Welcome back to The Rate of Change with York
Wealth Management. As advisors to some of the
wealthiest families in the country, The Rate
of Change is a podcast designed to help you in
the pursuit of building long -term wealth through
the insights of some of the brightest minds in
asset management. I'm your host, Murdoch Gaddy,
and in today's broadcast, we're joined by Johan
Kenny, Investment Director at All Cap Securities.
Johan's background spans capital markets, structured
credit, and private equity, having held senior
roles at ANZ ING Fitch Ratings. Equifax and Arowana.
But what struck me most in this conversation
is just how risk averse and methodical he is.
This is shaped in part by his early career navigating
capital markets during, wait for it, the Sri
Lankan Civil War. In this episode, Johan breaks
down the macro environment for construction in
Australia, highlighting the... between the private
sector development and government -funded infrastructure
projects, particularly in the area of essential
services in water projects, which is tied to
long -term public service delivery. In saying
that, in today's... We're doing something a little
bit different. Most listeners have heard a lot
of our guests have been managed funds, which
is an interesting structure to work with. But
today we're looking at a means of working with
companies via a special purpose vehicle or an
SPV. This conversation really does cover a lot
from deal structure and risk management to how
Orcap thinks about governance. cash flow, timing,
and really thinking about when investors get
involved, as the expression goes, you never sell
a good business, you retain it. But when investors
are involved, you really need to create pathways
to help those investors off ramps to exit out
to get some capital back. As always, this Rockcast
is made for entertainment purposes only. I encourage
you to listen to the disclaimer at the end of
this Rockcast and keep your feedback coming.
You can reach me at mgatty at ywm .com .au. So
if you found this conversation interesting, you
want to learn more, or if there's any other guests
that we've had on, you want to work out, you
know, how's this. fit with your portfolio, how
much to allocate, then please reach out to me
directly and we can work with you in ensuring
the assets in your portfolio are right for you.
So with that being said, I hope you enjoyed this
conversation as much as I did. So sit back, relax
and enjoy. Johan Kenny, welcome to The Rate of
Change with York Wealth Management. Great to
be here, Murdoch. Great to have you here, Johan.
Why don't we begin things like we always do and
can you please tell everyone a little bit about
yourself? So who's Johan and how are you going
to finance? Yeah, sure. So I guess I started
like... all financial professionals in a different
career. So my career began at Imperial College
London, where I earned an honours degree in mechanical
engineering. I specialised in nuclear reactor
technology, specifically nuclear reactor cooling
systems. That academic foundation really instilled
in me a deep appreciation for systems thinking,
you know, modelling failure modes, designing
layered redundancies and quantifying sort of
tail risk. And these principles continue to guide
sort of how I approach financial structuring
and credit today. My professional career then
started at State Engineering Corporation in Sri
Lanka, where I designed stabilization platforms
for four guns on fast attack naval vessels. And
this was during Sri Lanka's civil war. This work
in control systems executing in high volatile
environments sharpened my focus on reliability
engineering and real time risk mitigation. Again,
skills that translated naturally into finance.
I then entered the financial sector via the investment
bank. It was an IMF on lending institution, a
development bank in Sri Lanka called DFCC, where
I helped develop corporate bond trading models
to bring liquidity into Sri Lanka's underdeveloped
debt capital markets. That work seeded my lifelong
interest in market structure, price discovery,
and potentially piqued my interest in investor
psychology. After earning my master's in banking
at UNSW, I joined Russell Investments and then
moved to ANZ Insto, where I originally instructed
financing for institutional real estate. Then
moved to ING Investment Management, where I developed
sort of relative value tools based on implied
default probabilities derived from CDS pricing,
you know, help guide sort of security selection,
trading strategy and global credit mandates.
And then I sort of moved to the dark side. I
joined Fitch Ratings, where I covered sectors
from property and transport to packaging and
logistics, and later became chief ratings analyst
at Equifax, where I led a team of circa 20 people
and launched Equifax's first public rating, which
is kind of like the equivalent to the point -in
-time ratings that the big four rating agencies,
the big three rating agencies provide. And then
I developed sort of their mid -market. risk index
as well for you know to track construction risk.
I also built machine learning based credit models
for a New Zealand bank specializing in lending
to the dairy sector. I drew on my sector expertise
from sort of raiding Fonterra, the world's largest
dairy exporter to inform the models and the treatment
of risk particularly my understanding of the
volatility structures of sort of farm gate milk
price. And then I sort of moved to Arowana, Arowana
International, where I specialized in special
seats credit. I raised debt capital for distressed
businesses, led operational turnarounds, executed
sort of exits from VA, voluntary administration.
And I applied machine learning there to optimize
liquidity and overheads in the firms under administration.
So that really sort of helped manage and triage
cash flows for businesses that were sort of.
in crisis um let's still unpack there let's still
unpack there where do we start but i think um
i want to ask you about did you say you started
your essentially your career and knowledge bank
as an engineer in essentially the nuclear program
right and arms program during the sri lankan
civil war did i hear that correctly No, I think
there's a juxtaposition of two concepts there.
But so I studied nuclear reactor technology at
uni and there it was basically about cooling
systems. So we studied things like, you know,
disasters like Three Mile Island, Chernobyl and
effectively, you know, how systems, cooling systems
fail. and how to mitigate that risk and also
how to build systems robustly so that we avoid
the tail risk associated with the critical failures
that lead to critical failures. In Sri Lanka,
Sri Lanka went through a couple of decades worth
of civil war. And there, when I went back to
Sri Lanka, I was working for a company called,
well, it's a government. body called the State
Engineering Corporation, which is the civil arm
of their military engineering at the time. And
there they were developing, they were modifying
vessels from all over the world, you know, to
cope with the behavior of the suicide bombers.
um in the north of the country so uh they you
know they required for example things like israeli
doras which are fast attack vessels uh and they
retrofitted them with um you know chinese engines
um unfortunately what happened was there was
a mismatch in the power and the the the steering
capability of the vessel um and so the gunners
weren't able to properly target um you know these
um these these attacking vessels. So what they
basically had to do was to build stabilization
platforms that allowed them to, so again, feedback
control systems, which is what I had effectively
trained on for cooling systems, but they're still
feedback control systems. So yeah, we built gyro
-based stabilization platforms for the four gunners
in those vessels. That was my first project as
a trainee engineer. Yeah, right. Those gyro systems
are phenomenal when you're running a boat, you
want to go deep sea fishing, but the applications
for, you know, war and protecting your country,
right? You know, that's quite fascinating. But
look, I've said it once, I've said it a thousand
times. The reason why I like asking that question,
like, you know, who are you? Where did you come
from? You know, where are you going through?
Like, as you mentioned today, right? Your job
is essentially to have a project and mitigate
against the risk, right? But, you know, but you
as a human being. you know where you've come
from as a what's the expression um good times
create weak men weak men create hard times hard
times you know create good men there's something
like that that always gets discussed and i just
find it very interesting that your background's
essentially you know nuclear problem solving
you know risk mitigation and but you essentially
cut your teeth in a very very difficult circumstance
do you think that's really shaped How you think
about looking at problem solving and assets and
entering into, I don't know, any project? Has
that really shaped how you think and behave and
make decisions? Yeah, I think there were two
fundamental, I guess, components to my thought
process and the blueprint of the way I think
that we're influenced both by the circumstances.
as well as my training. So that's systems oriented,
remembering, you know, just understanding that
everything's connected and optimization really
is a multifaceted. you know, problem of solving,
you know, a sequence of partial derivatives,
right? So that's rather than sort of linear thinking
and isolating and trying to understand, well,
if I just change this variable, how's that going
to happen in isolation? So not really appreciating
not just the correlation risk, but how correlation
itself changes and the structure of correlation
changes as risk changes, as the system changes.
So that's the first thing. But the second thing
is always to keep the users well -being in mind
as the first priority. And whether that's a business,
trying to keep a business afloat, an insolvency,
a business in insolvency, going through that
sort of process and trying to manage cash flows
where you're trying to optimize your overheads
or making sure that a business is able to repay
its debt on time in full or an instrument is
able to deliver its returns. Again, those are
the two main sort of takeaways, I think. yeah
and then when you're looking at you know problems
you probably since you know you said you studied
all the nuclear reactor disasters right and i
find that quite interesting uh for two two folds
you know why did it happen it could have been
prevented you're talking about systems and then
secondly um when you're talking about infrastructure
projects you know when was the iphone invented
you know i mean like technology is moving so
quickly right so how do you ensure that these
mega structures that are built using, you know,
tech that's out of, I don't know, some movie
from the 1990s, right? You know, with these big
right red buttons and everything, you know, that
actually work today. So like, you know, take
Fukushima, right? Please tell me for the love
of God that you would not have stuck the generators
on the basement floor when essentially they're
prone to earthquakes and tsunamis and the thing
gets flooded and all of a sudden the sumps don't
work, right? Yeah, listen, it's easy to identify
this stuff in retrospect, but remember that they
had a seawall that prevented or protected that
reactor from tsunamis up to, I think it was about
10 meters, and the tsunami that actually hit
was 15 meters, right? So, you know, you could...
equally blame the height of the wall as being
the main thing. But a natural place for generators
is lower because you don't want them higher because
if you put them on a structure, there's more
vibration from earthquakes. So it's easy to,
you know, it was an earthquake first and then
the tsunami, right? So it could have been the
earthquake that destroyed generators if they
were in an elevated position and cracked the
structures that they were on. it's easy to point
a finger and isolate but always important to
think about these things in a connected way so
with ai now i think we're discussing it you know
just before we jumped on um how fascinating that
is and god you have to love chat gpt but you
can use ai now to essentially um you know help
in that problem solving process so you know Is
that something that you quite enjoy doing as
well? Has that shaped how you think and problem
solve these things? Yeah, so absolutely. So I
am a little bit of a technocrat. So after I sort
of finished my master's in banking, I jumped
in the investment bank. So I invested in management
at ING and there I started the CFA and finished
the CFA at ING. But I was still not satisfied.
Once I worked at a rating agency and I understood,
again, going back to this sort of, human psychology
and the way people anchor and make decisions
and how fixed and narrow the sort of parts the
solution parts are and the inadequacy of the
exploration of solution space i jumped into um
you know this this concept of of big data um
this was sort of uh you know in 2014 2015 long
before it was called you know ai right um And
at that time, I started sort of exploring and
it was just it's a statistical application. So
I was applying sort of these statistical approaches
to credit risk. And that's when I sort of did
that project for the New Zealand Bank to effectively
automate their risk assessment process. But the
applications of machine learning really. I guess,
demonstrate and I think lay bare how limited
we are as a species in terms of exploring a solution
space. And so I, you know, jumped on the bandwagon
of a PhD now and I'm doing a PhD in applied statistics,
specializing in machine learning applications
in finance and published a paper already. publishing
my second paper now, but I'm focusing on Bayesian
statistics, which are sort of a space where,
you know, you're effectively learning the structure
of uncertainty and then making projections about
that, but in real time. So absolutely, you know,
agree with you that things are moving super fast,
but as a species, I don't think we're designed
to cope with that really well. It's fascinating
how it all works. And then, well, that takes
us into where you are today. So all caps securities.
I should say, I've said a couple of times that
we love it when people recommend the guests to
come on and great strategies that we haven't
discussed. I want to crack into how you're doing
things in the strategy, but I just want to give
a thank you to Josh Manning. Manning Asset Management
for introducing All Cap Securities a couple of
years ago. So I've been following some of the
projects you've been doing. But for people not
familiar with All Cap Securities, you know, who's
All Cap Securities? You know, what's the origin?
What's the philosophy? And, you know, what are
you trying to achieve? So All Cap, I think, was
born out of... The idea of acquiring this particular
transaction I'm working on, it was born out of
the idea of acquiring rather than brokering the
capital sourcing for this transaction. But I
think what Orcap really represents is a collection
of like -minded experts working collectively
in... you know, that systematic integrated way
to deliver really outstanding solutions for investors.
Now, I know that that sounds quite sort of like
a Macca's tagline, but I think it's difficult
to appreciate how important integration and connectedness
is to execution. I mean, you can think of it
as, you know, two sides of a chessboard start
with the same number of pieces and the person
that or the side that usually wins is the one
that can better integrate and coordinate um that
execution piece and if you think in terms of
well um success is you know really deep analysis
making sure that you've structured things um
in a way that protects in an ex -ante sort of
way And then from a next post sort of thing,
it then becomes sort of executing the financing
and making sure that your execution, the operating
piece is done. What Orcap has done is it has
hired a bunch of experts at each phase with 20
plus years experience each. So hundreds of years
collectively in each of these diverse areas,
all talking to each other in a very sort of,
through sort of. a quarterback for each of these
transactions. And so we're able to really deliver
outsize transactions in terms of scale compared
to the size of team that we have purely because
of the accumulated experience and expertise we
have in that. I believe that's the real differentiator
for Wacom. I'm just going to say, what does that
mean, like, in simple terms? Like, as an example,
right? So the majority of our guests that we've
had on have essentially been, you know, managed
funds, which a lot of investors completely understand.
You know, managed funds, looking at an asset
class, we're trying to get exposure. We're essentially,
you know, playing fantasy Premier League with
fund managers. You know, we're looking for a
striker. We're looking for a defender. You know,
what are we doing? Looking for someone in the
middle just to tick along all the time. And they
understand that, you know, managed fund, you
can pick them up via platform, go direct. And
then essentially we're hiring some of the brightest
minds to essentially achieve a particular asset
class. So the other reason why I'm getting Orcap
and yourself on is you do things a bit differently
about how you structure it. So what I'm trying
to understand is how is the structure different
to a managed fund? And what is the asset class?
What's the underlying investment that you're
targeting for these businesses? Sure. So I guess
what we're trying to do right now is to explore
that opportunity of leverage buyouts for sort
of Gen Xers and baby boomers, you know, that
are effectively trying to exit their business,
but don't really have a willing sort of family
member or members that want to continue to grow
that business. you know or end um it could be
a scenario where they um they believe that listen
um you know they just don't have the remit to
to to effectively take that business to the next
level and they want a professional manager so
you could think of this as a potential pe style
sort of you know You could play where you sort
of generate a fund style investment. But what
we've effectively done is we've gone ahead and
for this particular transaction, this first one
that we're working on, we've effectively gone
ahead and raised debt from NAB. So we've structured
that, raised bank debt at two times, very conservative.
And now we're saying, listen, we're going to
invest directly in the equity. You can come in
as a co -investor. So you're not investing in
our fund. You're not paying us any management
fees. We're providing the professional management
to run this business. You're coming in as a co
-investor to invest in this. What we're going
to do though, so this investment effectively
involves two payments. There's a 70 % upfront
to the vendor and then there's 30 % out later.
We're holding... the equity capital for that
30%. And it's alignment because we have to then
ensure that we deliver on those forward EBITDA
estimates and crystallize those. That's the execution
piece. And that's why I completely believe in
my team, in our team at Orcap to be able to deliver
those. We've got some brilliant, you know, guys
out of Grocon, you know, 20. 25 plus years in
terms of experience managing engineering services.
We've got guys, you know, from professional services,
you know, that have done FP &A for, you know,
top Australian businesses. And with that kind
of professional expertise, I believe we have
very strong chance of delivering those forward
estimates. If we do that, when we get back into
secondaries to raise the remaining equity, we'll
dilute less than, than if we go out at the current
price. So we're offering - So this isn't, but
just for - It's a co -investment. It's an SPV.
So it's a special purpose vehicle. Yes. Right?
That is on a case -by -case basis. So it's not
in a fund. So you have, as you mentioned before,
so I'm just trying to understand it at the same
time, you know, as explain it. Look, if I can
explain it, everyone can understand it, right?
So the SPV, so you find essentially a business,
a legacy business, you know, where someone's
built a fantastic business in your particular
asset class. What's the asset class? So this
is a corporate that operates in engineering services,
delivery of infrastructure for government clients.
Okay, right. So that's a very big moat to get
into, hard to get into, you know. very difficult
to remove right so okay and it's been around
for a long time was it yeah 20 30 years 30 year
old business yeah so very high entry barriers
as you said um right okay so um spv You're having
a conversation with this particular family. It's
almost like the same conversation we have in
clients which work with these types of businesses
where it's an intergenerational wealth problem.
You have children. There might be eight kids.
There might be two or one that may or may not
want to stay in the business. They may want to
stay in a board capacity. They physically might
not do the work. Is that the scenario here or
is the scenario they're looking to grow and scale
and they just don't know how? I'm just trying
to understand. You know, how is, what is this
deal? Yeah, sure. So just a point of clarification
though. So you're right about the SPV, but what
we're planning on doing is it's transaction by
transaction SPV. This goes back to my risk management,
right? So we're not co -mingling sort of additional
businesses into this single SPV. It's not sort
of our base case, right? What that means is that
it does give us the flexibility to potentially
roll up, scale up as part, but we're effectively
not targeting that sort of, we're targeting sort
of initially organic growth and all the returns
and everything that we've sort of calculated
and I guess we're putting out to market are based
on that. linear growth, not geometric growth,
not exponential, you know, just sort of that
additive growth, which is effectively geometrically
reducing technically because as the business
grows. So that SPV will only contain that single
business at this particular point in time. That's
not to say that we haven't got the flexibility
to add additional businesses, but they will obviously
be complementary, adjacent, potentially, you
know, new exploring markets that aren't competing
directly with this one. To your second point,
yes, you're 100 % right. So where the vendors
effectively find themselves at a bit of a juncture,
they see sort of competitors have potentially
grown through, it could be through mergers, it
could be through a PE effectively taking them.
um you know public or you know going through
the private to public sort of path or it could
be acquisitive growth um and then they've sort
of gone listen we just don't have the skill set
you know like the guys here are the principles
of this business um the vendors beg your pardon
are you know that they're engineers right so
so they're predominantly civil engineers um you
know and they've got teams of engineers that
have come up from cadet level all the way up
to the senior echelon so their mindset is really
sort of like mine it's very risk management focus
so that doesn't really lend itself to you know
how do you grow this business right so we've
got a team at all cap that really knows how to
do that. I see my role more as the goalie, just
making sure that things don't let anything through.
And then we've got the forwards that are effectively
doing all the, I guess, the planning and the
strategic elements. And I'm just making sure
that none of that then feeds back through to
structural change in the risk profile. Rule number
one, make money. Rule number two, don't lose
money. Sorry. I think it's the other way around.
Rule number one, don't lose money. Rule number
one, don't lose money. Rule number two, don't
lose money. Well, why don't we cover the big
picture macro? Because look, for myself, I understand
essentially how the market is, but for people
that have never heard about this particular space,
what is the big picture on this? Why does this
particular opportunity exist? So maybe just cover
what is the asset class? Where are you targeting?
What is this on a big picture perspective? Sure.
Okay. So in terms of an orientation, I think
the simple thing is maybe I'll just talk a little
bit about what industry the business is in. what
it does functionally, and then potentially describe
sort of the macro thematic that it sort of fits
into and why this makes sense at this particular
point in time, right? So what it does, so it's
$160 to $170 million sort of revenue -based engineering
services firm. Their clients are predominantly
councils, of which... I think in a previous conversation
you and I were having, I think we identified
that there were over 100 of these, maybe over
150 of them. It's a very fragmented customer
base. And so it's a fragmented customer base.
It's a customer base that's very keen not to
be in the news for the wrong reasons. So they're
very keen to ensure that... you know, businesses
that they've hired to deliver infrastructure
don't fail, that their supply chains don't fail.
So, you know, they're keen to sort of ensure
the liquidity and the solvency of these businesses.
So the entry barrier there is, you know, they've
got to have the balance sheet, right? So there's
these New South Wales, and this is in a former
life when I was at Equifax, this was what that
construction index and that risk index that we
put together was all about, was just sort of
tracking. how businesses that we rated at a particular
point in time, how they fared on an ongoing basis.
So it was really about making sure that the government,
when they used their metrics, were using metrics
that supported that prospective rating migration
thesis. And so the government effectively applies
these metrics to ensure that businesses that...
you know, get into these contracts and bid on
these contracts don't fail. So you can't, you
know, you can't bid on multi -billion dollar
contracts unless you've got the right size. So
these businesses can't, like if you're 160, 170
million dollar business, you've got a certain
balance sheet, you can't bid on billion dollar
contracts. So these guys only bid on like, you
know, 20 to maybe 100 million dollar contracts.
That space isn't really attractive for the larger
players, the billion dollar. market cap players
right so the other the multi -million dollar
market capital it doesn't really sort of you
know it doesn't subscribe to their cost base
it doesn't meet their return hurdles and the
smaller players can't effectively participate
in that space because they just don't have the
balance sheet they don't meet those requirements
so there's this nice little sort of corridor
sweet spot so to speak uh for these businesses
about who are your main competitors who are the
main competitors you've got the deck mills, the
Abigail D's. Sometimes you see like a, like a
downer coming in for particular contracts, but,
but it's really sort of those 200, sorry, 350
to sort of like 500 revenue based businesses.
It's usually. Besides this particular company,
are there any other, you know, family orientated
competitors out there? So not directly, not ones
that participate in this niche of. water infrastructure
that they specialize in. So this is water infrastructure
for local councils. And look, we're talking about
Chach EPT. Always check your facts, right? Joe
Rogan style. So I just thank you, Chach EPT.
So in New South Wales, local council authorities
say there is in total 137 councils. So general
purpose councils, 128 county councils and nine.
So essentially those are the clients. Yeah, I
think it's probably slightly less because I think
you're thinking about sort of like local government
areas that have the budgets for these larger
pieces of infrastructure. But I think you're
in the right scale. Yeah, like right order of
magnitude there in terms of the hundreds. But
even if you think about it as in terms of hundreds
of councils. Again, we talked about sort of entry
barriers and balance sheet size. So even if you
talk about lots of other family businesses, sure
there are family businesses, lots of engineering
businesses out there, but, you know, there'll
be ones that specialize in road infrastructure.
There'll be ones that specialize in, you know,
I don't know, potentially rail. So why doesn't,
so one question is the back of my head is like
Sydney Water, right? So, you know, I've discussed
it before, my sister. He's the head of remuneration
at Sydney Water. So, you know, always, you know,
when you catch up at the barbecue, you kind of
hear they're doing this, they're doing that.
You know, if we're talking about water -based
building infrastructure that, you know, you need
to essentially live as a human being and our
population is expanding, right? Doesn't this
fall underneath, you know, essentially the Sydney
Water remit? Like, why wouldn't they pick up
the contract? Why essentially? you know, are
these the other competitors getting the contract?
Doesn't it fall underneath like a Sydney Water
scenario? Yeah, sure. No, that's a great question.
So Sydney Water works on sort of state -based
infrastructure. The infrastructure we're talking
about now is really sort of, I guess, infrastructure
for local government councils and need to be
funded by the councils. And then, you know, the
state government sometimes tips some money in,
federal government tips some money in, depending
on how big the piece of infrastructure is. The
bottom line is the clients are local governments.
It's not state -based infrastructure. So, you
know, to the best of my understanding, like subbing
or doing work for Sydney Water, purely because
Sydney, you know, the scale of those projects.
They bring a lot of risk because there's, you
know, there's pricing risk because there's a
lot of competition from the tier ones with big
balance sheets and, you know, lots of overheads
that they need to feed and cover. And so they're
happy to accept lower margins for longer term
projects because they're sort of handholding
these local governments. They get into these
early contracting involvement. They have these
early contracting involvement sort of mandates
where they work with council to actually shape
the blueprint of these projects before they actually
go out to tender. Right. Okay. So theoretically,
so Sydney Water is state level. And essentially
these contracts are on a local council. the council
the council at the end of the day is your client
right so look i live in lane cove you know used
to work a lot out of north sydney used to live
in the area and if everyone remembers anyone
lives in the on the north side you know there
was a particular council member or you know the
head of the uh the north sydney council and she
was just anti -development like she just refused
to do anything and the skyline say the same and
but then all of a sudden that's changed within
the past decade and now it's just boom boom boom
So, if I'm understanding you correctly, if a
council changed into a, right, more people coming
in, we need more infrastructure to help support
the growing population there or update or improve,
theoretically, the council would engage a firm
like the one you're acquiring to build those
water -based services. Is that correct? Is that
how that works? Yeah, it is. But I think, you
know, you talked about the skyline, you talked
about development, right? So there is, I guess,
essential infrastructure. And then I guess there's
infrastructure for, you know, I wouldn't say
it's optional, but it's less critical, right?
So let's say, for example, you know, you've got
an aging sewage treatment plant that's effectively
beginning to leach. undesirable chemicals into
a creek or into local water environments or potentially
into the ocean. Left neglected, that's going
to create a crisis on, you know, material proportions.
It's going to be very adverse for the community
there. Health, you know, you've got people's
lives at risk, you know, potentially industries
losing revenue, lawsuits galore. Very different
to sort of that optional infrastructure. Yeah,
should we have an extra community center here
or not? So delineate this a little bit from that
infrastructure piece, right? You're getting adjacent.
You're benefiting from the tailwinds of infrastructure
because with population growth, you need to build
capacity. So these sewage treatment plants, for
example, need to be upgraded. The technology
is constantly evolving. The infrastructure around
them and the infrastructure that connects to
them is changing. So their specs need to change.
The space that they occupy could potentially
be utilized for other things. And so they're
rejigged and a new blueprint is put in place.
So they're constantly evolving. But also you
have to build capacity. So there are sort of,
you know, as migration brings new... a population
increase, the capacity of these things need to
change as well. So that essential water infrastructure
is the focus of this business. That's what they've
been doing for 30 years. That's what they sort
of... have material relationships in terms of
their supply chain, in terms of their cost estimates,
in terms of their expertise, the expertise and
the blueprint that they've built from within
the business, the schemas that they have built
in terms of risk mitigation and their process
in terms of bidding and contract management.
Right. Just leaving the business alone for a
second. Sure. Where I'm trying to understand
is the risk, right? You have conversations. I
also partnered with a family office that specializes
in property development, right? And we have a
lot of clients and fund managers or whatever
that specialize in numerous different things
from CBD to industrialized complexes. But I keep
hearing that if you get the price... wrong or
the contract wrong or essentially something wrong
in the cycle you know that systemic risk can
happen and something that becomes a three -year
play and then you get locked down like covid
right and then you read the newspaper and builders
are going bankrupt all the time you know and
then essentially there's a knock -on effect and
it just kind of you know knocks down the line
and then people kind of get hurt that are doing
the trades and everything right so what i'm not
maybe i'm just not uh comprehending it or maybe
i am but it sounds like these government contracts
aren't impacted by, is that what you're getting
at? They're not essentially impacted by what
happens in the private market. Like, I'm just
trying to understand the risks here. Like if
we just did a government contract, right. And
a COVID lockdown happens, right. Does this project
continue or is it just, you know, they put a
pause on it and it bleeds out. I'm just trying
to understand. Yeah. Yeah. How does this space
work compared private compared to, you know,
local government? Sure. So. Let's explore the
risk universe and the components there, right?
So there's execution risk, right? So let's say
you take a COVID scenario. You can't get labor
into that particular space. Who bears that risk?
You get liquidity risk. You know, your counterparty
goes broke because of adjacent issues because
of COVID. Their supply chain gets locked up.
Their payment cycles get locked up. They don't
receive their working capital. They don't have
sufficient working capital to pay you. So counterparty
risk. you get the risk associated with the forward
order book. Okay. So, you know, the industry
sort of falls and, you know, like the construction
sector, you know, you look at that crane index.
I live in the Shire as well. I live in Sutherland.
So I live in Sylvania, which is close to Sutherland,
and we're constantly going to Granada Beach.
So as I walk along. uh corolla beach or green
hills beach i'm constantly counting the number
of cranes because for me that's a it's a really
strong measure of the activity um you know and
i also look at sort of um you know how busy are
the coffee shops around there and you know how
many um uh youths are parked in the area so it
gives me a you know a sense of well how much
work is is going on here because that's really
important for the health of the community right
that there's there's activity um and with Government,
though, the thing is, it's counter cyclical in
the sense that through COVID, for example, the
government was trying to stimulate the local
economies by providing these additional projects.
So it was sort of indirect fiscal support. The
other thing is that government, as I said to
local councils, right, and local council members
don't want the adverse publicity of having a
build or supply of services to a particular.
piece of work that they've sanctioned um you
know go belly up it's it's not great news it's
not great for their their re -election so so
they've put in place this um sort of a very um
contractor friendly um contract form which allows
the suppliers of these services to effectively
get you know up to 10 to 15 to maybe even 20
% of liquidity up front in terms of these mobilization
payments that allows these businesses to then
push that liquidity down through their supply
chain and not cause disruption to their sub -E's
through something like a COVID. I think that
is a counter -cyclical element that is really
sort of understated in the commercial construction
space. I wish that happened in private markets.
That's for sure. When I was at Strong Partners,
I was back in you know, the time when Julia Gillard
was, you know, running things. Do you remember
the super tax that came through? That super tax?
The super mining tax? It's like, everyone made
so much money, so we're going to work on a super
mining tax. And it essentially just killed everything.
So that was my first - Stuffed the mining contractors
up, yeah. That was my first lesson on essentially
when an industry is running hot, people do dumb
contracts. And what I mean by dumb contracts,
do you remember the mining services -based contracts?
And all the good contracts were essentially not
fixed costs. But then as things became more competitive
and you're bidding for these things, the profit
margins tightened up and it became fixed costs.
The same argument may apply during COVID times
when building materials started to – timber doubled
you know things just you know people were essentially
pricing fixed costs to win a project and then
essentially burning their bum on you know the
mismanagement of all these costs and blowouts
right and it just destroyed companies you see
and that's why they call mining you know boom
bust property boom bust right yeah but but what
i'm just trying to you know understand is what
you're saying is in the government workspace
somehow they've actually tried to do it in reverse
to essentially protect the bottom end which actually
stabilizes the space. Is that what you're saying?
You got it in one, Murdoch. That's a beautiful
way to crystallize the idea. So I think, you
know, again, as soon as you talk about... Mining
services, my brain goes to the risk universe
and I think of all the random variants affecting
this. You've got commodity cycles, you've got
market risk, you've got counterparty risk. And
all these things are effectively, they're a multivariate
distribution, right? A distribution of lots of
random variables all working together. To try
and plug in fixed price contracts, long duration
with fixed margins, like good luck. That is playing
Russian roulette with a fully loaded gun. right
it is ridiculously you know and uh when i was
at fitch um reading you know contractors the
size of downer um i i saw exactly this and i
saw them rushing to the gates trying to divest
these you know good bank bad bank sort of you
know uh trying to divest these divisions um that
were incredibly uh um you know cash, you know,
there were cash black holes sucking up the liquidity
of all the other businesses and effectively affecting
the delivery and execution of the other parts
of the business, which were then leading to LDAs,
you know, liquidated damages. And then it created
this vicious cycle as opposed to a virtuous cycle.
So, but, you know, we've got lots of different
contract forms. You've got cost plus, you've
got profit sharing. Very difficult to do projects
for government that are not sort of lump sum,
but they have this new contract form called the
GC21, which allows for all the risk shifting
to happen to sort of, you know, the appropriate
party, including government. So let's say, for
example. you have a schedule of rates and something
moves. I think we talked before about your mate
who builds toilets, right? And makes too much
money, you were saying. You talk about, let's
say, for example, the... the fittings becoming
too expensive. Well, okay, so the fittings are
too expensive now. What does that basically do
to my overall profit margin? Okay, so it's kind
of isolated. But if the plumbing becomes more
expensive, now that means that, okay, so now
I have to maybe buy different fittings. So then
that flows into a different cost line. Okay,
so what the GC21 contract allows these guys to
do is to isolate or sort of is to identify. the
implications across all the different cost lines
for a change in one of these different things.
So that all that risk then gets properly appropriated
as opposed to the contractor then bearing that
risk. So it's another way that these risks are
mitigated in terms of these complex deliveries.
Well, what's the expression? Show me how someone's
remunerated and I'll show you how you behave.
Alignment, yeah. Yeah, predominantly. And what
I don't understand, and look, we've discussed
this before, right? is what i don't understand
about australia is on that statement is essentially
how money's raised like let's let's talk about
this for a second right because what we're discussing
here is raising money to create a project right
but ensuring that that project actually gets
settled upon so everyone along that chain from
the people doing the work to essentially the
people that are going to benefit from that particular
you know project will actually get what they're
paying for over that long process right exactly
but what blows my mind in australia is like we
tried to bring in um corporate bonds um especially
to the mining services space and the best way
to think it is how europe's looking these days
is they look at in reverse so you take a mine
life that's 30 years right that will calculate
or a project to build that's 30 years like you
know a water plant they will try to calculate
you know looking backwards exactly how much money
that's actually going to cost and then build
a facility like a corporate bond you know call
it what it is 500 million usd or whatever is
required and then you yes you pay a fee up front
for the establishment of the facility but then
you can draw down on that facility whenever you
require it based on the stages and only pay the
interest from when that on the money which you
draw down which means a stability and money available
throughout the entire process and you don't have
the capacity to blow it up. But you take a step
back, you know, the comment I was making before,
you know, show me someone's remunerator, show
them how you behave. Unfortunately, I think good
old Australians, half of these people are my
mates, that, you know, we've created a scenario
where, you know, you're looking at exits with
the business, you know, you got Angel, you know.
pre -IPO, IPO, and then when it's listed, you
got placement A, B, C, D, E, F, G. And the issue
there is the person that gets in first, there's
actually really no benefit to getting first unless
the price goes up like 2000 % because you're
just getting continuously diluted. yes throughout
all these processes and getting hit hit hit and
it's all fine when the market's going up but
if you get a scenario which happens unfortunately
quite often you know we got scenarios happening
right now playing out you know iran and israel
all these moving parts in the world if you have
a scenario where all of a sudden um you know
there's a risk off scenario and people don't
feel rich or people got burnt really badly because
there's a crypto winter then what happens they're
not going to allocate that capital to stage three
or stage four of that project. And something
that's been building for a long time, it just
essentially ceases to exist or blows up. And
this entire chain of people in the private sector
just gets wiped out and destroyed, right? So
I suppose when people are discussing risk in
these large development projects, I would actually
argue that this is what they mean because they've
seen it before. Right. A hundred percent. And
I think you've touched on a very rich set of
subtopics then. By the way, the war is now just
not between Israel and Iran. It's between Qatar
has been bombed as well now. So, you know, and
then obviously the U .S. is involved. Then you've
got another battlefront across the Ukrainian
-Russian. geography as well. So there are multiple
theaters, you know, if China effectively uses
this as an opportune time now to split that into
three theaters, you'll have war on three fronts,
you know, across the East China Sea in Taiwan.
These are things that I sit in, you know, how
can I structure something that protects investors?
When, you know, you don't have enough imagination
to think about how much shit's going to hit the
fan. That's where people, counterfactual thinkers
like myself, effectively, we apply our imagination,
right? Going back to your point about, you know,
being rewarded for the risk you take. And I love
the idea of that sort of right to left, you know,
setting up a redraw or revolver that basically
provides you with that liquidity and certainty
through the development. Absolutely brilliant
idea. And I think that's something that you should
certainly think about, you know, developing further.
But one of the things, it's bizarre that the
banks don't effectively, you know, aside from
really top gear contractors are willing to effectively
provide those facilities. I think the concept
that you brought through as well in terms of,
you know, are investors appropriately rewarded?
for the risks that they're taking. We think in
terms of, are you rewarded in terms of capital
structure and position and subordination? But
what you've just pointed out is the capital structure
shift temporally effectively changes that return
profile as well. So you've got to keep in mind,
well, am I being paid? the appropriate amount
of my risk -adjusted returns are, when I'm factoring
and identifying that risk, is it temporally adjusted
as well? Because, you know, at what stage is
this business, right? At what point of this lifecycle
is it or this project? And I think that's an
absolutely incredibly important point. Yeah,
but, okay. No, but I keep thinking the stability
of these councils, It sounds like the stability
of the council contracts is the capacity to deliver.
If the capacity to deliver there means essentially
all the way down the chain delivers, right? So
that means essentially the tradie putting in
that bathroom, right, has less risk of that job
falling over. Is that what I'm hearing? Because
if that's true, and it's happened to a lot of
friends of mine, right? I think one of my mates,
one of my clients actually puts in... you know,
fittings. I won't say how much he's owed. Let's
just say it's in the millions, right? But what
he hates the most, and a mate of mine told this
about a decade ago. I looked it up. It's true.
It's ridiculous. It's actually legislated that
you cannot pay a tradie more than 10%, right,
of what a job is worth, right? It's wild, which
means that every single time they go to Bunnings
or Reem or whomever they're using to purchase
the timber, they were literally using their own
credit. to essentially build out a property development
or an infrastructure project or a warehouse for
Amazon to go in. The developers are literally
utilizing the credit of the small business owner
to build their project. And that's all fine when
everything's going well. But what happens when
the project's completed? Something happens from
mismanagement because a person's not like yourself,
Jan. They've miscalculated the numbers, the feasibility
of Lofty, and they blow this thing out of the
water. The domino impact of getting these people
that physically did the work just get destroyed
because the only way they're going to get their
money back is essentially an exit with a sale
or pre -sales or essentially becoming refinanced.
And then they just get screwed. Absolutely, Murdoch.
And I think there in having worked in a couple
of these voluntary administrations and getting
businesses out, you know the amount of value
destruction as the business approaches that point
um you know it's um it is amazing and and um
i think that broader thought thought process
and systems thinking where you're sort of going
well okay if we collectively support the supply
chain well we're going to deliver greater value
for all the stakeholders not just you know we're
not going to keep all that money and i think
it's really about how risk is allocated through
these projects um and Also where points of leverage
are and your point about, you know, supply chains
being used as ATMs, 100 % valid. It is probably
not something that occurs, you know, much outside
Australia because in developed markets like in
the US where you have, you know, very liquid
capital markets, both public and private, they're
able to tap that liquidity. But here, as you
said, you know, using sort of... small trading
balance sheets as sources of liquidity and that's
not priced in right like so you know that and
effectively what happens is they'll just throw
a dart and say oh here's a lump sum price and
we think all of that's going to be absorbed my
cost of funding goes up you know have a GFC style
sort of thing and my cost of funding is insane
now I can't get a working capital facility how
do I fund it well I'll just wind the business
up right one happens and then this is exactly
your uh you know your your your fukushima scenario
right so so you know you you you have the earthquake
you have the tsunami like you know everything
and and and then you have this critical failure
right so you have enough of the subbies failing
through the supply chain or you have a a suite
of supplies with the suppliers of particular
service shot creators or whatever it is within
that particular thing suffering from some systemic
issue and and the entire development target It's
just fascinating they can't fix it. Okay, so
that's that space. But with the government contracts,
just trying to get my head around it, what I'm
understanding just on simple terms here is that
theoretically the main difference between essentially
the private market and the council market is
the projects are designed very well in the beginning
and then they're supported financially. in case
a black swan event or something happens so they
continue but more importantly the subbies physically
doing the work are actually remunerated accordingly
so they don't blow up and then the project can
actually be finalized and come through through
full circle is that what you're saying so essentially
with government contracts Well, what I'm hearing
is there's technically less risk in the government
contracts based on how that process there is
on the private side. Am I missing something?
I wouldn't categorize it that way, Murdoch, because
there are government contracts of different scale.
And I think it's Murphy's Law, right? I mean,
if there's one thing that I would stick to is
to assume that everything that can go wrong will
go wrong. And it's only our failure of imagination
as to what can go wrong that lets us down. They
know exactly what they're doing. They get involved
in the early contractor blueprints. So they've
kind of designed it and they've influenced the
entire design. They've already worked out and
locked in their margin, right? Because they've
already locked in their supply chain for that
particular contract. They have a bunch of, you
know, secondary and tertiary redundancies in
terms of subbies or partners that can effectively
complete sections that they don't have the competency
for. So all of that happens ex -ante, but it's
the simplicity and the short duration of these
contracts that effectively really, I think, reduces
that risk. It would be incorrect of me to say,
you know, I can predict risk any better than
someone else in terms of extreme events, right?
The whole concept of Johari's windows where you
have these sort of unknown unknowns, there's
risks that you can price for, there's risks that
you need to ensure. It's recognizing what you
don't know and you haven't priced for that really
helps you decide, do I want to undertake this
contract or not? And that's all, you know, that's
just not sort of... the complexity of the project
it's also about the counterparties and with sydney
water for example you know contractors have had
really nasty experiences in terms of change scope
and well okay so now it's you know the contract
form they have standard contract forms they have
a change scope and well that's now your problem
it's not our problem okay so it's that experience
that helps um you know avoid the business killer
type type sort of project so so if you if you
invest um what's the multiple You know, what's
the time, what's the duration you're holding
this for? What multiple are we targeting? What
type of exit are you targeting? Is there a dividend?
Like, you know, what are we talking? Sure. So
in terms of the return profile, the expected
overall multiple on capital that we're investing,
the MOIC, the multiple invested capital from
day zero for investors entering today, we expect
that to be... 2 .5 times so two and a half times
your investment you get to the back end in t
plus three so in three years time okay so that's
like a 36 irr so if you do 1 .36 the power three
um you know you get your you get your two and
a half now i guess the um the the the um you
know The fear, I guess, for investors is, well,
hold on a second, you know, if I tie my money
up for that time, I'm not getting sort of any
running yield and completely understand, you
know, both the US economy and the Australian
economy, we're all running in negative returns,
right? So our actual system growth is less than
inflation. So even with low inflation. you know,
our economies are stalling. So capital protection
and running yields really important. So what
we've basically built into our forward estimates
is the flexibility to pay a 10 % dividend on
the amount invested today. That's a pretty big
dividend. Is that on top of the two and a half?
I was sorry. So that's inclusive of the, that's
included in the two and a half. So that's built
into the two and a half. So 10 % income. So 10
% income. As a distribution, yeah. How's that
paid? Is it quarterly, monthly, half yearly,
annually? So we will potentially pay that annually.
But, you know, there is flexibility to potentially
pay that. semi -annually. One of the things that
I'm cognizant of, and again, this comes back
to that whole risk management thing is that we
want to maintain as much liquidity in the business,
not just for growth, but another piece of the
secret sauce is that we're doing accelerated
repayment. of the senior debt. And our aim is
to get that debt down to about 0 .7 of a turn
of EBITDA at T plus three. Why is that important?
That's important for us to be able to deliver
that exit for investors because that gives us
flexibility to raise potentially another 30 million
at the exact same leverage that we're at now.
that gives us flexibility to raise another 30
million and exit any investors who don't want
to continue on that journey with us. Our intention
is to get to an IPO sort of scale. And that requires
revenues anywhere between sort of, as I said,
350 to 500. And we think we'll get there within
three years. But if we don't, and investors,
we want to give investors, we want to hold to
our... original thesis of giving investors that
two and a half again i'd be risked that through
structuring the accelerated debt repayment and
that's why we're still able to pay that um you
know 10 coupon like i'm just trying to wrap my
head how to how to value a government contract
yeah because like i look Everyone out there that's
listening, probably half of everyone listening
is probably in the industry, half are clients.
We've all done this a thousand times. We look
at valuing how to buy a property for your house
or look at valuing how to buy a miner or an industrial.
We understand how to value businesses because
you're essentially valuing to grow, scale, bolt
on acquisitions. There's numerous different strategies
out there. What I don't understand is how do
you value you know council you know contract
to essentially build a sewage plant yeah yeah
where i'm also going with that is essentially
you've got the multiple two and a half times
what's that done has that taken in consideration
you know are you looking to roll up um another
competitor are you trying to expand the number
of councils you're working in you mentioned queensland
i'm just trying to get an idea of how have you
valued this yep sure so i i think it's important
to think of this business as a at any point in
time as a portfolio of government contracts as
opposed to a single government contracts um and
i i want to be absolutely clear right you know
yes you've got a government pound counterparty
and and that obviously you know um creates a
certain anchoring in your mind about the counterparty
risk and and i think that's that's a valid uh
consideration but there's still contract risk
there's still execution risk you know there's
there's supply chain um risk and so on so it's
you know this is not a bond okay but it's in
the diversification of the execution of those
government contracts uh over multiple periods
of time as well because there are different stages
in terms of execution right some are in ramp
up some are in maturity some are sort of at the
back end of delivery and you're getting a mix
of those cash flows and that mix you know gives
you that mark of its diversification benefit
that reduces the risk of the overall cash that
you're then present valuing but in the current
model it's just arithmetic growth all it basically
is is just getting to a higher EBITDA number
based on growing that revenue, managing your
cost base. So you get the operating leverage
that gives you the higher EBITDA and then effectively
accumulating that cash, paying it out conservatively,
making sure that you have that 10 % cash return
to investors so that you then have the reinvestment
required to get to the EBITDA number that you
require in T plus three. to re -leverage, to
repay the original investors. But also you get
that simple five times multiple on the target
exit EBITDA. So you said five times multiple.
I thought the multiple target was two and a half.
No. So the multiple on invested capital is two
and a half times. the multiple the earnings multiple
the EBITDA multiple to get to valuation is five
times and that's the valuation that's the valuation
multiple we're getting investors in right now
and that's the multiple that we're just we've
built into our forecast as well so again the
forecast does not include any IPO based multiple
so the IPO the listed compatibles trade at seven
to nine times earnings in terms of market cap,
sorry, in terms of EV. And we've effectively
just assumed a private market multiple for that
as well. So being really conservative in terms
of that as well. Okay, so what I'm hearing, is
this accurate? The business has just been valued
on the basis as a private and the contracts are
the contracts and it's just steady as she goes.
You've intentionally tried not to put any growth
into the valuations. Is that what you've done?
That is. And there is a reason for that, right?
So one of the things, my background is fixed
income. I'm trying to make this as bulletproof
from a fixed income standpoint. as possible.
One thing, I'm just trying to bring something
up as well now. Their pipeline, PwC signed off
on this, and this is the model that NAB basically
provided their two times debt to EBITDA. So,
you know, for a big four Australian bank to provide
leverage, to a sponsored takeout of a vendor,
I think, is probably a first. And they've done
it with the confidence that they've had in the
due diligence, the professional due diligence
that's been done on this. It is a big call. I
don't think we should tread lightly on that one
because the banks have quite literally got rid
of all their growth -based lending. There is
a number of guests that we've had on that literally
have been bankers. They got angry and then they
went and set up their own shop to fulfill this
particular service because the banks just refused
to do it. The only transactions they'll look
at is $100 million plus or maybe like substantially
larger than that or they do a warehouse facility
for someone else to do it. So for them to consider
this. And this is where I was going back to the
risk. Have I missed something with the risk on
this? Like, okay, let me rephrase. When people
speak to you and you're having conversations,
what question are they asking you that pops up
the most that I suppose really concerns them
about this type of project? It's very similar
to the ones that you've been asking, Murdoch,
but it's really sort of a misunderstanding with
the capital required for growth. OK, and I think
this is where sort of the disconnect between
how are you generating a two and a half times
return with a business that's, you know, a bog
standard construction business? They just the
cognitive dissonance of that kind of like, you
know, just blows their minds. Right. So, again,
we talked about this being a portfolio of short
duration government contracts where they're squeezing
profit. on a consistent basis, on a diversified
basis. But we're also talking about a business
that generates working capital through business
growth, which is insane, right? So when they
win new contracts, they generate this mobilization
payment up to 20 % up front, and that generates
cash. Cash out is what juices up my returns.
And instead of effectively... dumping all that
cash on investors and potentially risking the
sustainability of the business, what I'm doing
is I'm retaining some of that cash. I'm paying
out a 10 % dividend, but I'm using it to deleverage
the business really, really quickly so that at
T plus three, investors don't love the business.
You know, I'm only looking at like an EBITDA.
And again, just for sensitivity reasons, I can't
obviously talk about sort of what our forecast
number is at that particular point in time. But,
you know, you can just do the math, right? It's
five times something in the mid -20s in terms
of EBITDA to get to that sort of capital return.
And then you have this 10 % return in terms of
dividends. And, you know, the business effectively
did not have to take material risks to deliver
that return. And previously what happened, and
we believe that this is why this business isn't,
you know, a $300 to $500 million business, is
because the vendors... effectively just took
all that out in dividends right they were just
i'm not saying they were dividend stripping but
they were taking out a healthy amount of dividends
and the business continued to grow so what we
all we're doing now is we're retaining that capital
in the business um and then giving it the balance
sheet to be able to bid on more contracts rather
than bigger contracts diversified across multiple
states giving you the geographic diversification
benefits as well and effectively de -risking
the business further as it grows through Markowitz
diversification. So when you talk about the exits,
are you looking at exiting out of all completely
or is the intention just to exit a bit out, get
some cash, and then you want to hold and maintain
this business? Because it sounds like the business
is just a solid business, but I just need to
explain unless I'm missing something. Why would
you sell a good business? Exactly. Capital flexibility
I'm building into the business in terms of retaining
that cash to SD plus three is to exit investors
who need that exit, right? Are you creating a
liquidity event for investors that want to exit
but then you're looking to stay on? Spot on.
That's not us, right? So that's for investors
that are coming in as core investors into this
investment now. Right. Is there anything we haven't
covered? that we were kind of kicking around
before we jumped on the podcast. I think we were
talking about agentic AI and what I've been building
in all cap for private credit, but probably a
story for a different day. Story for another
day. That's episode two. Absolutely. If anyone
wants to learn more about all cap securities
yourself or the project which we just discussed,
what's the best way for them to reach out and
find you? So just Johan at... Allcapsecurities
.com .au. And what's the web address? Allcapsecurities
.com .au. Fantastic. Well, thank you very much
for coming on. That was brilliant. And we'll
catch up soon. are the third party and are the
sole personal opinions of the speaker. Any reference
to financial products does not constitute advice
or recommendation and before any action you should
seek proper advice from your financial professional.
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