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EPISODE TRANSCRIPT

Phil: G' day and welcome back to Shares for Beginners. I'm Phil Muscatello. This year I'm um, doubling down on something I think really matters for new investors. Helping beginners understand the stock market through real companies and real stories. I'll be looking under the hood of actual listed companies from all over the world. How they're run, whose stock steering the ship and what decisions shape long term outcomes for shareholders. Today we're exploring two companies you may have heard of. Argo, uh, um, one of Australia's oldest listed investment companies and AUB Group, a fast growing insurance broker that's been making some bold, and I'll put that in inverted commas, bold strategic moves. And to help us unpack what these companies can teach beginners about valuation, governance incentives and management quality, I'm joined by someone who lives and breathes this world, Nathan Bartrop, uh, corporate governance specialist, company secretary and returning friend of the podcast. Nathan, great to have you back.

Nathan Bartrop: Thank you Phil, Great to be here.

Phil: So Nathan, before we dive into Argo and AUB specifically, let's start with the basics. Just a quick reminder about governance. When beginners hear the word governance, their eyes glaze over. What does governance actually mean in the real world?

Nathan Bartrop: So governance is everything. It's how the board effectively operates, how the management and the day to day operations operate and how the systems, processes and controls are uh, distributed throughout the organization to make sure that the company functions effectively.

Phil: I know governance, it's an interesting one because you know people's eyes do glaze over. But I was reading in the weekend press about a company now was it Firmius, uh, Firmius, something like that. They're a private company that are going to be listing soon and one of the founders of the company has been in jail for insider trading. And that's one aspect of governance, isn't it? Do you want the character of management and, or the board to be of the highest quality?

Nathan Bartrop: That's right Phil. I think in terms of that particular example there is a test if you list on the ASX and no doubt around the world as well for uh, good fame and character test. And so the company does actually have to put a submission and detail around each ah of the directors and they have to do background checks and submit that to asx. So that is a control. When a company lists in terms of a company listing and a company that is wanting to be listed in the next sort of 6 to 12 months. My recommendation always is to start a lot earlier than the six to 12 months. It often happens 18 months earlier to make sure that you've got your board in place and also that corporate governance in place. Because let's just say you've got the board that is not all about corporate governance, that's just actually having a board. You need to have all of the operational processes and procedures in place, including this, you know, committee structure, including the fact that you need policies and charters and other things to make sure everything runs. But most of all it's really important, especially when you list as a company on the ASX or another market, that those directors and management are comfortable, they're in control, everything's running as it should be. And if there is a potential issue in the future that they can actually manage that from day one. So what I have seen in the past, a company has a board, it has management, it's done all ticked all the things it's got listed. But what happens in the first six months? They often have a really challenging issue. It could be a profit warning, it could be that their mine is not producing enough. It could be a biotech where the drug is not going to get approved by regulatory agency, some sort of other effect. And that often is the first challenge for a board. And, and that's where corporate governance comes into effect. Good corporate governance equals good outcomes.

Phil: It's interesting though, in this case is the company Fermius, the one that I'm referring to, you obviously know about it as well. This story.

Nathan Bartrop: I'm not sure about Fermius and that particular story, but uh, you know, there has been other similar companies in the past who want to get listed. But as I said, the thing that sticks out that anything like that insider trading conviction, other sort of stuff is obviously a concern to regulatory agencies and certainly to asx. So it'd be interesting to see how that one goes. But whether, uh, yeah, I'm not sure in terms of the actual board and the composition in that instance, then ASX is also looking to the composition of that board to make sure they've got ASX experience, that they can manage the company effectively. And so sometimes ASX does actually reject companies if they don't have a suitable board. And that does happen from time to time. They publish those reasons publicly, not in terms of the company, but they'll say that company A didn't meet the criteria for listing in terms of like the suitability of the board or suitability of the operations. There's numerous things that they do. So it's not a just. Although it's a well worn process, it doesn't always result in those sort of outcomes that come to mind. And I think having a strategy and the relevant advisors. I wrote an article a couple of years ago about this process, but making sure you got the right advisors, the right structure, uh, the right lead up. Sometimes unfortunately you can't control markets. That's the uh, unknown. And sometimes companies have often, you know, gone into week 11 of a 12 week due diligence program. Markets have gone a little bit skittish, gone down 5 to 10% on you know, the US or Australian market and they've often pulled that and come back later. But that's one thing that you can't control. But you may have to have a plan in process. What happens if we can't get to the finish line?

Phil: Okay, well let's start talking about Argo. It's been around forever, it's conservative and it's widely held. Tell us about Argo and what is it about Argo that stands out for you?

Nathan Bartrop: So Argo is a listed investment company. Now these uh, so called lics for short people love to abbreviate in Australia. You know, ETFs, LIC's, LIV's, all sorts of things.

Phil: But it's close because they're called LIVs now, aren't they? They've uh, rebranded listed investment vehicles. Makes all the difference really, doesn't it?

Nathan Bartrop: Well it can because list Investment vehicles are LIVs, because LIVs include LITs or lits which is a listed investment trust. But in the case of Argo, it's been around for a long, long time. 1946 or so, it's a closed ended fund and it can trade at a discount or premium. That's one of its benefits. Now the other thing about Argo, it's been around a long time. It's grown its dividends 37.5% over the last five years. It's a well paying dividend stock in the sense that it will be consistent and similar LICs like Australian Foundation Investment Company or AFFIC and these sort of companies that have been around a long time, they are good because they smooth out some of those ups and downs in the markets where if you were to say buy an A200 ETF as a comparator, uh, then the A200, the dividends will go up and down depending on the market. So in terms of like the global financial crisis, whilst Argo would still be paying a dividend and the dividends may be say maintaining or potentially going up over time then a 200 would have dipped significantly because the companies in their portfolio would have actually, you know, they literally pass through the dividends where Argo takes those, makes a profit and then franks those dividends and then distributes to shareholders and the directors then decide whether they are going to distribute all or they're going to leave a little bit more for rainy days. So the advantages, but one of the disadvantages that they keep that money for a rainy day, that's both a good thing because it can smooth dividends. They can choose over time to do things like special dividends and other things. But the whole point about Argo is that it's a very stable stock. It invests in approximately 80 companies. It doesn't tend to go with fads. So it's as a differentiator. Where it's probably underperformed slightly recently is because the gold sector has gone nuts. But the position of Argo in that situation is that uh, it sticks to its process, it doesn't tend to differ and it tends to be very consistent. So it's not chasing fads like gold, lithium, artificial intelligence. It's not after the next AI stock in Australia, it's investing in 80 good quality Australian businesses. And it says, well look, you know, some of those companies will benefit ultimately from some of these systems and processes, those, those 80 companies out of artificial intelligence and other things. But it's not going to be outside its parameters. So it's very, in terms of governance, it's, it's a very well worn structure. Uh, it doesn't tend to go out of its lane and in reality that's why people like it because it's effectively, I guess it can be a little bit boring, but its boring feature is actually its advantage in that it can actually for especially people seeking income and consistency, that it'll always be there delivering those dividends. And the history shows you that.

Phil: Can you describe that process? What is it about the 80 companies that they're investing in that fulfills the mandate that they're trying to achieve?

Nathan Bartrop: So they're looking for good quality, consistent businesses. So I guess it's more, uh, sort of tends to be more value investing in terms of that. They, for example last year when Commonwealth bank was running up, they tend to rather than say buy the index, they're actually an active manager and they decide, well look, Instead of buying CBA, I'll buy another bank. Because CBA's value is clearly, you know, at the time and I guess when you reflect was clearly a little bit out of whack. But you know, I mean these are sort of things that it has to take a position and I uh, guess sometimes that can result in, you know, underperformance but sometimes the overperformance is that, you know, they are able to take a position contrary to what the index is actually telling you. So in that sense that it gives you, I guess, a little bit different processes to an A200, but it gives you more consistency that they're looking for the long term value over time and they're not generally, yes, they are rebalancing their portfolio, but they're generally not, you know, selling things all the time and rebalancing as much as probably what you would have to do, say even in an A200 balance. So it tends to be, if you're a shareholder you receive the dividends where in a Ah, 200 you receive, you're effectively an investor in a trust and you receive flow through, which means you're

Phil: talking, you're talking specifically now about an ETF versus an lic, aren't you? The way they operate.

Nathan Bartrop: That's right. So yeah, with an ETF you get all the flow through income. But I guess the simplicity of Argo and the way it operates is that you get two dividends a year and some LIC's are even thinking about, you know, quarterly dividends. And there's also other LIC's out there that are looking more for just income every month. So I think there's been a bit of innovation in the sector. But I think boring is good in this scenario and it gives you an ability to rely on that company for a long, long time and it to be a core part of your portfolio. So in terms of beginners, I would say Argo is a good solid beginner stock and it could be there in your portfolio for a long, long time that you just leave on the shelf. You don't have to touch it because you are giving your full control to Argo and they are investing on your behalf and you're effectively relying on them to deliver that over time.

Phil: So Another aspect of LICs or LIVs or whatever they're called these days is that they can often trade at a discount to net asset value. So that means that, you know, if you were to break up all of the holdings of an LIC and sell them off, you would get more than what you would be paying for at the particular share price at any time. What's the situation with Argo at the moment in that regard?

Nathan Bartrop: So at the moment it's trading at $9.05 today, but it trades at a discount to its net asset value by quite a significant amount. So gives you the opportunity for potential investors or beginners to effectively buy in at a lower price than its net asset value. And look, Argo affix, some of These other similar ETFs have similar problems in that sometimes they trade at a premium. And so you're effectively buying the share price is greater than its net asset value. And so potentially you're getting in when it's not actually worth as much in the. The disadvantages on the flip side is that potentially the share price could go down and could neutralize or operate a discount. But these similar sort of, because it has underperformed um, slightly versus the index and other sort of comparatives, then it does give a good pricing point to get in. And sometimes that is, well, that is a benefit of the LIC is that potentially, hopefully in the next six to 12 months it could realign. And so that, say, let's just say the hypothetical 10% discount, if that closes well, you might be able to benefit from not only the dividends, but also relatively quick growth in the fact that the share price has gone up and aligned with the net tangible asset value.

Phil: Track your investments like a pro. Sharesite is Investopedia's number one portfolio tracker for DIY investors. Simplifying your finances. Get four months from free on an annual premium plan at sharesite.com sharesforbeginners. And that's something that's really worthwhile doing with your research when you're looking at an LIC before you put any dollars on the line about whether it is trading at a premium or a discount to the market. It's just another aspect that beginners should be aware of.

Nathan Bartrop: Yeah, definitely. And first links, I would say is a good resource for that. It does have three first links. You can get access to the Bell Potter report, which gives you a full breakdown of all the LIC's and different classifications. And it'll give you sort of a, uh, that overview and see how they've changed over time and you can then make the decision. So I would recommend looking at that report and always assessing whether it's trading at a discount or a premium.

Phil: Okay, well let's move on to aub. And it's a bit of a contrast, this company, because it's been much more active, acquisitive and ambitious. What does their approach look like? Tell us about the AUB business model and how they make money.

Nathan Bartrop: So AUB is an in. Well, it's not only insurance broker, it's also an underwriter and it also has risk advisory services. So unlike your sort of Insurance Australia Group, which owns brands such as nrma, cgu, these sort of brands and things like QBE and suncorp, AUB is a little bit more diversified, so it's a little bit more across the full spectrum of insurance. So when we take it, you know, those three services being insurance broker, uh, is that you and I, when we buy our car insurance or we buy our, uh, house insurance, we just go direct to the insurer. We don't have a broker in the, in the middle. Maybe if you've got a $10 million property, you might want to get a broker, but in effect we buy it direct from the insurer. Now, in small businesses especially, but also, you know, even if you're a large business, you're going to use an insurance broker and it becomes more and more important as you go, you know, as your assets increase and potentially your exposure increases as well. So in small to medium businesses, AEB effectively owns a number of, want a better word? Businesses or shops that they. Or really offices that they then have a number of brokers that then provide these services and they effectively act on behalf of the client, being the company that wants to actually ensure their, you know, whether it's their services in terms of revenue like. But also it could be a pool of. It could be cars, it could be workplace health and safety. And certainly sometimes it's, obviously there's a pool of services. And I think increasingly when we mention companies on asx, things like directors and officers insurance for, as it says, directors and officers. And if you're a smaller company, it may be, you know, management liability and things like that. So there's a wide range of insurances. So that's one of its businesses. Second thing it does is actually underwriting. So it acts similar to say, QBE and IAG in that underwriting is a process of assessing risk, deciding whether to accept it and whether to effectually write the actual policy. So in that scenario, I guess that means that potentially AEB can clip the ticket another time. So as well as being the insurance broker, they can also say, well, we recommend this product and it's underwritten by, you know, potentially a subsidiary of aeb. And so they are then able to then effectively, you know, have a series of policies available off their shelf as well. As a number of different policies and, and you know, having been a company secretary and being in insurance and having to deal with insurers as well or dealing with insurance brokers, I've been on the other side of the fence similar to an aeb. You know, you rely on them to go out there and potentially reach out to the market and compare. It's not only on, you know, in terms of dollars because it's all about the features of the policy as well. So it's not just on dollars. Small to medium businesses probably a little bit more sensitive about that. But I guess the process where a B, where it matters is that they have to then go out and go to insurers or they go to the market like Lloyd's in London, and they effectively are looking at that every day and looking at where the trends are and things like that. So that's the underwriting part and they also have a uh, risk advisory services. So they're also looking at things like under the hood in terms of a uh, company's risk processes and how they can potentially improve their risk which ultimately then would throw flow through to the insurance broking and potentially the underwriting in terms of being able to actually, you know, sometimes companies are not able to access insurance. So this is where the insurance broker has to fight for the company and the client to effectively try and get insurance or trying to get better things like reduction of excess, you know, other sort of terms that are more favorable. And the insurance broker uh, often has access to a pool of lawyers and a pool of decisions where it can actually decide, you know, best to, to advise their clients. So combination of those three, it means it's a little bit more diversified across the spectrum than your pure play insurance companies like IAG and you're a little bit more sort of protected in some senses because they're across the whole value chain.

Phil: So presumably, you know, if there was to be an economic downturn, there would be still companies looking to go to insurance brokers to facilitate the insurance that's required.

Nathan Bartrop: Yeah, it tends to be uh, I mean I have no doubt that some people would consider whether to keep paying their insurance. But insurance is quite sticky and you know, sometimes you can sort of do without it for a while. But I often think, especially in the company sector, I mean there's a lot of companies that would just not some types of insurance they wouldn't go without. So they may be willing to sort of up the excess or do other things. But generally it's quite sticky and it's quite A resilient sector, uh, because these policies must be placed to renewed and sometimes you'll find as well. I guess my background as a corporate lawyer as well is that a lot of these contracts will say you must have X type of policy, you must hold this while you've got that contract. So assuming that the, you know, if you're a business, you know, you've got 2,000 motor vehicles you're selling and there's, there's a policy that you have to have in place that's mandated there, then it's unlikely you're going to actually remove that. So it does actually show that, you know, even when times are favorable and potentially that that means that the written premium might go down because you know, the favorable. Effectively if the insurance policy was $1,000 and now it's $950, well they lose a little bit of commission. But I think again it swings and roundabouts. There may be also some people in favorable conditions would be willing to let it go. But then also in unfavourable conditions they may be willing to, to buy more policies or decide to actually do that as a way of risk management. So I think it's just really interesting look when you look at insurance because I think there's some people that are willing to insure, you know, self insure up, uh, you know, if they've got a certain level of assets. But I think most companies and most people have to actually, you know, take out insurance to protect their most valuable assets.

Phil: So a company like this, they grow through acquisition. But the stock's been volatile. It dropped after a fail buyout and now at a 52 week low. What went wrong with the EQT CVC deal and does this create a dip buying chance?

Nathan Bartrop: So in terms of this particular deal, I mean it was effectively an unsolicited offer. Now my background in unsolicited offer from whom?

Phil: To whom?

Nathan Bartrop: So the unsolicited offer was effectively that it was EQT and CVC putting the offer to Aubrey. Now it was happening behind closed doors and this is not the first and it won't be the last time, but effectively from my understanding is that uh, Australian Financial Review broke the deal and then effectively that forced AEB to actually disclose that there was a potential offer and that there was, you know, things happening and what the value of that deal was. And then there was a second announcement actually says that EQT and CVC upped the offer and the final announcement was actually that, I guess even before that AUB actually said, well look we'll let you do the due diligence on us. And then for some reason they decided to walk away. And we don't really know what the details are behind them walking away. Sometimes these sort of deals, you know, just the momentum of them or the fact that a company may want to buy someone at $45 a share, which was the final number that EQT put up, they decided to walk away about due diligence. Now on the one hand that could be, you could think, well look, they obviously found something that they didn't like, but maybe it didn't. I mean on the alternative, maybe the alternative is, well, they weren't willing to support the $45. But also the directors had to give them the due diligence. And one of the things that the AUB CEO at the time after that, the announcement, the fact that the deal didn't go ahead, that he was confident that the due diligence process strengthened the company's conviction in its strategy. So I think that was a good signal from the CEO. I think sometimes we're not ever going to know what actually happened. And I think at this point in time, I guess it does highlight the fact that AEB is always acquisitive, it is always buying businesses and integration and uh, integrating businesses into its portfolio. So I think it does give you an opportunity to buy it at a lower price. I mean the placement price was about $29.40 per share.

Phil: Uh, that was what the offer was for, the buyout, was it?

Nathan Bartrop: Sorry, no, the buyout was at $45. But after this didn't, after this didn't happen, the company decided that it was actually going to buy 95.9% of a company called Prestige in the UK and so he decided to do a placement at $29.40 which then represented 7.9% discount to the closing price. And so now when you have a look at the share price roughly today it's at a, you know, just over 15% discount from the placement price if you buy it now and a potential 23% discount from the share price before the announcement of the placement. So I think sometimes with these sort of deals, you know, the $45 headline, I think in reality you've got to understand that when you. The reasons why ASX in its continuous disclosure guidelines generally recommends it, that in a case of AUB Group that it doesn't disclose the existence of ongoing discussions is because often there isn't a full deal to actually accept. I mean these sort of non binding indicative offers or nbios, they often do drive in terms of share prices and drive on the way up, but they're just a risk for investors. So if you had a jumped in and saw that headline $45 price and you know, you jumped in at 40, $41, you'd be feeling, you know, quite burnt now. But I think in terms of the opportunity with a company and its direction and that it's going in its conviction, I think now again a bit like buying Argo at a discount to its net asset value. Then there is some, you uh, know, some thought the fact that now you've gone through a placement and they're also doing a share purchase plan which for anyone buying from now they can't participate in that share purchase plan. But the good thing for investors in those, if they are able to participate in that share purchase plan, that they're not going to buy at the $29.40 placement price, they're going to be potentially going to buy at a 2% discount to the five trading days before the actual issue of those shares. So this is I guess understanding how ASX works and some of these other things some people may want to top up if they're already in an AUB Group shareholder. But I think in terms of the fact that with AB is that they continually, they're more acquisitive, they've done this before, they've decided to then, you know, rapidly pivot away from negotiating with private equity and actually just get on with their business which is actually, you know, a very efficient, that's what you want companies to do. Because if they do get bogged down in a, you know, potential 3, 612 month process, often management suffers, you know, and you often find potentially not only this, it may not be the CEO, but maybe others like chief operating officers, chief financial officers and others. Sometimes, I mean, I know having been in a company before, the pressure it places on the management team to run all this due diligence, to do all these scenario planning and all sorts of stuff and also run the existing business and potentially find, you know, new deals or new things and stabilize the business, they can be entirely disruptive. So I think the fact that although they didn't get their $45, you know, the potential is that they understand who huh can come knocking and that they're more prepared than they were before, which is reading between the lines, that's what the CEO is trying to say is that this due diligence process has got them to focus on what matters and to make sure that they're aligning with their strategy.

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Phil: So I can't let you get away without explaining a piece of jargon. What is a placement? How does a placement work?

Nathan Bartrop: Generally a placement is made to sophisticated wholesale investments. Now in Australia that just generally means like, you know, it can be large companies, it can be anyone for like it could be Argo, it could be any, you know, any investor on the register. Uh, but what it tends to not be is not retail shareholders. So think of retail shareholders generally the people that are not the wholesale and sophisticated investors. They're generally clients of broking firms that have had to put a certificate in an accountant certificate saying that they're a sophisticated investor. So they could be anyone from high net worth individuals to, you know, just general investors in the sector. But what actually happens in that placement is they engage a broker or a series of brokers and effectively they sign a term sheet and the company does a whole lot of due diligence for the broker and it's run by, you know, there's a lot of lawyers involved on both sides, especially if it's underwritten of course. Yeah, but effectively they'll generally have, uh, the broker will generally have a series of investors and effectively sometimes what they'll do is they'll sound out those investors. Obviously when you sound out investors, they'll be required to sign a confidentiality agreement that they won't trade because obviously if they were going to trade that would be insider trading. But effectively they will often sound out certain investors and see whether they are interested in buying more stock. But then through that placement they will then just effectively say, well look, we're going to raise, you know, $400 million. And uh, then they give that to the broker and then generally it's done within a very short time frame. Now if you're a really large company, you can get these things away in a day. If you're a smaller to medium mining stock, then potentially it might take you three to four days because it might just take a little bit of time. The other thing is, depending on the way you set it up, it can also be that you market it firstly in Australia or a particular jurisdiction. Then you wait throughout the day, Then you know, as the day goes on, you market to the United Kingdom and European investors. And as a day then, you know, keeps on going, then you Then market to, you know, international investors like out of the U.S. canada and others. And then you just start the process again, start day two and trying to effectively the placement. The brokers have a book and then they literally put people down, get them to sign a term sheet that says you'll commit to buying, you know, for example, an AUB this much at $29.40 per share. Now, me being the company secretary in all this sort of process, when I have done this, there's a lot of paperwork involved, including requesting a trading halt. You also have to then submit a couple of forms to ASX saying this is what you propose to do. And so everyone gets excited. And, uh, let's just say at the end of that two days, Phil, you come out and then you say the wonderful news that you've raised $400 million at $29.40 a share. And then you put out an ASX announcement saying you've done that. And then you're allowed to effectively trade again so you don't have to have a trading halt when you do a placement. And smaller companies, if they had, say, three or four well known investors, they could easily sign them up to confidentiality agreements and then announce that without a trading halt. The reason for the trading halt, it balances out the market, the fact that it's not trading and it sort of means that everyone is getting, you know, I guess it stabilizes the price in terms of the fact that it'll be a fixed price. But effectively after the end of those two days, the company can trade and sometimes it trades higher, sometimes it trades lower. And in this case, over time it started to trade lower. But look, it is the market, the market has found a new price. And you know, potentially investors can get that for a lower price than the placement price.

Phil: And the purpose of the placement is to raise capital, presumably to buy more, acquire more companies. Is that the case?

Nathan Bartrop: In the case of aeb, it is. So it's well flagged that they were raising this for the acquisition of a 95.9% interest in Prestige. But often it can be to raise. It could be. There's generally a number of reasons, you know, out of raising the money. It can often be for, uh, working capital. It can often be also, I guess, to pay the brokers, you know, for the issue costs. There often is, you know, other things that are involved, but generally that there'll be a main purpose in there which in this was for an acquisition. But sometimes it can be to fund, you know, in other industries like mining, to fund tenements to do drilling and other sort of acquisitions. But I think the key thing is that uh, it's got to be well articulated how you're going to use the funds. And I think some of the criticisms of some companies, not AUB in this case, but they're just not clear on exactly what their strategy is or they've changed their strategy. So I think it's clear in aub it's pretty clear on the equity raising presentation what they're doing, that they're following their strategy and they're not getting disrupted. And I think in AEB's case they've had over. Their CEO did say they've had over 30 acquisitions just in the first half of this financial year. So it shows that this is not, this is a big one, but behind the scenes that they're doing this all the time. And it's probably a little bit different to some of the other things I've seen, which is roll ups, which is where potentially you roll a series of companies together. Uh, and in this case it could be insurance brokers, but they're following a pattern where they're, they're sort of, they've got a reasonable scale and they're just adding a little bit more scale. They're not trying to bite off more than they can chew and they've got a well worn process for integrating these businesses into the actual AUB group. And if you don't have that, then that's often, you know, going to be difficult. And in that sector, I think you could say, you know, in the past, you know, in the insurance sector, QBE was quite successful for a long time doing that. But then I think it eventually got caught up because there was just too many acquisitions. So I think the risk or the potential downside of Auburn is the integration and execution risk around this particular deal. But I think in terms of generally AEB itself, it's a well worn process that they've done numerous times. So I'm not thinking that it's just going to be normal business sort of operations for them and going through the whole process that they usually would.

Phil: So Nathan, you've been on the podcast before, you're now an old friend of the podcast. What's changed since your last appearance and the stocks that you talked about last time.

Nathan Bartrop: So quite interestingly it was just after we uh, had the podcast, uh, sorry, the last podcast with bapcor, they actually had another downgrade and then that actually resulted in the CEO effectively resigning in that particular instance. So Babcor unfortunately hasn't recovered. And I think it's probably still got a while to go. But I think the message that I had in the last podcast was that if a company has put out a number of trading updates, like two in that particular instance, and they put it out another one, then in this instance, it was decided by the board, they had to take action and they decided to actually remove the CEO and change tac. And that CEO hadn't been there that long. I still see with Batcor is that it's still got a bit of a way to go. And therefore, if you were invest, you know, potentially investing in Batcor is like catching a falling knife in that it needs some sort of catalyst to really rejig itself and make sure that it's actually able to get back to where it has been, you know, in the past. But it doesn't, it doesn't look as favorable as, you know, some people could say, oh, look, you know, it's that it's, um, not quite at its low. It's had a little bit of resilience there, but it's not something you'd be jumping into. There may be other options available. Now, in terms of James Hardy was quite interesting because when I came on the podcast, it was just after, uh, this was slightly different, but a similar theme, but it was actually, in James Hardy's case, the shareholders had had enough and they actually had an annual general meeting. You can't always do this, and it depends on each company. But they decided in this particular case that the three directors that were up for election, they decided that they would remove those directors. So they're all up for election. Three of them weren't actually didn't continue. And that included the chair of the organization. So different to Batgirl, but sometimes it happens that, uh, a CEO goes first, sometimes the chair goes first, but in this case James Hardy. There is actually a little bit more, you know, if you had have got into James Hardy, uh, it looks like it's actually on the way up again, but it's still, again, this is where A bit of caution, Phil. It's still not where it was, say, you know, a year ago when you look at the chart. And so it's still a little bit buyer beware. But it seems like on the fact that the share price has appreciated, it seems like shareholders are getting through to the CEO, uh, to say that they weren't very happy with the acquisition, that they effectively got lumped with and therefore, I guess the CEO and ultimately the board, and they, they decided to actually appoint A new chair as well, that was completely different to your organization. And so they've decided what we covered at the start, a governance is to go, well, look, clearly you didn't have faith in our, um, governance processes. So we've decided to get a new chair and we're going to take you seriously and take your feedback on. So I think it's interesting in these type of companies that sometimes it will just be the marker will mark you down in the share price. And sometimes the company has a way of, you know, modifying its behavior and everything gets back on. But often it's either the CEO, uh, or the chair, or sometimes companies just go, you know what, we're going to replace the chair and the CEO. That's a lot of machination behind the scenes, but it's, that's governance operating the way it should in terms of the fact that if shareholders don't have faith in governance, they have blunt tools like not voting for directors. And as I mentioned on the podcast last time, it's very rare to get rid of a chair and two other directors in a major listed company. But that's shareholder activism and also that's the rights they have and they've chosen to exercise that.

Phil: There's a lot of things for a new investor to keep their eye on, isn't there? When they're looking at an individual company, it's not just a simple matter. I mean, someone could look at the bapcor share price, for example, go, oh, that's low. I'm going to buy some. I can't get any lower than that. But it definitely can. We've had that experience, haven't we? And hence your expression, catch a falling knife.

Nathan Bartrop: Yeah, that's right. I think you've got to really look at corporate governance in look at the board, look at how long the CEO has been there, maybe have a look into where the CEOs been before. Have they been successful? Also look at, you know, for example, and this creates a bit of controversy, but how long the chair has been there, how long the other directors have been there? I mean, look, some companies say, look, the fact that, you know, Fred has been the chair for 15 years doesn't matter that he's still independent, he's still, you know, he's part of the furniture, but he's still good. And other sort of people would say that 15 years may be too much and they might be looking at succession plan. One thing I have had a look at a number of times is succession planning. It's a really interesting beast. And I think quite interestingly, even the last week, Phil, we've seen that ASX and CSL are both looking for a new CEO. They don't actually have one in the wings ready to appoint. They're ready to wait it out and they're, they're deciding who they're going to appoint and they're going to be very steadfast, you know, behind the scenes to make sure that they're going to get it right. Because in the case of csl, their share price has rapidly been falling and you know, once a really market darling like csl, the one that you would bank on in your portfolio to keep on going. And funnily enough, I think Argo and Affic have also said that in their portfolio that they do hold, you know, uh, I don't know the split, but that has been a lag on their portfolio, CSL going down. And in terms of asx, a number of regulatory sort of issues and other things going on in the background meant that they're going to take their time

Phil: going from one disaster to another.

Nathan Bartrop: Some would say, yeah, well, a little bit, and it's quite interesting. But I think again, shareholders are making their voice known to the chair and the board to say that, you know, we want to get someone that is able to turn around this company, but each of them has their own appeal to whether you think they're going to turn around quickly. But again, I think what I said last time and just reiterate, I think you've got to look into some of the past announcements you got to look into. And I think largely as an investor, you can actually use AI and other devices as well. In terms of saying what they told you, did they deliver on what they told you? Is their story convincing? Is their strategy the same? And I think often, sometimes a strategy has to change for good reason. But I think some good companies double down on their strategy. And I guess, you know, when you're looking at that AEBS double or downing, uh, on strategy where a company such as ASX has slightly had to alter it because of these regulatory issues. And this I guess goes to good governance and good outcomes in terms of the fact that until such time as they're able to address the regulatory issues, they're not going to fully be able to invest in growth. They're really trying to patch up some of the issues of the past. And therefore that sort of business, if you're an investor, you have to go away and work out, well, look, is this a truly growth business, ASX compared to Say a csl. And we're, you know, we're looking at these different stocks, but you have to actually realize, well, is this something that is going to. If we're looking for long term investing? And, uh, that's what I'd recommend to beginners to try and be patient. You and I, I'm sure made mistakes about single stocks and things before, but it's about will that stock still be my portfolio in five to 10 years? You have to ask your question as well. And, uh, do I believe what they're actually telling me in terms of the direction and have they turned over a new leaf? I mean, from what I can see a little bit. It seems though, investors are looking a little bit more like believing the James Hardy story compared to the Batcore story. But CSL is, uh, you know that one even at the conference, the Gold coast conference for Australian Shareholders association last year, that you had one particular investor saying, yes, you should buy it. And the other one sort of said, well, look, no, I'm going to stay clear of it because I'm still not convinced that they've got everything right and I don't think they're going to get anything right within the next sort of one to two years. So it's quite polarizing that you've got people that are pro and against stocks, often with the same information, but I guess that's the market and price discovery.

Phil: Nathan, it's been great having you back on the podcast and explaining some of these issues for beginners because there's a lot of moving parts with any company. So, uh, Nathan, thank you very much.

Nathan Bartrop: Thank you, Phil. Really appreciate being on the podcast and to our listeners.

Phil: Remember, the goal here is simple. Helping beginners understand the stock market through real companies and real stories. If you enjoy this episode, share it with a friend who might be just starting out. Thank you very much. See you next time.

Chloe: Thanks for listening to Shares for Beginners. You can find more at sharesforbeginners. Com. If you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

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