Regal Partners Global Investments Limited (6L20.F) Earnings Call Transcript & Summary

Good morning, and welcome to the VG1 investor update. My name is Charlie Aitken, Investment Director of Regal Partners, and I will be hosting today's VG1 webinar. I'd like to refer you to the disclaimer, but particularly the information in this webinar will be prepared for general information purposes only and without taking into account any recipients investment objectives, financial situation or particular circumstances. The information does not and does not intend to contain a recommendation or statement of opinion intended to be investment advice. Our speakers today are Phil King, Founder and Chief Investment Officer of long-short equities for Regal Funds; Simon, Marco, Glen and Shannon, all from the Regal Partners Global Equities Research team. Regal Partners is an $800 million market cap ASX-listed specialist alternative asset manager with over $12 billion of assets under management. The group manages a broad range of investment strategies, covering long-short equities, private markets, real and natural assets, credit and royalties on behalf of institutions, family offices, charitable groups and private investors. We have over 70 investment professionals spread across offices globally. Regal Partners also looks after $2.4 billion of ASX listed investment companies. And you can see in this slide, the total returns over the last 12 months have been strong from the stable of Regal Partners LICs. VG1 gives investors access to all the strength of Regal partners in a single fund listed on the ASX. VG1 is a portfolio of our highest conviction global equity ideas both long and short. I'm now going to hand over to Phil King, Founder and CIO, Long Short Equities, Regal Funds and the lead portfolio manager of VG1 for a market update and how VG1 is positioned. Thanks, Phil.

Thanks, Charlie, and thanks, everyone, for your time today. We've been bullish for a while, and we remain very bullish. We think this bull market is still very young. And the exciting thing is it's starting to broaden. At the end of the day, we're bottom-up stock figures, and we think we're seeing enough value opportunities in the market at the moment to remain long. Averages can be very misleading. And especially now when there's wide dispersion in valuations, and this is actually creating some great shorting opportunities for us as well. As Charlie highlighted, the net asset backing in VG1 is up around 20% over the last 12 months, which we're very pleased with. And the total shareholder return is even better than this as we started to close the discount. What's also very, very pleasing is that improved shorting and diversification within the portfolio has actually improved the risk-adjusted returns as well. And as I said, the broadening in the rally in the stock market is very exciting. And as a result, we've added Japan and European exposure to the portfolio to take advantage of this. We also have added to our resource exposure as we think some of the supply constraints globally aren't going away and will only kind of squeeze commodity prices higher. And in the Magnificent 7, we're seeing long-short opportunities. We're long Meta, Amazon and Alphabet, and we're short Tesla and Apple at the moment. U.S. and European stock markets recently hit their headlines when they hit all-time highs. And I was surprised at how much attention this got, which makes me feel like many people are missing out on the current rally and there's a lot of money on the sidelines. My feeling is that bull market steadily go for a lot longer once they start going through previous highs, and we saw this in the bull market of 2020 and '21, which went for over a year after past its previous highs. And this compared to many bull markets over history was a relatively short bull market. This bull market, in our view, is very, very young. And the importance of this is that there's still a lot of scars and negativity around from the previous bear markets that we had 2 years ago, and in the COVID crisis of 2020. So as a result, I think there's still a lot of money on the sidelines, and I certainly think the path of least resistance is for the market to move higher. Certainly, the U.S. stock market has been driven over the last few years by tech stocks and most significantly by the so-called Magnificent 7. The Magnificent 7 accounted for basically all the increase in the stock market in 2023, and it's continued to perform strongly this year, although some of the other stocks in the market are also rallying hard. But the key difference in the Magnificent 7 this year versus last year is that performance this year is very much mixed. Last year, all the stocks went up and went up very nicely. But this year, only 5 out of the 7 are up, and 2 of the stocks are down quite significantly with Tesla falling 29% and Apple down 11% or so. Tesla's fall is very interesting because even though the share price has fallen, the stock has got more expensive as earnings expectations have come down at a quicker rate than the share price fall. And as a result, the PEs increased from 40x to 55x. And as we'll talk about later in this presentation, we remain short Tesla. In contrast, NVIDIA has got cheaper, even though the share price has experienced strong growth, and that's because profits have grown even faster than the increase in their share price. But the important thing is that the other 5 of the Magnificent 7 have very much delivered on earnings expectations. And as a result, despite their share prices increasing significantly, the PE rating still remains around the same level it was a year ago. But the real exciting thing about the stock market rally this year is that the rally is starting to broaden. The NASDAQ led the market higher from the October lows last year and outpaced most market indices. But this year, many other parts in the stock market are starting to perform. And the S&P 500 is starting to outperform the NASDAQ. The Euro stock market sustained to outperform the NASDAQ. The Japanese markets had a very nice bounce, and we're taking advantage of this in the VG1 portfolio. And very excitingly for stock pickers like Regal, small caps are starting to perform as well. And so I think this broadening of the stock market rally is a very positive indicator for the outlook across the market generally. Now valuations are key component. It's actually the first and most important part of our investment process. And as this chart shows, the so-called equity risk premium has got a lot lower over the last few years as bond rates have gone up and as PEs have actually gone up over the last couple of years as well. And so a lot of people would suggest that the U.S. stock market is expensive. Now I understand this, and we use this chart as a reference as well. But there's a couple of limitations on looking at this chart. Firstly, it looks at a single period. It compares bond yields with stock market PEs. And if earnings are growing strongly, then there's a large difference between the earnings yield and the expected return on equity. So if earnings are growing strongly, the return that shareholders will get will obviously be a lot better than the current earnings yield. And it's certainly our view that the current U.S. stock market is a lot more attractive than it has been in the past. And we realized this is dangerous saying that it's a little bit different this time, but we certainly think that the quality of U.S. stocks at the moment is a lot better than some of the deep cyclicals that dominated the index in past decades. And the other thing looking at headline levels is that this is very much an average. One of the interesting things about the market at the moment is that there's wide dispersion in valuations. And in fact, we're seeing some of the best shorting opportunities that we've seen for a long time. And this is at the same time as we're seeing good buying opportunities. So I think it can be very misleading, looking at an average of the U.S. stock market at the moment. But having said that, we think there's actually some very interesting opportunities outside the U.S. as well. And as you can see on this chart, some of the best opportunities or the best equity risk premiums are outside the U.S. And the VG1 portfolio has increased exposure both to Europe and Japan over the last 6 months. Japan is very interesting. We've highlighted Japan before on our Asian calls, and we think Japan is at the start of a very much -- a multiyear bull market. It's been very, very cheap for a long time, 17x on a PE level. But on a relative basis, compared to a bond yield that's less than 1%, the equity risk premium is very, very attractive. So Japan has been cheap. But I think what's changed is that there's positive momentum in the market. It's attracting a lot of buying. The weakness in the yen has been very positive for many exporters and the normalization of interest rates is actually a very, very positive and is encouraging people to spend. So the inflation shock that's so negative for the rest of the world has actually been a positive in Japan. And then finally, we're seeing a lot of focus on shareholder value. A lot of companies are being encouraged to unwind cross-shareholdings and this is proving to be very positive for share prices across the market. China and Hong Kong remains very cheap, both on an absolute level, a PE of 8x and on a relative level. But obviously, as we've highlighted as well, there's deep structural issues in the Chinese economy that makes us a little bit cautious on China for the moment. But certainly, we think that some of the valuations in Europe are very attractive as well. And I think we've highlighted before, we've had selective exposure in many European markets. But one thing that we've done recently is increase our exposure to some of the European banks that we think are very, very attractive trading on PEs of 5x or 6x compared to, say, CBA in Australia, which trades on a PE of 21x. So as you can see here, some of the changes we've made on the portfolio over the last couple of years have been to increase the diversification. To a couple of years ago, the VG1 portfolio was very much focused on North America. And while North America remains a very large -- in fact, the largest part of the portfolio still, we have increased the diversification by introducing more exposure to Europe and Asia, where we see some very exciting opportunities. We've also increased the diversification from a sector level. And I think this is very, very important with some of the biggest increases coming in things like energy in mining, which is actually under the industrials heading, where we see some very attractive opportunities over the next few years, and we'll highlight some of these in a moment. The other thing in the VG1 portfolio is that while we're maintaining the same gross gearing, we have increased our net exposure. And as you've heard, we are positive on markets and increasing our net exposure has proved to be a very, very good decision, and that's allowed us to take advantage of some of the opportunities that we've seen over the last year or 2, and that's why we have managed to have been able to achieve are such good returns over the last 12 months. In terms of attribution, we're pleased to report the returns have been very well spread. We're proud to say that we've been generating alpha on both the long and the shorts. We've been generating profits in all the major regions that we're investing and we're generating profits across all the sectors that we're exposed to. So this is a very, very pleasing result. And the other thing to highlight is, as you can see on this chart, even though our returns in up markets aren't quite as strong as the U.S. market. What's very, very pleasing is that our portfolio has gone down less than half the market over the last 12 months. And this, I think, is just a sign that some of the shorts we have in the portfolio are working as well as the improved diversification. And so we're very, very pleased with how this is working, and we've kind of -- we've very much focus on protecting some of the downside as well as trying to get exposure to the upside going forward. At a stock level, some of the highlights in the portfolio over the last period have been some of the stocks like Amazon, which has been in the portfolio for a long, long time but still remains very much a court holding for us. Meta, which we introduced last year has done very, very well for us. Rheinmetall had an excellent run and we've actually taken profits in their stock after a great performance over the last 12 months. And then finally, Disney, which we have held for a while, which we added to last year, and that's performed very well for us as well. And the shorts have worked very well, very much mixed, but shorts across many sectors have actually added value for us over the last 6 to 12 months. Now I'm pleased to say that we've got some of the team here today with us, and we're going to ask the team to run through some of our high conviction ideas. We're going to start with Disney. Thank you, Simon.

Thanks, Phil. The Walt Disney Company is a diversified media conglomerate operating theme parks, media networks, film and television studios and a direct-to-consumer streaming service. It is the global leader in theme parks, hotels and cruises aimed at family vacations. Key assets within Disney are the instantly recognizable entertainment franchises, characters such as Mickey Mouse, the Disney Princesses, Marvel's Avengers and the Jedis of Star Wars and studios such as Pixar and 20th Century Fox. And these assets have multiple avenues of monetization. Presently, Disney theme parks are the key profit and cash flow driver, contributing around 70% of the FY '23 Disney operating income. However, over time, this will change with the media assets becoming a meaningful contributor. Disney has been a core holding since the middle of 2023. Our investment thesis is starting to play out, and the market is starting to appreciate that the earnings power of Disney has been masked by the investments in the direct-to-consumer streaming business. An investment in Disney has required somewhat of a leap of faith. At the time of our initial investment, streaming losses were annualizing at around $3.5 billion, as illustrated above. And in terms of EPS, this was just over $2 per share drag on earnings. A cost-cutting plan had to be implemented by the returning CEO, Bob Iger, in order to turn this situation around and management then had to communicate future profit targets to shareholders to restore confidence in the long-term prospects of Disney. We see ongoing and future consolidation in the streaming industry, creating a more rational competitive landscape and an environment for increased pricing. And we ultimately believe that the Disney streaming business can operate at a 15% to 20% margin at some point in the next 3 to 5 years. This compares favorably to Netflix, who have achieved a margin of 20% already. So the losses of $3.5 billion in FY '22 will become profits of over $4 billion in the future. Combined with the continued momentum in the Parks and Resorts business and a managed decline in some of the linear asset profitability, we see the normalized earnings power of the Disney business as being in excess of $7 per share in the not-too-distant future. Another element of the Disney thesis that was needed was a change in management and a corporate governance reform. Disney has recently been the subject to a proxy contest where a number of activists have sought to insert Board nominees to increase oversight on the Board. We have recently engaged with one of the activists, Triumph Partners, and believe that the pressure they have applied to the Board in regard to increase shareholder returns has contributed to the reinstatement of a regular dividend payment following a 4-year suspension and a renewed share buyback plan. Whilst ultimately unsuccessful in their contests, the activist has increased the transparency of the Board and management targets, and we are pleased that this will accelerate returns. We have held Amazon for an extended period, and we continue to see upside in the shares. Our long-term thesis remains the same. The company continues to create exceptional customer experiences across a number of business lines, with a long runway for continued investment at high rates of return. Over time, we expect operating margins to improve across each business line with the earnings power of the company far higher in future periods than is evident today. We thought it helpful to show the changing mix of the Amazon business over time to provide some context to our belief in the ongoing margin growth. As you can see here, the higher elements of the Amazon business, third-party seller services, subscription services, advertising and Amazon Web Services have been growing at a considerably faster rate than the lower-margin retail elements of the business. These higher-margin elements of the business now represent 55% of revenue versus 39% in FY '18, and they account for a considerably higher percentage of the earnings of the business. We expect this mix shift to continue and provide a tailwind for ongoing EPS growth. These margin improvements are even more evident when we drill down into the retail business and its 2 geographic reporting segments. There has been a period of digestion for the Amazon retail business as they invested heavily in capacity through the COVID-19 period. As seen here, the much higher CapEx spend during the period has moderated. And as Amazon has grown revenue into this added capacity, the benefits of high incremental margins have resulted in significant operating margin improvement. In the North American business, we expect margins to continue to grow beyond their prior peak as the benefits of scale and the prior discussed mix shift shine through. And within the International segment, we expect to see a return to positive operating margins as the company grows through the start-up phase in a number of currently loss-making countries. We don't see any structural reason that would prohibit the International division from hitting similar margins to North America today. And having lived through a period of investment that masks the earning power of the company, we believe there is still upside in the stock as the free cash flow per share, a key management focus continues to improve. The growth and margin profile at Amazon Web Services has been a hot topic amongst investors and analysts and we remain comfortable with the future prospects of this business. Despite being close to a $100 billion revenue business, Amazon's CEO, Andy Jassy, expressed confidence that the Generative AI contribution will provide an ongoing tailwind for AWS as cloud infrastructure requirements grow side-by-side investment in this area and to begin to contribute tens of billions of dollars of revenue to AWS. In addition, we believe that we are still in the early phases of a major shift to cloud computing infrastructure versus on-premise services. Anecdotally, we've spoken to a number of large enterprise customers, who have highlighted continued migration of core workloads to the cloud, which could be multiples of their current usage, particularly business systems such as Oracle and SAP database instances. We think the bull case of $8 of GAAP EPS in the next few years is in sight, and we see continued upside in Amazon stock as a result. I'll now pass over to Marco.

Thanks, Simon. So I'll now talk about the London Stock Exchange Group, which we actually first discussed almost 12 months ago, and the stock has since performed reasonably well, and it remains a core position for us as we believe there remains still plenty of upside to play out. Now we highlighted last year how the market still viewed LSEG primarily as an exchanges business. But the company has undergone a pretty major transformation. And yet there's still this misconception that the business is primarily an exchange-based business, whereas it has transformed into a business that's got more recurring and sticky revenue profile. Now today, we invested in LSEG on the thesis that: one, the company will see a sustained revenue growth acceleration; two, LSEG will see a meaningful margin improvement from what we think is a depressed base after a pretty heavy investment period; and three, these 2 points will lead to multiple re-rating to a valuation level that is more in line with LSEG's data and analytics peers. Now LSEG has invested aggressively behind its acquired Refinitiv data assets. And this has led to LSEG's subscription revenue growth accelerating from the low single digits to around 7%, which you can see in the middle chart on the slide. Now importantly, we expect this strength to continue as LSEG offers bundled enterprise solutions that very few others can match. And this covers indices, data, things like risk management and even workflow tools. More importantly, we think the market is underestimating the margin opportunity at LSEG because when we look at our peers in the data analytics space, guys like S&P Global, MSCI, even FactSet, we still see a large margin gap that we think is very likely to close over the next few years. And when we combine that with a normalizing CapEx profile, we think we're at an inflection point for free cash flows that we think will surprise the market to the upside. We also like the upside optionality that we get with LSEG, if they can capitalize on its partnership with Microsoft, where effectively, they've teamed out to develop a suite of financial products similar to Bloomberg effectively that can be integrated into Microsoft Teams, and which would have a large potential even if there's only a small uptake of the 300 million-plus users of Microsoft Teams. And we actually don't feel like we need to underwrite this in our thesis. So it does provide to us a very attractive optionality angle. Now with this setup for accelerating free cash flow growth, we find the valuation very compelling given the quality of this asset. As you can see on these charts, LSEG is trailing at a discount to nearly all of its data and analytics peers, despite what we think is a more attractive growth profile over the next few years. And also, the original Refinitiv vendors have been selling down their large stake, which has reduced the valuation overhang. And we think this removes a key obstacle to the rerating. Then moving on to the next stock. GE Healthcare is also one that we have highlighted in the past and that we continue to find attractive and remains a top 5 position. It is a med tech business that spun out of GE in late 2022 and is one of the leaders in developing imaging machines like MRIs, X-rays and ultrasounds. They operate in a pretty consolidated market, really dominated by 3 players with the other 2 being Siemens and Philips. Now our thesis on GE is based on the company having a renewed focus as a newly independent company, which we think will drive market share gains and help deliver steady top line growth. More importantly, we think there's a very underappreciated margin opportunity, which really stands out when we compare GE to its closest peer at Siemens Healthineers. You can see on this chart here, the imaging margins at Siemens are in the low 20s compared to GE in the mid-teens. And really, our diligence suggests that based on industry conversations, there's no real structural reason for this margin differential. So we're very confident that GE will at least close a big part of this gap over time, particularly as it addresses what is -- what we think is a bloated cost base that's come about from being part of a bigger GE conglomerate. There's also a renewed focus on R&D after they stepped up investment over the last few years. And this has already started to lead to the launch of new high-margin products, including more digital tools. And again, we think this will help support margin improvement. We think GE will continue to surprise to the upside on free cash flow as a result of what I just discussed. And we already got a glimpse of this last year in 2023, where free cash flow beat estimates handily and allowed GE to pay down them more quickly than was expected. And as you can see on this chart, we don't think GE deserves to trade at one of the highest free cash flow yields in the med tech space. We really think this boils down to GE being a newly independent company. So there's still some skepticism around management execution. But we think the market will start to reward GE with a high multiple as they do start to deliver on the margin opportunity and deliver what we think will be mid- to high teens earnings growth, potentially turning GE into one of the best-in-class med tech franchises globally. I'll now pass it on to Glen.

Thanks, Marco. Now over to some of the Korean stocks that were long. So in terms of Korea, the memory market is a major part of the Korean market, and we followed the memory market for a long time. While the underlying memory market is quite cyclical, the industry structure has been improving over the past decade or more due to consolidation and more recently, CapEx and supply discipline. There are now less companies in the industry and numerous dominant companies all with their own competitive advantages. The memory market has been going through a fairly large down cycle from mid-2021 due mostly to the bring forward of demand from COVID for major products like PCs, smartphones, servers and autos, and also from aggressive ordering by customers due to the scarcity of supply because of the COVID-driven supply chain disruptions. However, as the COVID impact normalized, this led to a major slowdown in demand for smartphones, PCs, servers and autos and high inventory levels from the over ordering. However, we have now likely entered a new up cycle in memory with strong demand from AI-related memory along with moderate demand improvements in the other major sectors of smartphones, PCs and general servers. This improving demand is being met with continued supply discipline from the major memory makers with limited new capacity being added overall, lower utilization rates for more commoditized memory and quite a lot of investment in migrating old types of memory capacity to newer AI-related memory. This has led to memory prices starting to rebound, inventory levels improving and even supply shortages for certain types of memory, particularly AI-related memory. Now in terms of the stocks, we're currently long Hynix and Samsung, and we have been for a while. Samsung and Hynix have a significant combined market share of over 70% in some of the key parts of the memory market, such as DRAM and significant market shares in other major memory products like NAND and the AI-focused high-bandwidth memory, or HBM. We like Hynix, given it's more a pure-play memory maker, which currently has a dominant position in AI-related memory with NVIDIA being a major customer, and it's more leveraged to the general memory and AI-driven up cycle of memory prices. We also like Samsung Electronics, given its attractive valuations, it's significant exposure to the memory market. It's also exposed to the global smartphone market, which is currently improving and Samsung's own phones and sales are also improving along with other leading businesses that it has. And then finally, Samsung is also likely to benefit from the Value Up program in Korea, which focuses on improving corporate governance and improving shareholder returns. So on that, I'll hand over to Shannon.

Yes. Thanks very much, Glen. So Toyota Industries at its core is a world leader in comprehensive warehouse automation solutions. It has the top market share in forklifts, and it's had that for decades. Many of those forklifts are now autonomous and Toyota Industries has used that dominant customer relationship position to also sell in complex automation solutions now. Some of which were developed in-house and some of which came through the very smart acquisitions in entities like Vanderlande. Just as a little story. Recently, I was in the Amazon Logistics Center in Sydney, and it was wall-to-wall Vanderlande equipment, particularly cross-belt sorters, which are higher-margin conveyor belts, which essentially can load and unload packages at extreme speeds. It's very impressive to watch. Toyota Industries does the whole range, including ASRS or Automated Storage Retrieval Systems that can handle a vast range of SKUs in smaller warehouses and fulfillment centers up to like 30 meters high. So it really provides density benefits for warehouse operators. And it also sells into software, which comes with a higher recurring margin. We see Toyota Industries also as one of the best place stocks in Japan to leverage the corporate governance reform that many investors are becoming increasingly excited about and unlock hidden value. As we explained last May on our Asia call, the value of Toyota Industries Equity Holdings in other businesses actually exceeds its own market cap. So you get the world leader in warehouse automation solutions on top of that for free in a sense. And that is actually still the case despite the fact that the Toyota Industries stock price has doubled over the last 12 months. And that is because other Toyota Group entities in which its own stakes have also seen their stock prices rally on the back of their own unlocking of value, which is essentially selling down cross shareholdings and returning cash via buybacks. There's a lot of this to come for Toyota Industries. In addition to that, we've seen the core business, the warehouse automation business see strong upward earnings revisions forecast by analysts with very robust orders driven by increasing need for automation essentially as we face labor shortages around the world. We've also seen margin improvement through price hikes, which the company and others have been able to push through because of the lack of shortage and their expertise. And another change over the last year that's quite exciting is some disclosures around their battery technology and efforts there. They're essentially collaborating with Toyota Motors on a bipolar lithium ion all solid-state battery technology to be launched in a couple of years' time. This technology can increase cruising range and EVs by 20% and has a 40% cost reduction. The reason why Toyota Industries has brought into this collaboration with such a behemoth like Toyota Motors is, it's actually been a leader in producing bipolar batteries for its own forklifts. 70% of forklifts sold are actually electric already. And it's got some really strong expertise in ensuring that those bipolar batteries are produced with a high yield and with the right safety standards. So we see plenty of upside to the stock from its own core earnings business, its ability to unlock value. And while it's not 100% certain that this battery business will take off, that's just cream on top for me for what I think is one of the best plays in Japan to leverage the trends that are going on there. I'll now hand back over to Phil.

One of the great things about Regal is that I think we have some of the best sector teams in Australia. And certainly, our mining team has been performing extremely well over the last couple of years. Henry Renshaw, who is one of the key members of our team is going to be with us today, but his wife just had a baby. So he's actually just left on paternity leave. He just had his fourth girl. So congratulations to him and good luck. And so I'm going to be talking about some of his stocks today. And one of the key commodities that we're positive on is uranium. Uranium is a key commodity and there is huge growth at the moment in nuclear power plants, especially in countries like India and China. And this means that we think the commodity is going to be very much undersupplied over the next decade. Now one of the new -- probably one of the few sources of new supply is NexGen, which is building a flagship asset in Canada. And I think there's no doubt that this is going to be one of the best mines in the world when it's up and running. And so it's a very exciting company, and we certainly think that it will provide some of the best returns in the uranium sector over the next few years. Another commodity that we're very excited about is copper. And there's been many people suggesting that the demand for copper is going to double over the next 10 years, and we certainly can't see where the supply is going to come from. And one company that has some great copper mines is Teck, which trades in both the U.S. and Canada. And what is exciting about Teck is that they've entered a deal -- into a deal with Glencore to sell their coal business. And these coal assets have meant that many investors have been prohibited from buying shares in Teck over the last few years as a result of ESG concerns. And once they sell these coal assets, I think the potential universe of shareholders increases greatly. But even more exciting is the fact that Teck becomes a takeover target for some of the major mining companies in the world, companies like BHP, Rio, have all been increasing their copper exposure over the last few years. And I think they would love to own Teck, once Teck sells its coal assets. We also thought it would be good idea to talk about one of our short ideas. And our largest short in the portfolio at the moment is Tesla. Now Tesla has been a market darling for many, many years. But certainly, we think it got too high. And as a result, the share price has been underperforming over the last couple of years. And we think it will continue to underperform. The company has been disappointing investors with their earnings over the last couple of years. And in addition to the number of deliveries that they're doing. And this is partly a result of increased competition. There's been many, many other motor vehicles start producing electric vehicles, including companies like BYD in China that are able to produce cars at much cheaper prices than Tesla. And as a result, the growth for Tesla has stalled, whereas other companies like BYD are growing very strongly. Tesla has got the highest multiple in the Mag 7, but it's got low growth. And in fact, we think it will go backwards this year. So we're very, very happy to stay short at Tesla. Now I'm going to hand back to Charlie for questions. Thanks, Charlie.

Phil, we've got a question from an investor here. You've got a lot on your plate with Regal growing quickly, up to $12 billion in AUM. How do you manage it all?

Look, that's a great question, Charlie. And I understand why people would say that. But the very, very pleasing thing is that I've actually got less and less involved in the management of Regal over the last few years and especially since we've listed, Brendan O'Connor, our CEO, is doing a tremendous job, and he has built a great team around him. So I'm not actually too involved in the management side of Regal, so -- which means that I can very much focus on investing. And across the investing side, I'm very, very pleased to say that we've had many, many people stand up and start to contribute more in many of our strategies. And so it's pleased to see some of the younger portfolio managers in strategies like emerging companies and small caps do very, very well for us. So that's been great. And in fact, I actually find it actually very helpful at times to be focused on many different aspects across the market because sometimes what you're seeing maybe in the U.S. at a high level is actually got implications for small companies in Australia. And so I find that very helpful. And it's great having the team around us. And the other thing I'll say is that I actually find sometimes you're a better investor being away from a lot of the noise and also sometimes a better investor when you don't have the history with the company and you're not so attached, and you don't haven't spent all this time with the company. And that often makes it very, very hard to sell when you should be. So in fact, I feel like I'm in a very, very good place at the moment, and things are working well. So yes, but thanks for the question.

Very good. Another question here from an investor. You mentioned with the VG1 is allocated to European banks. Can you just extrapolate a bit more the investment case for the European banks?

Yes. Well, as people would know, Regal merged with PM Capital late last year. And Paul Moore, who runs PM is doing a great job. One of his largest exposures at the moment is some of the European banks. And I've talked to him about this. And I certainly very much agree with him. And I think no one in Australia would know banks as well as Paul. He's been covering banks, I think, since he was at BT in the late 1980s. So look, I thought this is actually quite interesting because I was very successful in London 20 years ago by having an Australian perspective on European stocks. I've worked at Macquarie Bank. I've seen the success of some of the Macquarie motorways such as M2 and Macquarie had convinced everyone in Australia that the right way to value motorways was using a DCF. And at the time, the Europeans with owing some of the Italian and French motorways, on very low multiples, 10x or 12x because they thought they were very low-growth assets. But Macquarie had highlighted the fact that a lot of the cash flows will weigh in the future. And even though accounting profits were low in the early years and the cash flows would come through. And so I was very successful in Europe, buying things like European motorways. I was very successful in Europe buying European stock exchanges. Again, the ASX traded on a PE of 20x, and the European stock exchanges traded on 8x to 10x because they were very low growth. And so I took that Australian perspective, and I bought European stock exchanges, and I did very well out of that as well. And that reminds me very much of banks today. I mean I see CBA trading on a PE of 21x basically been squeezed higher because there's nothing else to buy in Australia. And in fact, I think it reminds me very much of some of the European banks in the portfolio. I think the similarities between some of these banks are much higher than the differences. And certainly, if I can buy some of the European banks on PEs of 4x or 5x compared to CBA at 21x, I think we'll do very, very well. Some of the reasons that CBA have done well is the fact that we saw a round of consolidation in Australia in the late 1990s and early 2000s. And I think we're starting to see that in Europe as well. And I think most regulatory authorities think that having a strong banking sector is much more important these days after the GFC and having a very, very competitive financial industry. And as a result, I think the outlook for some of these European banks is actually very, very positive. So very happy to have those in the portfolio now. Thanks, Charlie.

Well, Phil, you and the team have covered a lot of ground here today. We've really gone through the vast bulk of the high conviction portfolio for VG1. Just one more question that's come in here from an investor. Do you think Manly could win The NRL Premiership?

That's a great question. I think it's going to be our year this year, Charlie. Certainly, we've been playing well. I think we've got the right cattle. And I think I'm very much looking forward to the GF in September. So yes, this is our year.

Very good. We thought, we might end on that. In the interest of time, everyone, thank you for your time today. We appreciate your support of VG1 and have a good day.