All Hail John Cullity -- why we love EBOS
Plus: Visa, Rakon guess where? and more
Why we love Visa…
A stunning chart that reinforces exactly why Visa (and Mastercard) are such wonderful operations…look at how much revenue has compounded while margins have stayed high (even in 2008-09, those GFC years, its margin was double digits). One of the things I need to whip into myself more sometimes — always look at the best company you have and use that as your yardstick…it’s hard to find a better co.
Coda on Peltz
Sometimes you have to think who really won a proxy battle. On paper Disney/Iger won — they got all their board seats. In terms of paper (money) Nelson Peltz won — he’s up $300mn on his initial investment. Sometimes it’s not the destination…it’s the friends we made along the way…by the way, you can buy WarnerBrothersDiscovery for $8.44 a share as of writing…trading 0.9x earnings, 08x book…(it is a better co than Visa? lol, no). But the question here is how much is WBD worth post-paying off its mountain of debt? The co. just reported $6.2bn of FCF…that’s not nothing. The deal with WBD has always been that it’s a publicly traded private equity buy out (i.e. leverage up to combine Discovery and Warners, then pay off the debt and the resulting equity stub grows). The other thing to consider here is the value ascribed to smaller company — Paramount — Apollo was willing to pay ~$11bn + debt for the co. In other words, the value of WBD’s library, production pipeline and IP is not small — I think it looks like “peak pessimism” is well priced in here.
NZ
Being AI — Market cap of $134mn now. What even are numbers??? You’ll recall that the co owns a school on the North Shore, a filing storage company and a mailing company. I watched a Sharesies video with the founders, and am none the wiser of what the “AI” competent is. You could buy a lot of other things for the money — you could buy NZL, which owns a bunch of high quality rural land assets and trades at 94 cents with a NTA of $1.59. You could buy Arvida, which trades in the $1.10-1.17 range, and has an NTA of $2.00 (alongside a buyout offer that should have been given more consideration, in my opinion). There’s a lot of things you could buy.
Rakon — Still no word … we’re out here waiting, in the cold. Possible places Lorraine and co might be lost in (hence why we haven’t heard anything):
The Death Star — maybe Rakon was bidding on a new contract to provide chips for Lord Vader’s flagship.
Gotham City — maybe Rakon was doing a deal with Wayne Technologies (a new chip in the Batmobile) and got embroiled in inter-city fighting. It happens. Send out the bat signal, Lorraine.
Narnia — this is a strong contender. Is it possible the board found themselves stepping through a wardrobe and are now friends with Aslan the Lion? Narnia was filmed in New Zealand, so it is possible that somebody left an errant wardrobe around.
Oz — another strong contender. Just follow the yellow brick road…and click those ruby-red heels togther…there’s no place like home…
All possibilities. Hard to know at this point. Hoping the board is well and not trapped in any of scenarios.
Fletchers — surely you are all bored of Fletchers by now, but noting that the CFO has tendered his resignation. This follows the resignation of Taylor (CEO). Still a lot of cleaning up to do here…you don’t magically fix a company overnight — personally I am still of the opinion that a breakup would create more value — it is a lumbering beast with so much bureaucracy that turning it around will be like moving a large cast iron paperweight put in the middle of some field in Canterbury. Which is all a way of saying: we don’t envy them.
TSB/Fisher — enjoyed Tim Hunter’s column here on the case for floating TSB and Fisher — two assets wholly or partially owned by the Toi Foundation, a Tauranga community trust. My ire about the listing of tinbox assets like BAI on the NZX has been obvious the last few days — the NZX would do well from listing either asset (as they would from listing KiwiBank).
All Hail John Cullity
I go to a lot of ASMs. My favourite last year was EBOS’ (disclosure: they gave out goodie bags with free vitamin C and Red Seal tea — they own Red Seal — I haven’t had any of the tea but the Vit C sat on my desk and was taken daily for a long time).
The free stuff wasn’t why I loved the EBOS ASM. It’s because there was no bullshit. Questions from the audience were addressed in full and thoughtfully, and management displayed total discipline when it came to all aspects of the business. They’re the sort of managers you want to have at the helm of your company — humble, down to earth and familiar with minute detail. I’m allergic to bullshit — it always trickles down in a company and ends up poisoning the well. After the ASM I felt like I had the measure of management — they’re the sort of team Buffett would love. Just look at how they’ve grown earnings and revenue:
Looking through our favourite companies it is startling how many of them are run by people without MBAs. There’s Mainfreight and Don of course — I suspect if you mentioned MBA to him he might recoil. Then there’s (on a good day) the world’s richest man, Bernard Arnault — my dude has a degree in engineering. Brunello Cucinelli (ma amour) is an autodidact who started out selling orange sweaters of wool he had dyed. Then there’s New Zealand’s highest paid executive, John Cullity of EBOS, who has a “mere” bachelors. Speaking of John — great article in BusinessDesk today about him — of Cullity, his former boss and chair sez —
One thing Cullity doesn’t let go of is his work, the former Ebos chair said. He said Cullity worked seven days a week, constantly ticking over ideas, working on deals, and was a CEO with a complete grasp of the Ebos business. “I call it no bullshit. There's no pretence here. There's no ego; he'll just do what's right for the business. He’s not dogmatic, he’s quite innovative.”
In a sea of doublespeak (we now have a PM that has ‘decision gates’ — consulting speak) it is so refreshing to have a CEO who is no bullshit. No wonder we like EBOS so much. Our dude is working seven days a week for shareholder value and is rewarded accordingly. Yours truly is quoted too —
"I always take the Buffett approach where pay should be a direct reflection of performance. Like Mainfreight's Don Braid, John is upfront and honest and doesn't mince words – a spade's a spade." He said Ebos was a "kind of serial compounder". It looked for companies with good management and good revenue growth, and it didn't overpay. "We like that." Chemist Warehouse was a case in point, he said. "A lot of companies would've done a song and dance with a lot of corporate doublespeak and waved their hands around like they were Liza Minnelli on Broadway. Ebos just got on with it and stuck to their knitting ... not overpaying and running good businesses." Bradfield said Ebos offered some value today for buyers willing to wait. "23x earnings and unloved by the market this year ... I am partial to lonely hearts."
As Yes, dad-rock band beloved by lawn-mowing dads everywhere sings:
Owner of a lonely heart
Owner of a lonely heart
(Much better than a)
Owner of a broken heart
Owner of a lonely heart
Now — I know the Sigma/Chemist Warehouse thing is a drag — I expect it to be a drag on EBOS because that’s their natural competitor in many segments of the business — I can’t think of a better champion to battle Chemist Warehouse than Joh, though — arise, St. John, and conquer thee foe…
Speaking of doublespeak…here’s a list…
A list of corporate doublespeak words I would like to be banned
Agile [anything] — i.e. The agile-design approach removed siloes between brands and business units, restructuring them around customer and business outcomes1
“Actionable” — i.e. These are actionable ideas
Best practice — i.e. It is best practice to use an actionable agile-design approach.
Decision gate — i.e We need to put some decision gates in place in order to flag the actionable agile-design led approach
Flag — i.e. Bob, I need to flag that decision gate for a moment
Circle back — i.e. I am going to circle back to the decision gate that you flagged, Bob.
Resource — i.e. Bob, we are going to need to circle back to the resources we could allocate to that decision gate. However, we will move using an agile approach
Game changer — i.e This agile design led approach is going to be a real game changer, once we have broken apart siloed units and circled back to it, Bob.
Silo (ed) (s) — i.e. We’re working in silos, but we are looking to engage in blue sky thinking, and we’re adopting a number of decision gates to action this.
Blue sky thinking — see above.
Any management using these words is a red flag and I would reconsider investing. I have never heard Don Braid use any of them. And Mainfreight’s made people very rich. As I’ve said before (alongside Charlie Munger and Buffett, both considerably richer than I by uh, magnitudes) any company with an overreliance on adjusted EBITDA is also suspect. Also note Terry Smith’s famous “banned words” memo:
Another category is words which are used when a much simpler word exists in an effort to sound profound. You will often hear management and investment analysts talking about granular data or granularity. Detail is a perfectly good word. Other examples are: Circle back: in a discussion or management meeting you will sometimes be told that you will “circle back” to a topic later. Why we have to “circle” is beyond me. Why not just go back or even return. Momentarily: we are sometimes told, mainly by Americans, that something will occur “momentarily”. They mean soon. Reach out: if someone tells you they are “Reaching out” to you, you might ask how this is different to or better than contacting you.
https://www.mckinsey.com/capabilities/rts/how-we-help-clients/how-a-major-new-zealand-retailer-reinvented-itself-around-customer-satisfaction