WAM Global Limited (WGB) Earnings Call Transcript & Summary

Good afternoon. My name is Geoff Wilson. You're listening to the Wilson Asset Management investor conference call. As you know, you are the -- we're doing this conference call for yourselves, you are the shareholders and you own the company, and you allow us to do what we enjoy doing, and that's investing. And we're very passionate about that, so thank you. I'll be starting off the presentation and going through the slides. You should all have a copy of those slides. And then we'll -- we're going to open up for a Q&A, which I'll be running with our 3 lead portfolio managers, Catriona Burns, Oscar Oberg and Matt Haupt. So in terms of what we're trying to do at Wilson Asset Management, we're trying to make a difference that's in terms of managing money on your behalf, standing up for our shareholders and also giving back to the community we operate in. In terms of the team, you'll see we've got a high-quality team. In terms of getting advice, everyone I've ever run into tells me it's all about employing people that are smarter than you. And over the last 21 years, I think we've been able to get -- consistently employ people that are smarter than me but that's the team. The -- in terms of how we invest, we try to buy undervalued growth companies, and we've got a rating system, and we buy them when we can see a catalyst is going to change the valuation. And then we sell them when they reach those valuations. In terms of the structure we use, it's a listed investment company structure, which we think has some significant benefits. One is certainty in terms of tax outcomes, as distinct from the tax structure, obviously being closed end. And in this time, where there's a lot -- enormous amount of uncertainty and a fair degree of -- well, nearly a reasonable degree of panic, the advantage of managing a closed-end pool of company -- sorry, pool of capital does give you a significant competitive advantage. We can talk about that a little later. The -- in terms of the various listed investment companies, you'll see on the next slide, we've got the list of them, the share price, NTA, when the dividends are paid and the size of them. And also, after that, you'll see that we plan on adding a newly listed investment company to the fold. After a long period of time, we're very close to taking over the management of an alternative asset fund, that's the BAF. And we see that as a great opportunity to, a, make sure the share price of that entity -- we'll rename it. It will become a WAM product and make sure the share price of that entity reflects the asset value. And because it's alternative assets, we think there's a significant opportunity to grow that as there is a lot of demand for that type of product. And on the other side, from our business perspective, we've got -- we have various equity exposures. This gives us another string to the bow. In terms of the overview of the market, the -- it is the end of the -- I mean we've talked in the last couple of years about when will the longest bull market end. And fortunately or unfortunately: fortunately, in terms of providing opportunities; unfortunately, in terms of the sort of the free money has been removed, the bull market is over. And we've seen that with the Dow last night, and we've seen that, yes, with the all ords, and that's dropping that more than technical 20%. The -- in terms -- probably a little bit later on, we'll go through -- Matt, will probably talk about some of the -- some of our theories on the length of this and the depth of it. But one of the interesting things I think is worth noting, and that's on slide, I think on Slide 11, just talking about the various phases. And at the moment, we're really in that first and second phase and that's the emergence of the coronavirus and the uncertainty that, that's created and effectively a risk -- everyone's taking risk off the table. But also, we're in that lockdown phase. And we've seen, obviously, in China, the lockdown there, the lockdown in Italy. It wouldn't surprise me if there are other countries globally that go into lockdown and that's really so they can flatten out the rate of infection. But that creates enormous amount of dislocation, both on the supply chain but also on the demand side. And the interesting thing is that, eventually, we will get to acceptance. And we'll accept that this -- it will be part of life. It will be -- I was talking to a doctor this morning. And he said, look, there's -- he deals with a whole lot of different coronaviruses currently. This is obviously a specific one, very infectious. And obviously, it has a fatality rate higher than those others. But that will be, I suppose, as time goes on and whether it takes 6 months, whether it takes 12 months, whether it's 18 months or 2 years, it will just be -- it will be part of life. As people now do die from the flu, it was something 350,000 to 650,000 people a year die from the flu. This will be a potential additional risk. It's just -- the difficult part is we're in that sort of dislocation phase, which is creating significant potential economic impacts. And when you look at the market, the market is a forecaster. I mean that's why it looks there's a high probability we're going to have recessions globally because the market forecasts what's going to happen in the economy in 6 to 9 months' time. And this strong fall in the market over the last little period is just saying, look, that's effectively what the market is forecasting will happen to the economy. In terms of well, what don't I -- I'll now go to -- we'll have the -- we'll start off with the panel discussion. Now we've got Catriona on the line, she's in Paris. And you'll all be aware when she gets back to Australia, she'll be quarantined for 14 days. So why don't I start off with a question for Catriona. The -- I mean, obviously, more recently, you've been to the U.S., you've been to the U.K. and Germany, what are -- the companies you're visiting, what are they saying? And how is everyone sort of responding to the virus in terms of the people you've been speaking to?

Yes. Thanks, Geoff. So I've met with 60 companies across the U.S., Europe and the U.K. in the last couple of weeks and there really is a significant uncertainty about what the operating environment will look like in the coming weeks and really how badly earnings will be hit. At this stage, the businesses have been very focused on the safety of their staff and really ensuring business continuity. So as we have -- nonessential travel has now been halted and working from home arrangements have been widely enforced. And some companies such as in the tech and payment space are generally adapting pretty well and with minimal interruption to their ability to serve their customers. But others really are at risk should those further regions go into lockdown. So if you work in a retail store or a hotel, an airline or a manufacturing plant, you clearly can't work from home and may not be paid if you don't clock on. So the feedback from the companies here that, in many cases sourced out of China, is that they are moving through the worst of the virus there, that the manufacturing plants in general have restarted since the Chinese -- end of Chinese New Year, but with varying levels of ramp up as they struggle in some cases to get workers back. But this is -- as U.S., the U.S., Europe and the U.K. are really entering a significant -- a period of significant attempts to contain the virus, which obviously, as you said, will have an economic impact. Stores, in general, are still open, but the occupancy is definitely down and just going on the tubes and subways over the last 8 days. There certainly is less people than normal. I flew from Munich to Paris last night, and the airport was completely empty and my taxi driver when I arrived in Paris, said he's been waiting 6 hours for a customer. So all in all, I'd say the uncertainty is certainly high. The significant impact to date on specific businesses has been centered on like those specific sectors of the economy like travel and retail, but more widely businesses are concerned.

Okay. And in terms of the -- I mean, obviously, as you've been over there, did you get -- when you're in the U.S., did you -- I mean it looked like, up until recently, Trump's been behind the curve there. And then it looks like last night, he's trying to get in front of the curve, what are they -- was a much -- what was the talk in the U.S.?

Yes, there's a lot of criticism around Trump and he's out there publicly saying there's enough tests, et cetera. But you've got doctors and patients saying that's absolutely not true, and you can't get enough tests. So -- and amongst the local population, like it was certainly varied in terms of people's levels of panic and what they were doing in reaction to that, as we've seen from toilet paper fiascoes in Australia, et cetera. But yes, generally, there was some criticism of Trump and how quickly he was dealing with it and the ability of test kits. And companies, generally, yes, were mixed like they were -- it's now a week ago and a lot has changed, so they're becoming increasingly probably concerned.

Yes. I know just a little anecdote. My daughter who's 25, she works in New York and she works for a small tech company. There's about 30 of them there, and they were sending home today to work from home until further notice. So I think they're getting it now. Now in terms of, Oscar, why don't we talk a little bit about the Australian reporting season. One of the tough things is we're looking backwards, and we know the equity market looks forward. But in terms of what did you see there, and what do you think has changed? Or what are you seeing has changed?

Yes. Thanks, Geoff. Look, while it was actually one of the weakest reporting seasons that I think since the global financial crisis, with average earnings per share being cut by about 8%, believe it or not, it was actually one of the best we've had in WAM Capital with around 94% of the companies that we own actually meeting or beating expectations. And certainly, one of the key themes that we played through reporting season was an improving housing market and the benefit of this on sectors of the economy, such as retail, building materials and also property developers. Pleasingly, so companies such as [ ADES ], and [ Excali ], Genworth, Australian Finance Group actually post decent results and beat expectations, and this reflects improving confidence. And was actually looking just this morning, actually, house prices have actually risen 8% since the lows in May at the time of the election, actually only 1% of peak levels in 2017. So I guess with that in mind, Geoff, we're quite pessimistic at the housing market going forward. You haven't seen it as yet. Auction clearance rates are still very, very strong, but it would appear, given the uncertainty caused by coronavirus, you'd expect to feel down through to the housing market. Certainly, we've reduced our exposures to these companies. They're exposed to housing within the portfolio, and we'd be quite negative on these companies going forward.

And then, Matt, just talking about the large companies. You run the WAM Leaders portfolios. Do you want to start -- why don't we start with the miners and then we'll talk about the banks, yes, and what's happening there.

Yes, sure. If we look at the miners, so what we're seeing now is global markets, basically, pricing recession. So generally, this is very bad to mine as more on the base metals. But when we look at Australia, we've got the 3 biggest miners. We've got BHP, Rio, Fortescue really leverage the iron ore market. So we've done a lot of work around this. At the moment, it looks like China will stimulate their economy as things have come back after Chinese New Year. So with that on the ground, they're going to introduce stimulus of around $25 trillion to $50 trillion over the next period, over the next couple of years. So with that in mind, the iron ore companies actually look quite good. And the reason why I say this is iron ore goes into steel production and China will produce around 1 billion tonnes of steel this year and also next year. And there can't be a supply response. And Australia is a large exporter of iron ore, as you know. So in a very uncertain environment, the mining companies actually look pretty good. They've got large cash balances as well, which is a distinct difference from the GFC when they had high levels of debt. So they've got very flexible balance sheets. And the end markets, we can pretty well predict with a high level of confidence that the iron ore usage will be as good as it was in previous years and over the next couple of years. So for us, the miners, when you look at mining sector, base metals of tough like copper, which is linked to the activity and some of the other commodities of tougher iron ore for BHP Rio and Fortescue actually looked pretty good. But you can't really argue with the market at the moment. The market wants to sell every name. So it just want to watch, but the backdrop actually looks quite sporty. So we've still got positions in these stocks and we'll be looking to add as these stocks come off because we think there's a high degree uncertainty around their end market.

And Matt, the banks say if the economy does slow down, I mean, we've seen obviously the banks last couple of days take -- well, yesterday, particularly took a significant amount of selling. What are your thoughts on the banks, yes?

The banking sector is actually really interesting at the moment. They're basically priced for pretty well a recession environment with the credit cycle starting to come in. So that's sitting around GFC levels. So about 2 months ago, we were actually quite positive on the banks because you had interest rates on hold. What's happened over the last 2 months is with this global slowdown, the RBA pivoted the top 25 basis points, and they're probably going to cut again next month. And also, they're looking at QE. So the guy at the Bell from the RBA was out this week talking about how they'll implement QE. And what QE is for Australia is management around the yield curve. So what will happen is the government will intervene and keep the yield curve over different terms like the 1 year, 3, 5, and 10 year at much lower rates, which really hurts the bank's earnings. So they've got 2 negatives there, the interest rate cuts and the QE. On the pricing side, they're actually starting to screen quite well. So Westpac and ANZ are at book values such as the GFC, and that's about 15% off the lows of the share price of the GFC. So if this is a short-term impact and there is some containment around the slowdown in the global economy, the banking sector could look good, but it's really hard to determine that at this point in time. But if they got much cheaper, I think the banks look okay. So for us, banks are getting towards the sort of the end of the trading ranges and starting to look attractive, but it's a watch in brief very much so. And I think some of the political intervention as well around waiving fees. The treasurer was out the other day talking about waiving fees for some of the business. Banks, business customers, obviously, that's going to be a big impact for earnings across the Aussie Bank. So still a lot of headwinds, but slowly, they're pricing in a lot of bad news, but we're not quite there yet.

Thanks, Matt. And Catriona, the U.S. companies, they seem to perform -- the fourth quarter earnings of the latter part of last year seemed to be a bit better than, as Oscar was talking about, what we saw here in Australia. As -- I know that's now a long time ago, any interesting points you'd like to mention?

Look, it really did -- generally, there was solid earnings, but it did depend completely on your industry and whether you release your results pre or post coronavirus having heated up because companies that were a lot further into the reporting season were downgrading their expectations for the year ahead. But at that point, they really only knew that China had heated up. So that potentially, in many cases, has got worse since then, and so earnings still are too high. The trade war had obviously impacted the cyclical earnings from last year. And these cyclical businesses were generally hopeful of increasing demand in 2020, but that doesn't look like it's now going to come through. I'd say, in the health care and tech companies, they were generally pretty upbeat. Anything that had a U.S. consumer-facing element or U.S. housing-related was positive given the health of the U.S. consumer and low rates, 50-year lows for unemployment. I thought one thing that was interesting for the U.S. was that there was a slowdown in buybacks, which have been a significant driver of earnings growth over the last couple of years. In the middle of last year, the ratings momentum, so that's the credit upgrades minus downgrades was the most negative it had been since the GFC. And in January, that showed -- the company seemed to react to that with buyback announcement that 20% of the monthly average of the last 5 years. So if you look at the...

Sorry, Catriona, so what -- on that figure you're just talking about, what do I read out of that? Just explain that to me in simple English.

So basically, companies were being put on alert that they were going to get downgraded if their balance sheet didn't look good enough by the ratings agencies. And so that led to them appearing to cut back buyback in order -- for paying down the debt on their balance sheet so that they didn't get downgraded by the ratings agencies, which would make their cost of funding potentially higher. So like a lot of the U.S. companies have pretty high levels of leverage. So -- but we think -- we thought like that coming out of January, that's a positive because we, in a lot of cases, there's companies we haven't been willing to look at because the leverage is too high. So if they could stop focusing on using -- leveraging up their balance sheets to do buybacks, it would make a lot of the companies more investable. So we've generally sort of tried to avoid any businesses with high levels of leverage particularly now given the earnings risk. So yes, that's what I mean when I'm talking about the ratings momentum and how it fit into the buybacks and the balance sheet. And then in Europe, from reporting season, it was mixed. Like the auto industry there has had a very tough a year or so. But employment is still -- people are still employed, but certainly, there's a confidence issue. And then Japan to round it out, they had a very tough second half because they've given it such an export-driven economy, and then they had a consumption tax introduced in October to compound the issues they were already facing from the trade wars. So I think generally, yes, U.S. was solid, but it really depended on the industry and coronavirus as we went through. Reporting season was becoming more and more of an issue and companies were downgrading, but they didn't know the whole picture at that point.

And before -- in a minute, we'll go to how you guys -- how the portfolios are positioned. But -- and on your current trip, are you picking up any -- I know it's still very early from the virus side, are you picking up -- are there any little anecdotes that you're picking up that's going to influence how you think this will all play out?

I think, like, certainly, having gone through all the airports, having seen restaurants that certainly have reduced people in them, et cetera, like there's no doubt this is going to be a massive hit to GDP short term and really for me and every company, they're just wondering how quickly we can get through it such that, in a lot of cases, they had thought the year ahead. It looked fine because they had cheap funding, the consumer was in decent shape. But like a key part of this, while the global economy has held up pretty well, has been strength in areas like, say, the U.S. consumer, where they have been employed. But I think companies are on alert for what's going to happen on the demand side. And the risk is that if demand really falls off a cliff for an extended period, they're going to have to think about cutting workers, which then, obviously, the consumer having held up various economies doesn't hold. So I'd say that's the -- contingency plans are at hand and companies are working on a set of assumptions at the moment that probably are that the virus get contained in the next month or 2. But supply chain, there's a certain level of inventory on a company's balance sheets, et cetera, that means that even with a retail store, you'll find to stock your shelves for the next month or 2. But beyond that, if supply is not coming through, then that's disrupted and that it'd get potentially more negative.

Okay. In terms of what -- while we got you, Catriona, how are you positioning the portfolio with that?

Yes. So we've made various adjustments to the portfolio since the outbreak and escalation of coronavirus. I mean the thesis on like going into this trip was that there'd be very -- there would be some specific obvious areas hit such as travel and luxury consumer, et cetera. But that some areas do have a lot more resilience such as in tech and payments or food. So early on, when the news of the virus broke out in China, we had stocks like LVMH, which had barely sold off despite a significant amount of their earnings coming from China and the Chinese traveler. So we sold these quickly. We also sold stocks like Booking.com, which are right in the line of fire for falling travel numbers. We've reduced weightings in more cyclical businesses, such as Airbus and Amex and CTS Eventim, which are involved in the sale of tickets across Europe, which aren't going to happen. And we've certainly filtered the portfolio more defensively. We've added to names like CME Group, which benefits from volatility in markets, Nomad Foods, TransUnion, AutoZone and increased our cash weighting. At the end of December, we were at 4.7% and we're up above 12% now.

Got you. And Matt, do you want to talk a little bit about how you got the portfolio position?

Sure. With the portfolio, obviously, in times of volatility, it allows you to adjust the portfolio. So we're taking the opportunity to make significant changes. So again, very much along the lines of Catriona pulling out some of the cyclical elements of the portfolio and increasing cash as well. So we were around 7% cash in January and then sort of ramped that up around 12.5% and holding around 14%, 15% cash now. Also very much defensive-type holdings across the board. So what we're doing now is really trying to work out what portfolio we want to own coming out of this and making that, that change on paper at the moment, but we'll be looking to deploy over the next few months and to get the portfolio we want to have to come out of this downturn. So that's the real work we're doing now. And we've pretty much built the portfolio we want to come out of this correction. So that's what we'll be doing over the next few months, just implementing that and making sure...

So when will you be implementing it? So you'll wait for the bottom of the market?

Well, if we keep going 7% down a day, it will be within the next week because like, historically, I mean it's -- we can't say with certainty where we're going to finish. But we've done a bit of work around bear markets and...

Yes. Given the...

Yes. Well, look, with bear markets, you can really break them out into a few different reasons why they happen. One is a cyclical bear market, a structural bear market and an event bear market. And this is very much been in the event bear market bucket. So what has happened is we've had an exogenous knock-on from this virus. It's nothing to do with the cyclical structural components of the economy. So history shows that an event like this, which drives us into a recession, the bounce back is much quicker. So we're looking across a few of the steps. So a structural bear market, around 42 months, that's the length of the bear market. The cyclical bear market is around 27 months, and then an event bear market is around 9 months. So we say 9 months, but if the market falls 50%, it's not going to be 9 months. So obviously, the time is a factor. One factor, you'll look at multidimensional. Of course, if the market falls as quick as that has, it could be a very short correction. But again, we're waiting to see what happens there. But we're very much in the event-driven recession if we do go into recession. So history says it will be a lot quicker to bounce out of that.

Yes. And just obviously, on leaders in global, you've got -- there's a lot of liquidity there. So your -- in terms of dialing up the cash, you can dial that up intraday where...

Yes, sir.

If we -- let's -- I'll pass it over to Oscar now. Obviously, mids and smalls. Oscar, you've got to be looking a bit more forward. Do you just want to take through how you've got the portfolio positioned at the moment?

Yes. I mean I think, this is -- I guess, when the virus spread into Italy and Korea, it was a catalyst to really increase cash and we did that quite quickly. And today, as of last night, we're sitting at 34% across -- around -- capital was 34% where market cap will go up slightly again tonight. But look, in terms of the actions that we took, we have largely sold a number of companies in the microcap space given they have less liquidity, and these are usually the companies that get hit really hard when you see sell-offs. Like Catriona, like Matt, we sold companies or cyclical companies in sectors such as mining services and discretionary retail. I think from our perspective going forward, of course, we'll stick to their investment process, look for companies that have a catalyst to see a rerating over time. But for us, the most important thing is liquidity. So we'll be looking for companies or larger cap companies that are highly liquid, trying to -- every company is exposed. It's hard to get away from it, but looking for companies that have that minimal exposure. So the companies that we have been adding to, I guess, over the last few weeks, are companies in sectors such as insurance broking and telecommunications and infant formula. But yes, content to let cash at rather conservative levels given the lack of liquidity that we see in smalls and mids.

Thanks, guys. And in terms of stocks, what about -- what are you guys -- I know it's a very uncertain time. And as I spoke to someone last week, they were talking to me and I said that it's a bit tricky at the moment. You might be trying to catch a falling knife. So -- but let's have a few stocks. What's -- Catriona, why don't we start with yourself? What's 1 or 2 stocks that you like at the moment?

Yes. So 1 that I like at the moment is Nomad Foods. We think it's an appropriate stock for the times. They're the largest frozen food company in Europe where they've got brands such as Birds Eye, Findus and iglo, distributing across 13 European companies. It's a small cap listed on the U.S. stock exchange, but its business is centered in Europe. So it does tend to be a bit off the radar. The reason we like it is because we think it's one of a rapidly declining list of businesses whose earnings should prove relatively resistant as global economies respond to coronavirus. We're actually seeing people stockpiling their products, which is helping near-term sales. And regardless of this, the earnings should accelerate from here with a pipeline because they had a pipeline of new innovations coming through. They'd rationalized their SKU offering and cost inflation pressures from the prior year were rolling off anyway. What we also like is that it does trade at a big discount. So it's peers, despite the fact that a lot of these peers have very high levels of leverage, so much higher grade -- higher financial risk. They did a recent capital raising last year for an acquisition that didn't end up going ahead. So they've got a sort of strong balance sheet. And stock is trading on only 13x FY '20 numbers, which we think there's potential for earnings beat and M&A, should bargains come out of -- as a result of the fallout from coronavirus. So that's one we like at the moment, yes.

And Matt, what's...

I've got a falling knife on flight center. I wouldn't be touching it yet, but just get your hands ready to try and catch that one. What it is like now...

What signs do we have to see? What are we looking for?

So the signs we're looking for is, obviously, today, Trump's come out with a ban of U.S. going to Europe for 30 days. What we're going to see is containment of corona and then opening up of the flight routes again. So all the bans coming off the airlines, once that happens, then you'll look at these ones. So you need confidence back in all the travel restrictions' lifted. But this stock has been slaughtered and there's probably got further to go. But that one has got the most upside potential out of the -- some of the stocks we look at.

And in terms of -- you're talking about the portfolio for the start of the next bull market. And who knows how long this bear market will be, what is -- I mean is it -- is your portfolio weighted to financials and the first part of the leg-up?

Yes. The first leg is always led by financials. So we'd just go overweight banks, you've seen insurance companies because what happens is as the activity comes back, people go out and lend and borrow and those things will do well. So generally, you tilt towards the financials first. So our theoretical portfolio is very heavy financials. And we're starting to add a little bit now very slowly. But once we have get the sign, there's a green light, then we'd ramp those up quite quickly. But on the other stocks, Amcor were like -- it's been punished, very defensive company. It's an 11x earnings, growing at about 10% to 11%. These guys -- about 78% of the products are FMCG. So like consumer goods, and they very rarely, even in recessions, go down. And the rest of the business is tobacco, again, which is quite recession-proof. Smoking. So they make all the cartons out of Europe. So very defensive business, but it's not being treated like a defensive at the moment. So that one is screening very, very cheap.

Okay. And Oscar, what are you seeing?

Thanks, Geoff. Well, there's 1 company we like that's not exposed to the Australian economy and certainly doesn't have coronavirus impact and that's Johns Lyng Group, the ticker is JLG. So these guys provide emergency repair to buildings from natural disasters such as fire, floods and hail. As I'm sure a number of other listeners on the call will know or been directly impacted by the terrible fires over December and January and the floods we saw and also the house storm in Canberra. Actually, this is a positive for JLG. It means that they have a record order book. And we think they've got in a 2 to 3 years of work just coming out of what we've seen in the natural disasters over summer. Coupled with this, they've got a very strong balance sheet and no debt. And they've just started consolidating the Strata Services space. So we see a very good prospect for JLG going forward. The business trading at a price earnings multiple valuation of 20x on our numbers, and we think that they can grow in excess of 20% per annum over the next few years.

Okay. And Oscar, while I've got you, some say in the last 6 months since we did the call last, winners and losers, have you got anything?

Plenty of losers, yes, at the moment. But I think I have to talk about Myer. We have talked about it numerous times publicly. Look, I mean it hasn't -- it's fair to say it hasn't worked out. I'd say CEO, John King has done everything we thought he would over the cost base and efficiency savings. But I think when we first invested in Myer, I think we said to you at the time that the biggest reason for Myer was around top line sales growth. And we went into a period of a recession or uncertainty or a spike in unemployment. Now it's fair to say over the next 6 to 12 months that the outlook for Myer would be bleak. That's probably an understatement. But look, the balance sheet has improved. The team management has done a very good job compared to where they were 2 years ago. They do have headroom in their covenants and would need a substantial fall in earnings to go close to breaching. So look, we're still confident on the management team. There's still a long, long way to go. But it's fair to say the share price isn't going up in a hurry in this current environment.

Matt, any winners and losers.

Most of the portfolio, there's been a loser in a bear market, but we're doing our best there. Look, I guess, we'll talk about one recently. We've had a nibble of Qantas 2x. Very, very small part of the portfolio, maybe 5, 10 basis points, so very small. And what happened -- this happens a lot in bear markets where you think maybe this is the worst. You put your toe in, but you don't go all in. So we've done that twice and we pulled out. So for us, that's been a recent one. And -- but we're looking at Qantas, I mean, it's halved the share price in about a month. There's probably got further to go, but it will be a game. Flight center is the same. Once travel restrictions are lifted, the oil price has fallen, which is going to save them a couple of hundred million dollars. So that looks like an incredible buy at a point in time.

Yes. Okay. We just got to wait for this to fly through. Okay And Catriona, what about yourself?

Yes. So I've had a similar one more lately. It's interesting generally, we've had a list of, we call them, the wishlist companies that we'd love to own, but the pricing -- there's been a lot of overvalued stocks in the last couple of years as share prices have moved up. So we've had a lot of companies that we thought are at certain prices, we'd like to own this. One of the businesses in that genre was a business called WEX, which is the largest fleet card business in the U.S. So for -- well, if you've got a Visa or a Mastercard, that works fine for getting petrol in the U.S. WEX gives an employer all the analytics on their drivers, if you've got a driving fleet, and their use of gas and corporate use that data and analytics platform to reduce costs and operate their businesses better. This -- and this business has sort of grown 15% to 20% top line with even stronger bottom line as they've added other verticals in the corporate and health care sectors. So we started looking at this business a while ago, had set an entry price target. The stock had fallen 15% with the initial fears in February around coronavirus. It kind of hit the level that we were interested in it at. But it does have certainly a cyclical exposure to it. It's exposed to fuel prices, travel spend and corporate's general health. And so as the coronavirus has -- so we took a nibble, but as the coronavirus has obviously spread subsequently, the stock fell 10% and just didn't have confidence that the cyclical nature of it would keep the earnings strong. So we then sold it. It's now fallen another 30% since then. So look, we lost money, but I'm glad we sold it just because it's right in the eye of the storm. And at this point, look, we still have that list of companies, some are more cyclically exposed. And so they're probably wait and see for longer, whereas, others are just getting thrown out baby with the bathwater at this point. So they certainly are more interesting and ones that we could step into as we this kind of wash through and share -- everything just getting thrown out at the same time.

Thanks, Catriona. Look, why don't I just quickly -- I know we've had a few people just asked, can we talk about the profit reserves of the various entities? And the profit reserves is when the listed investment company makes a profit, then effectively that profit is transferred to a profit reserve. And to pay dividends, you need a profit. And also for it to be fully franked, we need to have the franking as well. But I'll just quickly skim through the profit reserves. With Global, the profits reserve of $0.271 that's at the end of last month; our Leaders is $0.189; Micro, it's $0.318; WAM, it's $0.139; our WEX is $0.313; and Active is $0.089. Now you'll notice on Active that we announced -- we -- with the result, we announced a share purchase plan, a number of people that send money in. The price was obviously the premarket falling price. So the Board decided it's in everyone's interest that we send that money back and we canceled the share purchase plan for Active. Also, a few -- I think 4 people e-mailed us at the end of last month after we changed our NTA slightly. On a 6-monthly basis, we talk about various levels of performance and those levels are at the gross before looking at the index versus our portfolio. The index is before all fees and taxes and looking at our portfolio before all fees and taxes. Then there's the movement in NTA, which in theory is the movement in assets over a 12-month period. And then, of course, something that shareholders can more likely bank is the move of the share price plus dividends. So we do that each 6 months. And on a monthly basis, we used to do the gross -- sorry, the performance before fees. And there's been quite a bit of debate about that recently. So we thought, look, let's just remove it and yes, remove that uncertainty. And if anyone -- I know some people, you can easily work it out like we charge a 1% management fee and the costs are a fraction more than that. So you can easily work it out. If anyone, specifically, wants the numbers, we just -- we can recreate it for you after we announced the monthly NTA, just e-mail us, yes. What -- oh, they're on the website. But if anyone wants to e-mail them, we can e-mail them to you as well. So that's the logic there. Why don't I open it up now for questions?

So we've had quite a few questions come through on the webinar. We start off with [ Ray ]. So when will bear market end?

The question is, when will the bear market end? I had a friend who's a builder. He text me yesterday and said, "All my friends are telling me I should buy shares. Should I buy some?" And I said, just keep building and making money for that, and have a look in 12 months' time. Look, I'm not sure, since 1900, I think the average length of the bear market is -- I think, since 1900 is about nearly 1.5 years and the average fall is 35%. There's other -- since 1980, I think the average length of the bear market is 40 -- was it 46 weeks?

Yes.

And the fall is 33%. Matt also talked to you about the different types of bear markets and the length of time. I mean what we do know is we're in a bear market. We do know that -- well, we don't know how far we are away from the bottom. What I do know is there will be some phenomenal buying opportunities, and we've talked about this internally. Matt talked about his list of stocks that -- when the market -- we all know the market performs over time. We all understand this is a period of adjustment because we're moving from the longest bull market ever to a bear market. And some -- if you can get -- well, you can never pick the top of the bull market, you never pick the bottom of the bear market. But if you can pick towards the bottom, then you'll know it will be an exceptional buying opportunity. And what we did back in the GFC -- and so what needs to play out. We're only -- how many days are we in? We're not even a month in. So -- what's that? Oh sorry, into the bear market, yes, but from the top. Because in theory, they count it from the top. So effectively, the economy -- yes, we could have a situation in Australia where they try to flatten the curve. So we get told to stay at home effectively. The -- that -- all those -- the uncertainty about the impact that's going to have on the economy, no one knows. We're all guessing. And that's what -- and the market is trying to forecast that and it's saying it's not going to be good. That's got to play through. You've got the monetary authorities and the fiscal authorities on the other side trying to make it as -- trying to cushion the downturn as much as they can. So it's just -- you've really got to -- you've got to wait. All we do know is it will take a little bit of time to play through. The interesting thing about this one, it's probably -- this is -- someone asked me earlier today, "How does this compare to '73, '87, et cetera, et cetera?" And the interesting thing is '87 was very swift. The market fell about 10% before the October 18, then it fell 22-and-a-bit percent on October 19 in Australia, but it didn't the day before in the U.S. So that was -- and that happened over a couple of months. This fall has been quicker than that. And the interesting thing is, it doesn't mean -- well, the -- actually, in '87, the market bottomed after 2 months, I think it was Matt, wasn't it? So since 1980, it was the quickest bear market we've had and close to -- besides the GFC, yes, not as painful -- how this feels to me is a combination of '87 in terms of the pain and the severity. And similar to the GFC in terms of the relentlessness. Like, during the GFC, I remember that January, the market fell 15 days straight, and I think I came back to work, and I remember saying to everyone, look, it's going to bounce. And I think it fell for another 12 days straight. So that's what I just -- it feels like a combination of the 2. I mean what you do find is, in terms of -- back in the GFC, what we did is there was an opportunity -- exceptional opportunities. You're buying companies that were in the mid and small space, you're buying companies, discount the cash and -- that had operating businesses similar to the take rate. And on the other side, we're buying companies that had a reasonable amount of gearing but would survive. And I mean you saw that with the media companies after the '87 crash, the prime TVs in the West Coast, which had a lot of debt and survived, and they went up 20 times. And I mean, one of the stocks we bought after the GFC in the mids and smalls was McPherson's, I think around a $0.32 level, and that ends up going up 10x. It wasn't a great business. We never like the business, but we're pretty confident it'll survive. So that's probably what we'll be looking at doing -- looking for those opportunities in mids and smalls. Matt's already got his portfolio together in terms of -- that's the big end of the market and same with Catriona is you want quality companies because what you find is the quality companies. During these times of dislocation, they actually get stronger. Unfortunately, the strong gets stronger, and the weak, they go at the back door or they get weaker. And Matt was talking about sort of CommBank versus NAB in terms of -- if you're picking -- at the GFC, if you pick CommBank, what's that up from the GFC versus NAB or...

Just on relevance now, like CommBank is still about 250% above the GFC low, whereas NAB's, yes, within 12% of the GFC low. So CBA dominated over that period.

Yes. So in theory, if you can pick those high-quality companies that will actually use this dislocation to grow and create as an opportunity, it's something like Qantas, isn't it?

Yes.

It could be a similar situation.

Yes. Yes.

Does that sort of explain that?

Another question from [ John Amy ]. What about the risk to credit markets? Could this morph into a GFC event as well as prolong the downturn?

That's a great question. At the moment, what you saw was with the Fed intervention and central bank intervention, credit spreads and volatility were very low. What we've seen over the last few weeks is that credit market really tighten up and spreads blow out a bit. The next leg is really, if there's more economic impact, you're going to start seeing stress across different businesses and then we may get another credit event, and that could lead to a GFC-type scenario. So -- it won't be a severe because of the amount of debt out there and where it's held is not like the GFC, but it's really along the duration. Even like Geoff was addressing the bear market, we don't know the bear market because we don't know the economic impacts yet. Because if this virus hangs around for 12 months, it's going to cause severe impact across economies, and that's when you're going to get real credit stress and credit spreads will blow out. Counterparty risk will go up, and that's when you may get a freezing of liquidity. But even in the last few days, the issuance in the U.S., there's been really nothing in the secondary market. So no one's really tested out yet. So it's an interesting period, but the Fed are intervening again. They've up the repos to $150 billion per night, so people could access that. So that's funding. And that increased the term repo agreements by up to $50 billion now again. So the Feds are trying their best. Central banks are trying their best. But yes, if this economic impact goes on for longer, that's when you can see a credit type of it, but not at the moment.

Our next question is from [ Nicholas ]. Has Catriona invested in Kimberly-Clark Corporation, the producer of Kleenex?

Catriona?

No, I haven't. Look, for a lot of the U.S. so-called defensive, it's a matter of looking at their leverage because a lot of the -- and that's why we've chosen Nomad because their balance sheet looks in pretty good shape. Kimberly-Clark had some growth issues themselves anyway. But valid -- I don't know what -- what's the Aussie one that was...

It's funny how you say that Catriona because there's a company in Australia called the Asaleo Care and it used to be the manufacturer of Sorbent until it sold its tissue or its toilet paper business a year ago. The funny thing was just last week when everyone started buying toilet papers, the share price of Asaleo went up 15%, notwithstanding that they actually sold their toilet paper division a year ago. So everyone just forgot, but I think they will work it out now.

The -- what else do we got on the questions?

Sure. So this one's from [ Ryan ]. What are your thoughts on the outlook for oil markets? And how companies like Santos and Woodside looking? Or is it too early to tell?

Yes. Oil markets is one of the toughest markets to trade. Obviously, OPEC Plus, which is the OPEC members plus other members, including Russia, that deal fell apart when they were trying to cut an additional 1.5 million barrels. And now, Saudi has said going to print, well, not print, produce as much as they can and sell out of the inventories. And I think today, I saw in other countries that they've got to really ramp up their production. So -- what you're seeing is a ramp up of production and a big fall in demand. So economic growth is slowing. So demand was coming up, and now you've got all the airlines not flying, so they're a big user as well. So the oil market looks incredibly tough if we go into recession. Again, that's really tough. So when we look across the space in Australia, I mean, things are looking very cheap, and I think they'll get cheaper. I think oil will probably go down the 20s. I still get a sneaking suspicion that OPEC Plus will get back together as they realize their finances at the home countries are starting to bleed. So -- but that's really -- you can't invest on that yet. So for us, if you look across the space, I think oil also looks okay if you really want to be invested in that space. And then probably Santos, Woodside and then Beach is more gas related, so that'll be my players, but it's really a tough area. Everything is sort of saying invest in it now, but there will be a time. Generally, invest in oil when you start to see PMIs pick up in manufacturing and economic activity. And what we're going to see over the next few months is economic activity rollover. So hard to see a catalyst for anything in that space to go up. James?

Yes. So Virgin -- views on Virgin at the moment.

Yes. Pretty difficult, pretty difficult. It was my sine peak requisite?

All your sine peaks have been terrible, I think.

No. No, no. I have to play with the other peak. That was the Future Gen Conference. No, no, no. What was the sine peak last year?

Santos and Perth.

I've been out there.

Yes. I've been on a band high up 40%.

You're okay now.

Yes. Yes. Look, Virgin, it's going to be pretty difficult for them. I get -- keep getting call from G&Os, saying, "Do you think it'll go under?" The -- obviously, it has a lot of debt. I would have thought that the major shareholders are more likely to support it. If -- assuming it does survive, in terms of -- it's effectively irrelevant, yes. It's an irrelevant shareholding for us in the portfolio. Yes, assuming it does survive, then this would be one of those incredible leverage plays. But it's too early to -- to me, I think it's too early to make that call. We really need to see the flow-through of all this dislocation that's happening at the moment. Say the U.S. does lockdown, say Australia locks down for a period of time, then see the impact that's going to have, see who's going to survive and who isn't. And then you make those decisions. If you owned it now, hey look, it's just -- effectively, it's -- you probably just hang in there and wait and hope it gets out the other side, but accepting a significant risk on them.

Okay. We've just hit 5:00, so we'll make this the last question, although we will respond to everyone who had sent a question in over the next 24 hours. So from [ Lisa ], do you think the stimulus package and possible rate cut in April will do much to stem the economic pain?

We'll go around. Everyone can answer that. What do you think, Matt?

The stimulus is around 1.5% of GDP. Generally, that is quite good. But again, we just don't know the impacts yet so -- of the slowdown. So obviously, it's going to help. How much will it mitigate will depend on the activity level at that period of time. So we get some containment or some good news around the virus and there's a roll off in numbers and things are going down, then you get the stimulus, probably does a lot of good. If the world is still in a terrible place, it probably doesn't do much good. Obviously, it does help incrementally. But for me, 1.5% of GDP is not too bad.

What about the GFC? What are they...

Stimulus-wise.

I actually don't know. It's probably around 2.5%, 3%, I would have thought. That's generally a big push. 1.5% is still decent. So they still got some more ammunition. So rate cuts, it's just -- it depends on where we land in April on the impact. If things have cleared up, it will have a tremendous impact. But if things are still roughly out there as far as the virus impacts, impact will be quite muted because there's...

What do you think the virus like?

I'll be bidding in April, it is a big roll down in numbers. We're getting more data around fatality rates. We're getting more data on how things peak, maybe after 30, 40 days in countries. And we should be in a lot better place in April, and this will help.

Yes. The only problem is, we've got to get to April, don't we?

Correct.

We were going through the unknown for at the moment, so...

Yes.

Yes. Obviously, the more data we get, the more you can extrapolate what's going to happen. As we all know, rest of the world is ramping up now. We just don't know the severity yet, so we just need some data around that.

And even in the GFC, they did pump that into the economy. I mean -- and we're lucky because we have China supporting us.

Yes.

But pretty much everywhere else globally.

Yes. I'd say bigger than our stimulus, the impact will be in China, there will be big stimulus that will save us like the GFC. So the talk is RMB 25 trillion to RMB 50 trillion, which would be like tens of -- a large amount, like, it all would be USD 8 trillion. So...

That China is going to pop in.

China, so that's over a few years. But if they did that, it'd be like a GFC where all our miners went up in the GFC because we benefit from China and they saved us from recession. So China could save us again potentially.

Yes. Okay. I mean my view is it's just got -- this is going to play out a bit further. We're still quite early in the process.

Obviously, just -- I mean that now that they already get this, from my perspective, looking at small cap companies, I think all of the reduction in -- all the rate cuts have done is just stimulate the housing market without that of filtering through to retail. So I think rate cut in April, I mean it seems like what they are today, I don't think it's going to do much. And people are used to lower rates. I think it's got to be fiscal policy that gets us over the line. But as Matt said, it's a long way to April at the moment.

And Catriona, any?

For me, it would be, I guess -- look, on the Aussie side, I think you've covered it. From a global side, I think as you said, we're in this sort of -- we're still in the ramp up towards the peak fear. And I think for me, I'm really watching carefully like, if this drags on and companies have to actually start firing people, then like, yes, you can throw what you wanted it, but the U.S. consumer that has held up, the European consumer that's still being pretty good, I sort of see a recession if people start getting -- start -- keep getting fired. So I think we're relatively early. The key will be that they can contain it relatively quickly. And the sooner we can reach peak and start seeing those case numbers go down, the better chance we have that the economies globally recover more quickly.

Just to put everything in perspective. It's like, if every day, they announce how many people were getting the flu and how many people are dying of the flu, then we would have that fear and panic about getting the flu. And again, the tough thing is we don't know when this will play out, but it will play out. And it is very similar -- but I remember, in the late '80s, I was in London. And I was significantly younger and in my mid-20s, and we'd get in the pub for a few drinks. And then the IRA blew up a pub. So then we didn't get into the pub for a couple of weeks. And then, well, nothing is happening. So we started going down again, then they blow another pub up. And then, oh, well, we didn't go down for another week. And then eventually, we just realized that was the risk of going down the pub. And to me, as human beings, eventually, it becomes normalized. And it will be, in years to come, people will die of the flu, people die of obesity, people die of car accidents and people will die of the virus. Yes, they'll get -- there will be -- just as you get a flu vaccine, you'll get a CV-19 vaccine. And it will be -- it's just -- it will be normalized. And then when there's no fear, there's no panic, we're not rushing to buy the last roll of toilet paper, so that will play through. The tough thing is we've got this reasonable period of uncertainty while that plays through and the market hates uncertainty. So I think -- look, actually, just finishing off. In terms of our main shareholder presentation on a 6-monthly basis, we like reporting to you and going around each capital cities, we just -- each capital city and presenting to you. Obviously, we want to keep you as safe as possible. So we made a decision, [ Kate ] sent an e-mail out a week or so ago about that presentation that we'll be doing it via a video presentation. And we'll keep you in the loop on that. I mean go to our website, obviously sign up and then, we can send you out an e-mail about when that's happening. So look, thank you very much. We'll answer all your other questions by e-mail. If anyone does have a question, please feel free to e-mail or call up. I mean this is a tough time. I remember, it's too early to call. Well, I remember after the -- during the GFC, I think at the AGM, just trying to think which AGM it was, one of the AGMs towards the bottom. I think I was a little bit early. I think I said this is going to be one of the greatest buying opportunities in my lifetime. That was back during the GFC. Now it has been a good period. Again, over the next period, this will be a great buying opportunity. The tough thing is we don't know exactly when, but we know we're getting a lot closer to it. So thank you very much.