QV Equities Ltd (QVE) Investment Director, Anton Tagliaferro

QV Equities Ltd (QVE) Investment Director, Anton Tagliaferro speaks with Tom Piotrowski about value investing, his packaging company picks, as well as his philosophy that share investing is a marathon, not a sprint.

15 Apr 2021



[MUSIC PLAYING] TOM PIOTROWSKI: Thanks for joining us for the Executive Series today. I'm speaking with Anton Tagliaferro, who is the chief investment officer of QV Equities. Anton, really good to talk to you.

ANTON TAGLIAFERRO: Good to be here, Tom.

TOM PIOTROWSKI: It's been a while since we've spoken.

ANTON TAGLIAFERRO: It has been a while.

TOM PIOTROWSKI: I suppose that places you in a good position to talk about how you've seen the start of this year so far for the markets.

ANTON TAGLIAFERRO: Well, look, it's been an incredible 12 months, really, haven't we? We sort of went to hell and back and markets recovered very quickly. And, obviously, you had this big rally in lots of technology related things. You got bitcoin going through the roof. So there's lots of noise, and it can be all very confusing. And that's partly as a result of interest rates being so low.

But, yeah, look. We've seen the March quarter has been quite a strong quarter for equity markets. Again, you've got a combination of low rates and people looking for things to put their money to work. And we liked the market quite a bit last year because we weren't in the sexy stocks which everyone seemed to want to buy last year. And they still are buying them a bit this year.

So, you know, we had boring old things like Tabcorp and Crown and Packed, a packaging company, that sort of thing. And suddenly this calendar year there seems to be a bit more focus on companies that have got real assets and real earnings, which is good.

TOM PIOTROWSKI: So that really is a great point that you make. We hear a lot about growth stocks and value stocks. And, as you've suggested, you've tended to focus on the value stocks. Being a value investor, that makes sense.

Let's talk about Crown, for example. I'm interested in the rationale that you applied over the course of the last nine months, for example, when there was a lot that was happening for this organisation. What were the basic things that you focused on in terms of where the value remained for this group?

ANTON TAGLIAFERRO: So, look. With all the stocks that we try to own we look for certain characteristics. And a few of them are we like companies with strong competitive advantage, and we like companies that have got a monopoly, if possible. That would be nice, because monopoly means you've got a really strong business.

We really like companies with recurring predictable earnings, that's not linked to the oil price or the gold price totally. Right? So that's something that's a bit more recurring. We like companies that are managed by reasonable people, and we like to buy those companies that can grow, those companies we can-- and those companies, we like to buy them when they're at a reasonable price.


ANTON TAGLIAFERRO: And, often, a reasonable price is when they're on the nose, actually, and everyone hates them. So, look, with Crown the truth is, yes, there has been a lot of negative news, obviously with the commision and some serious issues were raised. But the truth is Crown owns its three casinos. It owns Barangaroo. It owns Crown in Melbourne. It owns Burswood. So it owns the properties. They're probably worth around $7 or $8 billion, which is probably around $7 or $8 a share.

Crown has no debt. But once it sells the Barangaroo apartments, which are selling very well, they'll have no debt. And then, when you look at its licences, the Melbourne licence expires in 2050. The Perth licence expires in 2066. And the Barangaroo licence, once it opens, expires in 2113.

Now, people will say, yes, sure. But those licences could all be worthless, whatever, whatever. Well, that's quite an extreme view, I think, because Crown has operated the assets in Burswood and Perth-- in Perth and Melbourne for a long time. The governments of those states do rely on the revenues quite sufficiently. So while it's easy to say, oh yes, shut them down or replace Crown, in reality and practicality it's not that simple.

So we are always confident that while the commission would come out with some serious issues, that they could be resolved. And so the commission came out with three things they want to resolve. So, number one, they want Crown to have a decent board and management.


ANTON TAGLIAFERRO: So you've seen a number of directors resign from the Crown board, the CEO stepped down, and you got new people being appointed. And, number two, they don't want James Packer to have as much influence as he has had in the past. And that can be solved by James either selling out or putting his shares in the trust.

And the third thing they want is for Crown to have decent compliance and anti money laundering things in place, which Crown are doing. So those are the three things which have to be done, which Crown is working on, and which believe they will achieve to get back to some sort of normal.

TOM PIOTROWSKI: And so how much comfort do you have around the Crown story to that?

ANTON TAGLIAFERRO: Well, again, you've seen Blackstone obviously own 10%. And now they've bid for the whole company. The good thing about the commission was Hellen Coonan came out of it looking very good. The commission said they had a lot of trust in her. So she's taken over the role of Chairman and acting CEO. So she's dealing with all the regulators.

And, as I said, Crown's recently appointed two new directors, Nigel Morrison and Bruce Connor, who were previously at Sky City Casino in Auckland, et cetera. So, look, they're moving that way to resolve those three major issues which were brought up by the Royal Comission-- by the commission, sorry, in Sydney.

TOM PIOTROWSKI: You mentioned that you focus on less sexy stocks. I suppose Packed and Amcore can fall into that category, the packaging groups. And they are quite anti-cyclical in terms of the relationship they have with the economy. Just step us through how you're thinking about the packaging groups at this point in time.

ANTON TAGLIAFERRO: Yeah. Look, Tom. I mean, a lot of people, especially first time investors, get drawn to the market. I guess we all did that when we were younger. You get drawn into the more sexy things, the after pays. And they're going up and you've got to have some of them. And someone next door has made some money and someone's giving you a tip, and there's all that going on.

But I think the reality is, I think we all learned that making money from the stock market is not that simple. It's a marathon, it's not a sprint. And you have to stick really over the long term to good quality companies.

Buying the latest fad, whether it's a tech stock or a gold stock or a copper stock, might be exciting. You might have fun or make some money for a little while. But, generally, those things don't end up very well. So the one thing we like about packaging companies, they are pretty boring.

TOM PIOTROWSKI: Good economists. Well, they're everywhere.

ANTON TAGLIAFERRO: Well, they're everywhere. They're not going to go away. That's the other thing you have to think about today when you buy a company is there are a lot of changes going on in different industries. But really look at packaging. We're always going to have to eat. We're always going to need our margarine container or our 7UP bottle or whatever or our wine bottle. Right? Unless we invent a tablet to get all our food and drink as in Star Trek, I don't think that's going to happen for a while.

So the truth is that it's going to be there for a long time. And there are companies that have specialities and niches. Because packaging is, again, there's glass, there's plastic, there's flexibles. And many of the companies that we own and we look at are very good at what they do. And, as I said, most of them have long-term contracts with food companies or beverage companies, which gives them that certainty of income.

It also means that it's very hard for competitors to get into the industry sometimes when you have the scale and the long contracts. So, for that reason, we tend to like. It's a very defensive sector, a very cash generative sector, and one that you can predict reasonably well. I mean, sometimes these companies have hiccups. But, generally over the long-term, they tend to do quite well. And they pay quite good dividends as well.

TOM PIOTROWSKI: Indeed. In the last quarter you've lightened up on Bega Chees and bought some IAG shares.

ANTON TAGLIAFERRO: Yeah. Well, Bega-- look, Bega has had a great run. It bought the assets of Lion Foods recently and it's had a huge rerating. It's still a good company, but to us it looks like a lot of the good news is being priced into the stock a little bit.

IAG, on the other hand, which is Australia's largest insurer, it really hasn't done very much in the last 12 months. In fact, it's probably below now where it was 12 months ago. It's really a bit on the nose. People don't like it.

Why don't they like it? Well, because IAG had a business interruption claim on their business insurance, which they're going to court about. They had to raise equity at a discounted rate. There's been this Greensill news, as well. So there's all this noise,.

But the truth, as I said, IAG remains Australia's largest insurance company. And, sure, there's fires and floods and that's--

TOM PIOTROWSKI: That's insurance.

ANTON TAGLIAFERRO: That's what insurance does. That's Australia, so we all eventually pay for it premiums. It normally takes a few years to collect it all once they paid it out. So, look, and there's more cars on the road now than ever because people are driving around, not catching public transport. So cars' premiums are going up in terms of the number of cars on the road.

If you look at house insurance, the value of houses going up. So, eventually, our house premiums will go up. So that all bodes well for the next three to five years for IAG, despite the short-term negative things which are overhanging the share price. So that's how we look at something.

You mentioned Crown before. Share prices tend to fall when the new is bad. Then you've got to try and sort out a little bit through materially is this something that's going to significantly detrimentally impact the company or is it hopefully a temporary short-term thing, and hence an opportunity? Because good quality shares go up and down. And volatility when shares fall can be an opportunity to buy into what are well-established, good quality companies sometimes at very good prices.

TOM PIOTROWSKI: Speaking of opportunities, you've got a bit of cash on your hands at the moment. So are you waiting for an opportunity? Do you think we're closer to that given how hard these markets have run over the last six months?

ANTON TAGLIAFERRO: Look, I mean, markets have had a good run. We've been buying back a few shares in QV. We've been looking for opportunities. There are a couple of things. We participated recently in the Bank of Queensland placement when they bought the ME Bank, et cetera. But there are things popping up. And, yeah, it's always nice to have a little bit of cash. We're still 90% uninvested, so it's quite a lot in the market. But it's always nice to have that bit of cash just in case you get opportunities to turn up.

TOM PIOTROWSKI: Anton, it's always great to be able to pick your brain and get a sense of the lay of the land the way you see it. Really grateful for your time today. Thanks for your time.

ANTON TAGLIAFERRO: Pleasure, Tom. Thanks a lot for asking me.

TOM PIOTROWSKI: And thanks very much for joining us for the Executive Series.

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