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FINAL DAY: Become a better investor with Equity Mates + Rask Australia
Everything you want to know about valuing a company
Equity Mates
March 13, 2024
This week on Equity Mates
Hey there Equity Mate,
There are plenty of good companies out there. Too many for one person to ever buy. In fact, we would argue the easiest part of investing is identifying a good company.
The hardest part of investing is knowing what price to pay for them.
Valuing a company is one of the most important skills for investors buying individual stocks. Yet it’s so hard to find great resources to build your knowledge and practice your valuation skills.
That is why we partnered with Rask Australia to create the Value Investor Program.
This course is designed to make you an even better investor. With the theory of valuation, practical walkthroughs of valuations of real ASX-listed companies and plenty of downloadable templates, tools and cheat sheets, this course has everything you need to value any company.
As part of the course, you will see valuations of companies you’ve probably heard of before including ARB, Xero and Adore Beauty.
We wanted this course to be practical and useful, and we’re confident you’re going to get a lot out of it.
We are in the final day of our 2024 sale. That means you have less than 24 hours to claim your $100 discount on our Value Investor Program with Rask Australia. By using the code “MATES” you can save that money and (hopefully) put it towards your next investment.
Here’s what we’ve released this week:
Speaking of valuation, this week on Equity Mates we spoke to one of the world’s greatest minds on the topic - Aswath Damodaran. He is a Professor of Finance at NYU and is known in finance circles as the ‘Dean of Valuation’. It was such an insightful interview and one not to be missed (and pairs perfectly with the Value Investor Program).
And that’s just one of four podcast episodes we released this week.
Monday - Pimp my portfolio returns, 2024's hottest commodity & we review Same as Ever by Morgan Housel
Tuesday - Expert: Aswath Damodaran - Valuation 101: Every number tells a story
Thursday - Switching brokers, terrible financial advice & has Bryce beaten the market?
Tuesday - How many ETFs is too many ETFs?
Your questions, answered
Peter asked via email:
Is the insurance in my super fund enough?
We put Peter’s question to insurance advisor Phil Thompson, from Skye
Book a call with Phil and the team here and you can listen to our most recent Ask An Advisor episode with him here.
Many people rely on the default insurance cover provided to them when they open their super fund. This is what is referred to as ‘default cover’. It’s the type of cover that may automatically come with your account if you are over age 25, have a balance above $6,000 & contributing to the account. Super funds arrange this for their members as a group and in most cases the insurance is provided is not the actual super fund but rather a third-party insurance provider.
Most of us have some form of life risk cover through our superannuation, including Death/TPD and sometimes but not always Income Protection. However, coverage often falls short of what is required given the biggest super fund in Australia, Australian Super provide the maximum default cover of $181,000 of life cover & $61,000 of TPD cover at its peak and for most members you’ll have much less than this.
Pros of insurance in super
You can be automatically covered for a small amount without the hassle of going through a lot of processes, so you can relax and enjoy the peace of mind that comes with knowing your loved ones are taken care of financially if something happens to you.
While insurance provided through your superannuation fund offers some level of coverage, it's essential to assess whether it meets your individual needs and circumstances. It's crucial to be aware of the limitations and potential drawbacks of relying solely on superannuation insurance. Policies can be subject to changes without prior notice, and increasing cover or making specific claims may present challenges.
Ultimately, ensuring adequate insurance coverage involves careful consideration of various factors, including your financial obligations, dependents, and long-term goals. By staying informed and proactive about your insurance arrangements, you can better safeguard your financial well-being and that of your loved ones, providing invaluable peace of mind for the future.
If you're feeling a bit lost, reaching out to a financial adviser can provide personalised guidance tailored to your needs and goals. Remember, it's never too early to start securing your financial future!
If you have a question you’d like answered, hit us up at [email protected]
Equity Mates Live - Ask An Advisor- April 10th, Sydney
Join us at Chauvel Cinema (Sydney) for an exciting in-person live podcast where you can ask all your burning money and investing questions to experienced financial advisors.
We know you don’t often get the opportunity to ask financial advisors directly, so this is your chance. Be it related to investing, property, budgeting, superannuation, cost of living, whatever, you can ask it!
Don't miss out on this unique opportunity to learn from the best in the industry. Click here for more information and tickets.
What we’ve been reading
S'more! S'more!
This is a classic story of venture capital taking a great idea, jamming money into it, trying to scale it too quickly, and ultimately leading to disaster. Not every business is venture-scale, and not every company is venture-ready, as this story makes clear.
This is the story of Jon Sebastiani and his fancy marshmallows. Jon was already a snack food entrepeneur, founding the beef jerky company Krave and ultimately selling it to Hershey for $240 million. After a trip to Paris where he discovered artesian marshmallows, he founded his next company: Smashmallow.
Things didn’t go to plan. Or as this article puts it, “This is the story of the Theranos of marshmallows”.
We’re not sure that is a fair comparison. With Theranos, the core product was the problem. At Smashmallow, it wasn’t the product. By all accounts the marshmallows were delicious. At Smashmallow, the problem was the business strategy. It was trying to scale too fast and figure out the problems on the fly. It turns out not every company should embody Zuckerberg’s adage to 'move fast and break things’.
Smashmallow started strongly. $5 million sales in its first year. $10m in its second. It was able to get on the shelves on Walmart and Target. Retailers wanted more. And at about this point is when the wheels fell off.
British American Tobacco: Left for Dead
This article is an investment thesis for a company not many would consider investing in: British American Tobacco.
The tobacco industry is an interesting one in investing circles. It is home to one of the best investments of all time - $1,000 invested in Philip Morris in 1925 would today be worth close to $1 billion. (Yes, billion with a b).
But, more broadly, the tobacco industry is also worth studying for the lessons it offers about investing in individual stocks.
Firstly, there is a price to pay for any profitable business. No matter how unloved, how poor its future prospects, or in this case, how distasteful.
Secondly, trends play out slowly in investing. Since the 1990’s it has been clear that tobacco’s future is bleak. But that hasn’t meant tobacco stocks have been worthless from the 1990’s. The industry has seen 30 years of gradual decline and healthy dividends since then. In markets, trends - both good and bad - play out slowly.
This particular thesis captures both of these themes. Trading at a 6x price-to-earnings ratio and paying a 10% dividend yield, the author argues, British American Tobacco has simply become too cheap to ignore.
And while some may point to vapes, zyn, or other new tobacco products, the fact is the majority of all tobacco companies’ revenues come from traditional combustible cigarettes. For British American Tobacco, that is still 81% of their revenue. So the future for the company isn’t bright. The world will only smoke less and less in the coming decades. But that is a decades long process that will slowly play out. This author believes there are plenty of dividends to be collected between now and then.
Obviously, for many investors, investing in a tobacco company falls well beyond the ethical line. But hopefully, for all investors, the lessons this industry teach us - of valuation and price discipline - can be applied whatever we’re investing in.
(We can’t help but give it another plug - if you’re looking to improve your valuation skills and better understand an investment thesis like this, you know what to do: check out our Value Investor Program)
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