00:00:04
Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean Aylmer. Reporting season has wrapped up. I described it last week as being solid but not really spectacular. One of the most interesting sectors to watch, of course, is the tech sector. So I wanted to speak to one of our favorite guests about how the tech stocks performed. Remember, this is general information only and you should speak to a professional advisor before making any investment decisions. Elise Kennedy is the Vice President of equity research at Jarden. Elise, welcome back to Fear and Greed.
00:00:30
Elise Kennedy: Great to be here as always, Sean.
00:00:34
Sean Aylmer: So in a sentence or two or three, how did the tech stocks perform? Bit unfair because it's a very varied group of stocks size.
00:00:42
Elise Kennedy: It is a very mixed bunch of stocks. I think there were a few little disappointments which at first that opened down, but then you would have some commentary cause and by the end of the day the stock would be up. So even volatile within the short period of your time, which we are getting quite accustomed to in the tech space. But a few winners in there on a few good cause and really some that we were watching for the second half.
00:01:03
Sean Aylmer: Okay. We'll get into some specifics in a moment, but if I think of the big tech stocks out of Wall Street, the whole cost situation that they seem to have matured or suddenly they're not the growth businesses that we once thought they were in a way. Did we see that at all locally?
00:01:21
Elise Kennedy: It's quite funny that you say that. That is absolutely what we saw and what really drove those 'beats' versus 'meets' or there otherwise. So I think for us with the key thing around that cost base is I think investors rewarded those that were taking out the costs. Whereas you go back say even just a year and would've been did they do well enough on that top line. I think we are starting to see a maturation and that makes sense given the backdrop that we've got around the funding costs.
00:01:48
Sean Aylmer: Okay, so let's talk about some of the standout performers. Who did you really like?
00:01:53
Elise Kennedy: Look, I can't go past WiseTech. They continue to defy the odds and I keep highlighting this one when it comes to those coming through saying it's too expensive, Elise, it's time to short it.
00:02:04
Sean Aylmer: It's been too expensive for three years.
00:02:06
Elise Kennedy: Oh it's more since it listed back in 2017. I remember an argument when we were doing the IPO, was it going to be $3.30 or $ 3. 35? So it's $ 62. It's going to be hard for those that declined back then too. So I think what they did is around the strength of the free cashflow coming through and then they've started to utilise their balance sheet. They made a number of acquisitions actually before the result, but we were able to see strong organic growth combined with acquisitive growth and that is started to see the stock continue to appreciate.
00:02:37
Sean Aylmer: When people talk about WiseTech and of course it's the tracking software, so if you get a parcel from a deliverer, often you will be using WiseTech product, people always talk about management.
00:02:49
Elise Kennedy: Look, Richard White has been the founder and is still the CEO. He is absolutely so passionate about the job that he does and really bringing in those acquisitions on his journey. Also, invest his own funding across other investments in the tech environment. So that just to me is a highlight of the passion that he has. Still owns about 40%, sells a say 1% per annum, just part of diversifying your funds as that share price keeps ...
00:03:15
Sean Aylmer: As you do.
00:03:16
Elise Kennedy: ... going up. As you do. So, yes, very impressive management there.
00:03:19
Sean Aylmer: Okay, so what about, not necessarily the other side of the coin, but others who disappointed somewhat. So REA Domain?
00:03:26
Elise Kennedy: Yeah, look, I think their struggle is the cycle. For example, house price corrections, they stalled a bit in February. Down 0.1% month a month, but it's 8% roughly year on year and that's unlikely to be over in our view. We've still got another three RBA rate hikes coming through, which is again the risk of more if we keep seeing inflation come through. Now we talked about the costs when you started this and I think the biggest challenge with these names is about delivering on that cost out and how much more can you get? I think it's harder for Domain as a number two player when that top line around the cycle is really just getting harder and harder and harder. So I think it's a part of function of the environment that they're in and the cycle that they're in, but then also the challenges that they face in taking out those costs.
00:04:15
Sean Aylmer: What about Seek? I would've thought they should have had a great time given the unemployment rate is so low. It's under 4% and even if it does climb a bit, a lot of people have jobs and a lot of people looking for jobs. How did it perform and what's the outlook for Seek?
00:04:29
Elise Kennedy: I think the thing that investors missed on this is really important is this stock sold off because of the guidance that they put out for the rest of the year and it looked a bit softer than what everyone was expecting there, but that's because they brought forward some of that spend because as you rightly put, we're at a point in the cycle where it's probably going to be getting harder looking forward. So wouldn't you think, well if I want to remove some of the volatility in my earnings, let me bring forward the extra cash that I'm getting in this good environment now so then when it comes to future years where the cycle isn't working for me, then I have the tools to be able to pull the levers to be able to get more out of their bank for buck now because I can't invest. So that's what they're doing and that to me is something that investors missed and why the stock was a bit softer on the day. But if you are a long- term strategic holder, to me this is a name that's setting itself up for a strong returns looking forward and beyond just the volatility that exists within the jobs market.
00:05:26
Sean Aylmer: Stay with me Elise, we'll be back in a minute.
00:05:34
Sean Aylmer: My guest today is Elise Kennedy, Vice President of equity research at Jarden. Another stock that we all loved during the pandemic was Xero, though it's sort of it's lost some of its luster, I dare say. Where's that one up to?
00:05:47
Elise Kennedy: So that is one of the good ones that often you can hide in through reporting season because they have a march year- end, but at this point in time, February is when the new CEO has now started. Now there were some articles out there with her in the press talking down over and spending in the US but I think the biggest challenge for these guys at the moment is what's happening in their environment around small businesses. They are experience enormous amounts of inflation and that obviously puts on economic challenges. It's hard to push through harder prices or are you going to really take up other products and perhaps less so in Australia at this point in time but in key markets like the UK. I think that's some of the challenges that are there. But with a new CEO yet to really show how she's going to navigate those headwinds. I think some investors are still in the book of wait and see, but I'm still positive on the name longer term because I just think it's a good fundamental business. Just might have a little bit of ups and downs along the way.
00:06:43
Sean Aylmer: Now Elise Kennedy from Jarden and one of the companies that you brought to my attention at some point was Siteminder. Where's that one up to?
00:06:49
Elise Kennedy: Well, I hope it brought it to your attention and you had a good look at it.
00:06:52
Sean Aylmer: The right time.
00:06:54
Elise Kennedy: Up materially since we did start initiating this stock last year and as we say it's packed and ready to go. So accommodation software stock and it was up around 20% on the day of its result, pulled back a little bit and still well off the $ 7 share price it was at around $ 3. 80 odd. So that is moving towards this pathway to profitability. It's growing its transactions products materially.
So for example, it's average price that it pays was up 20%, only 2% came from price increases but transaction products. So that's like think about add- on products to its core accommodation software bookings platform that is getting really strong growth in there. And why that is important is because that's helpful for margins. If I can sell your product to my same person, it's a lot cheaper than having to go find a new customer and sell them the whole suite. So that's going to help bring through them through to that pathway of profitability and that lifetime value is growing. Those are the things that we like to see for any of our tech stocks.
00:07:53
Sean Aylmer: Okay. So in this point of the cycle, how difficult is it to buy a company that isn't profitable?
00:08:00
Elise Kennedy: There's still a lot out there, but they're really pushing hard to show how they're going to get there. So for example, buy now, pay later, it's going to be a hard rocky road for them because of the rates that they have to borrow at continues to get harder, but they are all going to profitability so you can find them. But if they're telling you no, we're going to just keep on investing, they're probably the harder ones to come by than those that perhaps aren't going to get the market appetite from investors.
00:08:28
Sean Aylmer: So you mentioned buy now, pay later, Zip, Sezzle, those sorts of companies. We saw Openpay collapse. I suppose fewer players is good for those players remaining, but it must be a struggle for some of these guys.
00:08:41
Elise Kennedy: It is an absolute still struggle, I think, as the challenge where we aren't able to push them as hard and why I think that is comes down to the uncertainty around where the margins, credit margins rates, risks of that being a relatively new product in terms of the economic challenges that may lie ahead or are ahead. And then I think when you are lending, as we say, if you have to borrow money at 6% and you have charging your merchant 6%, then you got to take out the other fees of HR and marketing and so on and so forth. It's a very simple way to just think. There's not much fat in that to be able to get material profits and that's the challenge.
00:09:21
Sean Aylmer: Those Afterpay boys look like the smartest guys in the room at the moment. They sold out when it was going was good, I think.
00:09:26
Elise Kennedy: They certainly did.
00:09:29
Sean Aylmer: Elise Kennedy, you are Vice President of Equity Research at Jarden, which means a lot more than tech stocks. Mind you, I think tech stocks are at... That's where your heart is. What about investing in tech versus other sectors on the ASX?
00:09:42
Elise Kennedy: Yeah, look, we do have to keep a relative call around that at the moment. I feel like tech is very sold off and has a lot of opportunities for those that are able to hold that longer term. So that's where I think for me, it might not be the stocks that you choose now, perhaps those that are going to give more capital returns or dividends. Obviously it's all relative to your own individual portfolio as well. However, I feel as though this could be the time where you go and you look back and you think, oh, I should've gone and put into that stock, or I should've put in that stock. So even if you think there's going to be more volatility, second half of this year to the first half next year is probably a time where you start to see some more appetite for tech come back in and that assumption of that is based around the stabilisation and rates, but it will take some time.
00:10:32
Sean Aylmer: Elise, thank you for talking to Fear and Greed.
00:10:34
Elise Kennedy: Thank you as always for having me.
00:10:36
Sean Aylmer: That was Elise Kennedy, Vice President of Equity Research at Jarden. This is the Fear and Greed daily interview. Remember, this is general information only and you should speak to a professional advisor before making any investment decisions. Join us every morning for the full episode of Fear and Greed, Australia's most popular business podcast. I'm Sean Aylmer, enjoy your day.
Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean Aylmer. Reporting season has wrapped up. I described it last week as being solid but not really spectacular. One of the most interesting sectors to watch, of course, is the tech sector. So I wanted to speak to one of our favorite guests about how the tech stocks performed. Remember, this is general information only and you should speak to a professional advisor before making any investment decisions. Elise Kennedy is the Vice President of equity research at Jarden. Elise, welcome back to Fear and Greed.
00:00:30
Elise Kennedy: Great to be here as always, Sean.
00:00:34
Sean Aylmer: So in a sentence or two or three, how did the tech stocks perform? Bit unfair because it's a very varied group of stocks size.
00:00:42
Elise Kennedy: It is a very mixed bunch of stocks. I think there were a few little disappointments which at first that opened down, but then you would have some commentary cause and by the end of the day the stock would be up. So even volatile within the short period of your time, which we are getting quite accustomed to in the tech space. But a few winners in there on a few good cause and really some that we were watching for the second half.
00:01:03
Sean Aylmer: Okay. We'll get into some specifics in a moment, but if I think of the big tech stocks out of Wall Street, the whole cost situation that they seem to have matured or suddenly they're not the growth businesses that we once thought they were in a way. Did we see that at all locally?
00:01:21
Elise Kennedy: It's quite funny that you say that. That is absolutely what we saw and what really drove those 'beats' versus 'meets' or there otherwise. So I think for us with the key thing around that cost base is I think investors rewarded those that were taking out the costs. Whereas you go back say even just a year and would've been did they do well enough on that top line. I think we are starting to see a maturation and that makes sense given the backdrop that we've got around the funding costs.
00:01:48
Sean Aylmer: Okay, so let's talk about some of the standout performers. Who did you really like?
00:01:53
Elise Kennedy: Look, I can't go past WiseTech. They continue to defy the odds and I keep highlighting this one when it comes to those coming through saying it's too expensive, Elise, it's time to short it.
00:02:04
Sean Aylmer: It's been too expensive for three years.
00:02:06
Elise Kennedy: Oh it's more since it listed back in 2017. I remember an argument when we were doing the IPO, was it going to be $3.30 or $ 3. 35? So it's $ 62. It's going to be hard for those that declined back then too. So I think what they did is around the strength of the free cashflow coming through and then they've started to utilise their balance sheet. They made a number of acquisitions actually before the result, but we were able to see strong organic growth combined with acquisitive growth and that is started to see the stock continue to appreciate.
00:02:37
Sean Aylmer: When people talk about WiseTech and of course it's the tracking software, so if you get a parcel from a deliverer, often you will be using WiseTech product, people always talk about management.
00:02:49
Elise Kennedy: Look, Richard White has been the founder and is still the CEO. He is absolutely so passionate about the job that he does and really bringing in those acquisitions on his journey. Also, invest his own funding across other investments in the tech environment. So that just to me is a highlight of the passion that he has. Still owns about 40%, sells a say 1% per annum, just part of diversifying your funds as that share price keeps ...
00:03:15
Sean Aylmer: As you do.
00:03:16
Elise Kennedy: ... going up. As you do. So, yes, very impressive management there.
00:03:19
Sean Aylmer: Okay, so what about, not necessarily the other side of the coin, but others who disappointed somewhat. So REA Domain?
00:03:26
Elise Kennedy: Yeah, look, I think their struggle is the cycle. For example, house price corrections, they stalled a bit in February. Down 0.1% month a month, but it's 8% roughly year on year and that's unlikely to be over in our view. We've still got another three RBA rate hikes coming through, which is again the risk of more if we keep seeing inflation come through. Now we talked about the costs when you started this and I think the biggest challenge with these names is about delivering on that cost out and how much more can you get? I think it's harder for Domain as a number two player when that top line around the cycle is really just getting harder and harder and harder. So I think it's a part of function of the environment that they're in and the cycle that they're in, but then also the challenges that they face in taking out those costs.
00:04:15
Sean Aylmer: What about Seek? I would've thought they should have had a great time given the unemployment rate is so low. It's under 4% and even if it does climb a bit, a lot of people have jobs and a lot of people looking for jobs. How did it perform and what's the outlook for Seek?
00:04:29
Elise Kennedy: I think the thing that investors missed on this is really important is this stock sold off because of the guidance that they put out for the rest of the year and it looked a bit softer than what everyone was expecting there, but that's because they brought forward some of that spend because as you rightly put, we're at a point in the cycle where it's probably going to be getting harder looking forward. So wouldn't you think, well if I want to remove some of the volatility in my earnings, let me bring forward the extra cash that I'm getting in this good environment now so then when it comes to future years where the cycle isn't working for me, then I have the tools to be able to pull the levers to be able to get more out of their bank for buck now because I can't invest. So that's what they're doing and that to me is something that investors missed and why the stock was a bit softer on the day. But if you are a long- term strategic holder, to me this is a name that's setting itself up for a strong returns looking forward and beyond just the volatility that exists within the jobs market.
00:05:26
Sean Aylmer: Stay with me Elise, we'll be back in a minute.
00:05:34
Sean Aylmer: My guest today is Elise Kennedy, Vice President of equity research at Jarden. Another stock that we all loved during the pandemic was Xero, though it's sort of it's lost some of its luster, I dare say. Where's that one up to?
00:05:47
Elise Kennedy: So that is one of the good ones that often you can hide in through reporting season because they have a march year- end, but at this point in time, February is when the new CEO has now started. Now there were some articles out there with her in the press talking down over and spending in the US but I think the biggest challenge for these guys at the moment is what's happening in their environment around small businesses. They are experience enormous amounts of inflation and that obviously puts on economic challenges. It's hard to push through harder prices or are you going to really take up other products and perhaps less so in Australia at this point in time but in key markets like the UK. I think that's some of the challenges that are there. But with a new CEO yet to really show how she's going to navigate those headwinds. I think some investors are still in the book of wait and see, but I'm still positive on the name longer term because I just think it's a good fundamental business. Just might have a little bit of ups and downs along the way.
00:06:43
Sean Aylmer: Now Elise Kennedy from Jarden and one of the companies that you brought to my attention at some point was Siteminder. Where's that one up to?
00:06:49
Elise Kennedy: Well, I hope it brought it to your attention and you had a good look at it.
00:06:52
Sean Aylmer: The right time.
00:06:54
Elise Kennedy: Up materially since we did start initiating this stock last year and as we say it's packed and ready to go. So accommodation software stock and it was up around 20% on the day of its result, pulled back a little bit and still well off the $ 7 share price it was at around $ 3. 80 odd. So that is moving towards this pathway to profitability. It's growing its transactions products materially.
So for example, it's average price that it pays was up 20%, only 2% came from price increases but transaction products. So that's like think about add- on products to its core accommodation software bookings platform that is getting really strong growth in there. And why that is important is because that's helpful for margins. If I can sell your product to my same person, it's a lot cheaper than having to go find a new customer and sell them the whole suite. So that's going to help bring through them through to that pathway of profitability and that lifetime value is growing. Those are the things that we like to see for any of our tech stocks.
00:07:53
Sean Aylmer: Okay. So in this point of the cycle, how difficult is it to buy a company that isn't profitable?
00:08:00
Elise Kennedy: There's still a lot out there, but they're really pushing hard to show how they're going to get there. So for example, buy now, pay later, it's going to be a hard rocky road for them because of the rates that they have to borrow at continues to get harder, but they are all going to profitability so you can find them. But if they're telling you no, we're going to just keep on investing, they're probably the harder ones to come by than those that perhaps aren't going to get the market appetite from investors.
00:08:28
Sean Aylmer: So you mentioned buy now, pay later, Zip, Sezzle, those sorts of companies. We saw Openpay collapse. I suppose fewer players is good for those players remaining, but it must be a struggle for some of these guys.
00:08:41
Elise Kennedy: It is an absolute still struggle, I think, as the challenge where we aren't able to push them as hard and why I think that is comes down to the uncertainty around where the margins, credit margins rates, risks of that being a relatively new product in terms of the economic challenges that may lie ahead or are ahead. And then I think when you are lending, as we say, if you have to borrow money at 6% and you have charging your merchant 6%, then you got to take out the other fees of HR and marketing and so on and so forth. It's a very simple way to just think. There's not much fat in that to be able to get material profits and that's the challenge.
00:09:21
Sean Aylmer: Those Afterpay boys look like the smartest guys in the room at the moment. They sold out when it was going was good, I think.
00:09:26
Elise Kennedy: They certainly did.
00:09:29
Sean Aylmer: Elise Kennedy, you are Vice President of Equity Research at Jarden, which means a lot more than tech stocks. Mind you, I think tech stocks are at... That's where your heart is. What about investing in tech versus other sectors on the ASX?
00:09:42
Elise Kennedy: Yeah, look, we do have to keep a relative call around that at the moment. I feel like tech is very sold off and has a lot of opportunities for those that are able to hold that longer term. So that's where I think for me, it might not be the stocks that you choose now, perhaps those that are going to give more capital returns or dividends. Obviously it's all relative to your own individual portfolio as well. However, I feel as though this could be the time where you go and you look back and you think, oh, I should've gone and put into that stock, or I should've put in that stock. So even if you think there's going to be more volatility, second half of this year to the first half next year is probably a time where you start to see some more appetite for tech come back in and that assumption of that is based around the stabilisation and rates, but it will take some time.
00:10:32
Sean Aylmer: Elise, thank you for talking to Fear and Greed.
00:10:34
Elise Kennedy: Thank you as always for having me.
00:10:36
Sean Aylmer: That was Elise Kennedy, Vice President of Equity Research at Jarden. This is the Fear and Greed daily interview. Remember, this is general information only and you should speak to a professional advisor before making any investment decisions. Join us every morning for the full episode of Fear and Greed, Australia's most popular business podcast. I'm Sean Aylmer, enjoy your day.
