Are relationships more important than cars?

Companies, Media Companies | Comments (95)

Are relationships more important than cars?

In last weekend’s Weekend Australian, Terry McCrann wrote an excellent piece explaining the possible nature and motivations behind the relationship between Murdoch, Stokes and Packer. ‘Hiatus after Packer’s bombshell’ was both enlightening and entertaining.

I quote:

 

 

“From the day Stokes seized control of the West Australian Newspapers boardroom three years ago, it was always a case of when, not if, he would move to join it with his Seven Network.

 

“There was the sheer irresistibility of the gains to be extracted from such a me…There was also the requirement to provide an exit to … the KKR private equity group…There was also the need, and indeed opportunity, to solve a couple of Stokes’ tax issues…It also preserves liquidity in the enlarged WAN-Seven, which becomes the premier listed media vehicle in Australia. That will enable KKR to be taken out in due course and, when it does, further cement the stock’s appeal…”

“It also highlights – and partly explains – a missing piece in the Stokes media set. The merger doesn’t bring together all of the Stokes media interests.

 

“Left out is the Stokes holding company’s 23 per cent stake in – what do you know – Packer’s Consolidated Media Holdings. And it has linkages into the Packer partnership with Rupert Murdoch’s News Corporation in Foxtel and Foxtel Sports.

“Its absence could be explained by the complication it would have brought to the merger proposal. Also, its inclusion would have given Stokes more shares in the merged entity. That would have rendered the new company less tax and investment efficient.

“But it’s an absence that raises the question of whether there is a Stokes shuffle part deux – or trois if you count the Seven-WesTrac deal. And that brings Packer and his partnership with the other Murdoch, Lachlan, back into the building.

“He walked out of the Ten boardroom because Lachlan poached budding TV star James Warburton from Stokes’ Seven to be chief executive of Ten. In the most public, and indeed shocking, way Packer signaled his disagreement with that, and to Stokes that it was not his doing.”

Relationships it seems, matter. And so they should.

In the end, it is not cars, boats and planes that bring joy, but the quality of the relationships you develop.

This week I read that Carsales.com.au had been sold out of Nine Entertainment Co, the rebadged PBL Media (which is owned by CVC Asia Pacific).

Reading Terry’s article caused a rumour I heard last year to become louder in my mind. The rumour was that a group of customers of Carsales.com.au (ASX:CRZ, MQR:A1, Value.able Margin of Safety; -24%) were thinking of leaving to start a rival that would be funded by News. You could understand News’ interest, given it is losing the online automotive classifieds race to Drive (Fairfax) and Carsales.

If this is true, and if Terry is also on the mark with the intimacy of the relationships amongst Australia’s media barons, both individual and corporate (excluding Fairfax), then it would be reasonable to assume that the status quo should be maintained until after Carsales had been spun out of the former PBL, finding itself completely owned by institutions and private investors.

Now that hurdle is out of the way, let’s see if Carsales does lose any major customers.

Posted by Roger Montgomery, author and fund manager, 10 March 2011.

INVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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95 Comments

  1. william
    :

    Hi guys what do people value Seymour Whyte Limited at?
    I got a much higher value than its current price

  2. Terry
    :

    Hi Roger. Love your blog and approach to the share market. One question: Given that most of us can only receive a maximum 3-4% return after tax on our money sitting in a bank account, don’t you think requiring a required rate of return of 12% for most companies PLUS a 20% discount is a little extreme? Would love to hear your thoughts!

  3. JustinP
    :

    Any comments on my output (seems rather low): ?

    [B]Code: CRZ Price: 9.27 [/B]

    INPUT:
    …….. EqPS .. Shares … DPS … EPS … RR
    Next Yr 0.43 .. 232.50 … 0.19 .. 0.24 .. 13.00
    Curr Yr 0.38 .. 232.50 … 0.15 .. 0.19 .. 13.00
    Prior Yr 0.00 .. 232.00

    OUTPUT:
    ……….. IV .. …. ROE .. NPAT …. POR
    Next Yr 2.91 … 59 .. 55.80 .. 79%
    Curr Yr 5.04 …. 97 .. 43.01 .. 81%

    • Andrew
      :

      Hi Justin,

      I get $2.51 for 2010 and forecast iv’s of $3.10 for 2011 and $3.80 for 2012 on a 12% RR.

      Not sure if i am misreading something here but the current year ROE of 97% isn’t right. I get 52.41% in 2010 rising to 58% in 2011.

      Its a pretty good company, it gets a score of 83% actual and 86% weighted on my quality scoring system. Pretty expensive at the moment in my opinion but IV appears to be growing, there are some potential risks which have been pretty well summed up here but they should come out of it as they have and similar type of companies have before.

  4. Ann
    :

    I think until Japan fixes the reactors, the markets will bubble up and down with big swings. The UN decision on Libya, could make other residents of similar countries take heart, which could again destabilise things. Bumpy Year Ahead

  5. Es
    :

    re ORL
    How many here have been to any of their o/s stores ?. I have.
    I have been to their store in the ION in Singapore. It was empty on a weekend. The store is on one of the highest levels in the ION with not much foot traffic around. Nevertheless, I would not be surprised to find the rent as being more than almost all its Australian stores. Their overseas expansion concerns me. Generally in Asia, you need a strong brand ambassador, Daria Werbawy, does not fit that bill. Its a country with a strong celebrity culture. Get a proper ambassador, pay top price if you have too. You need this when you are competing against COACH etc in Asia.
    And then comes this flat result and poor outlook !.
    Many an Australia company have gone out to taken the world and fallen on their sword.

    ES

    • Andrew
      :

      I have been 50/50 on the asia expansion. It makes sense to me as a logical spot to try and expand overseas but as you say, it is risky and could fall flat.

      I think ORL have a design and product that would attract Asian consumers, there is definitley potential there. However, Asian women also seem more likely to pay up and go to a Chanel, LVMH, Prada and Gucci. I am going to reserve judgement for now.

      Short term i think it will drain some resources and management focus and probably result in a bit of a lag.

      If they get some good locations and make some good marketing decisions i can see them getting good results in the long term. Another part of me can see this as another Australian company prematurely expanding overseas into an overseas market.

  6. teddy
    :

    Hello Team Just on a general question… l am looking at Perilya Limted PEM with the ROE 41% …. IV $4.69 and wondering what margin would be lost with a D/E 109%….l am well aware of the rules concerning Debt..but .is there a set formula that can be applied??? when there appears to be so much margin…Teddy

  7. Kent Bermingham
    :

    Roger,
    A Number of Graduates mention your MQR Rating for various companies, where do we get this info please?

  9. Paul A
    :

    Regarding VOC you mentioned on TV of the increase of data – just remember over time data gets CHEAPER. For example an Internet connection 10 years ago is the same price as one now… but you get x10 the data.

    I have also been lookign at Platinum Asset Management (one of your favourites). Could you or someone else explain this to me from the BS

    Contributed Equity 629,091
    Reserves (570,133)

    What are these reserves? Why are they subtracted? Obviously the large negative gives a very high ROE. If $629m has been contributed to the business why the very large negative? Ignoring the Reserves account i get a ROE in the 20’s. Including it it is in the 60’s. This obviously greatly affects the IV, so if someone can explain thanks.

  10. AndrewM
    :

    Have to disagree with the post from OReilly…

    There is a company behind ever set of fundamentals figures. It’s important to discuss their strategic position – their moat – test it and understand it better.

    And I’m glad Roger mentioned the rumour.

    It’s good to know what the market might be hearing – that can be to your advantage.

    Plus the rumour got me thing more deeply about CRZ’s strategic position -to the point that I now believe is a takeover target.

    I won’t buy unless the fundamental analysis works out – but a key step in the fundamental analysis is putting a number on risk. I think i can do that better now.

    If you could invest successfully by just looking at the numbers – there would be very rich computers.

    • Andrew
      :

      I agree with the main point of your post. Being that it is important to think about more than just the fundamentals in a business.

      I am currently fine tuning an analysis system i am designing to do this. Basically the premise behind it is that there is a whole lot of value which cannot be defined by variables in a financial statement. People who have read my posts will know that i am a big believer in brands and competitive advantage and place a heavy emphasis on it with the companies i look at.

      I think if CRZ lost a dominating share holder which opebned up the register it would make it a takeover tagrget however an expensive one. The price is trading at a significant premium to what they are worth and to buy them would be a huge overpayment and result in a declining ROE. That said, some boards seem to like just pulling the trigger regardless of price and effect on future ROE.

  11. Stephen
    :

    Hi Roger,

    The Value Able blog is gaining a lot of traction now and over the course of the past few months there have been some terriffic posts from contributors discussing many different companies. I know as a regular reader and occassional contributor, I often seek out others opinions on companies I’m interested in. The problem now is that a lot of those comments are lost in posts of the past and there in no real way of searching for them.

    So, as I type this message on the blog page which asks for my name and email address, I wonder if there should be an additional sub title into which I input the ASX company code(s) I’m writing about. And then a search window at the side of your page into which (at some other time) I or others could punch in the code we’re interested in to have all posts regarding that company come up. That way , I could have a ready reference of material contributed about the company I’m looking at.

    I know it’d be hard to back capture the previous comments but it would be useful to capture the informationgoing forward I think.

    Sephen

    •  Gail
      :

      Hi All

      I also don’t agree with O’reilly. There are some very informative and entertaining comments on this blog. Privately I would be very unhappy if it’s format changed. I am fairly new to share investing and have gained so much info. Also agree with Stephen, I try to read all the blogs and then when I need to return to some info I had seen in the past, I cannot remember where I saw it and have a hard task trying to find the comment again. It would be helpful if there was some type of reference available.

      • Gavin
        :

        To assist anybody who monitors the blog by a news reader, would it be possible to increase the number of comments in the ‘comments RSS feed’ from the current 10 to whatever number it is that you release at a time. A lot of comments don’t show up in my reader because of this limitation of 10, a limitation which other site feeds don’t have.

        Thanks
        Gavin

      • Gavin
        :

        Thanks Roger

        Just had 18 comments land – so the change seems to be working a treat.

        Cheers

      • Ashl
        :

        Hi Gavin,

        Great call,

        Thanks for doing this Roger,

        I am finding safari the best browser to use I just go to the RSS feed and click on the insights blog comments feed.

        It should be the second of three.

        Very happy

        Thanks

      • RobertD
        :

        Hi Gavin and Ash and others,

        I have found Google Reader to best coupled with Chrome it is great. Google Reader allows you to search all the comments, star important comments, tag comments with keywords. Additionally you can use it anywhere – you don’t need to have a specific browser installed….. As comments come up regarding specific stocks, I tag the comments with the ASX code so I can easily pull them back at a later date.

        It is worth checking out

        Robert

    • Joab Soh
      :

      Room,

      For those who has a Mac. I found that RSS feed in Safari is alot easier to navigate through all the information. Plus, you can “Subscribe to in Mail” (middle right hand side of the RSS feed page), which allows you read everyone’s comment in your Mail.

      Not the perfect solution, but at least you can do a search in Mail.

      Hope that helps.

      • Ashl
        :

        Hi Joab,

        Thanks for that.

        BTW room you don’t have to have a MAC to use safari as your browser and now that roger has increased the number of comments to 100 it is fantastic.

      • Ash Little
        :

        Hi Roger,

        When I go back in time I usually have a rough idea when a comment I want to find was posted so I can look back through the blog but the current blog does not let me look at older posts as they are stored under A1 or banks or airlines after a period of time.

        You may be solving this with you new search features you mentioned.

        Nice work again and thanks

      • RobertD
        :

        I find Google Reader a great RSS reader. It also allows searching through the feed, and you can add tags and notes to find those important points quickly.

      • RobertD
        :

        Hi Ash,

        No worries, happy to help and to provide back to the community.

        Google has a web based RSS reader – you can get to it by going to http://reader.google.com. You will need to have a google account – its free to sign up (if you have a gmail, Google Email, account you can use this).

        Web Browsers, Internet Explorer, FireFox, Safari all offer a native RSS reader capability – but it is tied to the browser. Google offers a RSS reader located in the cloud – meaning you can access it anywhere independent of your browser.

        Once you are logged into Google Reader you can then add your RSS subscription feeds for Rogers blog. When new comments / blog entries appear in google reader you can then tag them, star them, share them with friends, or email them. I often tag comments / blog entries that mention specific ASX equities that I am interested in. You can also do a search across all blog entries within google reader making it easier to find stuff.

        Hope that makes it a little easier to understand. Do a google on “setting up google reader” – you will lots of tutorials and information on this.

        Cheers

        Robert

        PS. For my browser I prefer to use Google Chrome – but it is all personal choice. You don’t need to Chrome to use Google Reader.

      • Ash Little
        :

        Thanks Robert,

        Cheers Mate,

        I am still getting a few things wrong with regards to feeds emailed to me but i am sure I will work it all out. Thanks

  12. sean
    :

    Hi Guys,

    what are everyones thoughts on RIO i know rogers valuation is in the 80-90 dollar mark it seems to be going down heaps and possibly represents good value, its expecting to increase earnings per share from the 6 dollar mark to about $10 dollars so its future looks bright, i beleive if it drops under $70.00 it would be something i wood consider buying, what are everyones thoughts ?

    Cheers

  13. O'Reilly
    :

    This blog seems to increasingly turning to matters of rumour and speculation, rather than fact based fundamentals and value investing.

    Have you changed your investment philosophy of late?

    I am reminded of Buffett’s public posture and statements on derivatives, which stand in stark contrast to his multi-billion dollar derivatives bets and the major long term exposure Berkshire Hathaway runs on his speculations on the level of the S&P 500 a in 2019/20. I had put this down to incipient Alzheimer’s, plus the fact that based on the actuarial averages he would not be around to suffer the pain if the bet did not come off. But you are much younger?

    • Roger Montgomery
      :

      And some readers increasingly read too much into things… No change to philosophy. Have always had very long term positions in bond and commodity futures personally. Have stated clearly my views and try to rein in those that move off track. The vast majority of my investments are value-based business investments. Not every post can be a list of A1 businesses trading at a big discount to intrinsic value. Carsales is expensive at the moment so I thought I would share one of the thoughts I had. Happy not to and stick to facts. I reckon you have benefitted from the comments the naval gazing generated without realising it.

      • John M
        :

        Hi Roger,

        I have been following your investment philosophy/process for quite some time now, and have benefitted greatly from all of your comments. Please keep on publishing all of your thoughts as you have been doing up to now.

        I have personally found that as my financial intelligence increases, so to does my appreciation of the cyclical nature of all the different asset classes. I guess that some people are not ready for the level of comment that you are expressing. In my own case, if an idea is beyond my level, I just put it on my list to investigate. Your comments have opened up my eyes to a much wider horizon. I encourage you to continue expressing all different levels of comment as you see fit, because after all, it is your blog.

        Keep up the good work Roger.
        With much thanks.

  14. Matt
    :

    Roger,

    Saw Marcus Pedlay’s article about value investing this morning in which you get a mention:

    http://www.theage.com.au/business/investor-type-2-the-tester-of-patience-the-value-investor-20110311-1br90.html

    Very few opportunities out there at the moment and it does test patience. I think the aggressive buy up of VOC after your mention of it shows that a) people can’t find the opportunities b) people are following the man rather than the business.

    Look forward to discussing the next opportunities here before Mr Market hears the rumours and erodes the MOS:)

    Matt.

    • Roger Montgomery
      :

      Don’t know what people where thinking buying up and over intrinsic value. Don’t know what people are thinking buying without doing their own research or seeking and taking advice! Remember I cannot forecast share prices. I am under no obligation to keep my views on any stock up to date. Delighted to hear Marcus thinks highly of Value.able. Its especially rewarding when peers review and like your work. Will have to thank him during the week.

  15. andrew
    :

    CRZ – A Takeover Target Now.

    Roger suggests the possibility of dealers combining with a big media company/s to take on CRZ.

    What are the interests and motivations here?

    The car dealers hate to pay by the lead – so they’d like to start a lower cost alternative to CRZ.

    But big media companies just want to make money. After Packer’s MyHome debacle on 2006 and 2007, big-media might prefer the simpler, low-risk strategy of just launching a takeover for CRZ.

    Now the CRZ share register is wide open – that is entirely achievable now.

    Why spend hundreds of millions trying to create a low-cost/low-profit number two car site – that still might fail completely?

    Instead, just pay up and grab the number one site in the open market? If I was James Packer, that’s what I’d do.

    Now… how would I try to minimise the premium i’d have to pay??? Maybe encourage a rumour that there was a chance a competitor was about to launch….??

    There is more logic to the idea that CRZ is now a major takeover target.

    The recent share price seems to be holding up very well given the rumours of a competitor.

    • Manny-Sorbello
      :

      Intersesting post on crz. So there is a threat of online retailing vs bricks and mortar and now an online threat to an existing dominate online in crz. With fundamentals that good it’s no surprise. Remember last year the threat of google vs real-estate.com what happened to that threat? Does it still exist? probably it’s just not hot at the moment. Does any other blogger visit any other realestate site but real-estate.com? Does anyone visit carsales.com or any alternative? How about Facebook what happened to their competition. I have no doubt someone is looking to launch a rival to crz and if packer is involved how successful is his track record? Crz is an A class business will this new unknown competitor be? Listed car dealers are highly leveraged (Ahe and Ape) even if you net off the floor plan finance. They also have their own online presence is this also a threat to crz.

    • Andew
      :

      I agree that it is potentially a takeover target.

      AndyC mentioned innovation and the rumours that have been surfacing about CRZ fits into the need for this. Carsales is the undisputed leader but the customers hold a lot of power, the only thing saving it is the fact that they get the most eyeballs. Carsales have to balance both the commercial arm and the one that keeps its customers.

      If CRZ is going to lose its dominatingshareholder resulting in a more open register than the chance of it being a takeovertarget will increase. The financial side would be attractive. Not sure if the price is. It indeed might be cheaper to start up a rival and take market share by attacking CRZ’s weakness which is the displeasure by the customers about the price paid to advertise.

  16. Terry
    :

    Hi all,

    Long time lurker and second time post (now thats what I call progress).

    Wondered what everybody thought of Acrux Ltd, it is essentially a mixed pool investing in pharmaceuticals/biotechnology. While the Iv looks good for this year, there has been several years cash losses upto now.

    I’ve just about got my head around working the IV out, but my forecasting sucks and I’m still ona big learning curve, so wondered what all the guru’s on here have to point out.

    Many thanks for all the advice given, I’ve learnt tons already. great book Roger!!

  17. Kevin
    :

    Hi Everyone and Roger,

    Everyone is looking for value at the moment and the only stock i can find thats “cheap” is as small cap called (HSN) Hansen Technologies today trading at .925 about 19% discount to IV.

    My evaluation for HSN is $1.14 and going up towards $1.40 in 2012 it has no debt pays a decent dividend high rates of return on equity however i can’t seem to locate any competitive advantages..

    for those of u who wish to know what the company does please see below google finances description

    “Hansen Technologies Limited (Hansen) is engaged in the development, integration and support of billing systems software for the telecommunications and utilities (gas, electricity and water) industries”

    i believe it has an A2 status and appears to be relatively cheap at the moment i would appreciate if someone was aware of its competitive advantages and also roger’s thoughts in relation to the IV.

    i have been a long time follow of the blog and though its now time i made a contribution.

    Thanks,
    Kevin

    • ron shamgar
      :

      my only issue is that top line revenue growth was absent and their profit grew due to cost cutting. also oz dollar is bad for them.

    • Ash Little
      :

      Nice contribution Keven

      I have current IV below current price but I will now update my IV

      It is a nice company but i would like to pay a nice price as nwell

    • William Gill
      :

      Hi Kevin,
      Submitting your calculations may help.
      I have looked at HSN a number of times over the last 6 months, and have always considered it overvalued, plus the fact that a lot of its revenue is raised overseas, which creates problems for me personally with the high Aussie Dollar.

    • John B
      :

      Kevin,

      I remember posting my interest in HSN a couple of months ago but it was at the tail end of a long post and comments then jumped to another of Roger’s posts. This I find is a bit of a problem in following the blog. My IV calculations for HSN at the time are now rather dated but they then ranged from $0.77-0.83, some way below your current ones. On this basis I did invest at an average price of $0.66 and of course have had no reason to regret it. I plan to recalculate over the weekend but I am still very much a learner at this game.

      • Roger Montgomery
        :

        Hi John. My team are aware of the problem you encountered. It is something that will be fixed in the not too distant future. In the meantime, I believe this is the comment you are referring to?

        http://rogermontgomery.com/what-does-my-2031-crystal-ball-predict-2/#comment-7516

        Posted by John B on January 23, 2011 at 2:56 pm
        My suggestion of a stock worth keeping an eye on is Hansen Technologies (HSN) which is in billing software for telecommunications/utilities among other things. It has a respectable ROE of 23% and in my calculation an IV of somewhere between 77 and 83c. This is only a small premium on the current price of 73c but would be worth considering on any dip. No debt, equity has been fairly stable over 5 years and there is a depth of IT experience in management.

    • Joab Soh
      :

      Hi Kevin,

      First of all, well done for contributing. I find that it helps me put my thoughts together when I post a comment.

      Couple of observations from a quick scan:
      – Negative net cash flow for the last 2 periods (HY10 is a result of acquisitions and new capex).
      – Intangible asset is one of the most significant item on the balance sheet. Not necessarily bad, but you need to have a view whether the company has paid too much for their acquisitions.
      – Seems like company has been able to reduce cost while maintaining revenue, resulting in increase in earnings (i.e. operating margin is increasing)

      Not sure about competitive advantage and prospect too.

      Do remember that are a lot of boxes to tick, so keep digging. = )

    • Phuong
      :

      It seems like you’re a little optimistic with the forecast ROE or discount rate. I’m getting IV of $0.78 going to $1.05 in 2012, assuming ROE of 25% and 27.50% and discount rate of 12%.

    • Rob Walker
      :

      Hi Kevin,

      I have IV at 0.91 (2011) and 1.08 (2012) using 11%RR

      My current IV has increased since my last calculation in Dec 2010, I will watch
      this one.

      Cheers

      Rob W.

    • Scotty G
      :

      My 2 cents worth.

      I think this is a good company as well but got an IV of $0.75. Possibly a function of using different RR%. I believe I used 13%

    • Justin
      :

      Kevin – what figures do you get?
      On Etrade I get the following:

      Current Equity 0.32
      Current # Shares 154.8
      Reported NPAT 11.1
      Reported Dividends 9.288
      Prior Year’s Equity 0.3

      which doesn’t look right…

      • Justin
        :

        How do these figures look? (copy and paste from my
        spreadsheet) :

        Code: HSN
        Share Price: 0.87
        Margin of Safety: -17%

        (Million) EqPS:
        Current Equity 49.536 0.32
        Current # Shares 154.8
        Reported NPAT 11.1
        Reported Dividends 9.288
        Prior Year’s Equity 46.44 ROE:
        ROE Selected 22.5 23%
        RR 11

        Table 11.1 2.045
        X EqPS 0.65
        X POR 0.55

        Table 11.2 3.626
        X EqPS 1.16
        X1 – POR 0.19

        Intrinsic Value 0.74

      • William Gill
        :

        Hi Justin
        I don’t have my figures near by but you are showing eps as two different amounts , I also think my eps is 0.32 cents . You also have this figure if you divide your equity 49.536 by shares on issue 154.8
        Strangely you have a 0.32 next to your current equity, this could be confusing you . As you then state the different amounts on table 1 and table 2 , as 0.65, and $1.16.

    • david
      :

      Kevin, like you am a long tiome follower – I have held HSN for some months now – i think around Aug last yr – my average price was .70.

      Using a 10% RR – i had a value of around $1.11 and with a profit announcement back in Feb this number was justiified.

      I don’t think the rising Aust dollar was all bad because many of the buisienss operating profits are also now over seas $ – for memeory they actaully did better on a net / net basis than you would have thought.

      You could argue that a 10% RR is over generous but with the regualrity of revenue and no debnt – i think it is a pretty safe sort of business.

      Amazing how it got knocked around yesterday – clearly price is driven by sentiment – and neither have much to do with value.

      I’d be interested if other bloggers have a view on HSN.

      David

      • david
        :

        i meant to say much of the business operating expenses – (not profits) are foreign currencies – refer to their market announcement back in Feb.

  18. andrew
    :

    Quote…
    ” In its bid for a slice of Australia’s $1 billion property advertising market, James Packer’s PBL Media has sold about 20 per cent of its new online property group MyHome to estate agents around the country.

    ” The Australian understands that four of the country’s five biggest property sales groups – LJ Hooker, Elders, Century 21 and Raine & Horne – have taken a combined share in the group…”

    Relax – that was from The Australian, Dec 1 2006.
    And that well funded, industry supported, and media tycon-backed attempt 100% completely failed to topple REA.

    Can anyone (especially Roger) explain why/if Carsales is vulnerable? Or is this potentially a re-run of MyHome in 2006??

    I’ve assumed the later, but as a big shareholder, don’t want to rely on my assumptions unchallenged.

    And ok – the dealers hate paying for bad leads – but they dont complain about the great leads. They must realise it’s the average cost of leads compared to the average sales generated that is important.

    cheers,
    andrew

    • jc
      :

      The problem with CRZ is that that margin made on used cars by dealers is not large in comparison to the average cost it takes to sell the cars via the website (on an average lead basis). The difference for something like REA is that the price paid by the vendor to sell the house is a miniscule amount compared to the value of a house, whereas a secondhand dealer paying $100-500 bucks to sell a car that might only have a margin of 1000-1500 bucks in the first place can start to grate.

      • Andew
        :

        Different Andrew here, i completley agree JC. It is exactly why CRZ is vulnerable to an attack by competitors as the customersmight have no chance but to go somewhere else.

        CRZ is my second least favourite online portal with only webjet below it. They are weak against a revolt from their suppliers (what i like to call a piranha attack in my analysis). If their customers all leave on mass and go toa cheaper alternativethan they could easilylose their advantage in themarketplace. If the price paid to advertise eats too much into the margin of selling than there are only two alternatives neither of which i think is good for CRZ. They either lose their customers or have to reduce prices to keep them.

        Although i remember Roger saying that this isnt the first time these rumours have come up so nothing might indeed happen and the status quo will remain

  19. Justin
    :

    Good article Roger, CRZ might be a good short?

    Btw I just joined FaceBook – how do I comment on your page?

    Justin

    • Joab Soh
      :

      Hi Justin,

      Firstly, can I assume you have found Roger’s facebook page? Otherwise you can type his name and search it on the top of the facebook page.

      On his page, you can see all the Posts made. At the bottom of each post, there’s a few links (Like . Comment . Share) where you can click. I am sure you can figure out the rest.

      Not sure if it helps, that’s the best way I can explain it.

      Also, you should check out his “Events” (at the left side of the page), it tells you some of the coming events for Roger.

      Regards
      Joab

  20. Paul
    :

    I am a car dealer ( new and used ) and can inform you that although car sales is effective it comes at big cost to the dealers. We pay per inquiry irrespective of the quality of the inquiry. And believe me they do not want to know about not charging for poor quality inquiries (they make it very difficult to go through this process). Speaking with other dealers we are itching for some one to properly market another site ( to be as effective as car sales ).Once a new operator ( or existing one ) gets going and becomes really effective( and charges dealers a flat fee , not per lead) ) dealers will leave in droves . Car sales is effective , but very vulnerable and if a shift to another operator gains traction it will become massive .

    • Scott T
      :

      Thanks Paul, this is great information. Many people may not have known this, and your detail certainly makes investment decisions more informed.

      All the best

      Scott T

      • Darren
        :

        As a recent Car buyer, I only looked in one place…… Carsales.com, to my thinking carsales is a bit like realestate.com, 80 Percent of buyers look there first……., and at the day the car dealers will be forced to go were the buyers are, and there is not much they can do about it.

      • AndyC
        :

        I wholeheartedly agree with you Darren. I am also working for an Aussie business that also operates with a powerful network effect. We have noticed that once there are a certain number of consumers and advertisers utilising the marketplace, it becomes a self-reinforcing virtuous cycle.

        For years people will complain about poor service, arrogance, high fees and the like. But when it boils down to it, if it is ‘the’ marketplace with the most car hunters *and* car vendors… it’s difficult in practice to break that down.

        I would say to those would be competitors, sure if you can take a chunk of the business away in one fell sweep, you have a small chance. I wouldn’t bet on it working out as smoothly as it sounds.

        Having said that, if the market hasn’t got a clear leader that has cracked through this critical tipping-point, all bets are off, and competition follows the usual dynamics of competition normalising profitability etc.

        Short message, don’t under-estimate the network effect when the monopoly player has such a high market-share.

        PS The caveat for the online monopolies is their tendency towards less innovation, more defence. Reduced innovation leaves the monopoly business vulnerable to market disruptors. In my view, the only practical way to defend against a disruption in the online space is to nurture a culture of innovation (in addition to protection of the moat). This is to meet the unforeseen threat with great agility. To learn more about this, read and re-read Philip Fisher (Common stocks, uncommon profits). I see, developing this culture of continual innovation as the activity of the highest importance (and order) within super successful businesses. There is no truer defence.

        The real question regarding CRZ is, where are the real threats? And, do they have an agile culture that fosters continued innovation?

      • Andrew
        :

        I agree completley AndyC. I am a big believer in innovation as a weapon to use against competitors. I believe the most innovative company will usually come out ahead as they will be able to better deal with a changing market landscape and this is especially as important online.

        They say Shane Warne was a great bowler because even his stock weapon (the standard leg break) was both a defensive that could restrict the flow of runs and put pressure on the batsmen to take a chance and aggresive ball that could take wickets at any time. This is the same i feel about innovation, it is both a defensive and aggressive weapon that a company can use to ward off competitors and gain market share.

      • AndyC
        :

        Yes definitely Andrew. I think if you look at most top flight franchises, there is an enourmous amount of continued innovation occurring. McDonalds is one of my favorites, I love how they innovate not so much at the product level, but at at the process and automation level. Coke stands out to me as a business that sits on top of an unbelievably strong and simple advantage, some kind of anomaly.

        Another factor to consider is that we are heading into a phase of even greater technology changes. I’m referring to convergence of technologies, processes etc. Take things like social media, mobile, they are hitting tipping points and changing the business, economic and geopolitical landscape. Even more profound will be something that is sneaking up behind us and is going to erupt – namely nanotechnology.

        Innovative companies will leverage these disruptions much more gracefully, so in some sense, I think innovative capacity is becoming more important as the pace of changes picks up.

      • ron shamgar
        :

        its true. but the dealers provide the majority of the listings, therefore they can migrate to a new website while staying with carsales.com until the new website gains traction and benefits from the networking effect. when that happens the dealers will pull out of carsales.com. the new website can then undercut carsales.com in listing prices for private ads in order to lure private listings and thats when carsales.com will suffer big.

        the question now is…..not who will do it but when!

      • Darren
        :

        I would also like to add that I work in the media, and the big media barons (I.e: newscorp, fairfax, packer and stokes) have thrown everything they have at knocking off carsales, seek and real-estate.com over the last ten years. So far the score is new media 2, old media 0.

      • Ash Little
        :

        Very True Darren,

        As Roger has said in the past

        eyeballs are the important thing

        If this stops then you have lost your competitive advantage

      • AndyC
        :

        The key point of a network effect us that it has two self reinforcing sides to it. The comments here are focussing on what advertisers may or may not do. Car hunters, the most important persona to focus on, go to carsales because it is perceived to be the greatest marketplace for vehicles. This won’t change simply because another site gets close to the same number of ads. It’s the brand also. Just look at the situation in real-estate, and jobs. The leaders have a lot of ‘competition’ but yet they still have plenty of room to increase prices and are growing market share.

        Regards, Andy

  21. Mike
    :

    Hi Roger
    Good friends the Murdochs and Packers (Ha Ha)
    I also liked your abbreviations easy to understand if you have read the book.

    I love the blogs
    Mike

    • Roger Montgomery
      :

      I’m beginning to think the AXS/MQR/Value.able MOS abbreviations should become standard content? Pleased to hear you enjoy the blog. Thank you for the encouraging words.

      • Jim
        :

        Hi Roger

        Please feel further encouraged to do this- it is very helpful. see you on the Central Coast soon

        Cheers
        Jim

      • Sean Saul
        :

        Love the abbreviations format; succinct summary and to the point. Like our very own ‘Montgomery’ code! I think it could catch on.

        Regards

      • Rici Rici
        :

        i second that. It provides a great ‘snap shot’, from which if people are interested they proceed onto their own homework and research. They can then also search through previous blogs if they want more information.

        Great addition.

  22. Peter M (Mully)
    :

    Make no mistake about it, when it comes to business (and life in general) relationships are everything.

    Mully

  24. Andrew
    :

    I don’t know if any cosy agreement or relationship exists (obviously they would never publicly admit it if they do) but it would explain a lot. They all have their fingers in the same puddings and one would have to think that they have some type of unofficial working business agreement.

    I remember reading the crz rumour in the fin review and it will be interesting to see if this does indeed happen..

  25. Donald
    :

    Hi
    Interesting article Roger.

    Saw your piece on Vocus at Eureka yesterday.

    Stock price up 7% then and 12% now.

    I guess I will wait and see what happens before buying in (no discount to your IV now)..

    regards
    Donald

  26. Scott T
    :

    Hi Roger,

    I love the way you have included this summary (ASX:CRZ, MQR:A1, Value.able Margin of Safety; -24%). After the stock name, I think it is a very succinct summary and makes this blog even more usable and valuable, well done.

    All the best

    Scott T

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