Here’s what you need to know today

• Australia’s trimmed mean inflation rate for the December quarter came in at 3.2%. This is down from 3.6% in September, lower than the RBA’s forecast of 3.4% and the lowest rate of underlying inflation since December 2021. While it certainly makes a pre-election rate cut more likely, it is still above target, so don’t count your chickens yet. (AFR)
  
  

• After one day of panic, AI stocks bounced back as investors digested the news of China’s AI upstart DeepSeek. Nvidia was up 9% as the overall Nasdaq-100 was up 2%. (CNBC | Investopedia)
  
  

• While the markets were sanguine about the threat of DeepSeek, President Trump warned about its threat to American Big Tech, calling it a “wake-up call”. (AFR)
  
  

• An order from President Trump to freeze federal funding for a massive number of government programs (to give his team time to review them) had huge flow-on effects to the country’s Medicaid payments systems. Hospitals and doctors rely on the system to get paid, and the freeze effectively locked 72 million Americans out of their health insurance and caused chaos amongst America’s health providers. (Quartz)
  
  

• Star Entertainment is selling assets to free up enough money to stay afloat. The company has sold The Star Sydney Event Centre (not the casino, just the adjacent theatres and entertainment facilities) to Foundation Theatres for $60 million. (Capital Brief)
  
  

• Pilbara Minerals reported realised lithium prices for the December quarter that were 11% higher than analysts expectations and 3% higher than realised prices in the September quarter. In his commentary Pilbara Minerals CEO Dale Henderson shared the company’s view that the lithium price has bottomed out. (AFR)
  
  

• Popular Aussie small cap DroneShield saw shares rise 3% after it announced it has secured three new customers in the Asia-Pacific to help counter the threat of Chinese drones. (Capital Brief)
  
  

• New Zealand has made a play for a whole new tourism market: remote workers and digital nomads. Visitors will now be able to stay for up to 90 days for remote work. Tourism is New Zealand’s second largest export and the move comes as international arrival numbers remain below pre-pandemic level. (BBC)
  
  

• A woman in Alabama has made history, becoming the first person in the world to live more than two months with a functioning pig organ. She received a gene-edited pig kidney produced by United Therapeutics, who are hoping to produce pig organs to address the shortage of human organs. (NBC News)

What the…?

Saudi Arabia has gone to great lengths to remake its image. There is sports washing, such as LIV Golf and Newcastle United, and grand infrastructure projects, like the $500 billion NEOM. But this is one of the more out there image makeover attempts: asking Hans Zimmer to rewrite their national anthem.

The Oscar-winning composer has agreed to the broad outlines of the project. And if he does follow through, we wouldn’t be surprised if other countries follow suite. We’re here for the new cinematic national anthems debuting at the Brisbane 2032 Olympics. (The Guardian)

What do you want to see from Equity Mates?

Every year we survey the Equity Mates community as we plan the year ahead. The insights really do matter, last year it prompted us to move this email to daily, focus more on YouTube and develop a new show (more on that in the coming months).

So if you enjoy what we do, and want to help make it better, we have a request: help us by completing this year’s Equity Mates Community Survey (Survey Link).

Investing is a lifelong journey

Here’s what you can learn today.

Every company has a price

This is an excerpt from our conversation with Kyle Macintyre, titled Three fundamental rules of investing with Kyle Macintyre | ASX Week (listen on Apple | Spotify)

Ren: You presented the three fundamental rules of investing. What are these three fundamental rules?

Kyle: These are the same fundamental rules we apply at Firetrail and previously at Macquarie. We've used these rules for the past six years to achieve outperformance for our clients. We believe they are effective. The three rules are: 

• Every company has a price.

• Focus on what matters—there’s a lot of noise in investing, from news media to social media and opinions from others. To cut through that, hone in on factors that will drive a company’s earnings and share price in the future.

• Take a longer-term view—at Firetrail, we consider a timeline of around three years. This period is long enough to differentiate your investment decisions from the market, which typically looks 12 to 18 months ahead. However, it's not so far into the future that it becomes speculative. Three years aligns well with management's strategic goals, helping you make informed investment decisions that differ from other market participants.

Ren: Beginner investors often hear that every company has a price, but they wonder what makes up that price. Experts say it's the present value of future cash flows. How do you determine the right price for a company? Is it based on discounted cash flow, or is it something else?

Kyle: For me, one of the most practical measures of price is the price-to-earnings (P/E) ratio. This ratio essentially asks how many years' worth of earnings you are willing to pay today for those future earnings. For example, historically, Qantas has traded at a P/E ratio of around nine, meaning it would take nine years to recoup your investment based on the company's earnings.

While the P/E ratio is a practical tool, there are various valuation methods available. You can use a price-to-sales ratio, which compares the company's price to its revenue. There’s also discounted cash flow valuation, where you model earnings over a certain period, typically ten years, and assign a terminal value based on growth and discount rates. 

Valuation approaches vary from one company to another. High-quality businesses with strong earnings growth typically command higher P/E ratios. For instance, the average stock on the ASX 200 trades between 16 to 20 times the P/E ratio. Strong performers like Seek or Xero will have even higher ratios. Conversely, cyclical or value businesses like Qantas, which historically trades at around nine times, reflect more volatility in earnings. 

Ultimately, different companies require different methodologies, and it’s essential to choose one that aligns with the specific company and your investing comfort level. For new investors, the P/E ratio is a great starting point. Comparing a company's P/E to the broader market can provide insight into whether it’s undervalued or overvalued historically. For example, insurers typically trade at about a 25 percent discount to the market's P/E multiple. If you identify a company trading below its historical valuation, that can signal a potential investment opportunity worth further investigation to see if it’s a broken story or a hidden gem.

Today’s sponsor is Australian Property Scout

Join Sam Gordon, Equity Mates’ regular property expert, as he is joined in the studio by co-host Jimmy Ibrahim and Brendan Geoghegan, the Head of Education at the School of Property. Together, they dive into the incredible progress the program has made over the past year since its launch. From brand-new modules and lessons to key updates, they cover  it all.

The feedback from participants; ranging from seasoned top-tier investors to complete beginners has been nothing short of phenomenal. Whether you’re already enrolled or just curious about the program, this episode is a must-listen to stay up to date and fully informed.

This episode showcases exactly why the School of Property is making such a big impact in the investing community.

Tune in to Scouting Australia on all your favourite listening platforms. 

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