Andrew, Matt, and Claude discuss Druckenmiller's latest comments on AI and the US's soaring debt and deficit woes. As well as Macquarie Technology Group and sociological investing, plus some small cap news from: FINEOS, Aussie Broadband and PainChek.
Follow us on Twitter: @BabyGiantsPod
Subscribe to our channel: https://www.youtube.com/channel/UCSXgHHJ4XjWK-r1k4O0pj1g
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1:05 - Good News
5:40 - Druckenmiller and AI
8:23 - Macquarie Technology Group (ASX: MAQ) and Sociological Investing
15:51 - Perplexity.ai and Google
22:10 - US Growing Debt and Deficit Concerns
27:46 - Inflation, Interest Rates, and Policy Decisions
35:28 - Financial Repression
40:38 - FINEOS Corporation Holdings PLC (ASX: FCL)
50:50 - Aussie Broadband (ASX: ABB)
55:18 - PainChek (ASX: PCK)
Andrew, Matt, and Claude discuss Druckenmiller's latest comments on AI and the US's soaring debt and deficit woes. As well as Macquarie Technology Group and sociological investing, plus some small cap news from: FINEOS, Aussie Broadband and PainChek.
Follow us on Twitter: @BabyGiantsPod
Subscribe to our channel: https://www.youtube.com/channel/UCSXgHHJ4XjWK-r1k4O0pj1g
-----
1:05 - Good News
5:40 - Druckenmiller and AI
8:23 - Macquarie Technology Group (ASX: MAQ) and Sociological Investing
15:51 - Perplexity.ai and Google
22:10 - US Growing Debt and Deficit Concerns
27:46 - Inflation, Interest Rates, and Policy Decisions
35:28 - Financial Repression
40:38 - FINEOS Corporation Holdings PLC (ASX: FCL)
50:50 - Aussie Broadband (ASX: ABB)
55:18 - PainChek (ASX: PCK)
Hello and welcome to the Baby Giants Investing Podcast. Join us as we chat about the weird and wild world of small cap investing, all while searching for the precious few fast growing businesses that have a shot at becoming industry giants. This podcast is for entertainment purposes only and is strictly not intended as financial advice. Any opinions are general in nature and do not take into account your personal circumstances, needs or objectives. Securities mentioned are for illustration purposes only and this podcast should not influence investment decisions. You should read the relevant PDS and consider speaking to a financial advisor before making investment decisions. Past performance is no indicator of future returns. Podcast guests and their clients may hold positions in the security discussed in this podcast.
Speaker 1:All right, we're live. We'll go through a few things. Today there's been a bit of macro-ish news, maybe a bit of quarterlies, maybe just to jump off there we've got some good news, one that I thought was very cool, which I kind of tucked in a bit before, but a major step in malaria prevention is three West African countries roll out the vaccine. So there's a vaccine that's going. It's in Benin, it's got 200,000 doses. In Liberia, I think it's 45,000 to 100,000. Very cool. So this is like a major, major global killer. I think a thousand over a thousand children die every day from malaria around the world and potentially we could prevent all of them effectively, I guess, if all the child or a very high percentage of them. So yeah, I think that was one of the that's the best, best good news that we've had for a while definitely glasses is good news.
Speaker 2:It's hard to. It's hard to take the other side of that yeah, cool, good, good news without any rebuttal.
Speaker 1:I like it all right.
Speaker 1:One more that I caught my eye, which I mean maybe we file this into the everything's too hopeful. It's just a science experiment stuff, but a company trying to use lab-grown algae to play a pivotal role in reducing climate emissions. So this is the idea of kind of engineering algae to grow this time not in the ocean but in large ponds on land, to be extremely quick at absorbing carbon, trapping the carbon and then effectively they're drying it out and burying it underground. But yeah, it becomes like a sludge after an algal bloom on these ponds that they're running. I really like the idea of algal blooms. I even think, if we could get the engineering of it right, we should consider it in the ocean, because you could just scale it massively.
Speaker 1:You need to get the engineering right, it right. We should consider it in the ocean, because you don't, you could just scale it massively. You need to get the engineering right, make sure there's no side effects tested, etc. But um, the idea would be it kind of goes. That's kind of the natural cycle of how carbon is trapped over time, kind of like goes falls to the bottom of the ocean, forms, you know, forms the coal of a few million years from now. A few million years from now someone takes it off of coal. Yeah, I think I quite like that idea is like a science, uh, sciencey approach that could suck a lot of carbon out of the. I think we need to suck a lot of carbon out of the air although you don't.
Speaker 2:Yeah, you got to be careful we don't get too far on that front too quickly, because it maybe it's just like a green light to like we don't need to do anything else and I don't know, or maybe I, I, I yeah, I hear a lot of pushback on the carbon capture work, that which I get but I think we just kind of need it.
Speaker 1:Like we can't not do it I get the idea is like we should also, you know, cut the polluting to start with and you don't want to just be doing, you know, both at the same time, but we kind of need to keep investing in it, I think.
Speaker 3:I think that trees are underrated as a carbon capture and storage mechanism. Obviously, they can burn back down, which is a is a weakness in them, but they also have a lot, a lot of other ecosystem benefits as well, in terms of both biodiversity. It really got me thinking. You know, probably the closest article of faith I have is that biodiversity is good, like there's no real reason why, everything's subjective, right. So some people might be like no, I'd love to see a world where it was all like concrete and monochrome and just humans, nothing else alive. And I swear to God, like with the amount of modernist architecture that goes up everywhere, I feel like there's quite a few number of people who want that world. But yeah, an article of faith for me is, like you know, the beauty and diversity of the species in the world is just something that's good and to be preserved. And, to be fair, we do get a lot of medicines and scientific advances from the natural world.
Speaker 1:Yeah, very true, very true.
Speaker 2:I might have mentioned this before, but it's a very small pedant point There'll never be any coal, ever again.
Speaker 1:There'll never be any coal okay.
Speaker 2:Nah, it was only a very short period in geological history where it was able to form before fungi was able to break down the lictin. I think it is in plant matter right.
Speaker 1:So fungi have evolved and they'll prevent any future coal there was a.
Speaker 2:There was a few tens of millions of years where trees just didn't break down as they as they do today, and that's sort of compacted and formed into coal over millions of years. So but now, now it gets gets broken down, so you're very unlikely to have any kind of buildup of coal.
Speaker 1:No more coal.
Speaker 2:I mean for those waiting for the next few million years for the next batch to come through. Bad news, I'm afraid.
Speaker 1:Yeah, it's interesting. No thanks, Andrew. I think you had mentioned that before, but I hadn't really fully appreciated what you're saying. I guess I remember you talking about that the rareness of it happening, but not the idea that it can just never happen again yeah, yeah, yeah it's sort of it's like one of those things like
Speaker 2:how old were you when you learned something that I feel as though I should have known like?
Speaker 3:ages ago. But anyway, there'll be some guys crying, crying themselves to sleep for that news.
Speaker 1:I say some people.
Speaker 3:Some people like they love. They love coal because they dislike environmentalists and environmentalists hate coal. So they're like I'm all for it, it's the best thing ever the enemy, of my enemy, yeah you're literally going to have, you know, bad air quality, like no matter what.
Speaker 1:Forget climate change for a second yeah, yeah, coal kills a lot of people from air quality. Obviously, if we can avoid it, it's good, helps a lot of people from electricity as well. But anyway, all right, let's, let's not get into that. What, uh, what, uh, what else got my?
Speaker 1:I think I don't know if you guys saw Druckenmiller on CNBC and had a few public comments again. I thought a couple were interesting. One is he sold NVIDIA, or at least sold a lot of NVIDIA. Basically the idea that the AI hype. He was very early on it and even when he was expecting a recession which he was proved to be wrong about in the US, he was still very bullish on NVIDIA even if there was a recession. And yeah, he's selling it. And yeah, he's selling it. And I guess the idea is we're at the stage where there's a lot of CapEx going on, but it could be years before the benefit. So he imagines it going through these phases and AI could be not exactly like, like he mentioned in 1999, the tech boom. Who would have predicted how much the internet would influence our lives 20 years later? But the NASDAQ fell 80% before you got there.
Speaker 1:And he's not saying that's happening again, but he just made the point like it could rhyme with that a bit where you have too much hype in the meantime and maybe some of the results deliver in the next few years. So that was one that I think is interesting because he was early to it. A lot of people followed him in, I think, just when rumors of it like when he had talked in other meetings that he had sold that share price fell on that news about a month ago. But he's talking about it more publicly.
Speaker 2:I agree with him for what it's worth. I mean he's. I think he's very likely to be right. It is. It is absolutely a massive technological change. It will unlock a lot of value for the world. But, yeah, there's gonna be a lot of false starts like just guaranteed, and it's always like what would they say? People overestimate the benefits in the short run and underestimate them in the long run. That was true of the internet internet. I think that'll be true of AI too.
Speaker 1:Yeah, one other interesting thing is just the amount of CapEx going in from the tech giants into AI. Also just how that like changes their model Cause I hadn't really thought about this enough maybe, but they're spending like 150 billion on CapEx. You know the big, big four tech companies and these were businesses that were super capital light before. They're still going to be good businesses, but it's interesting to think about how it changes what the businesses are. You know like we've talked about this a bit with Google et cetera, but it's just, it's a broader thing. Of all the big tech companies With AI, you know their return on invested capital will fall because they've gone from just software to being more hardware based. It's interesting to think how that plays out over. They still are big and dominant, but they're more capital-intensive, big and dominant now.
Speaker 2:Yeah, capital-intensive in terms of build-out of the infrastructure, but just the operating expense too of it after the fact is significant.
Speaker 1:Yeah, yeah, the cost of operating the data centre just the electricity and cooling.
Speaker 2:They're very compute-hungry, yeah, yeah.
Speaker 3:I think maybe we saw the same article about that, matt, or it's just coincidences in the zeitgeist, but there's like this absolute forecast boom, like capital expenditures for these big companies is supposed to increase considerably in FY 2024. And obviously Nvidia and the other chip makers have been a beneficiary of that and maybe are still set to go strong for a while. Closer to home, it's sort of harder to play that angle other than in, like you know, zero revenue hype stocks, but I guess, like one that I thought you know just you gave me the idea, matt perhaps a little teaching moment I'm trying to teach myself, by the way, not you guys, but I think it was a while back I identified, you know, a company called Macquarie Telecom. Oh, actually, what's it? They changed their name, didn't they? Actually it's Macquarie Technology or something now. And you know, essentially the real simple thesis for that was that it was just at that sort of size where it was kind of on the verge of being in the ASX 200. And it had.
Speaker 3:I wrote an article called why I Like Macquarie Telecom Group about this, and you know this was last year, about a year ago now, and essentially it has a big chunk of its business is data centers and sort of specifically. I guess its specialty is in high security data centers, although that's not the whole revenue, but that's sort of its specialty Essentially. Yeah, it was like looking on the verge of like getting closer to being in the ASX 200. One of the reasons I guess it hadn't and it still hasn't made it into the ASX 200 is that the founders, the CEO and the managing director together own a huge chunk of the company, so that reduces the liquidity. And my main concern about it I think I don't need to surprise you is that it's just the valuation. It was just one of those typical, I guess in a way somewhat optimistically priced stock, and so I just couldn't get the numbers to work for me. Given that only part of the business has actually been exposed to that big tailwind, I just couldn't make the numbers make sense. But the sociological forces acting on it, like the potential for ASX 200 inclusion and, of course, also this big tailwind in AI that's increasing need for data centers it's one of the very few genuinely profitable dividend paying founder led. It's ticking all these heuristics that you look for as a decent investment and it's got this AI exposure.
Speaker 3:Now, that's not an argument that's saying this stock is undervalued based on my calculations of an estimate of the future cash flows. That wasn't my thesis, and so I got hung up on the fact that I couldn't make that argument work, even though in hindsight I think the sociological argument, potential index inclusion and this AI theme thematic were very strong and digitization thematic were very strong, and so I neglected to recommend the stock, neglected to buy the stock, and then what we saw since then is a capital raising, which of course increases that liquidity, and then more recently, a small sell down by the founders, I think, which also increases the liquidity. And so what you get with these liquidity increases is the beat of the drum of ASX 200, like index inclusion, like goes louder and louder and louder. And I imagine now we're probably at the point where there are like quant funds and stuff that are actively positioning for that. I don't know that's pure speculation, by the way, I haven't done the numbers on when I think it might happen and I have no idea how long they try to front run it, but that beat of that drum is still definitely like beating loud, and meanwhile the stock's up probably about 25, 30% from that time and now, yeah, the valuation still is. It's probably it's even more extreme than I was.
Speaker 3:I think I was complaining about the p ratio then. It's still a high p ratio, but I think it also still maintains like a discount in terms of valuation compared to next dc, which was also like one of my key points that it was basically just trading at a much lower multiple of forward a bit to the next dc was. So there was, like you know, this relative undervaluation there, which is a very simple narrative. Brokers can explain it easily. People can understand it easily. I gave you three simple narratives why the stock price would go up. None of them were like I think it's undervalued, but darn, I think that that was a good play anyway. And so, yeah, I don't know what you think of that kind of investing, like it is a philosophical thing, like would you guys buy shares in a company purely because you're like I have a prediction the stock price will go up, but I don't think the stock is particularly undervalued?
Speaker 2:I could. I could be tempted with a very small stake, but I don't know if I could consider it investing or do it with any large amount of money, only because, well, it's pure speculation on price movement and and the drivers behind it, so it's it's hard to, it's just hard to do. It's not that I'm I and the drivers behind it, so it's it's hard to, it's just hard to do. It's not that I'm. I would love to be able to do it. I just I've never had any demonstrated capacity to do it, so I kind of I know where the edge of my circle of competence lies, and it's, it's it's. Well, before you get to that point, the lesson I learned on this one.
Speaker 3:If I have a strong sociological thesis, like you know, there aren't many stocks that even viably anything to do with this thematic. This is one of them. It's one of the better ones. It ticks boxes. Just I think more people will like it kind of thing. I'm going to change it. So it's like now I don't have to prove to myself that it's undervalued, I just have to prove that it's not too crazily overvalued.
Speaker 2:It's like lowering the burden of proof to like make make it make sense as a buyer. Well, that's slightly different. Yeah, I mean I can. I can see that, not ignoring valuation altogether, but sort of having that as it's reasonably priced.
Speaker 3:And there's this other driver then yeah sure, I reckon that would have gotten me over the line if I just had that mental thing where I say, look, if I find myself writing the words, the main reason I'm hesitating to make it a recommendation to buy shares is the valuation is very high. If I write those words, I need to be like, yeah well, how high is it? Is it so high that it's like brain chip or is it like just a little bit higher?
Speaker 1:you know, I think it's a good point on, well, two things. One, I guess for me the answer is I do still want the valuation because I I feel like that's the north star for me to like manage the position and own it. But I I don't think there's anything. I definitely don't think there's anything wrong with having an approach that's purely sociological. Like drunken miller, the guy we're talking about is quite sociological driven. He does look at both, kind of like what you're saying, like he will keep in mind valuation to see how, far out over the skis I guess the consensus is you know the sociological view because you know there's still some tailored to reality, but yeah, so anyway, for me that's that short answer.
Speaker 1:But then the other is yeah, I guess, thinking through, yeah, position sizing, as andrew saying like if you're going to do something like that, and then, yeah, you can still find like fundamental or not really fundamental, but measures of the social sociology, I guess, because there's a sense the danger comes when everyone is thinking that same view, right, when everyone's thinking everyone else thinks it'll go up, and everyone's kind of in that together. So you want to. Yeah, I guess you know all of this, but it's like ways to monitor the sociological perspective. How many broker notes are out on it? Because that kind of then becomes your tether, that becomes like our use valuation.
Speaker 3:You're logging in to find out how many. You don't care what they're saying, you just want to know how many brokers are covering the stock. Now, was it one, was it two? Is it 11? A lot happens in that time, right, and a lot of incremental money goes into the stock as brokers number three to 11 cover it.
Speaker 1:Mm-hmm. Yeah, for sure. Yeah, cool. One other thought was just that he well, two other things. One was that he mentioned perplexity AI, which I've actually had really recommended from a few friends. I tried it once a month or two ago and hadn't found it to be that amazing, but he loved it so much he invested in it. Now Stanley Druckenmiller and I just tried it out then for asking a comment of what we're talking about with malaria deaths and uh, it is exceptionally good, like it gives a source for everything. So it's similar to like a chat gpt, but it sources all of the information and he doesn't.
Speaker 1:That's a huge advantage yeah, yeah, I think that he's saying it's. He's not saying it's going to like take down google, but google is a very big market, like that's a competitor potentially to google and and he's using it instead of google everywhere and certain people are and yeah, anyway, I think it was interesting one to check out. Just put it on, put on your guys radar. Maybe we play with it, around with it and chat about it more in a few weeks I hadn't heard of it.
Speaker 2:I'm glad you. I'm definitely gonna check it out. What's the pro version cost?
Speaker 1:I think it's free. I don't think I'd paid anything. You do have to give an email address to sign up.
Speaker 1:Oh no you can't sorry you can use it pretty well for free, but I think I'm not sure what the difference is with a pro, because it looks like there is a pro version that I haven't started using yet. Okay, you get five, you get five searches a day for. You get five pro searches a day for free, unlimited quick searches, which I guess is probably their lower fidelity model. Or the pro version is $20 a month for 600 pro searches a day, but I guess it depends how often you're using it and whatever else. Yeah.
Speaker 2:You can use it unlimited for free, but at the lower thing, a bit like chat, gbt, and then five are the good ones for free. Wow, these models are just coming out thick and fast, aren't they? I was speaking to a developer friend the other day and they're rather bullish on google, and it was they. Their view was that the ai threat is overhyped in terms of its potential impact to Google. Crux of their thinking being is that AI is really good at taking a bunch of data and interpreting it for you and summarizing it and all of this kind of stuff, but you still need to have all these bots out there crawling and trawling through the internet, indexing, cataloging all of that kind of stuff.
Speaker 2:Someone like me, I don't think, really fully grasps the effort and resourcing required to do that.
Speaker 2:What Google does in the background when you search, you know cute kittens or something is actually quite a lot going on there, and that's not in the wheelhouse of AI as I understand it yet. So I don't know if I might be I might be so and he might be so out of whack here, but I felt that there was something to that idea of search being distinct from AI in terms of what it's trying to do and that, yes, google might have some of its lunch eaten in other areas, but in search it's still okay. The other prong to the argument was is that it's kind of like the Charlie Munger email argument and the internet argument? It is that it's kind of like the charlie munger email argument and the internet argument is like it's not going to be that big a deal because, while it's great, it's a commodity and every company uses email now. So it's like you know, there's no competitive edge to having a website or an email and maybe it's a charlie munger connection.
Speaker 2:Now, uh, in in the late 90s I think, charlie made the statement that the internet is not really going to do much for business, in the sense that, yes, it will do a lot for business, but not in any, not in any sense that because it's equal playing field, it's an equal playing field, whatever, whatever, whatever this technology can do, it will unlock that for all players. And it's kind of. He was right in in a lot ways, like the email example is the classic one. I mean he completely missed the rise of entirely new business models and service delivery mechanisms and, like you know, it's Charlie Munger, so I won't be too harsh, but he missed that aspect of it.
Speaker 2:So, with Google, what does Google have? Well, it's actually got. Well, it's got a bunch of stuff within its ecosystem that is perfectly suited for an ai plugin, right? So maybe they ain't, maybe their model is not as great as someone else's, maybe it's limited, but then again, if you can just like point a model or integrate a model into gmail, into drive into ads, into you know all of the things that they do, just the data that they have yes, it's, it's sort of like it's, it's, it's ai.
Speaker 2:Yes, it's cool, but it's AI integrated into the existing ecosystem and leveraging the search and indexing and everything that they do, which I just thought I've got to mull that over and chew on that for a little bit, but I thought it was an interesting take. Yeah, for sure.
Speaker 3:I think it's key and I think that it ties into like one of the other bits of hidden value I see in Google, which is just the gmail. Essentially it's not really monetized right like how much do you pay for? Do I get like bills of like 27 cents or something I can't remember?
Speaker 1:like just for storage I pay 30 a year for gmail because I went over the storage.
Speaker 3:I think it's 30, some okay thank you, that's what I was trying to. I was trying to get like 30 bucks a year for something that's like absolutely core to operating your life, like obviously there's a ton of latent pricing power in there and google maps.
Speaker 1:Like I was thinking google maps, how much would you pay for google maps? And there's not going to be like if apple and google both decided to do it. No one is hardly going to be a competitor that goes out. Try and compete with them if they, once they start, there'll be no one else right.
Speaker 3:And the thing is, every time I get an iphone, I like the one of the first apps I download is google maps, because apple maps is irritating and I find it even more irritating when it, like, picks up on where I'm going and suggests it it's a bit too much value at apple like don't remind me that you're stalking although I've I've got my conspiracy theory with google maps is is that it always pushes you onto the toll road like so you go, I want to go here here and he goes, here's the thing and you go.
Speaker 2:I might just see what the non-toll option is, because tolls in Sydney are insane and it's sort of like I'm not spending $20 to save three minutes Like Google. Come on, man. And surely, or at least I don't know, it feels like it's completely anecdotal, but I feel like more than several occasions it's kind of really pushed me towards the toll.
Speaker 1:It does have an option to avoid tolls, but it should have some other option between the two. I guess right, because you want to avoid tolls when it's not like a big deal. Yeah, I get what you're saying.
Speaker 2:And you're like, hey, I want to go here, and you can just say, well, okay, here's one.
Speaker 3:It's going to cost you, it's going to take this well growing up in sydney I was like this is the be all and end all. But now, every time you mention like the cost of living in sydney, I feel like taking a moment of silence. For every millennial that's like trying to start a family in that city good luck I don't know what I was thinking, mate, like back in the.
Speaker 3:Uh, yeah, it was just I'm lucky that we managed to find like the moldiest apartment in bronte when the baby was due and I like spent like weeks like demolding that thing and then got nice low rent as a result. You know, nice for the land.
Speaker 1:One other interesting thing with google and I I think I mentioned this on the podcast weeks ago which I hadn't appreciated was about metas how well positioned meta is for ai, because it's got a very similar thing. It's got all this data but it hasn't done anything with it really. I mean it's done targeted ads, but also that its business model relies on is powered by usage. So the more people that, the more it drives usage of its AI. It gets paid directly from advertising versus, like you know, openai, which doesn't. It's a subscription. If you use it more, it costs some money, and Google has the same model, right, google's advertising driven, so potentially they could also just monetize a lot of the AI by in more usage. It's scary to think we'll use google even more than we do, but you know like we could just use it even more and that that alone they can get paid for through ads. They've got kind of the business model set up for it. So, yeah, interesting point there.
Speaker 1:Maybe just one last thing on drac. He did a bit of a rift on the government, how it was just the stuff we've been talking about, so maybe it's confirmation bias, but how absolutely insane it is to be spending seven percent of gdp as a deficit while having full employment, like it's unheard of. And just yeah, he is his angle. His point was slightly different, which was that the government he thinks in the us is crowding out all the other spending, because you've also got spending on defense, decarbonization and ai, so you've got all this capex going on at the same time government spending seven percent gdp. But yeah, I just think interesting, interesting confirmation bias for us of how insane it is to see the government spending 7% deficits while also being at full employment and trying to battle with inflation.
Speaker 3:Doesn't make a lot of sense, does it?
Speaker 1:It's really weird and it's like how is this not more talked about? It's absurd.
Speaker 2:I think we have been in a deficit situation and growing debt situation in the US for so long without anything breaking too badly. That it's kind of like because, pete, you can go back to early 90s and people were talking about the deficit and all of this kind of stuff. I mean it looks very cute and quaint in light of today's fiscal and monetary policy settings. But, pete, I mean you can say some things with 100% certainty, and one is that this trajectory is unsustainable. We can debate as to how far it can go before things get really dicey, but yeah, I mean he's absolutely right that it is completely untenable. He take away the I forget what the percentage is, but the percentage of the workforce that is government-based Government-based, yeah, yeah, it's becoming an ever-increasingly dominant force within the economy, and one that's probably not making capital allocation decisions purely through an economic lens as well, which has distorting properties to it.
Speaker 2:I think another thing to layer on top of that is you've got a world where other traditional buyers of US treasuries are moving away. You've always been able to sort of. It doesn't matter if you're living beyond your means, because there's always plenty of people with excess well, countries with excess savings that are happy to sort of use that as their store of value, but that's people pulling back from that right. And so you've kind of got not only are you having to fund this deficit through debt, but you've got less people wanting to buy that debt. So at the very least, it's going to be an upward pressure on interest rates which gets you into this. You get into this sort of debt spiral scenario, right Like the US is adding a trillion dollars of debt every hundred days or something at the current rate, and yeah, it's a very yeah, I had to fact check that.
Speaker 1:I was like that can't be true. But that actually could be true because I just read in the deficits around 1.5 trillion, and then they've got interest on the existing debt. Yeah, I need to think about that, but that's pretty-.
Speaker 2:And so when there aren't willing buyers and it's the central bank itself that is buying it, you've got call it whatever you want, essentially money printing there as well, and again you want essentially money printing there as well, and again you can. Sort of the theory is always well, you can do it as long as you're prudent, and when things get really good we'll sort of wind everything back. Except we never do that. So it's kind of like it's yeah, I, I think it's, I think it's going to be. And just to put one more sort of cat amongst the pigeons, let's imagine a trump victory towards the end of the year.
Speaker 2:Who has, who has actively said I will, will be just like we get into what the economists call a fiscal dominant scenario, which is where monetary policy just doesn't really do anything anymore because the fiscal drivers are so massively significant. And you get to a point where it's kind of like well, we either let things We've talked about it before, right, we either let things completely crash, we prey on some miracle that we just grow our way out of it, or we just continue to inflate the monetary supply and just, and we we have a very long period of stagflation at best, but but some pretty aggressive inflation yeah, I mean, we were talking about this two years ago.
Speaker 1:I feel like almost on this pod with russell napier stuff, I think he called it pretty well, which is basically the way to get out of it is you can call it, yeah, fiscal dominance, but financial repression, which sounds like it's a conspiracy theory, but I think it's basically what's happening now and it's essentially having inflation run higher than usual but having interest rates held down, or government interest rates held down by the government. And how would they do that? Why would government, why would interest, why would the government debt, interest rates not go up? And that's the repression part. It's kind of like little things. It's not like a dictatorship, but it's just changing the playing field so that it forces people to own government debt and not own other things. And there's all these different ways that can happen and it can be as simple as requiring you super, like in australia. If we wanted to do it, we just say a superannuation has to invest 20 into government bonds and you could sell it as a policy. We need to support australia. It's important for the green transition, whatever it is.
Speaker 1:It's just a click of, it's like a you know, a writing of a pen and every australian super would have to follow it and you would have, you know, hundreds of billions of dollars. Suddenly, you know financing government debt at a lower than like an artificially low rate at the real, at the real rate of interest is negative, yeah, inflation adjusted, you know.
Speaker 2:So you are, you are, you're just basically bleeding purchasing power, yeah, which is, yeah, erasing the debt, inflating away the debt. And it's kind of you, kind of you kind of have to do it right, like I mean, you, well, you don't, you could be fiscally responsible, but ain't gonna happen, right. And so, yeah, again I don't want to over egg the pudding here, but I feel as though, again, I can say with completely straight face and completely you know, the trajectory is unsustainable and it's a worry when it's such an important sort of currency and economy.
Speaker 1:So post-election, if Trump is back in, it will be very interesting, because he's all gas and no brakes when it comes to spending on top of a current deficit of 7%. It'd be pretty wild. And then he'll be putting pressure on not hiking interest rates, for instance. That'll be pretty interesting.
Speaker 2:And, yeah, it's become very politicised the central bank decisions, I think. Did you notice that, interestingly, before this week's decision on interest rates, there was more and more of a chorus of like actually, it's not just that interest rates aren't going to be cut as soon or as much as we think, but we're actually thinking that interest rates will rise. And then, after the fact they didn't do it, it's like well, they should have. It's kind of like the communist's argument. It's like well, if everyone acted really rationally and sensibly and fairly, then it would work really well. It's like well, maybe, but that ain't going to happen. And I think the same argument applies when it comes to a lot of these policy decisions Like well, maybe the theory would tell you to do one thing, but the political reality is you ain't going to do it right and they will always choose higher inflation rather than a crippling recession. If they're your two choices, and I will make that bet any day of the week.
Speaker 3:I have many questions, but this one perhaps for you Matt seem to be the smartest guy on this podcast. At what point does like so? Like for some people, inflation is kind of equalizing right, like. So if you've got a lot of debt and but you've got your earning and your wages are keeping up at least to a degree at some point, you know that advantages you and and it helps you pay off that debt, because presumably the house or whatever you bought you, you know house prices double every seven years, etc. Grrr.
Speaker 1:You cheated Andrew twice. You might think that didn't land but that landed.
Speaker 3:So at what point does the inflation get so bad that it's like problematic for that guy? Because one way of dealing, like one thing that I guess is kind of good about inflation or am I wrong is that at just slightly kind of current levels you could say it just gradually pushes some of the power and wealth towards the actual working people.
Speaker 1:Yeah, I mean it depends on the structure of the inflation.
Speaker 1:I guess is the first thing. So, are wages keeping up? Is it like a wage driven? Is it wages rising at least as fast as inflation? Just shaking his head? Nope, there's some evidence the last 12 months they had.
Speaker 1:But, and in australia it seems to be as if any type of inflation, I think, is probably leaning towards that. But anyway, we can. That's one question and that's that can be either way. It doesn't have to be one or the other. It depends on the structure of what's driving the inflation. So if you have a shortage of workers that's why part of why I think we could have a wage-led inflation is we have a structural shortage of workers, then that is, yeah, kind of I think you're right, claude kind of a net positive for workers. You have wages rising faster, all else held equal. That can be a good period for people. And if you look at the 1950s, that was a period for quite a long time. It wasn't like as crazy as 70s. There was fairly high inflation but workers did well because they rose higher than that and that kind of scenario played out.
Speaker 1:So, yeah, and I think it's possible. I guess the question of this if you're going to run a fiscal repression properly, you wouldn't want inflation to get out of control either, though, because that kind of screws up the whole thing. You have to pay too much on the debt. You'd want to be keeping it within kind of a bound and managing it that way, so, but you know there's always a danger it could run away. That's why you need to keep control of the narrative.
Speaker 2:I have the strong view that inflation is awful for the working class. It's really great for owners of assets, so property equities, whatever. It tends to be good because money will seek a home. Right, if the money supply is continually growing. There's only so many CSL shares in existence. Right, there's only so many Bronte properties that are in existence, and so you will tend to get this nominal growth in these asset prices. In real terms, the growth won't be anywhere near as good as the nominal number suggests, but at least you're preserving some of that wealth.
Speaker 2:If you're, week to week, month to month, on a wage, I think it's going to be very, very difficult for you. I think the data is really clear. So we had inflation and then we've got pay rises and we get that dynamic because people go wait a second, I need a pay rise because of inflation. Then they get in. You get into a bit of a spiral afterwards. But I think it's wrong to mistake the initial impulse. It's not as though we all demanded these higher salaries and then inflation came along. Right, it happened to have come along just after we gave a whole bunch of people free money. That's when it came along right, coupled with some supply chain disruptions that made everything really hard.
Speaker 3:The supply chain disruptions. That made everything really hard. The supply chain stuff was the transitory part right yes, it was, and then they're like now the lack of workers or whatever is not. Is the not so transitory part? Is that right? Yeah, well, and just just the and also like the money we pumped, it's just I don't know.
Speaker 2:I feel like I'm such on a out on the limb here. I don't know, it doesn't feel like it's that hot attack or that controversial attack. It's just there are real things in the economy, there are real people doing real stuff, creating real value. And then we're just like if you play a game of Monopoly and I'm just going to change the rules and say every time you pass, go, you know, get $1,000 and not $200. What do you think happens? The game is exactly the same. The prices just go up everywhere. That's all that you need to know.
Speaker 2:Share people should get it a lot better because we can talk about the ills of dilutionary capital raises and the benefits of buyback, prudently done. We all get it because it's just sort of like yeah, on our basis, things are changing. When we talk about monetary units, it's sort of like oh, no, it's much more deep and controversial, and you don't get it. And it's this and it's that controversial, and you don't get it. And it's this and it's that, and it's like no, there's just more of it out there and there's the same amount of goods and services.
Speaker 1:You know so it's yeah. There's only one thing that's going to give. I think I'd agree with if it's it depends on the driver of the inflation. So I think what you're talking about is a lot of inflation is what you're describing, where we print money, we give it to people to buy property or whatever else and they benefit from it first. But it is possible to have inflation driven by a shortage of workers and in a shortage of workers, inflation and have wages rising faster than general inflation?
Speaker 1:yep, and so if you had that persistently, then that would be. You know all else had equal good for workers. Like you can have work, like, let's say, that you had an inflation you had. This is a general setting of prices where workers rate wages are rising 10 every year and everything else is rising five percent because we have some deflation and manufacturing and other goods and blah, blah blah. That scenario would be good for workers, but I think your point is that often that isn't the scenario. The type of inflation we have Depends on the type right Depends on yes, yep.
Speaker 2:I mean, it's complicated, right, and I also think you need to re-examine some initial starting propositions here. And some initial starting propositions here is like isn't it perfectly normal and in fact, desirable that when there is an imbalance out there between workers and the demand for workers, that the only thing that clears the market is an increased price? I need workers. I can't get them, I'll have to increase my price. Right, that is the economy allocating we bring in more people. Well, that's an invisible hand right there allocating people to where they are most On.
Speaker 3:Well, that's an invisible hand right there allocating people to where they are most On a purely instinctual level. This makes me want to lobotomize myself and just buy REA shares Like there's no plan. It's just bring in more people. That's the plan.
Speaker 2:Yeah, it's a terrible plan because on a per capita basis, we're actually already going backwards.
Speaker 3:They're bringing down immigration or whatever, but will they really? Didn't they blow past their forecast massively in the last year? Like why wouldn't they do that again?
Speaker 2:Because you don't want to be the government that's in charge when things go bad. If I was in government and I was like myopically focused on my own self-interest, I would let it rip in the inflation front, right, because it's just going to give me better GDP numbers, it's going to support housing prices, you know, and it kind of is. The sad tragedy of australia is is that we're just this pathetic country that only knows how to like houses to each other because it's pretty pathetic well, we're like a well, relatively happy.
Speaker 3:Obviously you know russian psyops try to bring overseas conflicts to our neck of the woods. You know asides from like obviously we, what we're selling, is being a good democracy, basically, and like a peaceful, a peaceful land. So australia has a massive vested interest in the democratic world order and that's kind of what we're monetizing in a lot of ways just just one other comment on the point of like does it help labor or capital more?
Speaker 1:I guess part of what we're talking about would be a financial repression does hurt capitalists more, like that's the idea of the financial that's why I think it's funny, like obviously this was made by the rich people.
Speaker 3:Repression when it hurts the capitalists, it's repression um what happens?
Speaker 2:what happens to those? What happens to those people? It's a bit when atlas shrugged, which I'm not a great fan philosophically, but it is. Look at China, they've got capital controls, right yeah.
Speaker 1:China has financial repression. That has been China's back for the last 20 years. So the people are held down and not able to get their money out.
Speaker 2:And that's why they buy Australian property.
Speaker 1:Unless you're not connected. But you have to pay a vig to be connected right. There's a cost to it. You have to pay.
Speaker 3:I don't know how much you lose getting your money out of china to buy, you know whatever. Like yes on your business an empty australian house in in chatswood for like seven million dollars. This is not a house, it's a store of value but it bleeds.
Speaker 2:It bleeds away. I mean, you, you are taking capital out of the country, and it's usually the most well-connected, most savvy, those with the most capital to get it out. And it's kind of like, well, wait a second, wouldn't it be better if we incentivize those with the means and the capacity to stay invested and reinvest in the country that you're talking about? It's kind of it's a perverse. It's a perverse kind of scenario when you really think about it. I think.
Speaker 1:China is actually a good model because that's part of I mean it's been part of their secret of success there. Right, they repress the consumer so that you don't get enough interest on your bank deposits and they give it to capital basically. So they massively invest in production and just keep doing that over and over again until you just dominate production and you have this huge economy which is all producing stuff but there's no balance to it and you need the rest of the world to fund that. That's kind of some of michael pettis's arguments about the imbalance that can come. But yeah, I mean I think it's a good point, andrew, because not to get you started on one of your favorite topics, but there's the argument.
Speaker 2:I'm trying not to go there financial the world used to be.
Speaker 1:It's possible. The world goes back to how it used to be in the 60s, and all our lives we've had this very liberal financial world and that could change and the way it would change is a lot of laws like, literally, things. It'd become illegal to move money out and you kind of you're experiencing this with bitcoin right, where it's hard, harder for you to do bank transactions into it, and I think you know for my safety.
Speaker 1:I'm told it's cba keeps telling me it's for my safety. That's okay. That's what it would feel like to be through financial.
Speaker 1:It'd be very hard to move your money to america. They just put more and more blocks to stop it, and that's obviously china's like an extreme version of that, but that's, that would be how it works. And then the question is like is it harder to do today? Are there more ways around it? Because the internet, or is the law still able to effectively control it? But that's what it would feel like for capitalists, is you're being forced by the government to invest in things that aren't as productive, but in quote, unquote the public interest and it'll be sold as a good thing. So that's the world and it's a terrible thing.
Speaker 2:It is an absolutely terrible thing. You know, we again just to bring up the communism angle, we figured that out right, we a lot of things that sort of sound nice about that. But let me just finish this one point. But it just doesn't work right. And yet we think that the centrally planned coordination of money and investment should be centrally planned. You know there are degrees here, but we're going in that degree and what is it? It lands with massive malinvestment which destroys capital, which destroys wealth.
Speaker 2:You know, I think what makes it so hard to see is because we're doing this in a backdrop of insane technological advancement. So even despite all the BS, somehow, depending on what strata you live in society things are still getting better, despite the stupidity of what's going on. But I think when you peel that back and you try and isolate different factors here, this is not a good thing. I mean, how many times do we need various government programs to completely blow up tens of billions of dollars before we realize that it's just not in their wheelhouse to do that? That's what private markets tend to do pretty well, because especially when there are very real costs to failure and again, we could talk about how that's been masked as well. But this is what we want. We want people to allocate capital and we want the market to decide and we want to let that run its course as best we can. We want to set up guide rails and we want to incentivize things that we like and disincentivize things that we don't as a society.
Speaker 2:Yes, I'm not trying to be a libertarian, free anarcho-capitalist here, but at the same time there is a lot to be said. Let me frame it differently. The hubris of thinking that we can manage the economy to the degree that we think that we can through political means is just that poo crazy, and I think evidence to that is just abounds, if you care to look at it. And yet we're going more and more in that direction for the best of reasons right, for the best of intents, I should say. But look how it's working out.
Speaker 3:Well, I agree with much of that, and as much as I enjoy drawing about economics in crayon, I think that we should hit some small cap news.
Speaker 2:That was a big segue, wasn't it? This is a safe space for nerds here. Hit some small cap news. That was a big segue wasn't it.
Speaker 1:Pet us, Mark. What do we got?
Speaker 3:This is a safe space for nerds here, you know. I think we managed to keep it exclusive to the listeners we love by just putting up this like wall of other content, so congratulations. Now we're doing small caps. Look, I thought we could just run through some of the stuff that's reported lately, since we had, you know, quarterlies coming out that long ago. And one that I've like always found kind of interesting because it's a software company, is Phineas Corporation. Jp Picard included in an article on our website recently and look, it's come down a long way.
Speaker 3:I've noticed that a lot of the software stonks have had a good year lately. So we have ProMedicus to hold up 90%. We have NetWealth, which is, you know, big software, stock up 48%. Car sales, which is whatever, so-called tech stock up 50%, rea, 30% and what is it? Zero around 40%. So good year for some of those stonky tech things that are on the bigger end. Now Finneos is the less popular, less cool, kind of failing, not doing that well kind of end, but it's still a pretty big company, so it's big enough to get into those sociological games at some point, like 600 million market cap Once upon a time. Maybe, matt, you probably have a better idea of how it got so popular before and what the mistake was. But you know, I think brokers really loved it for a while and it's come down a long way. But I think what the interesting thing was is that in the most recent quarterly it sort of limped over the line for free cash flow, so it actually made very small positive free cash flow. You know, essentially that is always something that makes me rise an eyebrow like think, oh, is this a little bit better? You know, is it heading in the right direction? Look, my thought of caution that I wanted to chuck in is that the last two March quarters have also been relatively strong. So I think this is to a degree Finios is. It's probably it's just their strong quarter.
Speaker 3:But at the same time I think that there's sort of a cookie cutter kind of thesis that you can probably apply and may have some validity to this kind of business, in that it's, I guess, a slightly more traditional model where they had like a lot of licenses and stuff like that. And I think you know the general story is with a lot of these businesses they gradually push towards trying to have a more recurring style business. So that could emerge as a thesis over the next few years. Sometimes that works out well. I guess you know to point to one that we prepared earlier, so to speak, you got that which I own shares in RPM Global, which we've talked about before. But you know, that's an example of now it's just like after years of just like not really going anywhere for no apparent reason. Now suddenly it's like all right, it's off to the races, and I think you get a few of those things. Like you know, you get that inflection point where it becomes profitable and the thesis is reasonable and at the same time, as I said, the tech stonks have had a good year.
Speaker 3:So sometimes the big ones go first and then people are like all right, what's the? You know, that's the thing that everyone's comparing their valuation to. That's just got a multiple expansion. So sometimes it takes a while but it filters down to the smaller comparables, if you will. Hence my interest in phineas. It's got that sociological angle. Do I think this is probably just a one-off good quarter? Yeah, I guess I do. So I'm not that excited but nonetheless keen to hear what you guys think. And is there an angle there? What do you think of the business?
Speaker 1:yeah, phineas, I think really interesting because it's insurance technology. I guess one of the things that has given me pause on it is the I guess you'd say labor intensity of the business, because it's got this consulting arm and that software needs to be quite heavily configured. So it won a big contract in the us but it takes so much work to configure that it's closer like. I guess the question to answer is is this more like bespoke software or is this software that will be widely sold and have a high gross margin? And I don't think it's. It's not going to be like a zero. Obviously it's not going to be the same software for everyone.
Speaker 1:But how far is it between those two poles? If you think of one being like, every time you win a contract it's completely bespoke software, you're basically a software consulting firm versus zero. Every time someone else signs up it's completely the same. You get super high gross margins, incremental dollars. It's somewhere between those two and I think the setting of how far it is between those two determines a lot about what valuation you should pay for it, what it's going to be worth at maturity, how much reinvestment needs to happen, margins, all that stuff. A lot of it flows from those that answering that question. Yeah, so that's kind of a lot of it flows from those that answering that question. Yeah, so that's kind of the biggest, I guess, open question mark on the company and then on cash flow, I think yeah, I guess it's similar.
Speaker 1:You know what's the inflection past, past the break, even as it gets there, because of those things like how, how good is it, how replicable? And um, you know, I talked to someone smart, a fund manager who owns it, who thinks it is going to be super replicable. I have talked to, I've seen some other calls in the industry that indicate to me it's not and it's quite bespoke. So I've kind of I don't have a firm view on it. But that's the question to answer, because it's once you tip past break, even if you want to have the really big returns, it's from being high gross margin after that point.
Speaker 3:That's how you leverage. So yeah, mate, that is. That is very helpful and a key point. So thanks for that.
Speaker 3:I just wanted to put some numbers around that. So what? And correct me if I'm wrong, but like, what you're talking about is like the difference between, like the true high margin software business you know, pro medicus is an exception but it has ebit margins of like what, 60 something percent ebit crazy now even. Of course most are a lot lower than that but like, for these kind of businesses, a 30, 25, 30 percent ebbet margin is that's like. That's something that you do see. You do see it's not like a pro medica's fluke accident, it's like it actually happens quite a lot. But of course then you have the it consulting businesses and when they're really humming they might have an ebbet margin of 13, 14 correct me if I'm wrong probably over the cycle. They're a good business if they average 10% EBIT margins, and sometimes it'll be higher than that, you know. And also these ones tend to grow by acquisition and stuff as well. So it's, you know, not always clean, but that's a 10% EBIT margin, like Phineos we're thinking.
Speaker 3:I guess the thing to hack is when this thing is mature and humming along making a more reliable profit, if it ever gets there, which I think probably could at the level of revenue it's at. You know, is it a 10% EBIT margin business or is it higher than that? And I guess, like my gut feeling would be that if you can make the investment work on a 10% EBIT margin, then you got a ton of like upside potential there. But I think you know it's far from clear that they're at like I think we're ballparking like less than 200 million revenue. So, but even if we said it was 200 million and it was 10% EBIT margins to be like 20 million, I'm talking they report in euros, but I'm talking AUD right now.
Speaker 3:So and if we applied like a normal tax rate to that, what it's like $14 million profit and these kinds of businesses generally don't get much higher than low 20s P ratio so $14 million profit times, even if you were generous and gave it 25, it's 350 million market cap and versus it's like 600 today. So that's why I could never get there. On valuation, just in broad terms. But what interests me also is that sociological angle. It's like, well, that's kind of a conservative valuation I put forward then. Is it conservative? I don't know it's not even profitable, yet you tell me.
Speaker 1:I like the framing. I need to think through the numbers in a spreadsheet. I appreciate what you could just do then. But I think the framing you like, I really liked of if you can make it work with a 10% EBIT margin kind of towards the lower end, if we think of that continuum, then it makes sense you've got. I really like that framing. I guess one other point is just the growth rate, because the growth rate for consulting is much harder to grow. You know. Again, all that can slow it down because you have to have big implementation cycles, blah, blah, blah. But yeah, I like that framing. I think that's a good way to think about it.
Speaker 3:And if you do look at that article I mentioned the four strong quarterly cash flow reports you can see the receipts from customers haven't really grown that much. So yeah, ultimately I feel like we killed the idea, but still, nonetheless, I think it's one that we watched.
Speaker 1:I'm very open to it, Like yeah, I don't want to say killed forever for sure, because if it started demonstrating it, if it won like three more customers at scale and blah, blah, blah, then I think that would prove it for sure. So one to keep watching.
Speaker 2:That could be a good catalyst actually to put in our minds like a big, a big contract win, but then knowing that it could be disappointing because it takes a long time to implement.
Speaker 3:Yeah, I think software companies with long part of me wants to bin it for that man like it's. That's where you run into the worst trouble, like the longer the implementation, the more healthcare companies.
Speaker 1:Hey, yeah, exactly. Oh, I'm getting wrecked by that. Anyway aside, from permit from pro-medicals.
Speaker 2:Andrew, you were going to say something it just seems what three times sales is still unprofitable.
Speaker 2:I get everything that you guys are saying, but it feels as though there's a lot to sort of be demonstrated before that they deserve a lot of these kind of assumptions. Actually, when you were talking there you reminded me I'll give a shout out to Mushroom Panda, a Strawman member, one of our better and longer serving ones, aka Michael, without doxing him too much, wrote a really good update the other day. He's talking about Ordinate, but he mentioned a Steve Barmer idea of riding the bear. This is like a company that operates in a certain ecosystem where a very large and dominant player uses you and takes up your services and sort of like help, propels your growth. Potentially, that could be Ordinate, for example. You know there are other examples that are out. There Is this one that could potentially ride the bear in the sense where it's sort of like a bigger player takes on their services and just gives them that, propels them to that sort of next level of revenue and helps drive the economics.
Speaker 1:And I don't know. So you mean someone else does the hard work. Is that what you mean by riding the bear? You mean someone else does the hard work. Is that when we were writing the bear?
Speaker 2:like someone else does the implementation.
Speaker 2:No well, the the bear is I guess it's probably not a good term here because of it refers to bear markets and ball market but more basically this big dominant player in the forest right that that says yes, we'll use you, and it's like okay, and then you just you just get your success kind of. You have this massive counterparty risk and client concentration risk, but it's kind of that pivotal moment that propels you from more or less obscurity to a very, very serious player and then you become tightly integrated into their sort of systems and tied to their success. You sort of have this symbiotic, mutually beneficial arrangement. But it is for some of these companies dependent on that big deal, you know, for it to kind of happen. And if it can happen and you can stay on top of the bear, it can be extremely, extremely lucrative for you. Michael gave the example of Microsoft's big break in 1981 with IBM PC coming out and what it was able to do in terms of what Microsoft eventually delivered.
Speaker 1:Yeah, okay, I'm with you. Yeah, no, I think it's a really good point I need to think of. I mean, it's caused me a lot of thought. That's why I'm not talking, because I need to think about that in terms of yeah, it just makes you think, doesn't it yeah, I don't know the answer to that either, but food for thought.
Speaker 3:Uh look, do we do another one out today? Uh, aussie broadband. I guess it's not that tiny anymore, but it's been a small cap success story, has it not? 1.16 billion. Now, though, it could it be one day a giant.
Speaker 3:If we think back, iinet had a huge run back in the day, I guess on the strength of just a slightly better telco brand right, and I guess that's the thesis for aussie broadband. Today they announced that the broadband business remains strong and continues to show positive growth, adding almost 90 000 new new, basically getting growth across the board there. Net additions for Q3 are pretty much the same as last year, so I guess you know we can be modeling that their growth rate will slow down because it's off a bigger base is kind of where it's going, but it's still the machine. Still seems to be growing. They're trying to digest Symbio at the same time, which could be interesting.
Speaker 3:Could be some hiccups there, but yeah, overall the share price has come down recently, because I think correct me if I'm wrong the main reason it came down was because Superloop, one of their competitors, stole a contract to provide Origin Energy, but they stole it by taking a lower margin or whatever. Which is is, I don't mind investing in companies that lose business on price, like essentially, like you don't want to be in a company invested.
Speaker 2:Imagine there are lots of good companies like eboss group.
Speaker 3:I don't own it right now, but man that is always on my list, that's one good company. They lost the chemist warehousing on price. You could see that coming a mile off like chemist warehouse, always going to play hardball. It was a boon when they got it, but can go away similar promedicus when it does lose a contract on price. So no problem with that. Yeah, that's got what got me interested the the quarterly today out today seems like I guess steadily as she goes like I reaffirmed its guidance.
Speaker 1:So yeah, there we go I use a aussie broadband at home, I think home. I think it's a good service and I guess now the thesis is kind of that they're moving away from NBN so their margins should be improving because they're moving more to wholesale and, I guess, on-net services, as I understand. So, yeah, I think there's a potential there. I need, yeah, I don't know if you do you have any thoughts on that one, andrew.
Speaker 2:No, I don't actually it post that one, Andrew. No, I don't actually. It's one of those ones that I've always thought the edge here is just operational excellence, which is nice right, but it's a hard edge to maintain and I've kind of stayed away from it. But it does tend to make every post a winner, and I regret that. When you see a company that is exceptionally well run even if the general dynamics of the business don't seem obvious as to if there's any great advantage, but like it is largely, it looks to me from the outside like a commodity provider, right, and all the things that go along with that. But at the same time you've got a business who has just consistently knocked it out of the park, is going really strong, delivering for shareholders, and so maybe I need to put more emphasis on management and execution and operational effectiveness.
Speaker 3:Yeah, so I recently, like when we moved house, I changed to Aussie broadband as well, and they they do a good job and definitely, like the internet here is better than when I had Optus. I don't know, that could just be the peculiarities of the exact house. This is Australia, after all. There you go. I still have the best, I still have the best internet in my most remote house, though.
Speaker 1:So go figure Very good.
Speaker 3:Yeah. So look, I like them Basically, think that they're trading at a reasonable price and struggle to make a sort of conviction thesis to the buy. But yeah, I don't know, it's trading on like 24 times the next 12 months PE, based on analyst forecasts, just to give you a thumbs up idea of where it lands. I just like the brand thing. I feel like that's how you get an inch, eventually get a margin in telco is that you have like a slightly better brand. You build the.
Speaker 3:It's like a cycle right, you get a better brand, you offer a better deal, you build your customer numbers as much as you can and then I guess you start really just slightly dialing up the pricing or slightly dialing down the level of service you get. You're giving people slightly. You're in a position to like start, I guess milking that reputation you've built up over the years and and maybe that gradually like dilutes your brand value. But I feel like there's a cycle there that can happen and maybe is happening, in which case that would be what I would kind of like rely on, to be like. This is why I think it's going to keep going up like I, just that they're early enough in that cycle that their brand's still really strong, got that brand value now and they're reaping that now and then in a few years they'll be able to like they'll start destroying it by maybe reaping it too hard or whatever so anyway that's the idea, that that's the one in the news as well.
Speaker 3:Andrew, I think you had a small cap that you wanted to bring up look, only very briefly.
Speaker 2:We spoke yeah, pain check, pck is the code. Philip daffis, uh, the ceo, it's. It's one of these businesses that you know has this ginormous total addressable market so what does it do? It tries to measure pain, which is very difficult thing to do in an objective sense and it's traditionally a smartphone app to read pain on people's faces, isn't it? Yeah, yeah, because you know my arm's sore, doc, how sore on a scale of they train it on you when the Bitcoin price is falling.
Speaker 2:No, I'm smiling. Then I fill my bags at lower prices.
Speaker 3:Yeah, ab is a good cult member Like everything. Is good news, mate, great it's. I was a good cult member, like everything is good news, mate. It's all right.
Speaker 2:Every day is a good day. Every day is a good day. You started this. Why did I try so hard not to you keep driving me in, it's funny.
Speaker 3:It'll be like. We'll be like look back in this in 10 years when you're like a retired bazillionaire or whatever.
Speaker 2:And like.
Speaker 3:Matt just like laughing about laughing at your bitcoin obsession. You're like smoking a cigar, like the winnie the pooh in the suit guy that's.
Speaker 2:It's how you know you're early, as everyone laughs at you just bring it back to paint jack I. I apologize on you, matt.
Speaker 1:That is 100 on you big addressable market but struggling to get product market fit at the moment. Would that be fair?
Speaker 2:the thing is is like is like you know, you can measure heart rate, you can measure blood pressure, you can measure temperatures, all these sort of key vitals that we can very objectively measure pain. We come, and so, again, it's traditionally done by pen and paper and there's a process that goes about this. This tries to make it a bit more systematic. It tries to make it a bit more objective no-transcript. My baby's crying and wincing is like is this good or bad, or how much are they in pain, or is it just? It's kind of you see the potential right and they've seemed to have a pretty decent lead and they tend to be getting some pretty good partnerships in which to expand. They are purely software as well, so there's no hardware component, there's good retentions, there's pretty good margins, but it's still and this is a point I really have to hasten to add, this is still extraordinarily early on this one, but it feels as though they are starting to get a bit of traction in terms of the take-up and it could potentially grow very rapidly if you continue to see good take-up. They're trying for FDA approval in the US, which doesn't mean, you know, there's not a lot of downside of this. I can't imagine. There's a lot of potential patient harm here, so that looks likely to come through.
Speaker 2:It's a very big market, yeah. So look, it's one that I think is worth putting on the watch list, just by, and just be cognizant of the fact that it is still extraordinarily early there. It is still extraordinarily early. There are 90,000 licenses for its technology You're looking at, by the way. You're looking at something like 50 bucks a year for a license, right, and that's now generating something like 4.3 million on an annualized basis and has been growing very, very, very rapidly. Often extremely small base, but that is the potential for that to continue. I would suspect a capital raise in the not too distant future. Yeah, definitely.
Speaker 2:Again, suspected capital raise in the not too distant future? Yeah, definitely. Again, this is a normal path for companies at this stage of life stage and not a bad thing if they can use that to propel their growth forward. I don't own any shares. I'm not looking at buying any shares. I know I'm doing my usual hyper bullish kind of pitch here. I'm just sort of giving you the more optimistic take, claude, throw some cold water all over it for me. I think you're pretty even-handed today, mate.
Speaker 3:So congratulations, yeah, and uh, of course it's way too early for me to to want to be in like and I I do some pretty silly stuff. So a good rule of thumb is, if it has less than two quarters of cash flow in the bank, then generally, like you can be sure that a capital raising is 100% coming.
Speaker 2:Yeah, it's coming.
Speaker 3:There's another one we'll talk about it like maybe another week that I like the look of as well, but it's just you can tell it's going to need to raise capital. So I'm always just thinking well, at most I just buy like $500 worth so I can participate in an SPB or something. But with Paycheck even that I definitely wouldn't it. It looks like it's burning a lot at the moment all right.
Speaker 1:Should we wrap it there? Yeah, let's do it all right. Thanks very much for listening. Hit us up on twitter at baby giants pod.
Speaker 3:Thank you I'm wait, wait. I'm grateful for the rainbow I saw just sneak that in there I saw a nice rainbow.
Speaker 2:Have a nice day everyone a couple of king parrots have been like watching me with malicious intent.
Speaker 1:It feels like um awesome, all right, thank you. Thanks for listening bye.