Talking Diageo, Genel, Harworth, Next, S4, Spirax, System1 & WPP, plus Palantir, SanDisk & SpaceX

The team discuss turnaround stories, including Diageo and the advertising agencies; M&A, including the latest bid for Genel Energy; and what's been happening in the world of investment trusts, including Allianz Technology and Seraphim.

There's an in-depth look at the maiden results from Space Exploration Technologies - better known as SpaceX - and a look ahead to results next week from SoreWeave and Tapestry stateside and Spirax Group in the UK.

Transcript

SPEAKER_02 0:06

Hello and welcome to the Friday edition of the ShareZify Podcast. As always, I'm joined by James and Steve. How are we guys? Yeah, and uh it always happens, doesn't it? We talk about markets being at all-time highs on a Wednesday, and then it all goes a bit peak tongue, and um things come off again. Uh cosby's Cosby's down quite a lot from its high, actually. Um, SP and NASDAQ have just rolled over a tiny bit, but um anyway, there we go. That's that's where we are at the moment. James, you've had your eye on the trust this week.

SPEAKER_00 0:39

Yeah, very busy week for trusty, and so lots of results out and some interesting pods. Today we've had Murray International. So this is the Global Equity Income Fund. Slightly underperformed the benchmark in the first half, but you'd probably expect that because this was a period dominated by the AI trade. Murray International's very much got a value tilt. Uh but the good news is they delivered capital growth ahead of inflation, which is part of the remit. Um, interesting. We've done a detailed note on Murray International and we had a podcast chat with Samantha Samantha Fitzpatrick. So uh do check those out on the website. Uh, one trust that did outperform its benchmark was a very popular alliance technology trust. So stock selection across semis and mid-cap tech stocks that more than offset volatility among the AI mega caps. And it really, I suppose, underlines that you know this is a very uh well-managed trust, kind of justifying the active approach.

SPEAKER_01 1:27

Yeah, absolutely. That's a really good point, James, because um I do think there are lots of um Me Too uh trusts out there now at the moment with with big holdings across the sort of AI trade space. And I think what um Allianz have shown is that over the period um you know it's about their stock picking abilities that are really really shining through. And and you think this is a very um this is a very uh tight, a condensed portfolio. So you're really putting your faith in the management, and they outperformed the benchmark almost twice as good. So really impressive.

SPEAKER_00 1:58

Yeah, excellent stuff. Yeah, we also had Seraphim, didn't we? Uh deployed those first C share proceeds into two uh two existing portfolio holdings. And then it just in terms of the podcast, me and Steve, we had a very interesting chat with James Tom, Aberdeen New India Trust. And earlier in the week we had Emily Whiting back on and she was talking about JP Morgan, emerging markets, growth and income. So listeners, do check those out.

SPEAKER_01 2:20

Yeah, absolutely. We we we've got a feature coming, um, be published today. It's all about trusts that are focused on India. So if that is something that floats your boat, um the nifty-50 has been a little bit wobbly uh in in recent weeks. Um, so actually, worth well worth tuning into um to James Tom's podcast to find out you know what he thinks about the the wobbliness and and where where he thinks uh things are going. It's uh it was a very good podcast, definitely.

SPEAKER_02 2:47

Um, but you had your own uh US tech, as James says, you know, it's been a fantastic half for technical spell, and that's carried on with look look at the results that we've had this week.

SPEAKER_01 2:55

Yeah, I I mean these these are really big uh holdings in in most retail investors' uh portfolios, if not directly then through um ETFs or through active funds. We're talking about Palantir, um struggled a bit. Uh sorry, Palantir went absolutely bananas uh up about 15%. We also had really good results from a microchip today. Um, but on the downside, AMD struggled a bit, largely because expectations were just a bit too high. And and you know, while it beat um um forecasts, ultimately investors kind of wanted that bit more. And uh we've also had Sand Disc, very similar story, expectations just so sky high now, it's almost impossible to to to beat them. Um and App Loving. Now, this is an interesting company based on the fact that it's it's one of Terry Smith's new holdings. Um Smith, we talked recently about um how he's he's transitioning his long-term strategy to to uh you know to dive into some of these more momentum-driven traits. App Loving has been a recent acquisition for him, but it really kind of died a bit of a death, really. And again, it's just about expectations being set so high, it's almost impossible for um for management to kind of not only meet beat but then exceed again. So it's really tough benchmarks to um to hurdle.

SPEAKER_00 4:11

Yeah, here, James, you've been watching the consumer names again. Yeah, so we had another upgrade from next, you know, that got that reputation for uh for underpromising and over-delivering. Uh, a really strong reaction to uh Diageo. So this was uh Dave Lewis, drastic Dave. He set out a plan for uh you know turning the business around. He's aiming to deliver about a billion in savings over the next three years, and he's cut the final dividend, so it's a radical action. I think investors also liked you know his path to outperforming a tough spirits market, excited about the potential for Guinness. So um, yeah, really interesting stuff on Diaggio there.

SPEAKER_01 4:44

Yeah, I mean that's an interesting one. I wonder if his name should be dynamic, Dave. I mean, we see you see how the share price returns around, but Ian, you've had your eye on MA a bit this uh this week, haven't you?

SPEAKER_02 4:53

Well, turnarounds as well, Steve. I was gonna say, if you talk about turnarounds, um, media stocks have had a cracking week. We had S4 Capital run by Sir Martin Sorrel. Now he used to run S uh WPP, obviously. Um he set up this business, S4 Capital, a digital first media agency business. Stock went up 20% on results, and the next day, WPP goes up 25% on results. Now, with both of these, there's a good degree of self-help, they are turnaround stories. But what's really interesting for me is business is coming back, demand is coming back, and what WPP said was very interesting was companies have been throwing money at AI and so they've been reducing their investment spend. But does it get the same kind of return as advertising? And I was looking at this. If you take a firm like L'Oreal, okay, they spend a quarter of their revenue every year on advertising, so that that business hasn't gone away, but other companies that have been maybe diverting some of their capex towards AI now starting to divert it back, and that leads on to the MA story because, of course, we've had System One, which um I've been following, it's really interesting. Business, they look at the emotional pull of advertising, and their clients are most of the world's biggest brands. Brave Bison owns 28%. They've had three attempts to buy this business, and System One have turned around and said no. What have we had this week? Haworth Group, another one where the biggest shareholder has said we want to buy this business again, about 28-30% shareholding, and then today we get out the blue DNO, the Norwegian oil company, announces that it's made a bid for Gen L Energy. Now, this is a bit more of a it's a bit more of an opportunistic situation here where Gen L Energy shares used to be 10 quid and you know they're now sort of 50p. Um, and I suspect that DNO, because they work together in Turk uh uh in Kurdistan, I suspect that it has good inside track on the business. It's waiting and waited and waited for the share price to go down. Made an offer the end of uh July. Company said no. Uh, I think they've offered 69p roughly. So the shares have responded well today, but I think there's a lot further to go. To be honest, when you look at the where where the share price of um Geno was, it was higher than 69p, you know, in in the last year. So I reckon that that one is just sit back, watch and wait. But yeah, busy time.

SPEAKER_01 7:24

Yeah, so um listeners, we're we're gonna come on to that part of the show now. It's a new um segment, it's where we talk a little bit more in depth about a single stock stock of the week, if you like. Um, I know, I know SpaceX is gonna be the one, right? I you you you get bulldozed your SpaceX is a good one. It's got a big talk and writing and so on. We do apologize, but we do think it's where the interest is at the moment. Now, these are the first um earnings as a listed company after its world record IPO. Now, let's just look at the the headline numbers. It beat on revenue, its net income losses um were better than most of the market expected. Um, Starlink revenue certainly uh ahead of market uh expectations, as were Starlink subscribers. AI revenue, uh obviously a big part of the uh longer-term story at SpaceX, um, very much beat $2.6 billion worth of um the costly revenues from AI. Um, so really interesting um that the operational side of things seems to be going certainly in the right direction. The big question mark, though, for investors was CapEx. Now we've talked about CapEx across the um the hyperscaler space in particular, but we've written about it in depth and why it's such a worry for investors. Now, um SpaceX spent about $18.3 billion um on CapEx. Um, market expectations were for around $13 to $15 billion. So it's a massive chunk of change. They've lashed at the market, they've lashed at um investment um uh over and above expectations. Now, how do you value this business? Well, my word. Um, stick your finger in the air and see which way the wind is blowing. It's it's almost impossible to put a value on this because we are not talking about earnings 18 months, two years, three years, even five years down the line. We're probably talking about a story that's going to run seven to ten years before we really get a sense of of what SpaceX can really do as a business. So uh is it worth the current share price? You know, who knows? What we do know about the share price is it's below the IPO. The IPO went at $135, remember, it's down at about $115 now. Um, so you have to decide whether or not that's coming back to a more reasonable level, or is it still hugely inflated? Um, we certainly it's been peaking at over $200 um right after the IPO as loads and loads of retail investors piled in into the secondary market. Um it's going to be a volatile journey. We warned investors that that was likely to be the case, and I don't see that changing over the coming months uh simply because um there's such a lack of guidance. Investors and analysts they really don't know where to pitch their forecasts. So in three months' time, we'll get more earnings and we're likely to be as in the dark as we are now. So that's realistically where we sit with SpaceX. Um, talking about next week, uh and I think uh James, you you've got your um eye on uh a few things going on.

SPEAKER_00 10:25

Yeah, we've got a trio of gaming stocks. We've got evoke, entane, and also rank group. Uh, but the one I'm most interested in is tapestry. So for listeners who don't know, this is the owner of Coach in Kate Spade, who give a really good read on the kind of affordable luxury market and how that's performing. Um, actually, the FTC kiboshed the tapestry merger with its smaller rival Capri in 2024. The shares have absolutely moated since. So I think they'll deliver some good news, or you know, the shares could get punished.

SPEAKER_01 10:51

And that ties in neatly, James, with the fact that the Bayou Tapestry is actually coming to the UK for the first time, I think, in years and years and years. So uh that's uh launching in September. Uh Ian, what have you got your eyes on uh next week?

SPEAKER_02 11:06

So, Steve, next week we've got um Bellway coming out, and we've also got a couple of building materials stocks at Genuit, which is the old polypipe, and Marshall's the um uh landscaping materials business. We've also got infrastructure coming out, Balfour BT, we've got Costain, we've got Hillen Smith, but the one I've gone for is um Spirax. Now, people will know it as Spyrax Sarco in the past, now just plain old Spyrax group. Quality compounder, I mean, one of the high, you know, high returns, uh, great market, growing organically, and so on. Always been expensive, and actually, post-COVID, when there were supply chain issues, the price went nuts, it went to kind of 50 times earnings. Demand was so high, and they could price it at whatever they you know they wanted, price their goods whatever they wanted. But the valuations come back to a more modest 25-26 times, which is about the middle of the historic range. Fascinated to see what they say. Um, they did actually their aim is to grow faster than industrial production globally, and they managed that in the first half, but the typically the results are second half weighted. So I think that would be an interesting one to watch next week.

SPEAKER_01 12:14

What we usually say in journalist in journalistic terms is reassuringly expensive. It was obviously reassuringly expensive. It was a term that got banded around around companies like Halmer in the past, and I think that certainly applies to uh to Spear X. Um, we've got a really busy week again next week um with with more tech, but we are winding down. But Cisco on on deck, we've got applied materials, which you wrote wrote about recently, super microcomputer. Um, plus we've got some really hot stocks like um Rocket Labs and uh Nubius, um, this edge computing um uh firm. So it'd be really interesting to see how they do. But the one my my uh my eyes have landed on this core weave, that is AI infrastructure. Um, it's really expensive, it's really rapidly growing. It'd be really interesting to see if they can um match these really high expectations or even surpass expectations. I mean, that's really likely to drive the share price either lower or higher. Is is it gonna raise guidance again? And is it gonna be really optimistic, or is it gonna find that um it doesn't really want to inflate the market expectations too much? You might see the share price weaken over time. Um, I guess, guys, that's about all we've got time for, isn't it? Pretty much, yeah. Marvus, it's well worth that having a chat, um, um having a think about um what you think of our fancy shirts, and also have a look at our podcast, have a look at our uh website. We've written loads and loads of stuff. Um, we've only uh sort of brushed loads of this podcast because we're under time uh under time limits. Um, and also remember we've got in November the 6th, we mentioned it on Wednesday, the uh ShesiFi Wealth and Retirement Show. Um, it's um available to to all comers. We've got uh a capacity of about 200. Get your tickets in now. There's uh uh um uh a discount code podcast, so all caps podcast, and you can get the ticket for half price. So that's from 30 to 30 odd quid down to 15 quid. We've got an array of different talent on on deck. Uh James uh AIC are gonna be there, aren't they?

SPEAKER_00 14:11

Yeah, that's right. CEO Richard Stone will be there, and um who else in? I think we've got a few other names, haven't we?

SPEAKER_02 14:17

Well, we're adding them bit by bit, yeah. There's um the panel list is um looking very, very interesting indeed. And of course, we've uh we've got uh Laura, as we mentioned before, Laura who runs Lord Adventure in Lowland. Um we put that on uh X and we've got 57,000 views for that one post alone, chaps. So if that's any indication of the interest, are we standing room only?

SPEAKER_01 14:41

But remember, listeners, if you're in the UK and certainly in the southeast, it's a London-based event, so you've got a slight advantage over anyone that's in LA or Hong Kong. So get your tickets in quickly. Uh, we don't want you to be disappointed. Anyway, that's about it from us. Um, it's been a busy week, and we look forward to another busy week next week. And please join us again for more podcasts from us at Shares Five. Have a good weekend.

SPEAKER_02 15:04

Bye for now.