From around the corner to across the world, these are the insights, experts, and ideas that matter for your money. Live and on demand on OSBiz. This is Spritzer.
Welcome to the program. I'm Peter Switzer. On tonight's show, we have the CFO of BHP, Vandita Pant, June Belu of 10 Cap on the reporting season companies worth buying into, and Michael Wayne of Mandelian Financial on the tech companies shooting the lights out. So, let's kick off now with Michael Wayne of Mandallian Financial. Welcome, Michael.
Thanks for having me, Peter.
Yeah. And I've promoted you on the batting list because, you know, there are far more important people on the show as you would expect. Yeah. Like the CFO of BHP, a little bit more important than you. Yeah. But you are important because a lot of the tech stocks that you like have reported well at a time when tech stocks are starting to be cautiously relived. So I thought it was relevant to kick off with you as we are a reporting season despite the fact you are a quality performer and that's why you're in the team but that you've been promoted in the batting list. That's enough of that. Megaport first up has been a great performer. It did well when a lot of tech stocks were being sold off. How did it report and what's the market's reaction like?
Yeah. So, Megaport's had a wild ride over the last 5-10 years. So it basically has done this incredible pivot if you like and positioned itself on the ASX as the one true AI type stock that's been sort of booming overseas. So historically, Megaport would provide a network as a service allowing companies to connect to different data centers around the world as they required increased data accessibility for their...
Like they add capacity and the example I think you gave him many years ago was the VRC and Melbourne Cup time. You know it needs massive numbers but week to week small numbers but...
That's right. So that's the perfect example of what they did previously and they still do that and that's still a good part to their business but they're now not only providing the service but they're now providing the infrastructure as well. So if we think about a modern day business and how many times now do we go onto a website and there's a little chatbot in the corner or that kind of thing that requires the ability to answer and respond to random questions very quickly using AI requires a lot of compute power. So Megaport did a quite a wise transaction we think, purchased a business called Latitude and that's opened up...
A local one or a foreign?
A foreign business. So it's opened up the business to a whole new market. And it's a whole new growth driver for them to the point where they're spending an enormous amount on capex in order to acquire the inputs I suppose or the different computing power to...
The grunt. And that's seen enormous growth and continues to grow very quickly. So now it's a business that's two-dimensional and has really tapped into the modern thematic that's driving the AI growth that we've seen around.
Would you blame Bevon Slatterie who has a history of getting this stuff right?
I think so. He's got a history of just seeing the future better than most. His roll call is very impressive across the tech and the telecommunication space and this is the next iteration of Megaport and we think that many people in the market, many investors and institutions wouldn't have held Megaport who would now be sort of turning an eye to it as being the pure infrastructure AI play on the ASX. So...
I have a few thrillseeker financial planning clients who I tipped into MP1. One is over 80. He loves Megaport because it's come good. He's also in Ordinate as well. He's a real thrillseeker. It reported well this week after a very long period in the on the outer. Yeah. What's the view on that and by the way MP1 do you think it can go higher?
MP1 can certainly go higher. The growth that's potentially coming through from this new business, new division really is the sky's your limit. They are spending a lot of money to try and to grow that part of the business as quickly as possible, win more and more contracts. It's now about delivering those contracts and we know there's a bit of a bottleneck when it comes to AI infrastructure globally and getting your hands on the right chips in quick time and that's going to be the biggest challenge for Megaport. But if they can get the platform in place then I don't see why the growth can't continue.
Okay. Now let's go to Ordinate.
Explain to people what Ordinate does.
So Ordinate is an interesting business. It essentially allows different pieces of electronic equipment to communicate without the need for cords and cables. So...
Like Bluetooth but better and stronger. And if you think about stadium surround sound and concerts and even things like conferences where you have a speaker and a couple of speakers positioned around the room and you know microphone, those kind of things used to require...
Black with ear talking and stuff. Yeah. Okay.
So, basically they've got this protocol called Dante which gets embedded into all different electronic equipment from all the major brands around the world and allows those pieces of equipment to communicate. So very high quality business. What happened was there was obviously the COVID lockdowns. COVID then passed and everyone realized people were going to be out and about again. So they had this enormous surge in demand for their products...
Which in retrospect you know the market calls it the phrase is over earning. So they were earning more than they should have but the market was kind of extrapolating that is going to continue.
Everyone was desperate to get the gear for their rock concerts, their football grand finals and blah blah blah. Right.
That's it. So they had this period where they had an enormous boost in earnings. The share price went from $67 up to $24...
And then the reality sort of set in...
Plus market overhype in the other direction.
That's right. The market's now sort of seen it collapse. The other thing was the business had enormous buildup in capex thinking that the demand was going to be there and then they got a bit too excited as well. So there've been a big restructure of the company. The earnings have stabilized and started to pick up again. The revenue likewise and the cash burns also subsided. So we see it as being a clearing of the decks and a potential for a rerating higher. You have started to see some of the larger hedge funds and managed funds start to come onto the register is interesting...
And the analysts like it. So the one that we've followed most closely was Macquarie. They really picked the hype early and they thought the market was getting way too ahead of themselves. They had a price target well and truly out of line with the other analysts and then they've proved to be right. And for the first time that I've noticed at least in the last six years or so, they've actually moved to an outperform rating suggesting perhaps that the worst is behind them and the coast is a little bit clearer than it was. So obviously it's on the more risky end of the spectrum this business. The volatility is significant, but the valuation is pretty cheap.
Yeah. Great satellite speculative part of your portfolio.
That's it. You wouldn't get too carried away.
Now, Promedicus, Promedicus is probably sneaking into a core of your portfolio now, isn't it?
Well, Promedicus is, we think, one of the highest quality businesses on the market. You know, they have done a very good job in the US where they now have 11% market share. So, in many ways, they're just scratching the surface. Initially they targeted the university aligned hospitals which had a lot more cash to spend so to speak. But that is only a part of the US market. They're now venturing into the broader hospital system. The Mayo Clinic very large contracts as well. Even in the last month or two they've won two $25 million contracts. Once upon a time the market would have got very excited by that. The share price would have jumped 20% off the back of that kind of news. Yeah. But it just shows now that those contracts are just par for the course. They're not only winning new contracts, but a lot of their, you know, contracts from five years ago are coming up to expiry and they're getting renewed. So, we think this business has a long way to recover. Obviously it got very very expensive there at one point. Has reset on the back of this software selloff. But the kind of software that they're involved with is very very hard for someone to come in and replicate because they've got, you know, decades now of imaging data that not many people could replicate quickly.
So we like Megaport, too. We like Promedicus.
So there three I know really well, but you've introduced a couple of other ones. One's SLD. Tell us about SLD.
Yes. So Saluda. So, Saluda was the one of the largest IPOs, if not the largest IPO from last year.
It was the worst performing IPO for a market cap over 500 million probably ever, certainly in decades. And I think there's a bit of value. What's it do?
So, yeah, I'll get this exactly correct. It's closed loop spinal cord stimulation systems. So, basically, if you're getting severe nerve pain so it's a biomed...
There are some competition globally, but nothing that's as efficient as this. It is slightly higher priced than some of its competing products, but it is more effective, a lot of the clinicians will say. So, it's a business that's been sold off incredibly far despite the fact that it has exceeded its prospectus IPO numbers. So, it has been revising up revenue forecast. I think the big concern the market had was the cash burn. It is burning a lot of cash but the trajectory of that cash burn is starting to improve. We think that it's got significant upside. So you know the founder was on the board of Cochlear for a long period of time. Catherine Livingstone's on the board of Saluda as well, the former CEO of Cochlear during the formative years but also more recent times...
It's got very good institutional backing. A lot of who understand how to take a local biomed and they are in the commercialization phase. So to be clear, they're not out there trying to get FDA approval or anything. They've already gone through all that process. It's now a bit of a sales and marketing exercise and it does take time to get traction with the medical fraternity sometimes, but they are showing signs. They've retooled, they've built out their sales force, which does take time and does cost a lot of money often, but there are signs that those sales staff are really starting to deliver. So, it's again speculative, but I'm trying to identify the next Megaport or the next Promedicus for you that in...
Five years can be a three to five...
And you'll be remembered fondly as opposed...
In the interim period. All right. So, that's Saluda SLD. You come up with FPH. Tell us about FPH.
So Fisher & Paykel Healthcare to differentiate it from the dishwashers and washing machines that people would be familiar with. Fisher & Paykel is actually a New Zealand business dual listed on the ASX and in New Zealand. Very high quality healthcare company. One of these classic compounders that's grown its revenue earnings...
Does it compete with Bega and Medibank and all?
No. No. It's more comparable to say a ResMed. So Fisher & Paykel's got the sleep apnea devices as one part of their business, but the core part of their business is the respiratory is more that if you think about the tubes that you and the so if you're in hospital lying in a hospital bed, there's a very good chance that that oxygen mask and the tubing associated with it is delivered by Fisher & Paykel. So that's the consumables part of the business. Once it's used on someone, it's got to be turfed out and replaced. So that's the core driver for them and it's a business that's been ticking away very nicely for a long period of time. Obviously through COVID it had an enormous boom, has been pretty stable since but they're very much a growth business revenue and earnings well and truly in the double digits. They moved their manufacturing facility to Mexico which has delivered a lot of cost savings for them and they recently upgraded their earnings. They didn't actually provide a full report. It was just an update they report out of cycle. However, despite the fact they had some currency headwinds, they still upgraded earnings, which is a good sign. So, not many people are too familiar with Fisher & Paykel, but it would sit within the ASX 100 easily potentially pushing to 50.
Yeah, I just I didn't know too, been pretty disinterested in the company, but you're right. It's been around for a while...
