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What top stock CEOs are expecting in 2025 · The Money Puzzle

• 0:09
  Speaker 1: Hello and welcome to The Australian's Money Puzzle Podcast. I'm
• 0:12
  Speaker 1: James Kirby, the World Editor at The Australian. Welcome aboard, everybody. Well,
• 0:16
  Speaker 1: we're into the final week of regular podcasts and today
• 0:20
  Speaker 1: I want to open up the show a little. We
• 0:22
  Speaker 1: want to talk about all things investing on the markets,
• 0:26
  Speaker 1: listed investments, banks, big companies, big industrials, property trusts, which are, folks,
• 0:35
  Speaker 1: if you're interested in property, on the listed side. have
• 0:39
  Speaker 1: become one of the hottest areas of the year. The
• 0:42
  Speaker 1: property trusts are up about 25% this year on the market,
• 0:46
  Speaker 1: which is quite a strong performance, recovery performance. And two
• 0:51
  Speaker 1: of the more interesting stocks of the entire year are
• 0:54
  Speaker 1: the Goodman Group and also Digico, that big float, which
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  Speaker 1: both are property trusts, but they're also proxies, of course,
• 1:01
  Speaker 1: for AI. So now, my colleague, associate editor of business,
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  Speaker 1: Eric Johnson, has just emerged from the annual CEO survey
• 1:11
  Speaker 1: that we do at The Australian, where you get an
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  Speaker 1: exceptional sort of line into dozens of leading CEOs from
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  Speaker 1: the top 200. He's just been through that, and I
• 1:20
  Speaker 1: thought it would be a great idea to have him
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  Speaker 1: on the show and talk about what are the key person,
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  Speaker 1: the key CEOs in Australia, and those same people who
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  Speaker 1: presented both risk and opportunity to us as investors, what
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  Speaker 1: are they thinking at the moment? What are they thinking
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  Speaker 1: about the year ahead, and what does it tell us
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  Speaker 1: as investors? Great to have you back on the show.
• 1:40
  Speaker 1: How are you, Eric?
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  Speaker 2: Thanks very much, James. Really good to be here.
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  Speaker 1: Good to have you on. Just in very broad terms,
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  Speaker 1: what's the mood? What's the mood with these people considering
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  Speaker 1: they've just had a fantastic year if they're listed?
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  Speaker 2: Yeah, look, so we spoke to, it's approximately 70, just
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  Speaker 2: over 70 of Australia's leading CEOs from every corner of
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  Speaker 2: the market that you could think of. So from property, manufacturing, mining,
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  Speaker 2: to banking, financial services, wealth management, super, advisory, you name it,
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  Speaker 2: we spoke to them. If you were to sum it up,
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  Speaker 2: distill it in just a really pure form, I think
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  Speaker 2: the term would be cautious optimism going into 2025. So
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  Speaker 2: the hardest period that they had, when I say they,
• 2:35
  Speaker 2: the company's themselves so what they were seeing on in
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  Speaker 2: their own businesses was was pretty much the september quarter
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  Speaker 2: coming out of the june quarter september quarter and they've
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  Speaker 2: sort of come through this period looking ahead and looking
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  Speaker 2: into 2025 and these are the ceos thinking okay look
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  Speaker 2: what do we got it ahead of us now some
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  Speaker 2: of them like for example like let's start from the
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  Speaker 2: very top okay one of the biggest companies in australia
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  Speaker 2: commonwealth bank like matt common the ceo of commonwealth bank
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  Speaker 2: He's saying, so he's, again, that theme of cautious optimism.
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  Speaker 2: He thinks interest rates are going to start falling much
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  Speaker 2: quicker than many expect. He hasn't put a specific timing
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  Speaker 2: around it, but it's certainly early in the new year. However,
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  Speaker 2: what he is seeing, this is Matt Common of Commonwealth Bank,
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  Speaker 2: years of low growth, high costs. So inflation is really
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  Speaker 2: hurting his customer base. And that's sort of knocked confidence around.
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  Speaker 2: So why? When we get some of that relief, which
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  Speaker 2: is inflation pulling back, which we're starting to see signs of,
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  Speaker 2: when we get relief in rates, his expectation is that
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  Speaker 2: will bring back the confidence and therefore people will start
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  Speaker 2: borrowing again. So another theme that we're really sort of
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  Speaker 2: seeing going into next year is also the idea companies
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  Speaker 2: are now thinking we've had this inflationary environment. It is
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  Speaker 2: hurting our customer base, but they're also thinking about their
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  Speaker 2: own business and productivity, measures for productivity. how can they
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  Speaker 2: grow their business?
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  Speaker 1: They're very weak by historical and international standards, yeah.
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  Speaker 2: So with that, they're thinking about the tools and the
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  Speaker 2: levers that they can play, how they can play a role.
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  Speaker 2: So we have seen some quite large wage rises in
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  Speaker 2: recent years. So they're looking to capture that. And by
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  Speaker 2: all means, this is no one saying we're going to
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  Speaker 2: wholesale cut costs or anything like that. Everyone's talking about investing.
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  Speaker 2: And companies are talking about investing in the tools, particularly technology,
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  Speaker 2: to allow their workforce to achieve more from what they
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  Speaker 2: have today.
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  Speaker 1: And is that an AI theme?
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  Speaker 2: Yeah, very much. And everyone's talking about AI as this thing,
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  Speaker 2: but now what we're looking at this year is the
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  Speaker 2: rubber hitting the road on AI.
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  Speaker 1: The conversion of the promise, if it converts from promise.
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  Speaker 2: That's right. So how is it going to start impacting
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  Speaker 2: into my own business? So Australian Super, so that's the
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  Speaker 2: nation's biggest super fund. Probably many of your listeners are
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  Speaker 2: members as well, just by default. The boss of Australian Super,
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  Speaker 2: Paul Stroda, saying he believes that AI has some real
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  Speaker 2: productivity potential for the Australian economy. So the idea of
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  Speaker 2: automating processes, this is like menial tasks that happen in
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  Speaker 2: back offices. This is unleashes people to do higher value
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  Speaker 2: work personalization of products and services and streamlining compliance all
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  Speaker 2: that's going to deliver productivity gains so there's.
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  Speaker 1: Two big themes there then one being the um if
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  Speaker 1: you like the revival perhaps of the economy to some
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  Speaker 1: extent and the revival of financing of the economy and
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  Speaker 1: lending to the economy by the major financials And then
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  Speaker 1: also this idea about productivity. And most investors don't necessarily
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  Speaker 1: care about productivity. It's not something they obsess about. But
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  Speaker 1: the CEOs that run the listed companies certainly do because
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  Speaker 1: basically you have to get more value for the wages
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  Speaker 1: that you pay. So I'm just thinking, just going back
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  Speaker 1: on looking at these two areas then from a listed perspective,
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  Speaker 1: from an investor perspective, we think about the banks. So
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  Speaker 1: they mentioned Matt at the ComBank looking out over this economy,
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  Speaker 1: which is somewhat subdued, though even though it has very
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  Speaker 1: low unemployment rates, his own bank then is flying, right?
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  Speaker 1: It's got tickets 50% overpriced according to the consensus targets
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  Speaker 1: in the market. It's running at about $ 150. The brokers
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  Speaker 1: are saying it's worth about $ 100. This stock itself surprised
• 6:41
  Speaker 1: everybody because not so much that the Australian economy smashed
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  Speaker 1: it out of the park, But it wasn't as bad
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  Speaker 1: as they thought. So the bank was able to write
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  Speaker 1: back some of the provisioning and that underpinned better earnings
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  Speaker 1: than people expected for the big banks. Just ticking at
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  Speaker 1: that layer, Eric, if we could just talk about bank
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  Speaker 1: stocks for a moment. Then we have ComBank, which is
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  Speaker 1: sort of the King Kong of the bank sector and
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  Speaker 1: would seem to be the most overpriced, according to the analysts.
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  Speaker 1: And then there are three other banks making up the
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  Speaker 1: big four. And a new broom going through those banks,
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  Speaker 1: new CEOs coming in. at ANZ of course and ANZ
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  Speaker 1: and Westpac and so what do you think the outlook
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  Speaker 1: for bank stocks might be coming off what the CEOs
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  Speaker 1: are saying it would be very hard for them to
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  Speaker 1: do that all over again next year you'd imagine I
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  Speaker 1: mean on the stock side regardless of their performance on
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  Speaker 1: in on the street if you know what I mean.
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  Speaker 2: And CBA as as you pointed out is is a
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  Speaker 2: really interesting case and that was just flying it's been
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  Speaker 2: one of the hottest stocks in the world but that
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  Speaker 2: That in itself means that CBA is also one of
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  Speaker 2: the most expensive bank stocks in the world. There are
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  Speaker 2: no stock market analysts that has a buyer recommendation on CBA.
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  Speaker 2: It's not because they think it's a bad business. They
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  Speaker 2: just say it's too expensive. It's way too expensive for
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  Speaker 2: the share price. It's too expensive for the earnings to
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  Speaker 2: support what it is. However, they have been wrong. the
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  Speaker 2: entire way up for CBA.
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  Speaker 1: They've been wrong from $ 100 to $ 150. That's right.
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  Speaker 2: So they've been wrong at $ 110, they're wrong at $ 120,
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  Speaker 2: and so on. So there's soul-searching going on in analysts. Look,
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  Speaker 2: with CBA, there is a bit of crowding out. CBA
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  Speaker 2: is a play on Australia. It's safe. It's a safe
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  Speaker 2: investment because just the sheer size of it, it represents
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  Speaker 2: almost like 20% of the economy like in terms of
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  Speaker 2: mortgages and business loans and so on. And you've seen
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  Speaker 2: a lot of index funds also, so back CBA, but
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  Speaker 2: also just a lot of passive money just sitting in CBA.
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  Speaker 2: So the real action going into 2025 is going to
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  Speaker 2: be in the non-CBA banks. And as you pointed out,
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  Speaker 2: so we've got each of these banks have got new CEOs.
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  Speaker 2: So Westpac, NAB and ANZ. ANZ's new CEO, Shane Elliott,
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  Speaker 2: will step down in July. So it's a little bit
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  Speaker 2: further down the track.
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  Speaker 1: There's a change of the guard then at the big banks, yeah.
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  Speaker 2: Two of those appointments at Westpac and NAB, they're virtually internal. Well,
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  Speaker 2: not virtually, they are internal appointments. So the strategy, all
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  Speaker 2: things being equal, when you look at it as an investor,
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  Speaker 2: you know what you're getting. The strategy is going to
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  Speaker 2: be the same, maybe some tweaks here and there, but
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  Speaker 2: You're not going to see any shifts, any changes. Westpac
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  Speaker 2: is an interesting story because it's been, it's Anthony Miller
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  Speaker 2: started this week as new CEO, and it's been really
• 9:39
  Speaker 2: through this period of introspection since it had its Austrac
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  Speaker 2: scandal leading into the COVID pandemic. So it's been sort
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  Speaker 2: of thrown off its balance for those years. Totally internally focused,
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  Speaker 2: competitive where it can, but it's coming out of the
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  Speaker 2: other side of that. It's winning over regulators, which means
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  Speaker 2: there's a potential for it to it's been, operating under
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  Speaker 2: a capital penalty. So that's potential that comes off. So
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  Speaker 2: it might get a little bit of a bump there.
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  Speaker 2: So there's more potential in a company like Westpac if
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  Speaker 2: the new CEO can get the settings right, because it
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  Speaker 2: hasn't had that surge up that CommBank has. It's not
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  Speaker 2: going to be another CommBank. That's just been a remarkable run.
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  Speaker 2: ComBank is like that because it's also well run. It's
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  Speaker 2: highly efficient. It's well run. You know what you're getting
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  Speaker 2: and it's predictable.
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  Speaker 1: Okay. What I might do, I might hold it right there.
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  Speaker 1: We'll take a short break and we'll come back and
• 10:31
  Speaker 1: we'll take a look at outside the banking sector. But listeners,
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  Speaker 1: I'm sure that was useful to you on the four banks.
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  Speaker 1: So interestingly, internal appointments being particularly popular with these banks
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  Speaker 1: because they are conservative and investors like certainty. And there is,
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  Speaker 1: if you like, the role model of Fat Common, who
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  Speaker 1: was taken internally some years ago at a time when
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  Speaker 1: it was a very debatable thing to do because CommBank,
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  Speaker 1: from a reputation point of view, very low, at a
• 11:01
  Speaker 1: very low ebb around the time of the Haynes World Commission.
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  Speaker 1: And his chair quite bravely stuck with an internal appointment.
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  Speaker 1: So this is why the banks do that now. The
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  Speaker 1: only issue, as Eric is saying, is that there's nothing
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  Speaker 1: wrong with our banks. They're perfectly fine. And their numbers
• 11:17
  Speaker 1: are perfectly fine. Their problem is that they've been so
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  Speaker 1: enthusiastically bought up by investors that it's going to be
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  Speaker 1: very hard to justify the price levels they're at. All right,
• 11:28
  Speaker 1: we'll be back in a moment and we're going to
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  Speaker 1: take a look at outside the banks. We're going to
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  Speaker 1: take a look at who's who in among the big
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  Speaker 1: miners and some of the bigger industries. Back in a moment.
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  Speaker 1: Music Hello and welcome back to The Australian's Money Puzzle Podcast.
• 11:50
  Speaker 1: I'm James Kirby, Wealth Editor at The Australian, talking to
• 11:53
  Speaker 1: a colleague from The Australian, Eric Johnson, Associate Business Editor.
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  Speaker 1: He has been running the numbers and talking to many,
• 12:03
  Speaker 1: dozens of the top CEOs in the country. And I
• 12:05
  Speaker 1: thought it would be a really good idea to take
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  Speaker 1: a look at who they are and what difference they
• 12:10
  Speaker 1: make as stocks. I suppose, Eric, when we talked about
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  Speaker 1: the banks there, that's an area of the market where
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  Speaker 1: The personality of the CEO is least important. By that,
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  Speaker 1: I mean a good blue chip company. The theory is
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  Speaker 1: that the boss should be able to be run over
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  Speaker 1: by a bus and the share price shouldn't be affected.
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  Speaker 1: I mean, that was traditionally inside big blue chip companies,
• 12:34
  Speaker 1: the sort of brutal boss. concept but the idea was
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  Speaker 1: obviously that the company was more than a single person
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  Speaker 1: now that's less so as you move away from banks
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  Speaker 1: and you go to other part of the economy even
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  Speaker 1: the big miners now the big two the very big
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  Speaker 1: two obviously being rio and bhp are to that extent
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  Speaker 1: blue chip in that manner as well and though we're
• 12:51
  Speaker 1: all very fond of the ceos and we like them
• 12:53
  Speaker 1: they could be run over by a bus and they
• 12:55
  Speaker 1: would be replaced and you would hope that the share
• 12:56
  Speaker 1: price wouldn't go off the rails Now, that wouldn't be
• 12:58
  Speaker 1: the case necessarily at Fortescue, where forest is still very important,
• 13:02
  Speaker 1: or Minres, where Chris Ellison is very important, was very important.
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  Speaker 1: Tell us what the big mining CEOs have been, what
• 13:10
  Speaker 1: their view has been, or energy and resources in that area.
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  Speaker 1: Is the view cautiously optimistic? I would expect that they
• 13:18
  Speaker 1: might be hoping for a better year because they were
• 13:23
  Speaker 1: the weakest part of the market last year in terms
• 13:26
  Speaker 1: of the overall... Return of stocks, we had terrific year
• 13:32
  Speaker 1: on banks, consumer discretionary, marvelous year for IT, though it's
• 13:36
  Speaker 1: a relatively small part of the market in terms of
• 13:39
  Speaker 1: market cap. But when you look at the energy and materials,
• 13:46
  Speaker 1: it was quite weak. I mean, energy was substantially down
• 13:49
  Speaker 1: by about 20%, which we're certainly not used to at all.
• 13:54
  Speaker 1: But they had a very weak year and materials weren't
• 13:58
  Speaker 1: much better, minus 13%. This is a market, by the way, folks,
• 14:01
  Speaker 1: that went up 18%. So keep that in mind. So
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  Speaker 1: is there an elevated optimism from the mining and resource
• 14:10
  Speaker 1: energy people compared to the rest of the market? Have
• 14:12
  Speaker 1: you any sense of that?
• 14:14
  Speaker 2: Look, when we started off talking about the term cautious
• 14:18
  Speaker 2: and with the miners, the emphasis if you want to
• 14:23
  Speaker 2: draw a line is probably more on the cautious part
• 14:26
  Speaker 2: of that that that phrase particularly in a with those
• 14:31
  Speaker 2: two big material stocks so it's bhp and rio then
• 14:34
  Speaker 2: they're pretty much like for like except rio has the
• 14:37
  Speaker 2: aluminium play and that's a big differentiator bhp is probably
• 14:41
  Speaker 2: more exposed to copper in coming years it's going to
• 14:44
  Speaker 2: have it's going to have potash that's a fertilizer play
• 14:46
  Speaker 2: which rio doesn't have which will be an interesting one
• 14:50
  Speaker 2: how that changes Going into this year, and often it's
• 14:53
  Speaker 2: funny when you speak to the CEOs of these companies
• 14:55
  Speaker 2: and they're thinking so long term. They're not even thinking about,
• 15:00
  Speaker 2: you ask them, what do you think about the outlook?
• 15:02
  Speaker 2: How's the coming year? And they think, what year? They
• 15:04
  Speaker 2: are thinking.
• 15:05
  Speaker 1: They're thinking about mines they're going to build in eight years' time.
• 15:08
  Speaker 2: In 10 or 15 years' time. They're thinking kilometers ahead.
• 15:12
  Speaker 2: But where it is, the theme is obviously China is
• 15:16
  Speaker 2: the driver of that. And China, there is no doubt,
• 15:19
  Speaker 2: it's not troubled, but it's certainly slowed. It's aiming for
• 15:23
  Speaker 2: about 5% growth this year. Whether it sort of hits
• 15:28
  Speaker 2: that remains to be seen. But look, activity is coming
• 15:32
  Speaker 2: off in China, particularly in the consumer sector. And you
• 15:34
  Speaker 2: can see the authorities there trying to pull some different levers.
• 15:39
  Speaker 2: Nothing is really going to start to happen until there's
• 15:43
  Speaker 2: a change of president in the US and Trump comes in.
• 15:45
  Speaker 2: China starts seeing what the landscape is. So it would
• 15:48
  Speaker 2: be a bit premature for China to move before then.
• 15:51
  Speaker 2: Then the other thing too, the other factor which really
• 15:53
  Speaker 2: complicates things is this idea of Trump putting tariffs in
• 15:59
  Speaker 2: and then there's retaliation. That triggers a trade war. That
• 16:03
  Speaker 2: triggers a slowdown in activity in the global world. So again,
• 16:08
  Speaker 2: that may mean that players like BHP and Rio sell
• 16:13
  Speaker 2: less copper, sell less iron ore. But you don't buy
• 16:18
  Speaker 2: these stocks for what they're going to do in 12 months' time.
• 16:21
  Speaker 2: You buy these stocks for what they're doing in five years' time.
• 16:24
  Speaker 2: So if you speak to them, what are they thinking about?
• 16:28
  Speaker 2: What are they really thinking about? It's copper. It all
• 16:30
  Speaker 2: comes down to copper. And they just see this huge
• 16:36
  Speaker 2: deficit in copper from the end of this decade. And
• 16:39
  Speaker 2: the world not having enough accessible copper supplies, and that's
• 16:43
  Speaker 2: where they're trying to get onto.
• 16:46
  Speaker 1: Okay.
• 16:47
  Speaker 2: Your listeners are very big fans of gold, I'm sure.
• 16:50
  Speaker 2: You've got a lot of gold.
• 16:51
  Speaker 1: They miss Newcastle.
• 16:54
  Speaker 2: Yeah. Well, look, Stuart Tonkin of Northern Stars Resources, a
• 16:59
  Speaker 2: gold producer, this is kind of interesting, so let's talk gold.
• 17:03
  Speaker 2: He said, we saw a bit of a pullback in
• 17:05
  Speaker 2: the gold price shortly after the US election, which was right. However,
• 17:08
  Speaker 2: he doesn't see that lasting for long over time. He
• 17:13
  Speaker 2: says Trump presidency likely lead to trade tensions and increased
• 17:17
  Speaker 2: US government spending, which is likely to support a strong
• 17:21
  Speaker 2: gold price in both US dollar and Aussie dollar currency.
• 17:24
  Speaker 2: So he's trying to equate gold with Bitcoin. So he's
• 17:29
  Speaker 2: saying that he reckons an ounce of gold will be
• 17:32
  Speaker 2: worth at least 0.1 Bitcoin in coming years. So I'm
• 17:37
  Speaker 2: not sure what that equation is, but I think.
• 17:40
  Speaker 1: Your gold CEOs will always be of the opinion that
• 17:42
  Speaker 1: gold is going to go up. Everyone in gold says that.
• 17:44
  Speaker 1: But certainly Northern Star had a very good year, as
• 17:49
  Speaker 1: gold did. Then there were some really surprises. There was
• 17:52
  Speaker 1: that amazing story during the year of Resolute and the CEO,
• 17:56
  Speaker 1: Tom Holahan, being detained in Mozambique. So you have these surprises,
• 18:00
  Speaker 1: don't you? Even if we take it that the outlook
• 18:02
  Speaker 1: for gold is good, even if we take it that
• 18:05
  Speaker 1: it is the perfect setting for gold, continued rise in
• 18:09
  Speaker 1: the gold price, particularly with the arrival of Trump, where
• 18:13
  Speaker 1: we could safely assume that his second and third year
• 18:17
  Speaker 1: won't be quite as, won't be the honeymoon that maybe
• 18:20
  Speaker 1: his first and second month will be as that any
• 18:23
  Speaker 1: Republican president or any president would face that. So on
• 18:26
  Speaker 1: that basis, instability arrives. On that basis, people revert to gold.
• 18:31
  Speaker 1: But the issue for gold is really it's operational risk,
• 18:33
  Speaker 1: isn't it, with these guys, with these different miners and
• 18:36
  Speaker 1: these different CEOs? That seems to be the real differentiator
• 18:39
  Speaker 1: for Australian miners, at least. Can I ask you something
• 18:42
  Speaker 1: about stocks being taken off the market? I wasn't really,
• 18:45
  Speaker 1: I wasn't joking about Newcrest. I mean, if you think
• 18:47
  Speaker 1: about it, I'm sure people are kicking themselves. They had
• 18:49
  Speaker 1: this superb opportunity, the biggest gold stock in Australia. And,
• 18:56
  Speaker 1: you know, they come in and the Americans basically come
• 18:59
  Speaker 1: in and buy it at the Perfect time, just as
• 19:01
  Speaker 1: goes about a steam along. Similarly, we have the private equity.
• 19:06
  Speaker 1: Just take one private equity player, just one, Bain. So
• 19:09
  Speaker 1: they come in, they buy Virgin Airlines. Then they buy Estia,
• 19:13
  Speaker 1: the aged care outfit. And this week being the last
• 19:18
  Speaker 1: working week of the year, they snap up Insignia, the
• 19:21
  Speaker 1: old IOOF, which has all sorts of assets, but it
• 19:24
  Speaker 1: also has things like Shadforth. the dominant, the biggest player
• 19:28
  Speaker 1: on our top 150 advisors list. The point I'm making, Eric,
• 19:32
  Speaker 1: is that we're investors and we're listening to these CEOs
• 19:37
  Speaker 1: about their outlook and they're very important because they drive
• 19:40
  Speaker 1: the companies. And then there are private equity operators sitting
• 19:46
  Speaker 1: in New York and they look at the Australian market
• 19:49
  Speaker 1: and they cherry pick. It seems to me there's no
• 19:51
  Speaker 1: particular theme, an airline, an aged care operator, a wealth manager,
• 19:57
  Speaker 1: and Sydney Airport, of course, another big loss once upon
• 20:01
  Speaker 1: a time, along with Newcrest Gold. These are big absences
• 20:05
  Speaker 1: when they when the market loses them? Will we lose
• 20:08
  Speaker 1: more in the new year? And how can a private investor...
• 20:12
  Speaker 1: How do they face this? Have they any sense of
• 20:14
  Speaker 1: what's coming down the line? Will there be more of it,
• 20:17
  Speaker 1: of the private equity army, if you like, just basically
• 20:21
  Speaker 1: carving useful chunks out of the ASX?
• 20:24
  Speaker 2: I think you... And when you talk about there's no
• 20:27
  Speaker 2: theme about which area is hot or not, but I
• 20:31
  Speaker 2: think the theme is value. And the thing... Time and
• 20:35
  Speaker 2: time again, your listeners have to remember, most of the
• 20:40
  Speaker 2: value happens when people go in, when people are running
• 20:44
  Speaker 2: the other way. And that's the thing that keeps repeating
• 20:47
  Speaker 2: through time. I remember as a junior journalist going up
• 20:51
  Speaker 2: to St. Kilda Road to the old Newcrest headquarters when
• 20:54
  Speaker 2: they'd announce their results, and no one was interested. And
• 20:57
  Speaker 2: this was when gold was trumbling along at $ 200 an
• 21:00
  Speaker 2: ounce or something like that. And No one had any
• 21:04
  Speaker 2: interest in it. But as an investor, and over time,
• 21:09
  Speaker 2: you have to ask, is this the way that the
• 21:11
  Speaker 2: world is going to stay forever? And also with companies
• 21:14
  Speaker 2: as well. AmpCorp, which is still listed, but now it's
• 21:17
  Speaker 2: moved its listing to the United States, now one of
• 21:21
  Speaker 2: the world's biggest packaging companies. Again, in the early 2000s,
• 21:25
  Speaker 2: no one wanted to go near this thing because it
• 21:27
  Speaker 2: had a lot of internal troubles and a lot of
• 21:29
  Speaker 2: internal problems. Every broker had a sell recommendation on it. Likewise,
• 21:33
  Speaker 2: you've seen a massive turnaround in a company called Zipco.
• 21:37
  Speaker 2: That's the buy now, pay later company. It's been one
• 21:40
  Speaker 2: of the best performers on the ASX. And again, two
• 21:43
  Speaker 2: years ago, no one wanted to go near these stocks.
• 21:45
  Speaker 2: And rightly so, like there was some really unusual business
• 21:50
  Speaker 2: models going on there. But if you can sort out,
• 21:52
  Speaker 2: and this is where the private equity often looks for value,
• 21:54
  Speaker 2: if you can sort out what the value is, then
• 21:58
  Speaker 2: you're right. And we're talking about retrospect. So Even in airlines,
• 22:02
  Speaker 2: you ask yourself about thematics. Will Australia be a one
• 22:06
  Speaker 2: airline country? No, it won't. It's a big economy. We
• 22:11
  Speaker 2: do a lot of travel, do a lot of domestic travel.
• 22:13
  Speaker 2: So if you can trade the trough, you can ride
• 22:17
  Speaker 2: the top.
• 22:19
  Speaker 1: Okay. Can I ask you one thing about people? And
• 22:22
  Speaker 1: you're talking to CEOs. To what extent do you, as
• 22:25
  Speaker 1: someone who copes with it very closely, to what extent
• 22:27
  Speaker 1: do you believe or take on board how important the
• 22:35
  Speaker 1: key person is. You mentioned a couple of companies there
• 22:37
  Speaker 1: that really came around. You mentioned Amcor, which, as you say,
• 22:41
  Speaker 1: was drifting. And then Ken McKenzie came along. And he
• 22:45
  Speaker 1: was just amazing. And he got fantastic operational numbers out
• 22:50
  Speaker 1: of that company, which transferred to fantastic share price performance.
• 22:54
  Speaker 1: You mentioned Zip, which is linked very much with Larry Diamond.
• 22:58
  Speaker 1: We have other companies on the market. And in the
• 23:01
  Speaker 1: next segment, we're going to talk about the property trusts.
• 23:03
  Speaker 1: But how important is the CEO? Is the CEO at
• 23:08
  Speaker 1: the average Australian listed company more or less important than
• 23:13
  Speaker 1: they used to be? How crucial are they? When someone
• 23:16
  Speaker 1: looks at a company, they can analyze the numbers. But ultimately,
• 23:20
  Speaker 1: that's the quant part. The qualitative part is it's run
• 23:24
  Speaker 1: by people. How important is the CEO?
• 23:27
  Speaker 2: I think And you pointed it out, like the aim
• 23:31
  Speaker 2: of a top company is for the CEO, although it's
• 23:34
  Speaker 2: bad for them. If they fall under the bus or
• 23:36
  Speaker 2: the Swanston Street tram, then the company keeps ticking along
• 23:41
  Speaker 2: as though nothing happened. There was a saying, and this
• 23:44
  Speaker 2: is about Commonwealth Bank too. So the thing about Commonwealth
• 23:47
  Speaker 2: Bank is it's a big engine. It's a big train
• 23:51
  Speaker 2: going down the tracks. And all you've got to do
• 23:53
  Speaker 2: as a CEO is just keep the oil topped up
• 23:57
  Speaker 2: and eye on that. And he'll just keep going and going.
• 24:00
  Speaker 2: And that's the thing. So does the CEO have an influence? Well, look,
• 24:04
  Speaker 2: the CEO sets the tone and sets the culture, is
• 24:09
  Speaker 2: responsible for the culture. And so is it a high-performance culture?
• 24:14
  Speaker 2: Is it a culture that is focused? And they do
• 24:18
  Speaker 2: have a role in doing that. Do the people that
• 24:21
  Speaker 2: turn up to the building every day, do they know
• 24:24
  Speaker 2: what their job is? And I think that's a really
• 24:27
  Speaker 2: important thing. And then there's a separate thing to this
• 24:29
  Speaker 2: as well, and I know that your listeners would be
• 24:33
  Speaker 2: really thinking about these a lot, is founder-led companies. And
• 24:36
  Speaker 2: there's still quite a few founder-led companies with founders involved
• 24:41
  Speaker 2: on the ASX. And they certainly outperform, but we always
• 24:47
  Speaker 2: have this disruption when it's time for the founder to
• 24:51
  Speaker 2: hand over the reins. So even in Fortescue, we saw
• 24:55
  Speaker 2: Andrew Forrester, build up Fortescue, build up magnificently. He stepped back,
• 25:01
  Speaker 2: handed it over to CEOs. It was moving for quite
• 25:04
  Speaker 2: a while. And then with sort of succession of troubles,
• 25:07
  Speaker 2: Andrew Forrest jumping in and trying to manage it as well.
• 25:10
  Speaker 2: So it's still his company. And then obviously the min-res,
• 25:14
  Speaker 2: when there is issues, like the CEO still drives it
• 25:18
  Speaker 2: as a very entrepreneurial company. But then sometimes when companies
• 25:22
  Speaker 2: get big, they need different skill sets. They need managers
• 25:25
  Speaker 2: that can manage They can read predictability. We spoke about
• 25:28
  Speaker 2: these big mining companies. These CEOs are thinking years out,
• 25:32
  Speaker 2: so they're not thinking about today. So really interesting one
• 25:37
  Speaker 2: to watch, founder-led companies. There's two I'll just sort of
• 25:41
  Speaker 2: point out to your listeners, both Melbourne-based companies. One, ProMedicus,
• 25:46
  Speaker 2: based in Richmond, the biggest company you've never heard of
• 25:50
  Speaker 2: in Australia.
• 25:51
  Speaker 1: Which is... What's favored by institutions?
• 25:54
  Speaker 2: I think it's now up to about $ 15 or $ 16
• 25:58
  Speaker 2: billion in terms of market cap. Its shares have just gone.
• 26:02
  Speaker 2: It sells imaging software, which sounds pretty dull, but just
• 26:08
  Speaker 2: ruthlessly targets high-end health networks in the United States and
• 26:13
  Speaker 2: radiology imaging software that it develops.
• 26:16
  Speaker 1: And is there a CEO? There's a CEO, obviously, there
• 26:20
  Speaker 1: that is.
• 26:21
  Speaker 2: One is a CEO, one is a commercial director. The
• 26:25
  Speaker 2: other one is interesting, which is ARB. I know that
• 26:29
  Speaker 2: when you drive around the streets of Brighton with your
• 26:32
  Speaker 2: Toyota Hilux.
• 26:35
  Speaker 1: I've never been in a Hilux, but I'd love to
• 26:37
  Speaker 1: have a spin-in one. But anyway, yes, I know what
• 26:39
  Speaker 1: they are. I know what ARB are. I get your joke, yes.
• 26:42
  Speaker 2: So they supply all the accessories for four-wheel drives and
• 26:45
  Speaker 2: utes like the one that you have when you drive
• 26:48
  Speaker 2: around the streets of Brighton.
• 26:49
  Speaker 1: Great stock, great stock. I don't deny it for a moment.
• 26:52
  Speaker 2: This was started in a garage in Melbourne's eastern suburbs,
• 26:56
  Speaker 2: I think in Ringwood. And now it's sort of, you know,
• 26:58
  Speaker 2: sells its products around the world, still operates in Kiltsouth
• 27:02
  Speaker 2: out of Melbourne's east. And it has managed to do
• 27:08
  Speaker 2: the succession quite smoothly too in recent years. So it
• 27:13
  Speaker 2: can happen.
• 27:15
  Speaker 1: Okay, so ARB is not led by the, It's not
• 27:17
  Speaker 1: led by the original person that built them anymore.
• 27:20
  Speaker 2: No. I see. They are on the board. They are
• 27:25
  Speaker 2: still involved in the board and obviously as shareholders.
• 27:28
  Speaker 1: Okay, very good. Look, we're going to take a short break, folks,
• 27:30
  Speaker 1: and we're going to come back and look at the
• 27:32
  Speaker 1: property scene, property trusts in particular, and some pretty big
• 27:36
  Speaker 1: personalities there, I can tell you, that are integral, would
• 27:40
  Speaker 1: almost underestimate how important they are to the wider stuff.
• 27:43
  Speaker 1: Back in a moment. Hello, welcome back to the Australian's
• 27:56
  Speaker 1: Money Puzzle. I'm James Kirby talking to Eric Johnson. Hey, Eric,
• 28:00
  Speaker 1: two stocks I've been just aching to ask you about.
• 28:02
  Speaker 1: One is Goodman, the amazing Goodman Group and Greg Goodman,
• 28:07
  Speaker 1: who personifies this company. And it would seem, though no
• 28:14
  Speaker 1: company is run by one person, but they certainly can
• 28:16
  Speaker 1: be led by one person. And he has led Goodman
• 28:19
  Speaker 1: through thick and thin and early in the game, rebranded
• 28:23
  Speaker 1: this property trust as a logistics player and a player
• 28:28
  Speaker 1: that was able to harness, if you like, or exploit
• 28:31
  Speaker 1: the move to online, that it was an advantage rather
• 28:34
  Speaker 1: than a disadvantage. And that's, of course, it's just been
• 28:37
  Speaker 1: one of the best stocks in the market. It's also
• 28:39
  Speaker 1: a stock where it is so closely identified with the leader.
• 28:43
  Speaker 1: I mean, we have Jerry Harvey at Harvey Norman, we
• 28:46
  Speaker 1: have Greg Goodman at Goodman Group, Is that a situation
• 28:50
  Speaker 1: where the CEO is almost too important for the company?
• 28:55
  Speaker 1: It is.
• 28:56
  Speaker 2: And you would hope that he builds a structure around him.
• 28:58
  Speaker 2: So every CEO should be thinking about their exit from
• 29:01
  Speaker 2: day one, how to build that structure around them so
• 29:05
  Speaker 2: he can hand it over. And by seeing his company
• 29:09
  Speaker 2: through good and bad, and it was really knocked around
• 29:12
  Speaker 2: during the GFC Goodman Group. It had too much it
• 29:16
  Speaker 2: was holding too much debt as a property trust and
• 29:18
  Speaker 2: that really changed the direction that greg goodman took on
• 29:23
  Speaker 2: on on that company on the journey he and now
• 29:26
  Speaker 2: it has this incredible moat around it in terms of
• 29:29
  Speaker 2: the the infrastructure that it builds the warehousing and they
• 29:34
  Speaker 2: just develop these big warehouses and they're very hard to
• 29:37
  Speaker 2: replicate They.
• 29:39
  Speaker 1: Have the Warren Buffett most of the infrastructure, their own infrastructure.
• 29:43
  Speaker 2: And they're not just tin sheds out in a paddock.
• 29:45
  Speaker 2: These are like, because there's power, there's also automation inside
• 29:49
  Speaker 2: them as well that Goodman provides. So from a company X,
• 29:54
  Speaker 2: I can just turn up and there's my warehouse and
• 29:56
  Speaker 2: it's got all the automation all ready to go and
• 29:57
  Speaker 2: Goodman manages all this. And it's really, really out there.
• 30:03
  Speaker 2: They're a really important company transition. I think so because
• 30:06
  Speaker 2: the business model is predictable now. So he's not out
• 30:09
  Speaker 2: there making the deals. He's certainly crunching the numbers, but
• 30:13
  Speaker 2: it doesn't trade on his name. He doesn't need to
• 30:17
  Speaker 2: open doors anymore because the model is proven. The model
• 30:20
  Speaker 2: is established. And I think that's a difference. There's always
• 30:23
  Speaker 2: an entrepreneurial streak with founder CEOs, and they use that
• 30:27
  Speaker 2: to open doors necessarily because that's what they've been doing
• 30:30
  Speaker 2: all their life, trying to open doors. I think that's
• 30:34
  Speaker 2: the difference now with Goodman.
• 30:36
  Speaker 1: Okay, it's become institutionalized in the best sense of the word.
• 30:39
  Speaker 1: I want to move to questions because the first question
• 30:41
  Speaker 1: I want to pick out is smack on a most
• 30:44
  Speaker 1: delightful segue into the questions this week. It's from George. George,
• 30:49
  Speaker 1: I'm sure, and this is never advice, it's only information
• 30:53
  Speaker 1: and observation, but... You might be relieved rather than annoyed now. Anyway,
• 30:58
  Speaker 1: George's original piece of correspondence, which is probably, oh, 10
• 31:01
  Speaker 1: days old, less. It's about Digico, which was the biggest
• 31:05
  Speaker 1: float of the year, folks, as you probably know, and
• 31:08
  Speaker 1: that was a property trust, Digico. So here's George's question.
• 31:12
  Speaker 1: I'm extremely annoyed, to say the least. The country's biggest
• 31:15
  Speaker 1: bank has deliberately chosen to shaft retail investors in favour
• 31:19
  Speaker 1: of the big end of towns. And he mentions ComSec
• 31:22
  Speaker 1: here were appointed joint lead co-managers of the upcoming Digico IPO,
• 31:26
  Speaker 1: tipped to be the biggest float on the ASX for years.
• 31:28
  Speaker 1: And indeed, that is true, George. The only problem was,
• 31:31
  Speaker 1: of course, it floated. We're talking on Tuesday, it floated
• 31:34
  Speaker 1: last Friday. Great expectations. I think it was midday. I
• 31:38
  Speaker 1: actually remember I tuned in at midday just to see
• 31:40
  Speaker 1: because it was coming on at $ 5. And guess what?
• 31:44
  Speaker 1: It went nowhere. So anyway, in George's case, he says,
• 31:48
  Speaker 1: being a client, I thought I could access the float,
• 31:50
  Speaker 1: but I was told retail clients like myself missed out
• 31:53
  Speaker 1: because the broker allocation was all farmed out to sophisticated investors.
• 31:58
  Speaker 3: Maybe CompSec can advise how many of those sophisticated investors
• 32:03
  Speaker 3: took up only the prospectus minimum application of 2,000 watts
• 32:07
  Speaker 3: of shares, an amount set sufficiently low that it was
• 32:10
  Speaker 3: obviously aimed at retail investors.
• 32:12
  Speaker 1: Okay, two things here. One, Nine times out of ten,
• 32:17
  Speaker 1: the Georges of this world are correct. You would be
• 32:20
  Speaker 1: furious when you want to be in an IPO. You
• 32:23
  Speaker 1: know it's coming down the line. You think it looks
• 32:25
  Speaker 1: good and you don't get stuck. Now, I'm sure Kamsakar
• 32:28
  Speaker 1: Anibro will have an explanation for why one person didn't
• 32:32
  Speaker 1: get stuck. And there is a procedure in how you
• 32:36
  Speaker 1: lay out these IPOs. But what's particularly interesting with George's
• 32:41
  Speaker 1: question is that on this occasion, It would seem so
• 32:45
  Speaker 1: far he would have been better off that he didn't
• 32:46
  Speaker 1: get the stock because he would have made a loss
• 32:49
  Speaker 1: straight away. And in fact, Digico is still below its
• 32:53
  Speaker 1: IPO price, which was five bucks. Is it still below, Eric?
• 32:56
  Speaker 2: 450 at the moment.
• 32:59
  Speaker 1: 450. Well, that's damn disappointing, isn't it? What does that
• 33:01
  Speaker 1: tell us about property trusts? And in this case, it
• 33:05
  Speaker 1: had the CEO figure, the person behind the float, certainly.
• 33:13
  Speaker 1: was a man called David De Pilla, who has had
• 33:15
  Speaker 1: great success so far. But this has not been a
• 33:18
  Speaker 1: great success in its initial phase of the float. And
• 33:21
  Speaker 1: who knows, this time next year, we may be sitting
• 33:24
  Speaker 1: here saying, well, it was even better by at 450.
• 33:28
  Speaker 1: But we don't know. What we do know is that
• 33:30
  Speaker 1: it was a failure. The biggest float of the year
• 33:32
  Speaker 1: appears to be a failure. What's that tell us about
• 33:34
  Speaker 1: the market and the whole enterprise of Digico?
• 33:37
  Speaker 2: Yeah, look, I think this is more stock specific. And
• 33:41
  Speaker 2: although George points out about the sophisticated investors. It was
• 33:47
  Speaker 2: interesting with this one. It wasn't sold to institutional investors.
• 33:54
  Speaker 2: So in a perfect world, when you take a company
• 33:57
  Speaker 2: to market, you want big institutional investors, a mix of
• 34:00
  Speaker 2: big institutional investors, as well as retail shareholders. And this
• 34:07
  Speaker 2: one didn't, For whatever reason, it didn't seem to be
• 34:12
  Speaker 2: marketed among the big institutions. So those are big fund managers.
• 34:15
  Speaker 2: So it became a real retail stock. And the institutions
• 34:20
  Speaker 2: are the ones that can sort of shift the dial
• 34:22
  Speaker 2: in terms of support. Digico is looking at trying to
• 34:27
  Speaker 2: capitalize on the boom in data centers that is around
• 34:31
  Speaker 2: at the moment. We all heard about Macquarie. by selling
• 34:34
  Speaker 2: its air trunk business, you know, for incredible.
• 34:36
  Speaker 1: And NextDC, of course, has always been mentioned on the
• 34:39
  Speaker 1: show here.
• 34:40
  Speaker 2: Yeah, yeah.
• 34:41
  Speaker 3: Yep.
• 34:41
  Speaker 2: So, you know, there's a real thing going on and,
• 34:44
  Speaker 2: you know, all the data that we're demanding in AI
• 34:48
  Speaker 2: is going to pull into it. Not all data centres
• 34:50
  Speaker 2: are the like. Not all data centres are the same.
• 34:52
  Speaker 2: Some are commodities, some... And we spoke about Goodman. Goodman
• 34:56
  Speaker 2: are obviously in data centres as well, but they provide
• 34:58
  Speaker 2: all the power and all the infrastructure around it as well. So... Digico,
• 35:05
  Speaker 2: with that, so it's interesting what the real business is underneath.
• 35:13
  Speaker 2: Who knows? I think for your listeners, they've got to
• 35:15
  Speaker 2: do their homework and really get into the depths of
• 35:21
  Speaker 2: it and say, what are the contracts like?
• 35:23
  Speaker 1: This was a rapid roll-up, basically, of data center assets,
• 35:27
  Speaker 1: wasn't it? And to some extent, it came to the
• 35:29
  Speaker 1: market quickly. And I think, without doubt, it was timed
• 35:33
  Speaker 1: to get in before the end of the year. It
• 35:34
  Speaker 1: was literally one of the last working days.
• 35:38
  Speaker 2: In terms of analyzing it, you'd look at who are
• 35:41
  Speaker 2: Digico's customers? When are their contracts renewing? Will there be
• 35:46
  Speaker 2: a step up in contract? Or, you know, let's say
• 35:50
  Speaker 2: they do I don't know. Let's say they do have
• 35:52
  Speaker 2: a contract with Microsoft. Will it just roll over in
• 35:55
  Speaker 2: five years' time or will Microsoft go to the next person?
• 35:59
  Speaker 2: What's their point of difference from the likes of Goodman
• 36:01
  Speaker 2: or Amazon also offering the same thing or even NextDC?
• 36:06
  Speaker 2: So that's the homework you have to do in these instances.
• 36:09
  Speaker 1: Okay, terrific. And I suppose one of the lessons here, folks, is,
• 36:14
  Speaker 1: and we always say it on the show, that there's
• 36:17
  Speaker 1: a difference between investing and speculating. And there's a difference
• 36:20
  Speaker 1: between in investing in trading or betting. And to some extent,
• 36:24
  Speaker 1: an IPO, and I'm not talking about Digico in particular,
• 36:26
  Speaker 1: I'm talking about any IPO. IPO is blue sky. IPO,
• 36:29
  Speaker 1: there is no trading history because it hasn't been a stock.
• 36:32
  Speaker 1: And it's a very different world when you enter into
• 36:35
  Speaker 1: the public space. And some entrepreneurs and CEOs, like we've
• 36:38
  Speaker 1: talked about the importance of CEOs today, some CEOs are
• 36:41
  Speaker 1: terrific as long as the company is private and they
• 36:44
  Speaker 1: are smart enough to know that they shouldn't actually ever
• 36:46
  Speaker 1: go public. And sometimes you question why people go public
• 36:50
  Speaker 1: if they've been perfectly happy for many years. Sometimes it's
• 36:53
  Speaker 1: a way to get cash out. Sometimes it's a way
• 36:55
  Speaker 1: to let other people in the business get some skin
• 36:58
  Speaker 1: in the game, which is probably the healthiest way you see.
• 37:00
  Speaker 1: And sometimes it's just an opportunity for people to say, look,
• 37:03
  Speaker 1: from here on, you know, I want to maximize what's
• 37:06
  Speaker 1: left of my time in the business and what I've
• 37:09
  Speaker 1: built up. And it's a way for them to have
• 37:11
  Speaker 1: what the brokers like to call efficiency. A liquidity event,
• 37:15
  Speaker 1: which is a lovely word, which really means everyone gets
• 37:17
  Speaker 1: piles of money. Liquidity event. But the liquidity event didn't
• 37:20
  Speaker 1: really happen at the Digico, but maybe it will. Hopefully,
• 37:24
  Speaker 1: it isn't a sign that the cautious optimism for the
• 37:27
  Speaker 1: year ahead is too enthusiastic and not sufficiently cautious. We'll
• 37:32
  Speaker 1: find out in the months ahead. For the moment, thank
• 37:35
  Speaker 1: you very much, Eric Johns, for coming on the show.
• 37:37
  Speaker 1: Great to have you on.
• 37:38
  Speaker 2: Thanks, James. Great to be here.
• 37:41
  Speaker 1: Great to have Eric on. on eric as you know
• 37:43
  Speaker 1: is it talks to the top people all the time
• 37:46
  Speaker 1: and it's very important to know what they are thinking
• 37:48
  Speaker 1: because they are running big stocks.
• 37:50
  Speaker 2: Before you go i would just encourage your listeners it's
• 37:52
  Speaker 2: all online on the australian.com some of the responses for
• 37:55
  Speaker 2: this ceo survey so if you have a specific company
• 37:59
  Speaker 2: you're interested you can click right through and find their responses.
• 38:02
  Speaker 1: Oh yeah and you want to know what the ceo
• 38:04
  Speaker 1: has to say okay very good all right and the
• 38:07
  Speaker 1: emails please themoneypuzzle at theaustralian.com.au. Today's show was produced by
• 38:13
  Speaker 1: the Summer Group. Talk to you soon.