Doctor Doom, the famous economist Nouriel Roubini reveals how the new Trump Administration could impact the Australian economy. Plus, ASIC's Chairman on new allegations against CBUS and Orica's CEO on the cost of making explosives.
This is Business Weekend with Edward Boyd.
Hello and welcome a business weekend. I'm Edward Boyd coming up. Dr Doom, the famous economist no Real Rabini who correctly predicted the global financial crisis, was in Australia this week and he's actually feeling reasonably upbeat about the re election of Donald Trump if the incoming president enacts his political pledges without triggering a trade war and stagflation. But he's fired a warning shot about crypto and.
Usually tantubay, they pick.
Because they're far more and then the market crashes and the sale and the lozmanis.
We also speak to the chief executives of three major ASX listed companies, Zero, OURCA and AFIC to get their thoughts on business performance, inflation, economic growth, and where the world is heading over the next few years.
Well, i'd say we say that globally, we are lucky to participate in a market where SMBs are still digitizing and so the overall TAM and cloud penetration available to us in the markets we serve is still quite high.
Plus, I catch up with ASSEK chairman Joe Longo to understand his enforcement priorities for the next twelve months. He's keen to reduce red tape so ACID can do its job faster and more efficiently.
We've already done some regulatory efficiency work, but I think we need some new thinking about how to take our existing arrangements and administer them better.
Doctor Doom was in Sydney this week where he outlined several potential economic scenarios that could occur under the new Trump administration. Now I spoke to a real Rabini on the sidelines of the World Business Forum and I asked him about Trump, the outlook for Australia, China's economic slowdown, and the risks of index investing.
I would say that on that it increases the risk because we don't know yet what is economic policy are going to be. Some of them may lead to greater growth and lower inflation in the US and globally, being pro business, keeping tax rate low, deregulation, maybe increasing further the production of energy in North America fossil fuels. But the other policy may lead to lower growth and more inflation, high tariff and trade wars, restriction to migration, and funded tax cuts that lead to large budget deficits, restricting the independence of the FED, the Central Bank, creating more geopolitical tension, maybe trying to weaken the value of the dollar. So we don't know yet on net whether it's going to follow policy lead to more growth and low inflation as opposed to stagflationary policies that lead to lower growth and higher inflation. I think they're more questioned answers for the time being.
If he does go with the sort of lesser of those two scenarios, his pro business, he cuts taxes, he reduces regulation, but he doesn't go ahead with all the tariffs. Would that result in a more of a Goldilock scenario for the US economy.
Well, in principle, if he follows those positive policies, you could still see contiguration of economic growth. Probably inflation is not going to go towards two percent because you'll have still some overheating of the US economy. But in that scenario, the stock market continue to rarely barils. I'm not going to go much higher, the dollar is going to remain strong, and overall it will be economic success, all right.
And then on the flip side, the big tariffs, if they're put into place next year, Trump evics millions of illegal immigrants from America, reduces the size.
Of the workforce.
I mean, what could potentially happen if that did happen.
Well, all those policies would tann to increase inflation, Tariff imp higher import costs. Having label supply lower implies higher wage growth. Having deficits that are run away increases demand without stimulating economic activity. Those policies increase costs, increase inflation, and reduce economic growth.
Recording this on Wednesday, Trump has just appointed Elon Musk as his head of Department of Government Efficiency. It won't actually be a government agency. But is there any risk in giving someone like Musk, the world's richest man, more power.
Well, there are some risks, but of course you could say I can use some of it from the private sector.
To increase government efficiency.
The trouble is that Mask and Trump have said would like to cut spending of the government by two trillion dollars, but most spending of the United States is going to go higher. It's not discretionary. You're going to spend more on the fan, You're going to spend more interest on the data is going higher. You're going to spend more on the entitlements like Social security, retirement, and healthcare. So discretionary spending is very limited to the small size of the budget. So easier said than done. I'm going to cut spending by two trillion. I'm going to make government more efficient. It's not so simple.
US markets are basically at record highs right now. If inflation does hang around longer, bond yields start rising in the States. What might that mean for the Trump administration.
Well, if the policy lead to higher inflation, they lead to higher bond yields, then higher bond deals eventually going to lead to a correction of the stock market. It's going to lead to less economic activity because many parts of the economy are sensitive to high interest rates, and therefore you have economic contraction while inflation is higher, the Fed wal have to raise rates rather than cutting them. But the implies that that change in bond tri and stock prices is going to be a form of market discipline, said the bomb vigilantes wake up, and that's going to force a.
Policy adjustment, meaning policies.
Are not sustainable are not going to be allowed by the market to be implemented. Because the political system at this point is controlled by the executive, Congress, Supreme Court, and otherwise, so only market discipline can force avoiding policies that are unsustainable over time.
I understand you've just been in Israel before coming to Australia. What impact do you think the Trump administration might have on policy settings in Israel and Gaza and wide a Middle East region.
It's not clear yet.
On one side, Trump has been a strong supporter of Israel.
On the other side, it says it doesn't like words.
You might try induce Anatanioe to somehow find a compromise a ceasefire and normalization with Saudi Arabia, and to extendard normalization from the Abrahamic Accords to also other Golf states. On the other side, the overall altitude of Israel and the US towards Iran is going to be, rightly so, more confrontational, and the risk of a full escalation of this conflict with in Israel and Iran would increase. If that were to happen, you have a risk of a full conflict, disruption to the expert and supply of energy from the Golf and that will be higher energy prices and that will be bad news for the world economy.
All Right, we're in Australia. China's our biggest trading partner. Trump's talk tough on global trade, particularly with China. Where do you say China's economy heading over the next few years.
Well, given unchanged policies by China, the potential growth of China is falling.
Right now is five percent.
But by the end of this decade could be no better than three percent. So China has to change its economic model to make it based more or on domestic demand and consumption rather than expot AD growth is not going to be sustainable given US and global protection.
Is the question is Chinese.
Resisting to do those economic reform that increase domestic consumption and the conflicts and the tension with the US and the Trump administration are going to become more severe, So certainly Australia'll be squeeze. But doing the fact that he's doing a lot of economic trade with China and the fact that geopolitically is a friend and ally of the United States.
Well, here in Australia we've got big superannuation funds and ETFs. They're both index investing into the Australian stock market and pushed up a lot of prices in Australian markets without really doing much fundamental analysis. They just buy a whole index at a time. Is investing like that risky?
Well, on one side, I would say that for an investor investing in chptfs with low costs that are in a diseified index is the right thing to do individual stock picking. For an unsophisticated investor, it's usually to losses. Even sophisticated investors most of the time don't bet an index and the market. On the other side, you need also somebody who does fundamental analysis to figure out which firms are better and worse, and passive in the investing.
Doesn't like to do that.
But I think that the right system is one in which there is passive investing for the average investor, and then you have sophisticated market analysts can do the fundamental analysts to make sure that the individual stocks are priced correctly.
Well.
Yeah, superannuation sectors worth about four and a half four point three trillion Australian dollars could grow to six point five trillion by twenty thirty and that does a lot of passive investing. One example, come Wealth Bank is twenty four times pe multiple. You look at JP Morgan, it's about twelve times pe multiple Lloyd's of London seven times. Is there some sort of inherent risk here in Australia with this style of investing in the market.
Well, you know, this style of investing is occurring not just in the Australian stock market but also in the United States as a global phenomenon. I would say that passive investing is not by itself kind of risky. The question is whether equity prices are overvalued globally, and in some.
Pockets like the US and other parts of the world, that could be the case.
I think that the Australian economy falent versus challenges. Growth has been recently mediocre. The slowdown of China doesn't help. Inflation is still sticky, and most of the inflation in spite of weaker growth, is deriving from the fact that it is maybe excessive physical stimulus. And therefore Australia is an economist to find other sources of economic growth, especially in the industries of the future, because being relied mostly on commodit isn't Mining in the future might be too volatile.
The other volatile thing we've seen the last couple of weeks has been bitcoin and cryptocurrency process since Trump has won the election, where do you expect does that asset class is a more institutional investor is going to start tipping money into crypto and things like that. Are you're predicting that to happen, you know.
I'm not sure about that.
I think that the rise in crypto prices because the new Trump administration might be more friendly towards crypto. But then this asset class has to be justified based on its fundamental value. And these are not really currencies than not the unit of account, They're not a scalable miss of payment, they're not the stable store of value than not a single numeror calling them currencies a misnomer. They're not even an asset because they're not providing you any income or any stream of utility or anything.
Of that sort.
So I think that those crypto things are risky, are in a bubble, and I would rather invest into reality fancial assets back by real economic activity as opposed to something that may be just vapor where they's gone up a lot.
And then crushed many times over.
And usually the retail suckers tend to buy, they pick because they're far more and then the market crashes and they sell and they lose mining.
So I'm still.
Skeptic about cryptocurrencies that are not currencies.
Professor Rabnni, thanks so much for your.
Time, great being with you today Pleasure.
Corporate regulator ASSEK held its annual forum this week, where the chairman, Joe Longo outlined his key priorities for the next twelve months. A major focus is cutting red tape to make regulating the financial markets easier and more efficient. This week, ASIK also put Australia's Superannuation Trustees on notice taking action against Cebus for mishandling more than twenty million dollars worth of death and disability claims from customers. I caught up with Joe Longo earlier this week.
Well, one of the big issues facing regulators in general is the complexity of our regulatory framework. And this didn't happen overnight. It's been the product of many years of well intentioned law making and law administering. But the time has come to really take a second look at how we're approaching the implementation of our laws and whether there's a better way of framing them in the future.
So the point of this.
Group task force is to, in the first instance, look at what Assek does. So my approach there is, let's start with, we've got a very complex regime to administer. What ideas can we come up with responding to frankly, a real appetite among business, consumer groups, directors for help here, and as my speech talks about, the government has already taken a mod of step in this direction of regulatory initiatives grid, where there's a real appetite for people wanting to know what do you expect from us? When do you expect us to produce that? And by the way, are we expected to do that at the same time as the six other regulators wanting things from us as well?
This is serious issue.
It affects productivity, innovation and confidence in our economy.
Frankly, yeah, were there any sort of speed bumps right now that are holding you back a little bit?
Well?
I think the reason the problem is so difficult is that we've already done some regultary efficiency work. But I think we need some new thinking about how to take our existing arrangements and administer them better. So, for example, are there better ways the Act can think about regulatary guidance or communication? Are there better ways in the way we enforce or administer the or that will make it more effective in terms of enforceability, but also importantly for business, be easier for business to comply.
So I'm looking for some.
Fresh thinking, and as the speech also alludes, I'm hoping this work will have a broader impact. So to start with it will be asse focused, but I'm hoping it'll be more ambitious than that, and that over time, with the help of various stakeholders, that we'll be able to go to government and more broadly and say, well, come on, we've been doing it this way up until now.
We need to think of a different way of doing it.
But there's no doubt in my mind that we have to tackle this issue because it's having a real and present adverse impact on our productivity as a country, and I think a chilling effect on innovation.
So this task force will start in Q one next year.
I've already started board, I've already started talking to a couple of individuals to lead it. Internally, it'll be properly resourced and I'll be communicating with a number of individuals in industry and among the consumer groups to invite them to participate. But I'm already getting very positive support from the Business Carnt of Australia, the Australia Insit Company directors and other organizations. They really want to be part of something. Now, I'm going to be realistic. It's not going to be easy.
But what gives me.
Hope and I think my ambition will bear fruit is that there's just so much support and appetite out there among business groups to be doing something. This is a real vehicle for people to say, well, here are our suggestions. I want to be challenged, I want ask it to be challenged, and I think this initiative will be a good vehicle for them.
Right we're speaking on the sidelines of the ACCID Forum and you've also announced some big enforcement priorities for next year. There are any changes to your priorities from this year?
Well, there have been some changes that the Deputy chair Court speech highlighted, but I think the key aspects of it haven't changed that much from last year, and that's really the focus on consumer protection and cost of living sort of related issues and the key themes there. And I really want to stress this is superannuation and insurance. If I's to point to one part of our economy that's becoming very significant and very dominant is the four trillion Australian dollar plus sector we call superannuation and every Australian is affected by that one way or the other. And so we are concerned about standards of corporate governance among all superannuation trustees and we are particularly concerned about the standard of support that members get or indeed, as one of my commissioners and non constant talks about, as customers of these funds get from the funds, so to their money. It's the big issues to face in their personal lives. We launch proceedings this week against one entity in connection with poor handling of insurance claims that we see that not only as an issue that we allege in that case, but also having a systemic impact as well. So that's a super on insurance side. I think the issues there and many Australians are facing this daily. You get an insurance renewal premium and you say, well, what's going on here? It's a thirty or forty last year and you try to make sense of it. And so we have a number of cases running about on pricing promises and I think that's in.
Other words, saying to consumers.
Are you're getting a discount or you're getting a fair go, or you're getting.
A loyalty reward?
But are you?
And I think for a lot of Australians when they get their insurance renewal notices there they're really concerned about am I getting a fair go? Am I being treated fairly? So we're concerned about that. Another priority is over claims handling. So that's another area where of course when you're making a claim, very often you're a very in very vulnerable situation, something awful has happened and you're turning to insurance company for support. So between superannuation and insurance, I think the enforcement priorities are very much affected by that. Now you'll you'll continue to see us very active with director's duties, corporate governance, what I would call market abuse, market beulation, inside of trading. Those priorities will continue.
You alluded to the Sebus action that you took this week in the Federal court. I think part of the allegation was they did self report to you, but they may not have come clean with all the detail. I mean, how much of a priority is it for you to be able to trust when someone is reporting to you that they're giving you the full story.
Well, without just focusing on that case, the self reporting regime is a fundamental part of our arrangements. I've talked about it in the speech Reportable Situations. So if you're the license holder, we do rely on entities to give us timely reporting and to do what they say they're going to do. Now we've made some allegations in that case, but again there's a systemic aspect to that. As Commissioner Simon Constant has said in a number of recent remarks, the we really do expect the superannuation funds across the sector to be responsive to those issues, to be monitoring the performance of third party providers. For example, if you're relying on a third party to provide an essential service to a member, then you can't just delegate that away. The superannuation fund doing the delegation has to follow up, has to make sure that the delegate, the entity that they're relying on to provide that service.
Is actually providing it.
And what ask is saying is that's a systemic issue, and that issue is also the subject of allegations in those of proceedings.
Joe Longo, Chair of great to chat to you you as well. Coming up after the break, one of the world's largest manufacturers of explosives for the mining sector is looking forward to economic certainty that will be provided by the Trump administration. The CEO of Aurica is next Welcome back. Ourica is one of the world's largest manufacturers of explosives and chemicals for the mining sector. This week, it lifted its full year profit by seventy seven percent to about five hundred and twenty five million dollars due to its customers paying more for higher margined products. Chief Executive san Jief Gandhi says the incoming Trump administration will provide economic certainty, reducing gas prices, which is one of Urica's biggest costs.
That's music to my ears, Eddie, because obviously we are a measure manufacturing organization in the United States, and honestly the last for several months pre election, there's been kind of a dull time in the US.
Policies not flowing, funds are not flowing.
Everybody's waiting and watching, and you're know that business like certainty. Business legs policy clarity, and now we can get back to what we do best, which is to do business in the United States.
Yeah, you've invested billions of dollars into the United States. What's been holding you back from investing similar amounts of money into Australia.
Look, every investment investment decision is basically a sighting decision, and then you look at those sites where you get the best returns for your investment, you get the policy clarity. What works very well for the United States is a very clear energy policy. They're very cost competitive on gas and electricity. They obviously have a massive domestic market, they're supporting manufacturing, and there's growth.
So all of that is basically very very favorable for me.
To make investments there so that I can justify to my shareholders.
The capital invested in the United States.
Yeah, if energy prices in America do come down pretty sharply next year, I mean, how much of a bonus will that be for you?
So my biggest raw material is natural gas in the United State but also here in Australia. So it has a direct impact, a positive impact on my bottom line.
All right, turning to your profit results. Revenue down but profit up due to selling higher margin products. Just explain why your customers are willing to pay more and what they're actually getting for that extra money.
So if you look at the resource sector but also the civil infrastructure sector where we are active, they've got three challenges today. One is productivity, right, so the mining industry is now busy with M and A and they're not really investing in new green field brown field sites, which means that for whatever resources they have in the ground, they need more productivity, they need more output, and ORCA is leading here in terms of solutions that we provide to improve productivity.
The second is inflation.
Everybody is suffering from inflation, so our customers are also suffering from higher costs of inputs, so they're asking us to do things more efficiently, better at lower costs and more productivity.
We've got solutions to do that. The third is esg.
All our customers, including us here in Aurica, have the same pressures that everybody else has globally in terms of becoming more sensible with the environment, decarbonizing our operations. We've got several of these very very advanced digital solutions that help to optimize end to end value chains and operations on the MIND site that helps them with their emissions profile.
So these three meta trends and they're not going to go away.
Inflation is here to stay, the ESG pressures will continue, and productivity is a challenge all across the globe.
We've got the best solutions.
In industry and that's why we see that earning's profile improve at Oorica.
Yeah, you mentioned inflation and price pressures in input costs? Are they slowly trending downwards though when compared to a couple of years ago.
They've started to normalize in certain parts of the world. They are not going up further, which is good news. The question is how soon will they come down and how soon will they correct and when will we see interest rates normalizing. People are talking about higher for longer, which is a bit concerning obviously, because that means there's no immaged end to this challenge in sight.
Now, one of your strategies is to go beyond blasting. Blasting was obviously your core business two years ago, but what are the non blasting services that you're really focusing on now as well.
So there's a simple reason for the strategy of growing in blasting, but beyond blasting. In blasting via today the number one company world. So when you already have the number one market position. What do you do after that? So the question for us was how we grow the organization for the next one hundred and fifty years. And we thought, since we've got access to the mining industry, can we bring in new products and solutions to the same customer base, but do this upstream of blasting and downstream of blasting.
So we've got two different businesses today.
On top of the blasting business, which is already a world leading franchise, one is the digital technologies business. So we integrate digital technology, which means software, sensors and services, into our core blasting business, but we do this upstream of blasting, during blasting and downstream of blasting. That data and the closed loop helps us to optimize the blasting process. So that's a one selling point. The other especialty mining chemicals. As you go into future facing commodities, you need less blasting, but you need more chemical.
Processing, likely chip for example.
So now we're building a global franchise where we offer the same customers a different solution and different parts of the value chain. And today we are the number one provider of extraction chemistry to the gold industry, which is a very exciting commodity obviously, So that's basically the logic behind this new growth initiative of growing beyond blasting.
You mentioned technology. Lots of companies are investing a lot in artificial intelligence. How are you using it at Ourica?
Oh, very intensively.
So there's two use cases that we have for artificial intelligence.
One is obviously productivity within the organization.
So I have an AI tool on my phone. They can send me reminders, write emails, make phone calls for me, take notes for me without me getting involved. So that just helps with the productivity making minutes. That's basic stuff. What we are doing now is Erica has data from one hundred and fifty years. We are now using the AI language large language models to scavenge, so we are literally now mining data as we mind resources, and we are.
Getting value out of that data.
We're converting this into solutions for our customers, and then we are transferring those solutions and products to our customers. So we are basically leveraging our knowledge and experience, which is vast over one hundred and fifty years, using a condensing it down and then making new products and solutions that we are taking to market. And we're doing this every day, so it's a really exciting field for Ourica.
During the year, Origin Energy pulled out of its partnership with you at the Hunter Valley hydrogen projects, basically saying it's not economic to do at this stage. What's next for Ourica and that project to kurry Gang Island.
So Ourica's role in that project has not changed, and in my view in Australia, that's the most viable project we have today for two reasons. One, it's located on a port, which means you can bring in product, you can take product out with the least costs possible. Secondly, I am a major consumer of hydrogen. I use natural gas to produce hydrogen which is then going into my chemistries. I could replace that hydrogen with green or blue hydrogen if I have that available to me, which means any manufacturer of hydrogen on site does not need to look for a customer. I'll oft take everything that they can produce, provided the cost is right and the price is right. So what I have said is I'm open for business looking for new partners, and after having said that publicly, we've got a long list of people both in country but from overseas wanting to come and collaborate with OURICA. At the moment, the team is working through each of these options and my expectation is either in the next twelve months until maybe end of December next year, we have a deal, we have a partner, and then we go ahead with the project or be sheltered because we've got other things to do.
So you're not worried about where hydrogen is currently sitting in Australia's energy mix at this stage with policy settings that we've got in Australia.
Look, hydrogen without policy support, without subsidies not doable.
So I'm talking about the head start funding. So with the head start funding.
With renewable energy getting cheaper over a period of time, we can make this work. It will not happen overnight. A transition takes five, ten, fifteen, twenty.
Years, but it is doable. Without funding, there is no project.
And how confident are you about the next twelve months and the trading outlook?
I would say I am relatively confident. The commodity market outlook is quite good. We should see upside coming out of the United States, but there's also risks as we've talked about tariffs and other challenges. But overall I feel relatively confident. Now there are some spots of weakness. We've seen very weak coal business in the United States, obviously because gas is better and cheaper, so people are shifting from coal to gas for power generation, so the coal business is declining in the United States.
We've obviously seen in Australia.
Here nickel being very weak and now litive starting to see some weaknesses.
But these are the smaller commodities.
Our biggest commodities are copper, gold, iron ore met coote and they're going strong and.
Expect they'll continue to go strongly for the next few months.
San Chief Gandhi, Chief executive at Aurica. Thanks for your.
Time, Thanks Eddie, thanks for having me.
Accounting software company Zeros shares search to a record high this week after the Keywee based business posted a sharp increase in half year profit to about eighty six billion ossie dollars. Zero added two hundred and forty one thousand subscribers during the half, with average revenue per user growing fifteen percent. Ingrid Willing just caught up with the CEO of Zero sekindo scene, Cassidy, Well.
I think right now, you know, I think what investors are liking is the balance of high growth and profitability is you know zero embarked on that journey to be both a couple of years ago, and so I think continue to deliver on that promise is quite important. Number Two, I think they liked that rule of forty outcome. So we were able to achieve forty three on the rule of forty, which is that combination of sort of high growth plus profitability added together. That's a classic SaaS metric. And then three, I think they're seeing that we are delivering on what we said we do in accordance with our strategy, so really putting efforts in product, in our acquisition of Sift right against the things that we talked to them about and Investor Day six months ago.
It's interesting you mentioned that rule of forty. It's really become something that investors have latched onto.
Why do you think that is?
I mean, what is it about that metric that is important? The simplicity of that metric that's important for investors?
Well, I think you hit it. It's a simplicity of the metric.
Right.
If you want an easy way to understand if a companies continue to produce you know, high growth and high profits. Then that rule of forty metric is just a very simple add of the two. Now increasingly, I would say in the US people also talk about rule of X, which is all things being equal. Investors still want to see that more comes from growth than just an absolute focus on cost, and so I think rule of forty is quite popular. Rule of X actually applies an adjusted waiting to the top four growth, and so I think both metrics are quite popular.
You talked about balancing growth and profits. That's like the number one rule really for software companies, but the most software companies really struggle with this. You've moved into the profit phase. Now, how do you struct that balance?
Well, I think look, first of all, I would say Zero is a very macro resilient business and it has a very strong business model. So you know, our ability to turn profitable is I would say, a testament to the business model. It's a testament to the loyalty and retentiveness of our product with customers. You know, every year they buy into it. And so then profitability for us was a question of a where is our cost structure maybe not aligned and where's their room for improve in? So we took that improvement a couple of years ago and then be you know, you know, with that very strong growth margin profile and strong business model, you can then even after you sort of right size the cost model, think about where you can still dynamically allocate capital.
Are you concerned?
I mean analysts is saying, you know, maintaining revenue growth, Yes, in a tough macro environment could be difficult. Yes, what do you cite it back to that?
Well, I'd say we say that globally we are lucky to participate in a market where SMBs are still digitizing, and so the overall TAM and cloud penetration available to us and the markets we serve is still quite high. I mean, we don't believe those markets are saturated for cloud accounting. In fact, quite the opposite in many of the markets in which we participate. And then we would also say, look, we think we have different levers for growth. It's not just about is the TAM available, It's about, you know, what are the available lovers in our go to market, What is available lovers in our marketing engine?
What are the.
Product improvements we can still make? So I think our confidence and our ability to grow is about the opportunity still available to us, both in the macro environment and also in the leavers in our business.
Subscribe subscribe to growth in Australia obviously slowing.
Still growing, but slowing growth.
Is that something that you would expect at this level of penetration. I mean just took us through that and whether you know you'd like to say that turn around.
Well, first of all, I think to your point, we feel quite good about it. I mean we added over one hundred thousand subscribers in the half. On an underlying basis, let's just to your point imagine and remember that in fact Australia has some of the highest cloud penetration in the world. So if you look at it relative to the population of SMBs coming online who are looking for cloud software and which is really the net new kind of number, we feel that that number is quite healthy.
Okay, us, let's talk that story, because it's what a fifth of your market share, the US subscribe growth there is falling.
It's been a bit of a difficult half.
I guess you could say, what is your plan or strategy there, because I'm imagining you want to turn this around. What's your strategy in the US going.
For I think we would characterize our half it's quite solid. And the reason I say that is if you think about the US, we're on a journey there to first and foremost improve the product market fit of the product. While it is very loved as a bookkeeping tool, it's had some noticeable gaps that we've wanted to fill. We've talked about Bill pay you know, on our partnership with Bill. We announced that at I guess six months ago. Yesterday we announced the partnership with Gusto to embed payroll, which is expected to be in a product like ours. And then at zero Con Nashville, which is our big customer event, just two months ago, we announced some big improvements in bank feeds and bank reconciliation to adhere more to US practices, and those opportunities are also coming. So the way we think about is, look, we'll continue to improve the product in some ways. We feel like our sales motions actually, relative to a couple of years ago, are probably more healthy. You know, we're selling smaller deals with a bigger chance of customers activating that inventory. We have an increasing confidence in our ability to attribute our direct spend, so we think actually we're gradual improvement, and we wouldn't call it turnaround story. I will just note that the US has grown since the day we launched it and our opportunities to keep accelerating.
Moment a concold of the US without mentioning a new president of course Trump. What is sort of your take from a business detective, he's known to be quite pro business. Does this change or alter your strategy?
It all?
It doesn't alter our strategy. I mean, look what we what directs our strategy are two things. Number one, our customers. Our customers, our customers and what they need and be you know the tam available and how to go get it. The reality is that Zero's a pretty macro resilient business. I mean, you need accounting software when times are good, but you need it even more when times you're bad. So I don't think we look at any administration change is changing what small businesses need to software each and every day. Now, of course, you know there might extreme be extreme events like COVID which to shut down a country as an example, or if economies are kind of in decline, you might have lower small business formations. But again, the bread and butter of our business, the small businesses that already exist, and those that are moving their business online looking for software to help improve their efficiency, that trend is not going away.
Looking at the macro environment, as you mentioned, you know, if you've got rates coming down, which we're in a sort of declining rates environment, now, do you see businesses having a bit more capex to spend therefore putting that towards, you know, subscriber growth. A catalyst for subscriber growth going forward?
It could be, but keep in mind our software has always been pretty affordably praised since like thirty dollars a month, forty dollars a month, So I don't think that's the thing that's stopping growth, to be honest, I think it's about businesses understanding the need to digitize and what role software like accounting software can play in that journey. So I don't think there's a direct correlation between kind of interest rates and the growth of our subscribers. I think it's far more indirect.
They're seem to be a bit of chatter in the market prior to results in the lead up that costs may be an issue. But then obviously your results came out and we saw that costs weren't an issue, and that's probably part of the reason why we saw it such as spiking the share price. How did you manage to maintain cost management so well in this environment?
We forecast OURPEX guidance, We provide guides at the beginning of the year, and we're operating according to that plan.
All right.
AI it's something that is talked about adnauseum at the moment in the market, but it's something obviously that's really important and to your business. So you've announced jacks obviously, can you just talk us through your AI strategy.
Going forward and how important it is?
Zero sure. So first of all, people need to remember we've had AI long before JENAI was a buzzword. You know, if you think about we are a system of record for small businesses. We hold their accounting data. That means we do things like ingest their documents. That involves traditional AI. Oh, we reconcile transactions and match categories. That's also AI. I mean there is AI throughout our product right.
Oh.
By the way, we provide analytics and reporting, that's also AI. So we've had long haired traditional AI. But as we think about JENAI, there's no doubt that the era in which we live of agents that can go out and perform tasks for you is game changing for any software that thinks their job is to make the lives of their customers easier. And we're no exceptions.
Great to have you on the program.
Thanks much for joining us.
Thank you after the BREAKFIC is Australia's largest listed investment company with that it's worth about ten billion dollars. It's chief executive, Mark Freeman, thinks the stock market is a bit overvalued right now.
He'll explain why next. Welcome back. The Australian Foundation Investment Company is the largest investment company in Australia that began investing in Ossie and key We equities back in nineteen twenty eight. Its chief executive is Mark Freeman, who watches investment trends and the markets very closely, and he believes global markets are a bit overvalued right now. So in response, AFIC has launched a share buyback, essentially buying shares in itself.
I've seen many phases of market cycles over my time, and you know one thing that I was always taught you can't predict where the market's going, certainly not in the short term. But we can take a longer term view and have some sort of assessment of peaks or troughs. But in between that we try not to pick markets. We're here to pick stocks.
Well, one stock Commworf Bank. This week it hit one hundred and fifty dollars. That's one of the biggest in your portfolio. Is it getting over valued at that price? It's worth a quarter of a trillion Aussie dollars.
Yeah, yeah, look, I mean just put it out. I mean, CBO is a great company. Yeah, it's been very successful. We think management are excellent, but it has really tested us on terms of the way we view it. We've held it for a long time, so we actually have taken a bit off the top there. And again it's a great company and if it ever weakened, we'd be happy to buy it back. But yeah, we've certainly taken some of our holding out of that stop because it looks quite expensive to us. But the whole market looks pretty fully value to us at this point, So it's part of a broad based view of where we see the markets.
Yeah. Well, some other companies in new portfolio Goodman Group, Car Sales, they're both very highly valued as well.
Yeah, well, look we still think the growth story for those companies is very good.
So one thing we think about is when.
We see very full valuation, is the potential for earnings to grow into the pe or grow into a high valuation. We probably see the bank's earnings growth more subdued from what.
We've seen in the past.
So I guess we struggle to see how the earnings are really going to grow into those high evaluations. So I guess we're biased any trimming we've done more towards the banks, in particular CBO.
Well, we's Farmers that's done pretty well exposed to the retail sector, but it seems to be holding up despite the challenges for retailers.
Yeah.
Look, and you know we've taken a little bit off the top of that one as well.
But we've still got a very large holdings in both.
But I mean, Bunning still continues to perform, and so it looks a bit full to us, But you know, we have to reflect on the market position. It's such a great business and you know, the store roll aut may not be as quick as what they've done in the past, but the ability to get more sales through their existing footprint. I still think there's lots of opportunities for that business going forward. We get to get the nice fully fraked dividends. So again we've taken a little bit out, but we still like that company long term.
Well, think about some of the risks that may come into the economy and market so over the next twelve months. I mean, obviously the big X factor is the newly becoming president of the US, Donald Trump. I mean, is there any way you can prepare for his administration?
The short answer is no, no. And you know there's the market always speculates when there's a new president. Well it has for a couple of days at least, but ultimately markets will be driven by earning. So it's what businesses do that really affects the market in the longer term. And you get these short term reactions. But you know, when we stand back and look at it, you know, markets just look a little bit toppy to us. So I guess probably we had a view that it didn't matter who win the election or who was going to win the election, we would probably still have a bit more of a cautious bias on our view because at the end of.
The day, we're investing in businesses.
The process of those businesses and evaluations as we see in them at the moment.
Yes, so is it the time to do you a bit more hedging right now?
Look, I mean we generally stay fully invested. We've got a little bit of cash. It's more about where do you see an opportunity if you're sort of trimming a bit on some really expensive stocks, and we only do if we think there's extremes. We just don't want to be flipping the portfolio. We're not a traider. We're a long term investor. And so when we look through the market and say, well, where are the opportunities? The best thing we've identified is our own stock, Mathics, currently trading at about ten percent discount to NTA. In my thirty years involved with this, this is the biggest discount by a mile. It's a great portfolio. As you know, the management expense ratio of AFIC is point one point five percent. Thereabout's no performance fees. It's training at ten percent discount. So we can trim some quite expensive stocks and we can buy the APPI portfolio. It essentially ninety cents in a dollar, and that makes a lot of sense to us. So I've actually been in the market doing a bit of buybacks.
Yeah, what sort of reception have you got from those buybacks?
The share price has been fairly stable, and we've been trying to, I guess, educate the market. We put out a monthly INTA that shows you what the fair value is. I think there's been a couple of things in the market that's perhaps created a bit of weakness in the lic sector. But I think we managed to make sure that the traditional LICs the way we are, where there's no external manager and no performance fees, is very different to a lot of the newer LICs that have come onto the market. You know, we're low turnover, tax effective, and so it's just created this unusual event and we've always probably lagged the market a little bit. When it's hot, people want to pick their own stocks. But we think eventually that will close again, and therefore there's a window of opportunity for us to do a bit of buying back where we see value And they said, that's in our own stock.
Yeah.
And look, next year, the Reserve Bank is probably going to cut interest rates one to two, potentially three times. I mean, what might that do for the economy and for market?
Yeah, well, I would never speculate on what the Reserve Bank is going to do.
We just don't know, but I think there.
Is look at thinks there'll be some rate cuts though.
Yeah, well the market can get it wrong too, So I think we do have to stand back a little bit and say, if you look at a longer term period, look over one hundred years.
I mean, these are more normal rates.
They're not high, and I think we got so attuned over the last decade of rates being incredibly low. I would call this more of a normalization. Now they might come back a little bit, but they're not going to go back to the sort of ultra low rates we had seen over a lot.
Of the decades. So there might be a little bit.
And we also do have to remember that countries like New Zealand and the US, they put up their rates a lot more aggressively than we did in Australia. They're actually coming back to Australia's levels, they're still slightly above and that's why we haven't made any adjustments as yet. So potentially there's a little bit, but I wouldn't think it's going to be too significant. And so I said, these are more normal rates we're.
Saying, Yeah, well, if new President Trump puts in some big tariffs on global goods coming into the States, that could prolong inflation in America, keep rates higher in America. What could it mean for US and for Australia.
Yeah, well, look, I mean economics theory would say that sort of protectionism is inflationy. Yeah, and again you might see banks holding back any.
Sort of cuts at a global level that that.
Would impact everywhere, might even impact on equity markets.
But these are all big gifts.
I think what we what we do know is we don't know what he's going to do, and so we'll have to wait. And so in the meantime, where we're sort of more bottom up, we would see in what company's doing and in different forms of leadership and government and economic times, companies are just and they get on and change their business, look for opportunities, and so often the big picture is not quite what impacts many companies at the end of the day.
Yeah, at the board level, do you think boards are feeling pretty confident right now with the way things are going or mystic No.
I think that quite cautious.
There's a lot of things that are weighing on boards at this point, and you know, it's slowing economies one of them. I mean, the US economy is still held up pretty well, but there's areas of slowing activity there is in Australia, and so I think everyone's pretty cautious. I mean, inflation has been that the ray cuts in the US from quite high levels, but I say there's a few bit of caution out there which probably feeds into a little bit out thinking that if you look at the market levels, price to sales, price to book, it looks a little bit out of it to us in quite an uncertain outlook.
Mark Freeman, Chief Executive Athleict Thanks for.
Your time, Yeah, pleasure.
That's all for the show this Sunday. Up next is all the latest news right here on Sky News. Business Weekend returns next Sunday, but don't forget. You can keep up with all the latest business news with our daily program Business Now at four thirty pm Eastern daylight time. Thanks to your company, I'm Edward Boyd. We'll see you next week.