $80 is the right level. And we missed it by, you know, a few dollars back in May when it was heading down, I think it was $84, so we missed it at that point. But that’s where I think by now, sorry, Afterpay can go to, and I suspect there will be a few changes to earnings as well, but that’s the level where we think you should be getting back into Afterpay is between $70 and $80.

Stuart: All right, let’s keep an eye on that. Now, on other companies we should keep an eye on, we introduced the Watchlist at Stocks and Down Under, Marc, talk to us to think about that. And then I want share one of the items on the Watchlist that I’m particularly interested in.

Marc: Yeah. So, for our subscribers, they’ve been able to access the market stewards stock picks list for a while now. What we found is that, that list is, even though we condense, it’s quite a bit from the stock ideas that we have, we’re still quite large, about 15, 16 companies. We’ve condensed that back down to eight only, the top, top, top picks. But in order to keep track of, you know, interesting companies that could be potential top picks on our list, we’ve created a Watchlist which consists of 27 companies, and that’s basically our point efficient for future top picks.

Stuart: Right. So, one of the stocks I included there, which I’mpretty excited about, is Perenti Global. So, Perenti had a profit warning a couple of months ago, nothing to do with the growth of the business, which has been pretty strong. It’s just that also the Australian dollar has been quite strong, and a lot of the work that Perenti does, mining services, contractors in Africa and other places outside Australia, you throw in a tightened labor market here so that labor costs are high, that caused a softening of their earnings outlook for the next couple of years. Not long after that, a number of directors were weighing onto the market and buying some stock on market themselves, so they’re pretty optimistic about their business. And the stock’s down at a miserably low [inaudible 00:06:41] multiple now, compared to the to the potential growth. So, Perenti has done this once before just coming out of the coronavirus crisis, I think it can do it again.

Marc: Okay.

Stuart: So, watch Perenti closely. PRN. So, Marc, we got some communication from Petra from Balgowlah Heights. She called up the other day a little bit angry, it was a strong Dutch accent I could hear. And…

Marc: Go on.

Stuart: …Petra from Balgowlah Heights was telling me,” My husband started to grow a beard during lockdown and, you know, he was trying to tell me how manly it was and I just thought it was disgusting. And I got so mad, I drove over to the nearest Shaver Shop to buy some implements with which to deal with a beard. And while I was there, I noticed there was about 20 other wives like me in the shop with the same idea, so I’m wondering, should I buy the stock?” Now, Marc, should Petra from Balgowlah Heights be buying Shaver Shop?

Marc: I don’t care about Shaver Shop, I’m just wondering who this Petra is because it sounds very familiar for some reason.

Stuart: Right.

Marc: So, yeah, you know, my wife’s name is Petra, right? We live in Balgowlah Heights…

Stuart: Well, what a small world…

Marc: …I used to have a bit…

Stuart: …it is.

Marc: …of a beard there.

Stuart: Well, Petra, what I’d say is this, the future of retailing is a lot of really specialized kind of offerings, so if you’re gonna buy a razor or whatever it is, Shaver Shop should jump to top of mind because that’s all they do, and they do it reasonably well. You go see the stores and they’re generally small box type arrangements, plus they’ve got a pretty strong online kind of arrangement. They had this experience about a year ago when lockdown happened before right around the country, and a lot of people had to make arrangements to do their personal grooming other than the usual barber or hairdresser or whatever. And the stocks actually looking reasonably undervalued on a forward earnings basis. So, I think there’s some merit to your idea, but I’d run it past your husband first. It’s always a good idea…

Marc: Yeah…

Stuart: …to check with your…

Marc: Actually, let’s do that right now, I’ll be right back Stu. This is sounding all too familiar, I need to have a word with my wife, so for now let’s just move on because this might escalate.

Stuart: All right. Now, Marc, final story that I…Weebit Nano, favorite tech stock of ours, also on our watch…it’s a top pick, right?

Marc: It’s definitely a top pick. Yeah.

Stuart: Yeah. What happened there?

Marc: Well, so it’s gonna sound really technical, so I’ll try to keep it really simple, but company’s developing two types of new memory products and one of those types is called embedded RAM, probably just announced yesterday, yeah…Wake up Stu’. You’ll stay awake once you look at the share price, see what happened on Wednesday. You really…

Stuart: I love it when you talk dirty to me Marc. So, something about embedded memory before I fell asleep, right?

Marc: Embedded memory. So, it’s good to know by the way how to get you to fall asleep, so embedded memory is the key word here. It’s my safe word. So, yeah, they announced that they made big progress in terms of getting towards test chips that potential customers can use, big announcement on Wednesday about that. Stock spikes 16%, and we think it’s just basis for more good news to come, because I think this sort of development is really what will trigger potential customers to sign commercial deals with Weebit. And the company’s continuing to indicate that it will sign a first commercial deal sort of, you know, in the next coming months. So, yeah, keep a close eye on Weebit Nano, I think that’s one that is going places and not just now in the short term, but longer-term as well. This is a really interesting high-tech play that people should have in their portfolio. It’s a bit risky, obviously, no revenue’s just yet, but it’s one to buy and then put it away, look at it, you know, a year or two years from now.

Stuart: And now, that brings us to the final segment of this program. Here’s today’s beer Marc, I really am missing our get-togethers. So, yeah, that’s not bad, but that’s only 3.5% alcohol by volume, right?

Marc: Yeah. But it’s pretty good.

Stuart: Right. I can…

Marc: If only I had a bottle opener.

Stuart: Well, what I’ve got here is Groundhog Haze, Hazy IPA, but drinking a lot of Hazys in the last year or so. New England IPA, the idea is you add some bacteria into the brewing process to bring out a lot of fruit-type flavors. This is a 6.2% alcohol by volume from a brewhouse down in Melbourne called Moon Dog. Sometimes Hazy can be a little too sweet, it’s the equivalent of drinking sangria and thinking you’re drinking orange juice rather than wine, I think. That’s not a problem with this one, so it doesn’t overplay the fruit thing too much, but it does give you a good hit from the from the alcohol. So, I could come back to this one again, and judging by the Groundhog Day that we’re going through in lockdown, I fear I will be coming back for it again. So, I’m glad I bought more than two cans of this stuff.

Marc: Yeah. You’re gonna need at least three weeks’ worth of beers as I understand it, and maybe longer with this lockdown going on anyway.

Stuart: Right. That’s all we have time for. So, thank you for listening, if you’re not a subscriber to Stocks Down Under, do yourself a favor, and more importantly, do your portfolio favor and subscribe to Stocks Down Under.