IEX Beleggerspodcast Live, met Fugro-CEO Mark Heine

So, full house. Welcome everyone. This is the EX Beleggers podcast on the EX Beleggers day, live from the Spand in Hilversum Theater. Glad you're all here. We have Mark Heine here with me as a guest in the podcast, and he just gave a talk with Jort Kelder. Who attended that? I see some nodding faces. We're honored that you want to join us in the podcast. We'll just try it this way. The podcast is normally without an audience, now it's with an audience, and that takes some getting used to. Usually it's just a conversation we have at the table, cozy. Now it's almost like a presentation. I'm standing next to Erik Mauritz, senior advisor at Trade Republic, who has been a guest on the EX Beleggers podcast before. A familiar face. And of course Hildo Laman from IEX, our own analyst. And Mark Heine, the CEO of Fugro. Fugro, I asked you earlier, have you ever done anything with Fugro? I have to say no, and I didn't know it very well. I've read up on it and came across a message that after the third quarter results last year, the stock dropped a bit. Then you said in an interview with the FD: 'Apparently investors still don't fully understand what we do. We need to explain it better.' Go ahead.

Well, you're explaining it well now. I understand the broad lines, but an important rule for investors is that you only invest in companies you truly understand. I can imagine that what happens on the ocean floor is quite complex and technical, making investors think maybe they should stay away. May I see a show of hands: who here invests in Fugro and understands it completely? Thank you. Does anyone want to share something about investing in a company you might not fully understand and the reasoning behind it? Is there someone who dares?

Well, about Fugro. Yes, I currently invest in it with shares and also written puts. I notice that Fugro is a company that appears everywhere. It's really a soil fund, as I call it. Proven good management, and it always comes through. So I'd say, feel free to step in.

So you trust the technology. Well, we're making progress in better understanding what Fugro does. I was also looking at what's happening in the world. The oil price is running wild, there's the escalating conflict in the Middle East, Trump isn't a fan of wind farms, and plans might be stalling or canceled. Maybe 'perfect storm' isn't the right word, but could you say it's somewhat rough weather you have to navigate through?

Yes, that's yes and no. So very often we see very early what is going to happen afterwards. And then other companies still get certain blows. That's because we are in that preliminary phase. It takes time for us to adapt and cut costs. Then we are healthy again and have projects coming through. Early phase. But before construction starts, that takes time. We usually do soil research three to four years before construction. Now, Fugro is not only in those kinds of activities. We are also in later phases. We are diversifying more and more. For example, 12 years ago, more than 80% was oil and gas. Now it's 37% last year. So less than half. We have more and different places where we can work. Yes. If, for example, 35% or 38% of your revenue is offshore wind, then you are hit.

Hello everyone, I'm eager to jump in. I really wanted to. But if I understand correctly, you're saying the worst of Trump's impact is already behind us, or is that too positive?

I think you sound very positive, honestly, while I have the feeling that a lot is still very unclear. For example, the tariffs. The pause ends soon, and the negotiations with the EU. I don't know how much that affects you, but for all we know, suddenly very high tariffs could be imposed. So it's all quite unpredictable. So I hope you're right, but I think you're very positive given the uncertainty.

Not directly. We don't really import or export anything. A company in the US for us is an American company. Hardly any Dutch people work there. There are 1500 Americans doing that work. We have the equipment there. So we don't have a direct impact. But indirectly, it creates a huge amount of uncertainty in investment profiles everywhere. And we see that everywhere. Then people hold back and don't invest. So it does have an indirect impact on stability in the world. Absolutely. Speaking of investments, you've invested about 250 million in capex in recent years. Will that change given the uncertainty?

Interesting that you say that. Last week in the podcast we had energy expert J van de Beukel, and we asked him if he had a good question for Mark Heine from Fugro. His question was, and I think you've already partially answered it, there's a lot of talk about the safety of infrastructure on the seabed, cables and pipelines. Is there a role for Fugro? But maybe you've already given the answer.

And you're not just talking about the Netherlands. Can you do this for other European countries or even beyond?

But can you see Fugro as a defense stock? If you ride that wave, the stock would double immediately, I think.

I think so. Who here sees themselves as an active trader? Is that male or female? No one active. All long-term. There are two in the back next to each other. They've already found each other. Why did you want to know that? Well, because I hear short-term with the defense and NATO extra spending. I hear a bit of a defense flavor here. And I hear that when the tariffs come out, you don't have to short Fugro immediately, because it's not a company that gets hit first. But maybe that's too simple. Now you're asking for very specific investment advice, and I'd rather stay away from that. Mr. Heine, you are trained. You are a geek, we could say. Don't you find it a bit annoying that you constantly have to deal with short-term developments and explain to investors what Fugro does?

Thank you for now. You'll stay for a bit, I believe, while we discuss the stocks. And we'll include current events, as we always do. I think we want to talk about Prosus and what's happening there. The alarm is already going off. Hildo.

Prosus. Yes, they had a Capital Markets Day last week. What I found very striking was that they have a rather ambitious goal: to double the value of Prosus by 2028. So yes, I found that quite striking. Especially considering that Tencent's stake is still 80% of Prosus's value. So Prosus itself doesn't have that much influence on it. They are large in other things, but that's why I found it notable. What's also notable is that the CEO gets 100 million if that goal is achieved. So he has a significant incentive to reach that goal. A good incentive. For Prosus shareholders, it would be very nice, but I have some doubts because they are so dependent on Tencent's stock price. I also wonder how much the CEO himself has contributed. Has he earned that 100 million if it's achieved? But I won't go into that.

But how do you listen to that? A CEO who thinks the market value of Prosus can double by 2028.

And I can also imagine that it's not something a CEO should be too concerned with. The stock price, those are all things that, yes, if that stock price... That is of course very nice. I see I skipped the news of the week. I want to discuss that too. We had the NATO summit here. Hildo, you followed it.

Yes, well, I think most people in the Netherlands followed it one way or another, or had to if they were near The Hague. But to make a very lame joke: the bullets through the church, that 3.5% target is now more or less 5%. If you're a defense investor, you really focus on that 3.5%, because the other 1.5% is, I'll say, dragged in by the hair. That's about infrastructure. That all goes to Fugro. Well, they also talked about roads and things like that. And I suspect that very often existing ongoing projects or planned projects are simply shifted under that 1.5%. So I think it won't be as bad as it seems. But that 3.5% really goes to the more hardcore defense spending. And that is good news for European defense companies. It's that simple.

Yes, let's talk about Rheinmetall right away.

Yes, well, it's the largest player. A very important factor for the defense industry. Look, Russia has significantly ramped up its arms industry and can produce relatively cheaply. If you want to compete with that, you also need to be able to produce significant volumes at reasonable costs. European defense manufacturing is still quite fragmented. The more you concentrate that at certain companies, the lower the unit costs can become. That plays into the hands of a company like Rheinmetall because it's a very large, broad player. You also see them entering into more and more partnerships. So I think it will remain one of the leading players in the coming years and will only get stronger.

Yes, but I found it surprising that this wasn't really news anywhere. It was already known that they were going to spend that 3.5 or 5%. Spain was still grumbling a bit, but otherwise it was already settled, and Rheinmetall's stock has already risen crazily. Yes. I'm not an analyst on the stock, but I wonder if there's still room for more.

Yes, that's... I had that on the big stage just now. If you calculate what that budget could look like in 2030, then I related it to 2021. That's before the Ukraine war. If you looked at the European defense budget then, and purely at materiel, tanks, bullets, drones, that was about 50 billion. By 2030, that could grow to 300 billion. So that's a factor of 6. If you look at the Aerospace and Defense index, it's now roughly halfway there, I'd say. But Rheinmetall is more than a factor of 6. But the calculation for Rheinmetall is different. If you compare it to that index, that index is at 3, and 6 is potential. If you look at Rheinmetall, its revenue will grow much faster than that because they benefit more. And then you also have the effect of the profit margin. Rheinmetall's net profit margin is expected to increase by a factor of 2.5. So it's already about a factor of 2 now. That's happening now. So there's still a little bit more to come, and maybe even more. And then you also have the effect that in 2021, investors had absolutely no interest in defense stocks. You saw that in very low valuations. That has now changed drastically, and I suspect it will remain roughly the same in the coming years, maybe even a bit better. So that also gives a factor. If you add those factors together, then I still see upside for Rheinmetall.

Mr. Heine, are you an investor yourself? Yes, certainly. And you mainly have Fugro. Yes, I understand. But you are also active on the stock market. Do you follow this?

May I ask you which other stocks you have in your portfolio, or is that... No, I won't comment on that. So I tried, unfortunately. Erik, your news of the week.

Well, what I found very striking, and in hindsight it's always easy to explain on the stock market, but if you had said last week that this weekend America would drop its heaviest bombs on the Middle East, excluding nuclear, what would the oil price do on Monday? If we had done a round last Friday, I think most people would have said the oil price would go up. But the oil price, and again in hindsight it's easy to explain, it didn't just drop, it dropped by 7%. And you just talked about those bombs or those missiles that Iran fired back at 6:30 AM Dutch time. When that happened, I read the headline and thought, they're striking back, this must be bad news. But within 20 minutes, the oil price was 3% lower. So globally, people are looking at open-source intelligence sources, and they immediately saw that those missiles were aimed at targets where the Americans had already moved their planes. So it's just a feint. It's not going to Hormuz, the Strait of Hormuz. No oil installations are being hit, so it's not so bad. So oil goes down. But it all happened so fast and so hard. I found it amazingly surprising that it was processed so quickly and the oil price dropped so hard. And I honestly wonder if we aren't all getting ahead of ourselves. Those bombs were aimed at that enriched uranium that Iran has. 400 kg or something, you read that too. It turns out they managed to remove it from those targets quite well. So they still have it. So first it was a fantastic success and we had 12 days of peace. You know how pleased Trump was with himself. But now it suddenly seems like they might have only delayed the entire program by a few months. And then my question is: what will Israel do now? And what will happen then? And what will America do? So I have the feeling that the market is a bit too quickly satisfied with that outcome and that there might still be some surprises. Long story short, my first surprise was that the oil price dropped sharply. Yes. What a time to be alive. Yes. Yes, you could say that.

Yes. Let's finish the stock round. I'm making a bit of a collage of this edition of the EX Beleggers podcast, but it shouldn't spoil the fun. I want to talk about Tesla. The robotaxis drove on the streets of Austin, Texas on Sunday. Yes, very impressive. That's news. There was supposedly a co-driver, so whether they are fully autonomous is still very much the question. What should we think of this?

Well, the stock market, if you take its judgment, wasn't very impressed. Well, at first it was. It went up about 1% per robotaxi they released. 10%. The funny thing was that I was on X, and there were only enthusiastic stories. Then I thought, hey, wait a minute, who owns X? So maybe that wasn't the best source to check. Maybe people are being influenced there too. But the funny thing is, one of the big winners on the stock market this week is Uber. And if Tesla doesn't want something, it's to work with Uber. At least, that's what they've always said. Uber works with Waymo and many other self-driving car companies, even a self-driving truck company. Because Uber can do something that many of those companies can't: the entire infrastructure for contacting customers and ensuring the cars are in the right place, good capacity utilization, all that kind of thing. Uber has long experience with that. Tesla says we'll do that ourselves, without Uber. So there was a long discussion: will Tesla win and Uber lose, or vice versa? And the funny thing is, Uber is about 10% higher. So my conclusion would be that the market has concluded that Tesla didn't convince with this first test attempt, and Waymo, everyone says, is technologically further than Tesla right now. So in that sense, it was a bit disappointing for the fanatical Tesla investor. Who here is a Tesla investor? The hands don't dare to say. We're not going to bash your Tesla. It's just that you often see it in the top three most traded stocks. So I expected a few more hands. Yes. They just haven't been in the portfolio that long, maybe. Sorry. I said Uber. I'm in Uber. Well, then you did very well this week. Yes.

Yes, and what's also striking is that Musk fired his second-in-command because car sales were falling again in Europe and North America. I have the feeling it's more about Musk than his second-in-command in some strange way. But ultimately, the stock first went up hard and then down hard. And they need that robotaxi story because car sales are only declining, and they are falling behind. And of course, Optimus, the robot, is a factor they expect a lot from at Tesla. And in China, they're not sitting still either, with Baidu's Apollo. No, they're already driving. But that's mainly China. But it shows, and I've never tested them myself, but from what I hear and read, they are also further than Tesla. They are already driving much more. Those taxis are doing much more than Tesla's. That doesn't mean Tesla can't be a success. Elon Musk has proven that once he sets his mind to something, he can achieve his goals. So it's not entirely ruled out. There we go. But to put it in Tesla's favor: if they succeed with their method, which is cheaper than what Waymo does, and they get those self-driving cars or taxis on the road this way, then the potential is again, yes, and if they cut out the middleman, as they say in America, and manage to do it without Uber. Because if you do it with Uber, Uber naturally wants a share of the revenue per ride. That also reduces revenue. So if it does work, it could be a fairly lucrative activity.

Mr. Heine, what do you drive?

We'll close the stock round with Nvidia. Reached an all-time high on Wednesday. It's again the largest company in the world. That's all thanks to rumors about a golden wave of AI. Erik.

Yes, there are a number of themes dominating the market right now, and sometimes one comes to the fore and then another. The AI theme is still an important thread in the whole story. You can forget it because of a NATO summit and some bombings. But Jensen Huang spoke this week at the shareholder meeting and had an extremely bullish story about the prospects for AI in general and Nvidia in particular. And that's one of the reasons why the entire market, despite all the other misery, has gone up again. He had a convincing story again. Yes, he said demand remains strong. He's said that a few times in the last 12 months, each time a bit differently. It's also striking that the market still reacts to it, because there is eternal doubt, and I completely understand that: will all those big tech companies keep pouring billions into those data centers? And Jensen Huang just said this past week: yes, they are still doing that. And he also said that the computer industry, as Erik Mauritz already said, is still at the beginning of that AI infrastructure renewal. And if he's right about that, then the outlook for Nvidia looks very good for the time being.

Yes. I drove here on the A6, over the foundation, in a Volkswagen Up. And I was thinking about the foundation technique underneath. That's really a roller coaster, almost. All those bumps. Fugro has nothing to do with that. No, Fugro has nothing to do with that. But couldn't you have had something to do with it? Then maybe that road would have been in better shape.

Yes, I'll get back to you later, and I'll keep it in mind. But a bit of movement, up and down. Yes, exactly. Thank you, CEO of Fugro, Mark Heine, Hildo Laman from IEX, the analyst, and of course Erik Mauritz from Trade Republic. And thank you for attending this session. You're welcome.