RICHARD HEMMING | Under the Radar Report

Investing in blue-chip stocks can be the cornerstone of a robust portfolio, but knowing when to buy and how to discern value is the key. In this episode I'm joined by Richard Hemming from Under the Radar Report to delve into the world of blue-chip investing, especially market powerhouses like Commonwealth Bank and the strategic value of duopolies in the supermarket sector, such as Coles and Woolworths.

Richard, with over 30 years of experience in finance, shares his insights on the balance between seeking growth in small caps and the steady income from large caps. The conversation also navigates the impact of market disruptions, the importance of dividend yields, and the nuances of forward-looking P/E ratios. Whether it's the resilience of Fortescue in the mining industry or the strategic shifts in companies like Lend Lease, this episode provides a rich tapestry of analysis for both the novice and seasoned investor.

Celebrate the 150th edition of the Under the Radar Report and the 301st episode of Shares for Beginners (I thought it would be a numerologically significant 300) by tuning in for a deep dive into blue-chip value, and discover how to harness the power of these market giants for your investment journey.

If you want to invest in the big ASX blue chip companies and grow your wealth in the stock market the Under the Radar Blue Chip Report is for you. Under the Radar have handpicked 40 of the top 200 ASX Stocks across all industries that offer the best value for ASX share investors. Go to The Ultimate Guide to ASX Blue Chip Investing | Under The Radar Report

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EPISODE TRANSCRIPT

Richard: Like, I'm building up a core portfolio using our, um, $500 strategy. I'm doing that for the kids. There are stocks that are just must haves. And that's where you get, like, with some of these blue chips, where you get that averaging strategy, you know, that dollar cost averaging or whatever. Was it Warren Buffett or one of those guys invented where you just buy licks of stock regularly? You can do that for only a few companies, and I would argue the Commonwealth bank is one of those companies. Like, it's just uncanny how good it is at eking out profits. It's unbelievable. It's just market power. That's what you're buying when you buy blue chips. Market power.

Phil: G'day, and welcome back to shares for beginners. I'm Phil Muscatello. Are, uh, your grocery bills driving you nuts? How can you claw back some of that dosh? Sometimes the simplest strategy is to buy what you know, uh, at the right price, whether it's off the shelf or in the markets. Joining me today is Richard Hemming from the under the radar report to talk about some of the biggest companies on the ASX and blue chip value. G'day, Richard.

Richard: Hi, Phil. It's great to be back.

Phil: Yeah, thanks for coming back in. Now, just a brief overview. Richard is an experienced equities analyst, stockbroker, and financial journalist editor. Having worked for over 30 years in finance, he established under the radar report in 2010 to help australian investors access quality, independent institutional grade ASX research. And we're celebrating the 150th edition today.

Richard: We are, Phil. 150. That means we've been operating blue chip value for seven years. A lot's happened in seven years. Back when we started, our first issue had Donald Trump on the front and bond prices, interest rates were about 2.5%, I think, or in that realm. And I guess we decided on the magazine format. So seven years down the track, we quickly realized that Donald Trump wasn't going to be the infrastructure president. We realized that the magazine format wasn't really working. What people want from us is stock picking and independent research, which means purchasing the stocks, which we're doing. So putting our money where our mouth is. Well, the bond yield has gone from 2.5% or the ten year bond yield to 4.1 or 4.2%. So all things being equal, bonds would have lost you a lot of money. And the all ordinaries index has gone from about 5800 to about 7200, I think, like, up about 36%. And guess what drove that? Your big, beautiful blue cap and blue chips. I can't do a Donald Trump impression, but your big, beautiful blue chips. So what we like are, uh, stocks that are returning, and what blue chips offer you is income. And that's why we like blue chips.

Phil: Okay, so 150 additions, and I think this might be the 300th episode of shares for beginners as well.

Richard: It's, mathematically, we're all getting older.

Phil: It's numerological.

Richard: We're all getting older, and we're hoping. Wiser, aren't we, Phil?

Phil: Hopefully wiser. Uh, so generally, you do look at the small cap sector much of the time, and you've just explained why we shouldn't ignore the large caps. Yeah, and some of this is about duopolies, isn't it?

Richard: Well, exactly. I think what blue chips have to offer is size. Basically, if I can put it this way. Blue chips are protecting market share. Small caps are attacking market share. So what blue chips do is basically they confront disruption. What small caps do is try and be a disruptor. So what you want from blue chips is that income. The danger with blue chips, we see in some famous examples, is disruption. When their business model comes under pressure, they're busily trying to either buy competitors, buy out that disruptor, like Facebook's most famously done throughout its history, or change the business model, like Lend Lease is doing at the moment, or like a number of stocks that are in this week's issue are trying to do. So that's the tension that you have. And what you want in your portfolio are both types of stocks, but you have to be looking very carefully at the disruptive element at the big end.

Phil: Of town, because presumably the smaller caps are the ones that are going to deliver outsized returns, whereas the large caps are going to be much more your steady ballast in your portfolio.

Richard: Possibly, maybe. Well, I'm saying everything depends on what you're paying for that stock. Like, you see big moves in something like fortescue, which is a blue chip, because it's reliant on the iron ore price, even more so than Rio Tinto, which is actually a bigger producer. But Fortescue is solely an iron ore producer. So I think with blue chips, what you've got is size. Like with Fortescue, they've had huge problems with Ironbridge. You talked to Peter Chilton before, and he's on top of it. So forgive me, I don't know all the detail, but I do know that Fortescue have been having big problems from one of their big mines, Ironbridge, other companies that would wipe the company out. If you're not as big as Fortescue, that would wipe them out. Whereas Fortescue, it's like a speed bump. Like, okay, 100 million more cash that they have to spend. Twiggy's lifestyle hasn't changed. Um, basically what you want in mining is size. And you get that. You were talking about the variability. What you want from small caps and blue chips? Well, what you want from blue chips is exposure to mining as well, I would argue, because it's much more dangerous to be exposed to m mining at the small cap end of it. I've learned that personally the hard way. And we've seen big capitulation in the nickel price. And so there are stocks that have gone out of business, like from the nickel downturn, but like BHP is exposed to nickel but it's not going out of business, is it? Uh, it's got other stock, other mines, other commodities that can, I guess, take up the slack. So blue chips, big caps are really good for mining. Really good, as you mentioned, for oligopolies. Oligopolies are never going to shoot the lights out. Otherwise the ACCC is going to, which we saw famously, C is going to come on their tail. Not that that really is.

Phil: You don't think that's material?

Richard: It is material, but I'm saying it's not the end of the story. Like, obviously these companies are so big that if the ACCC, if they get a call from the ACCC, it's not like the end of the world. It's the kind of problem you want, actually. But these companies have that ability to spread a lot of big profits around and not kill each other. The banks is the most famous or the best example that I can come across.

Phil: The four pillars strategy.

Richard: The four pillars. But even at the big end of the global spectrum, we've seen capitulation as China hits different commodities that are critical. Minerals like nickel, like manganese, cobalt, most famously. Probably, you know, we haven't seen the iron ore price week because there is an oligopoly there of Vale, Rio Tinto, BHP and Fortescue. Like when these oligopolies happen, as an investor, what do you want from that? You want some income that's consistent. But what they're also providing is leverage to the actual commodities price. So, okay, iron ore might swing up and down. But these companies aren't going to go broke. They've got power. They can outproduce anyone on the planet. They are powerful companies. That's what you want from a blue chip.

Phil: So in this latest issue, you're talking about the duopolies, especially in the supermarket and retail space. Tell m us about those. We're talking about Coles, Woolworths, Wes farmers, which is Kmart and bunnings.

Richard: It's been fascinating, hasn't it, to watch what's been happening at the know we mentioned the ACCC, but what's also been happening on the sales side, like Coles had a really good start to the year. The share price spiked under their new CEO. Woolworths had arguably a bad start to the year, with really bad sale or poor sales, like 1%, 1.8% versus kind of six to 8% for coals. So what we're seeing is divergence within these so called oligopolies. And I guess the point to make is that, okay, every one of these stocks has their time in the sun. They're not always going to do really well at the same time, but they're always going to do pretty well. So the key is, okay, when it's at that kind of really good point, that sweet spot, so to speak, do you invest in it? Well, Coles is turning its operations around a fair bit because only six months ago, they had massive cost blowouts from their robotic. They missed some profit guidance, and they have these robotic warehouses that are costing them more money. They're doing this huge projecto. These things are always so complicated. The mind boggles. So they're turning around Woolworths. They're going through some really difficult times. They're changing their CEO. Uh, they're having problems with their operational side. There's all sorts of things going on, like big w. Compare that to Kmart. Big w is really struggling. Kmart, who's owned by west farmers, is going gangbusters. Meanwhile, you look at the west farmers share price, it's going from strength to strength. So which one of those three stocks would you be investing in? Well, we like Coles. I'm buying Coles and Woolworths. Why? Because I know that there's more expected value that I can get from those stocks than from west farmers. That's how I look at it. It's not who's going really well, it's what value am I getting from the share at any point in time? And you're getting a better yield. Like Woolworths is trading at its lowest PE for a long time. It still looks quite expensive, a forward PE of 20 times, but it's low. And it's still got that oligopoly that it's cozy oligopoly that it's in. So these things have their runs. Like there'll be a time where the new CEO, uh, probably hits the straps and things are going really well for woolworths. Again, it's just a cyclical thing as well. So you've got cycles within the cycles.

Phil: So you're looking for value. I mean, this is what we're talking about here. And how can a beginner investor really work out what that value is? I mean, you mentioned the forward looking PE. Let's just dig a bit deeper into that. And what it is about that metric that really made you interested?

Richard: Well, I think the forward looking PE is one thing, but also this is.

Phil: Different as to like the PE ratio. If you just look at a raw PE ratio. Yeah.

Richard: Well, the forward looking PE is the key because it's what the expectations, uh, generally consensus with these big cap stocks, loads of analysts cover them. So your average forecasts are going to be pretty good. You don't need to do that kind of scratching around yourself. It's all there. So your consensus forward PE is a pretty good guide.

Phil: And so that's what you're looking for, consensus forward PE.

Richard: You're looking for consensus earnings. And the PE based on that, and you look at, okay, what is this stock? What multiple has this stock traded at over its lifetime? So its average multiple, what's it trading at? Now, that's generally a simplistic view of looking at it. So, okay, I know this product, I use this product. It seems to be going pretty well. To me. This is the Peter lynch factor. Uh oh, I use it therefore, like I bought Sydney airport because I got sick of paying parking. Know, at the Sydney airport, I thought I've got to buy the Sydney airport just to give myself a hedge against this. And that worked actually pretty well. Those dividends paid for it. Which brings me on to, okay, you want to get a lower than average kind of multiple. Uh, all things being equal, what you also want to be aware of is where that ten year bond yield is because that is the key indicator for value. So the ten year bond is just over 4%. What kind of dividend yield are these guys paying me? So Commonwealth bank is actually paying about the ten year bond yield. What we've said, okay, a, you've got your forward PE. You generally want to be paying a lower multiple than they pay. And like the closer you get to that PE multiple of ten the better off you're looking. Because basically if you're, all things being equal, if they achieve kind of market earnings growth you could double your investment in ten years. That's basically what a PE of ten stands for.

Phil: So that ten um, what are the components that make up that figure?

Richard: Well you've got your what a PE is. It's simply like a quick and simple version of the forward earnings or the forward dividends that a company is making in today's dollars. So you've got e over k minus g. So e is your future earnings or your future dividends and you're dividing that by your cost of capital minus your growth. So with a stock like BHP that might have a ten and west farmers might or Westpac might have a PE of ten. But the difference is that basically the growth factor is going to be more consistent from Westpac than it is for BHP. So your variability is higher. So basically what you're saying is over time there's going to be a volatility of earnings more so with BHP because it's relying on commodities prices than Westpac. But over time the price that I'm paying is anticipating that I'm going to get an average of 10% return a year. Which means that my money should, all things being equal, double over time. The lower the PE the better value you're getting generally from a stock. And on top of that, as I said, what you want to do is look at the yield that these stocks are paying. There is more volatility from a dividend yield that you're going to get from BHP than from Westpac. But you have that benchmark of that ten year bond benchmark of 4.1%. So even though you might be getting a higher dividend yield from BHP in the earnings at the current level like 7% versus Westpac might be six or 5%. Your uncertainty is greater about the future dividends for BHP than it is about Westpac.

Phil: And that's really worth noting, isn't it? Because if you just look at a dividend yield just on a statement it's not telling you the whole picture is.

Richard: It's not telling you the whole picture. And the p factors in that volatility more than the dividend yield does. So it's a better litmus test for how expensive a stock is. It's a good proxy for what I said before. E over K minus G. And this.

Phil: Is the forward looking PE, not just.

Richard: The forward looking PE. Is always the key, is always the key.

Phil: So forget about just that. The regular PE, that you just go.

Richard: You don't forget about anything because you're looking. The historic numbers are basically what determines how strong a balance sheet is at any given point in time. The historic numbers determine what kind of cash flow they're producing. But you need to look at that in the context of a series of historic numbers and then you can have a better idea of the forecast numbers and the veracity of those forecasts. And as I said before, because these stocks are so well covered, these blue chips, the consensus data, there's not that much difference often between the different analysts about the consensus data. There can be big differences that generally occurs at small caps or mid caps, but at the big end town there's often not that much difference.

Phil: These large companies, it's incumbent upon them to report any material changes pretty swiftly to the market.

Richard: Oh, it's incumbent upon all companies. Constant disclosure is the legal requirement, but they have much bigger teams. So you look at the announcements of a BHP, a uh, common bank or any of these big companies, like for one month you'll see hundred announcements. I don't know, for a small cap you're lucky to see five. Plus you've got the media, you've got a lot more sources. And as I said before, when you use and you know a product, it's a good way of saying, okay, I know I use this product. Um, I therefore trust the product when it's more esoteric, like try telling me what Nvidia does. They do something to do with microchips or something and they have some that's a lot more esoteric than understanding. Well, I go to the bank, I want a loan and I deposit my savings into the bank.

Phil: Woolworths or Carl's.

Richard: I go to Woolworths, I see the prices going up, everyone's experiencing that. I can see that I'm getting a much better value from Aldi's than I am from Woolworths. Is that going to affect, I can see that there's a lot more own, um, brand products. Oh, uh, I like the own brand products from Kmart. This anko. Oh, they must be good.

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Phil: Investing in shares can be fun, but the paperwork isn't. My investing's been transformed since using Sharesight, the best portfolio tracking tool for investing. My portfolios are on Sharesight and whenever I buy or sell, the trades are, uh, automatically recorded. I can see the dividends I'm receiving and it helps me to work out my asset allocation. Sharesight are extending a special offer to listeners of this podcast, four months free on an annual premium plan. There's a seven day free trial where you can experience the full power of Sharesight portfolio management. Go to sharesite.com sharesforbeganners and sign up now for a free trial before taking advantage of four free months. That's sharesight.com slash sharesforbeganners. And as you said, you bought shares when they were a listed company in Sydney airport because you were sick of paying the parking fees so you can get some of that money back into your own pocket. That's the same way that you think about the supermarkets as well.

Richard: Well, I don't think about them all the time like that. I think about them when I see value. So like, Woolworths has been hit pretty hard. As I said before, Woolworths has been hit pretty hard and Coles has been hit hard prior to its recent bounce. And what I'm saying is, okay, there are times where I can see more value than other times. There's a mis, I'm not just going to go out and buy all the stocks that I use. I'm going to add over a layer, uh, of analysis, of valuation analysis, which is what being an investor involves over time. Because I guess you can see that a stock that's gone up a lot, it's going to be harder and harder for it to keep eking out those gains. I mean, it's just harder and harder. But I guess sometimes, Phil, like you have stocks where they always look expensive. Like ever since I first, uh, this.

Phil: Is what I always find. You find a good company, but the value of that company is really hard to work out when to get into this at the right price. Value investing is a lot harder than people make out.

Richard: Well, it is harder, but that's why I talked about just simplifying it down to the average pe. It is harder, but I will look at a chart and see. I get more excitement when I see something that's been hit than something that keeps going up, I must admit, because that keeps going up only works at the small end of town because they are literally disruptors and can, whereas very rarely does it keep going up at the big end of town. But I mean, having said that, the first stock that I ever owned, my grandfather bought me combank when it was floated and that was $10. And even back then analysts were saying, oh, it's overpriced. But that comes back to what I'm talking about before. The point about blue chips is scale. Not just in the resources, but also in the oligopolies. And the banks are a classic oligopoly. But in that oligopoly combank is the behemoth. I mean it's huge. Like it's got the biggest, it's one.

Phil: Of the biggest banks in the world.

Richard: It's got the biggest form of low cost capital. So banks have this risk adjusted capital and mortgages are low and that's where they're biggest. And they're in a protected environment. They're like protected from bankruptcy by the government. If these banks go bankrupt, the Reserve bank will have to lend them money and then bang, they'll just give that back in dividends. So you'll probably end up profiting anyway. But the Commonwealth bank, even among the banks, is a special situation. So, yeah, I uh, look at buying Commonwealth bank at certain points, even though everyone says it's expensive, because it's just when you're building up, like I'm building up a core portfolio using our, uh, $500 strategy, I'm doing that for the kids. And there are stocks that are just must haves. And that's where you get, like with some of these blue chips, where you get that averaging, know that dollar cost averaging or whatever, was it Warren Buffett or one of those guys invented where you just buy licks of stock regularly? You can do that for only a few companies. And I would argue that Commonwealth bank is one of those. Like, it's just uncanny how good it is at eking out profits. It's unbelievable. Um, I mean, it's not unbelievable, it's just market power. That's what you're buying when you buy blue chips, market power. But then, like you mentioned, Lend Lease, when they had that. Lend lease is so powerful in the australian market. But guess what happened? They tried to expand, they tried to go overseas, and like Jamie Packer found when he got out of Channel Nine and tried to be the casino mogul. Mogul. Well, you're over there, you're a small fish in a big pond. You're not like Lenley's. Doesn't matter over there. And lo and behold, now in their efforts to reinvent themselves, they're trying to move things back to Australia. So this is what I'm talking about. Like when you're a student of finance, of economics, you see the giants of this world. Like Elon Musk has almost gone broke. Like, uh, Henry Ford almost went broke, they bet the company. So the bigger the company, sometimes the bigger the risks that they have to take to make a difference. And that's what BHP did when they tried to get into steel manufacturing back in the day. That was a disaster because they didn't have the cost of capital. It was too expensive. What happened when the banks tried to expand out and become like everything to everyone? Well, there's no board on the planet that can cope with that many balls in the air, let alone their boards. So what we're seeing is blue chips becoming closer and closer about their knitting.

Phil: And much more focused. It's like the one.

Richard: There is one big exception.

Phil: Oh, okay.

Richard: And that is Wesfarmers.

Phil: Well, that's right. But Coles was spun off though, wasn't it?

Richard: Well, Myer was spun off from Coles. Yeah, and we all saw what happened there, but. Exactly. They're becoming simplified beasts. Because if we want diversification, we can go and buy them on the share. Like in investing in the stock market doesn't cost much at all. Like, you compare that to investing in a house, it costs stamp duty. Like, uh, even the real estate agent. Everything just costs a lot. Moving. God. I mean, having gone through it, we've all gone through it. It's just a painful process. I don't really want to talk about it. But investing in the stock market, that's like, also in these blue chips. They're, uh, a form of deposit, so you can take the money out really cheap, really liquid. You know, in the financial crisis, Phil, the stock market was the one form where people could access money. You think about that. So the stock market's actually a lot more protection than you know. And that's why you're building your core portfolio. You're building up that protection because you can access these funds easily.

Phil: So let's talk about Telstra then.

Richard: I thought. I just.

Phil: We haven't talked about Telstra.

Richard: I just looked at my notes and I saw Telstra. Um, I thought, oh, we haven't talked about Telstra.

Phil: Well, here's the big opportunity.

Richard: Seven years ago, Telstra was $4.50 or something. Now it's $3.50.

Phil: I know this is right, but I guess it's also. The point is that you should have some infrastructure in your portfolio as well.

Richard: Well, that's what Telstra are saying. No, it's true, because they were going to spin off their infrastructure and they're seeing all this. They think, oh, we've got all this AI data coming in, we're going to hold on to our infrastructure. So what that shows is when you disappoint market expectations, it doesn't matter how big you are, you'll get punished. And it also goes to show that how I said Telstra was $4.57 years ago, now it's $3.50. Or, like, people can correct me on that. I'm not sure of the exact numbers, but we talk about disruption. Well, it doesn't get bigger. Uh, well, it probably does in other sectors, but there is huge disruption going on in the world of telecommunications.

Phil: Just look at text messaging, how much they used to make out of text.

Richard: Well, look at the yellow pages. That used to be a huge, but. Exactly. You name it. Sure, they're going great guns in mobile, but their fixed line are under all sorts of pressure from heaps of operators like Superloop, which we bought in the small cap fund, and that's being taken over. Like, there's heaps of disruption occurring in Telstra. So that's like, you might use the services, but you want to know what you're paying for. Like, what kind of sustainability does the dividend stream have? Like, we all know when the proverbial hits the fan, these companies say, no, we're not paying dividends now. So you haven't got the same kind of, I guess, certainty, or nearly the same certainty as you do in a ten year bond. But what you do have is your belief in the business model. So how much you believe in the business model and the future earnings. So, okay, they're getting all this money. What I'm seeing in Telstra is, okay, they are getting disrupted at certain levels, but they're still making heaps of free cash, and that's what you need to pay dividends. So when I see stocks like Telstra get hit, I'm, um, looking at it and thinking, well, there's a lot more comfort that I have that they're going to be able to pay those dividends than other stocks. And plus, I'm getting a better yield. So I'm looking at Telstra and thinking, okay, there might be weakness, but that has been factored in, and I'm happy to get that yield that they're paying. And I think those dividends can finance other purchases of other stocks.

Phil: And that's why you've got it as a buy at the moment.

Richard: Yeah, that's why I bought Telstra. I can see the disruption, but I can also see that. That infrastructure that they're not selling. Well, there's a reason they're not selling it. There's an insatiable demand for data blind. Freddie can see that. And those guys, one of the key providers of data still.

Phil: What kind of data?

Richard: Broadband data, mainly. But they also, uh, like, loads of people are transferring onto five g. So. Eighty percent they've rolled out the. Can't remember the numbers. I'm not the analyst of this, but 5G has had a huge take up and means a lot. So on the one hand, they've got broadband, but on the other hand, they've got five g. So the key building blocks in place to be relevant for the foreseeable future.

Phil: So another stock, which I would classify as more of an infrastructure stock, is APA.

Richard: Um, APA is a good stock to talk about, because they are the canary in the gas mine or the gas world. They've really been disrupted, and you can see that in the APA share price, but they do have a certainty of earnings, and they've got a dividend yield of 7%. They'll just keep ratcheting up that dividend from 50. Uh, I can't remember exactly, but from 55 to $56 to. They can do that because they're making free cash flow. They've got growth options out to the future with their Alinta purchase. But there's no doubt, basically, they're going to get higher margin business from these mines out in the middle of nowhere, from their pipelines connected to grids. That's the simplistic idea, which don't ask me to get more complicated than that. He's quite negative on the outlook for gas, but even he thinks, okay, at the current yield, I wouldn't be a seller. There is a lot of regulatory, uh, hurdles that they're now facing, which is why we're not a buy, because for the first time in there that I can remember, the regulatory scrutiny of this stock is like never before. Which just goes to show just how the world is changing.

Phil: Is that because of pricing, or is it coming from the government?

Richard: Yeah, it's coming from, uh. Look, I know that there's regulatory scrutiny, and I'm pretty sure it's the government. I don't think it's the ACCC. But there is regulatory, Phil. I don't know the stock as well as Peter does, but definitely there is regulatory scrutiny, and that's a red flag for any investor. But 7% yield, it's not to be sneezed at, is it? And if they can ratchet up that dividend each year at, like, around 2% or just under 2%, well, you're looking at value. It's just that they've got these other factors that are always the case at the big end of town, at the margin, and that's what the analysts spend their time talking about at the margin. But it comes back to, okay, how much do you use gas? Are you seeing gas as a relevant part of your life? And at their briefing, they went on about this huge disruption that occurred through a cyclone, and gas provided the firming capacity or something without gas. And it's true, gas is kind of factor that can come in and save the day still. But for how long, I don't know. It's just a moving feast, which comes back to what you've got to keep your eye on disruption, which is why I've got my eye on APA also because I'm a shareholder. We're not a buy at the moment, but I've been a long suffering because I thought when the world was falling into pieces, like in Covid, I bought some API. I thought, well, this stocks, Covid and Transurban and these sort of stocks, they've got very, very good income. But you learn over time nothing is certain. And you have to just keep a much closer eye on these blue chips than you think. Sure, interest rate moves are important, but just as important is that disruption factor. That's what we've seen with a lot of these stocks that I sent you.

Phil: So lend lease is a buy despite everything. We don't want to go into everything, but there have been lots and lots of problems with this company because they've sort of gone from trying to know real estate provider to, well, they did.

Richard: Own MLC at one point.

Phil: Well, that's right. And now they want to be more like a REIT. And then previously they were getting into infrastructure projects, which they seem not to have the experience or capability to do. So why are you looking at it as a buy at the moment?

Richard: Well, I think it's all about the price that the market's paying, and I think we've got a high degree of confidence that they're going to make their full year numbers. So it's about. There's two things. There's what you're paying for a stock on the numerator and on the denominator, what kind of return you think the company is going to provide, and the combination of which gives you a value. And I think it's a turnaround that they produced a set of messy results. But I think any transformation anyone knows, having worked in a big company or small company, how hard change is, and they're finding change very, you know, like Winston said, it's always darkest before the dawn. Yeah, it's always darkest before the dawn. Something along. And that's the way it feels like, uh, know, they have this thing that analysts go on about called value traps. And sure, there could be an element, but you look at the Lenley's balance sheet, and that's what gives you a certain degree of confidence. The fact that they're getting rid of debt.

Phil: But they have a lot of debt, don't they?

Richard: Do, but it's going the right way. Their net debt over total assets, they're forecasting to be about 15%, which was, at the moment, it's, uh, around six to 17, 18%. But it's come down from in the. It's going the right way. And they're certainly doing lots more joint ventures, so they're not putting as much capital into projects. Look, there's an asset there, but the thing is, we need to see the return on asset increase, and we need to see that improve. But what we're saying is that they don't have to do that much anymore to improve it, because they've got $60 million of cost coming out. They've got lots of factors that we can see that's going to improve that return on investment. And that's the denominator side of things that we're talking about. What growth can they achieve? And that growth is going to pick up, in our view. And the price that you're paying for that is not exorbitant. So I wouldn't go out there and buy Lend Lease and no other stock. But Lend Lease is in a very dominant position in Australia, and they're going to focus on Australia, where they do have that dominant. And in their global operations, Australia is the outstanding performer. It's just that over time, these companies can go off peace, like I sometimes do in the questions you're asking me. The difference is in the questions you're asking me, and I'm going off peace. I'm not investing hundreds of millions of dollars and thousands of man hours.

Phil: So, Worley Parsons. That's another interesting one as well.

Richard: Uh, Peter loves Worley Parsons.

Phil: No, but is this about the recent share price drop because of the Ecuador situation?

Richard: Yeah, they did have this kind of problem with the business that they bought Jacob's engineering, like, about five or six years ago. Look, uh, don't ask me the details, but at the time, I remember thinking, well, is this going to impact Wally? And I think, well, yes, it is. It's going to cost him $50 million to get out of it or to pay off the legal.

Phil: Because they had some environmental regulation situation coming up in Ecuador and the government.

Richard: Exactly. But, I mean, this is the risk that happens when you're in a big company trying to do lots of things around the world, and they're everywhere.

Phil: And we should just say what Worley Parsons is. Just tell us a little.

Richard: They're basically an energy consultant. I mean, for want of a better expression, they design plants, processing plants, and then they offer maintenance services.

Phil: It's really in the oil industry, isn't?

Richard: You're right, Phil. It's been historically in the oil industry. But what we're seeing is their movement towards sustainability, which means they're much more in renewables. So they're really attacking a higher margin businesses. There's something like 50% of their earnings come from sustainability now, and their goal is for 75% from sustainability in the short term. So, really, there are, uh, consultants that's doing what consultants do, which is looking at where the highest return for their people are, and they're going down that path. And what they're also doing is trying to recover from that massive acquisition that they did a number of years ago now of Jacobs Engineering, which was a huge acquisition, arguably mistimed. But what happens is, okay, they do these big acquisitions. There's all these sunk costs. But then if you're an investor now, that kind of sentiment that's been accounted for, that's been written off. The bad stuff's been written off. So what you get is this kind of renewal of life that you get in companies. The jointly owned company that was first invented in british east India never constantly amazes how it can evolve and create riches for those who partake in them at certain points. And Worleys hit upon this theme of profit. They were so optimistic in their conference call about the work that's coming in from sustainability.

Phil: This is a recent conference.

Richard: This is the recent one. Yeah, they were very bullish. But then you've got that, as I said before. But then, what's the valuation saying? And on our, uh, valuation, it looks to be a buy. So, yes, we're still like Worley

Richard Heming: Under the radar report now available to subscribers

Phil: Okay, so all of these stocks that we've talked about today are available in the 150th edition of the under the radar report. How can listeners access the report?

Richard: Well, Phil, I mean, I've had a great time today, so it's only fair that the valued community of shares for beginners get a special deal. So all they have to do is go to our website, www.underthearadareport.com au and go into the pricing page, select blue chips and use the promo code SFB. So shares for beginners, SFB. And instead of paying $199 for twelve months, they pay $179 for twelve months. And they get instant access to 40 plus blue chip research, portfolio management tips and sector analysis.

Phil: And I'm sure they're going to love you, Richard.

Richard: Yeah, and more.

Phil: And much more.

Richard: There's steak knives. Well, I think when you're in a community as shares for beginners, people know if you're not valued, then you're not really in a community. And what we do at under the radar report is we buy the stocks we say we're buying and we talk to our subscribers. And we love communicating with our subscribers because we are the market.

Phil: And you were telling me that you actually call up subscribers to make sure that this is, uh, pretty hands on with the people that access the report.

Richard: Yeah, well, we have people outside of me who call them up, but, uh, it's always good to be talking directly to the people who use your services. Otherwise you can become somewhat removed from how the services are actually being utilized and how you can improve your business. And I think when you look at companies, every time you see a company becoming too removed from its customers, well, you can see that reflected in the bottom line. You can see that reflected in the top line. And then the bottom line. And then ultimately the share price, well, it's reflected everywhere. So they have all these different customer service kind of mantras at the moment, but all it comes down to is word of mouth, really, which is just another word for karma. And we like investing, and we like talking to investors, and we hope that's reflected in our product and we just hope everyone is benefiting from our research.

Phil: Richard Heming, thank you very much for joining me today.

Richard: Thank you for having me, Phil. It's been wonderful.

Chloe: Thanks for listening to shares for beginners. You can find more of 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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