June 6, 2025 • 36 mins
This week on the Chanticleer podcast, James & Anthony try to explain what’s coming for Australia from the AI revolution, reveal the biggest winners from the float of Virgin Australia, and you’ll never guess…Trump and Musk’s bromance is over.
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Episode Transcript
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Speaker 1 (00:04):
The Australian Financial Review. Hello, I'm James Thompson, Senior Chanta
Clear columnist of the AFI. Welcome to our weekly news
breakdown of Orkans, business, finance and markets. With me today,
as always, is most chanted for your colleague. He's cleared
(00:26):
for takeoff and ready to saw. It's Anthony McDonald.
Speaker 2 (00:29):
How are you, Anthony, Thanks for letting right up in
front of you today, James.
Speaker 1 (00:33):
Absolutely well. This week we try to explain what's coming
for Australia from the AI Revolution, we reveal the biggest
winners from the float of Virgin Australia, and you'll never
guess Trump and Musk's romance is over. But first, Anthony,
(00:54):
the GDP numbers came out this week and we've got
a fresh look at the health of the Australian economy. Now,
doctor Donald, what's your diagnosis?
Speaker 2 (01:02):
A bit sluggish, James, economy. She's looking a bit off,
a bit of em lacking bit of iron, not a
great color. Economic growth in March quarter was weaker than expected, James.
GDP about zero point two percent for the quarter or
one point three percent for the twelve months to March
thirty one. And GDP that growth actually decelerated in the quarter.
(01:23):
Why James, because government spending backed off, the private steck
still pretty soft. Productivities, poor wages are high. Put all
that together and while it's good inflations back in the
range the economy, it's taken a bit of a beating.
I guess that explains why the RBA cut rates in
February and again in May. And it's a bit of
a quirk, isn't it. That's in this day and age,
we're getting March quarter data two months in, one week
(01:45):
after it happens.
Speaker 1 (01:46):
But good point.
Speaker 2 (01:47):
Think about everything that's happened since the end of March, James,
you know that was that was that was pre liberation day.
So we are we are looking at historical data here.
But I think James at ramps up there rate cut calls.
I mean, the good news is RBO start to the
quarter with the rates of four point one percent. Now
back to three point eight five percent. There's plenty of
rooms cut more if required the next meetings on July
(02:10):
seven and eight, one month's time, and I think we'll
see the odds of rate cuts shortened as we get
closer to it. What do you make of it?
Speaker 1 (02:17):
Dr Thompson well, look, I think your diagnosis is pretty good.
I mean, we're just know, it's the middle of winter.
We all feel a bit run down, and so does
the economy. We're stuck. We're stuck in LOGI. We've been
stuck in LOGI for a while. You know. I was
chatting to the Financial Reviews economics guru Mike Reid, and
(02:37):
he doesn't buy into the per capita recession type thing.
He doesn't think that's the greatest measure of the economy.
But look, I mean we've been sort of just going
for about the best part of eighteen months. I don't
think it's any surprise. I am a bit surprised though,
that the Treasurer, doctor Jim Chalmers, to give everyone there
right as. I mean, he's out there to described open
(03:00):
the Australian economy as world beating. I mean, I guess
that we're not China or America, and that's a good thing.
But I don't see anything world beating here, Anthony. I
see a lot of work for the for the Treasurer
and the Prime Minister to do to try and get
the private sector firing again. Surely that's the that's got
(03:22):
to be the big focus here. I wouldn't be claiming
these numbers as world beating, would you.
Speaker 2 (03:27):
No, absolutely not. The headline numbers are not well beating.
That's that's a fact. And James, late this week, the
most predictable event in the history of business, finance, and markets,
and probably politics and human kind happened. US President Donald
Trump and gazillionaire Elon Musk have fallen out and been
trading barbs on their respective social media platforms. James, at
the heart of it is something called the Big Beautiful Bill. Please,
(03:50):
can you explain what is the Big Beautiful Bill? And
why is Elon Musk the man who pumped millions into
Trump's reelection campaign and then the doge raise a gang.
Why is he hit the roof?
Speaker 1 (04:01):
Well, I think he's hit the roof because he's been
kicked out of the gang by the mean girls in
the White House. Basically, I mean, this has got all
the hallmarks of a schoolyard spat. Elon's a bit nuts,
Trump's a bit nuts. They've fallen out. Trump's given Elon
his marching orders, and I think Elon's spat the dummy
(04:23):
and now all of a sudden, after sort of supporting
every Trump move, that came in the first one hundred
and thirty days of the administration. Now he's decided, as
you say, he doesn't like this big beautiful bill. So
the big beautiful Bill is the centerpiece of his administration. Really.
It delivers tax cuts and then over time it delivers
spending cuts. But what it doesn't do is help rain
(04:46):
in the budget deficit, which is what Trump's promised and
what Elon's Doge Razor Gang, as you say, that's what
it was all about, trying to get the budget deficit down,
get the government spending back into line. So you know, yes,
the one beautiful Bill is spark the argument, but now
it's just spiraling out of control. So on Thursday night
(05:08):
American time, Friday morning, our time, you know, these guys
were hurling insults at each other in real time on
social media. It was great to watch. You know, you
had sort of Trump threatening to cancel all of Musk's
contracts with the government. A Musk comes back and says
that Trump is in the files of the US government
has collected about the convicted pedophile Jeffrey Epstein. Trump comes
(05:32):
back and suggests, you know, Elon's sort of ungrateful, and
they were best buddies and what's happened? And it ends
with Musk sort of, or it ends at this stage
with Musk suggesting that Trump should be impeached and JD
Van should take over. Meanwhile, Anthony, if you're an investor
in Tesla, which let's face it, millions of Australians are
(05:54):
through their superannuation fund, fourteen percent of the company's market
value one hundred and fifty billion US has been wiped
off overnight. I mean this is mask has played with
fire here by backing Trump and shock horror, he's now
getting burnt. I mean, what a This is a mess, isn't.
Speaker 2 (06:12):
It tato mess?
Speaker 1 (06:13):
James?
Speaker 2 (06:13):
I mean the spat itself. I think everyone saw this
coming and now it's playing out publicly, and it's ugly
and predictable, and you know, it's not something that it's
enjoyable to watch it all. But at the heart of it, James,
like this big beautiful bill, like it's hundreds of proposed
changes all wrapped up together. Actually it's actually pretty important,
(06:36):
and the whole thing's playing with like playing with fireworks,
I reckon, James, like, it could be beautiful if it works,
but it could also explode in the US's face big time.
If you cut taxes, do you accelerate the economy and
increase the tax take or do you just make the
deficit problem bigger or both? That's kind of all both. Yeah,
(06:56):
that's kind of the heart at the heart of this
whole thing. So elon, Musk, I mean, he's also got
a financial interest in this fight. Part of the big
beautiful bill is winding back subsidies on electric vehicles. Mask
Tesla obviously makes electric vehicles, so we can see how
this could hit him in the hip pocket as well.
Speaker 1 (07:14):
All right, choose your fighter here, Anthony. This is play
out over the next few weeks. Who do you want
to back the world's richest man or the world's most
powerful man?
Speaker 2 (07:22):
The world's most powerful man?
Speaker 1 (07:24):
Yeah, I agree, I agree, I just don't. I think
Mask has badly overplayed his hand here. It's not going
to end well for him. But let's see, all right, Anthony,
let's move to our first topic. And on Tuesday in Sydney,
the AFI hosted its second annual Artificial Intelligence Summit, which
featured a string of big speakers from the tech sector,
from government, and of course, from the top end of town.
(07:44):
Including Telstra's Vicki Brady and Commonwealth Banks Matt common Now, Anthony,
I've got to say I was blown away by this day.
Totally full room, they were engaged the whole day, and
just so much big picture stuff to think about. And
I've got to say for me to worry about. But Anthony,
before I do my usual thing on the podcast and
(08:04):
bring the move down, what was your big takeaway from
the day.
Speaker 2 (08:08):
Geez, you give me the big picture question, James. That's
dangerous Google. People don't wear dress shoes, even the hard ones.
Good boy, the big picture. There's a lot of money
in a Jeeves, big full room, great sponsors, very good speakers.
A lot of these people are trying to work so
fast to sell this stuff, to really establish themselves as leaders.
It's a booming industry, James. It's unlike any other I
(08:31):
would say, in terms of what we do in our conferences,
in summits and in times like this, the thought leaders.
Also the salespeople, aren't they like we sat there and
we'll listening to you know, it comes like Google Salesforce
telling us all about it, or we sat there listening
to people like Telstra's Vicki Brady CBA's Matt Common, you know,
who are just back from trips to the US hearing
from these big tech giants about how fast it's all
(08:53):
moving and makes you sort of wonder, like who's talking
about it? It isn't making money. And we had the
minister him as at the summit, but you know, he's
two minutes into the job, so I mean, to be
fair to him, he didn't have that much to contribute,
and that's understandable given that he's just taken the portfolio.
But I mean the big takeaway, James, I mean, there's
(09:13):
just so much potentially transformational change going on here, and
I mean it's started. Those that are selling it, those
that have heard the pitch firsthand, they're telling us this
is the fourth Industrial Revolution. You know, even KKRS CEO
who he met this week, was telling us this is
bigger than the Internet, James and generous. If AI really
(09:34):
kicked it off, you know, that's the large language models
that create the content text, pitches, videos, etc. You know,
it's a couple of years ago now now it's a
gentic AI creating agents making decisions, replacing human beings, not
just generating content anymore, but actually doing stuff now. Vicky Brady,
fresh off her trip to the US, she said, you know,
things that she and you know she's in the middle
(09:55):
of the Australia sort of tech industry. She said, things
that she thought were a year or two way are
actually happening now. It's coming, The big change is coming.
We need to get ready for it. That's excited. I'm
excited and I'm not even wearing dress use today James
at Tips through our mates at Google. But I feel like,
I feel like there's something else going on here, James,
(10:19):
and you might go full Doomer on us here, what's
got you worried?
Speaker 1 (10:24):
Well, look, Anthony, I think what's got me worried is
the speed at which this is happening. But you think
about you know, often you hear the argument about AI, like,
don't worry. We've been through periods of technological change before
and they all worked out. You know that, the steam engine,
electrification of the economy, the Internet. You know the world's
(10:45):
a better place after those things, or so that argument goes.
I totally get that, And I think my great hope
is not that we have some great strategy to get
through this, but then we just muddle through it, and
we find a way and we had apt and we
do what humans have done for thousands of years and
done really well, which is just figure it out and
(11:06):
get on with it. That's probably true. But the one
thing that gives me a bit of pause is the
speed at which this is happening. You know, it's not
like the electrification of the global economy that took four
or five decades. It's not like the Internet, it took
two generations really to have a really meaningful effect on
(11:27):
the global economy. This is happening in the space of
It's thirty months, thirty months since chat GPT was released,
and we've gone from oh, isn't it cool that I
can make a picture of you Anthony dressed as a
superhero to agents coming in to take people's jobs thirty months.
(11:47):
Countries and companies are slow moving beasts, and I think
this is one where that lack of speed will hurt us.
You know, as you said, we had lots of people
at the summit selling the idea of AI. I don't
think that's fair enough, because we're all trying to figure
it out and certain people are trying to make money
of it. No problems with that. I liked one of
(12:07):
the speakers I had on my panel, Leal Yardsley. She's
been working with AI for twenty years in one form
or another. Her point was that, you know, we went
from an agrarian economy sort of in the eighteen hundreds
to an industrial economy. You know, we went from farmers
to workers. Now ninety five percent of us work with
our brains, and that's what AI is coming for. So
(12:28):
the size of this, of this disruption is pretty big. Now.
I think we had a lot of different views on
whether this is sort of going to wipe out a
big swathe of jobs, and I think that, you know,
it's totally up in the end, no one's got any
real idea. But I kept coming back to what Matt
Common said. It's okay if you dismissed the predictions from
(12:50):
the CEO of the BAI developer anthropic who says unemployment
might spark to twenty percent within five years. That's okay
if you don't believe that. Totally fair enough. But uestion
we should ask is what if he is right? Anthony.
I mean, this is what I keep coming back to.
What if he's right? Do you think we are ready
(13:10):
in terms of the infrastructure we need, the power we need,
the policity settings we need. I just want to ask
you on the back of that. We had a great
listener question from Melanie and Victoria, who speaks to this topic.
AI's discourse, She says, often focuses on job losses and
automation risk. But how can we reframe the national conversation
to address how AI will change jobs, reshape career pathways,
(13:33):
and elevate the importance of distinctly human capabilities like empathy, storytelling, ethics.
What role should education and policy play in preparing our
workforce for this error? Great question, Melanie, Anthony, do you
see us talking about this? Do you see the move
in the sort of in government policy or the general
(13:55):
community to say, let's be ready for this stuff.
Speaker 2 (13:58):
But we definitely need to talk about it. If you
just just look at the jobs bit that Melanie talks
about there, James, there's no point hiding from it, right,
Like this is designed to take out jobs, there will
be a change in the workforce. If they are right,
If we should be preparing for large scale job losses
market disruption, then definitely all right, start using the AI
tools now. Companies can start training their staff on the
(14:20):
AI tools. Just get your head around what these products
actually look like, what you actually need to be able
to do to understand them to use them better. And
then also it's up to companies to start thinking about
if our staff in certain jobs are going to lose
them to the AI agents, where can we deploy them,
what's the future, where are we going to be hiring
in the future, and start shifting them that way. So
(14:41):
we can't hide from the job losses and the change
in the workforce. And I think it's healthy to be
talking about it. There is no point waking up in
three years time we've got a litany of job losses
and we're like, where did this come from? We may
as well be prepared for it. In terms of the
wider infrastructure that you asked about, James, I mean we're
absolutely not ready. Look at the energy system, like, without
(15:03):
being too alarmist, it is dated, held together by sticky tape.
Let's relying on old and aging and unreliable cold power stations, James.
Some of the biggest which we're supposed to have been
retired a few years ago, but we just can't switch
them off because we want to be able to keep
the lights on twenty four to seven. That is a fact.
You know, the energy transition is happening, James. But it's
(15:23):
such a big job, right, and then there's so much
to do. We don't have enough firm power, we don't
have enough storage. We're great in the middle of the
day when the sun shining, when the wind's blowing, but
we fall short at other times. And so there's investment
that's going into more renewable generation, into storage and in
transmission James. But the job's massive, and we haven't transitioned
(15:45):
the grid at all. So if you start there, if
you look at where we are today, what the AI
crew want us to think is a pretty analog or
digital light world compared to what is coming. Everything to
do with AI requires power, James. It's electric electrification of everything, literally,
electrification of workers who are your agents, not not people.
(16:05):
You know, these agents are going to eat electricity for lunch,
not sandwiches. So then you're adding the actual infrastructure you
need to house the data, the machines, the learning, you know,
the data centers. They're huge power cuckets that run constantly
even when the wind isn't blowing, even when the sun
isn't shining. These things need power exactly now, AMO, which
oversees the Australian energy system, it isn't too alarmed about it.
(16:28):
It says, don't worry too much about the data centers.
They account for only a couple of percent of Australia's
energy usage and that's fine, James. And they say maybe
it gets up to ten percent in the next couple
of decades, which also doesn't sound too scary. But that's
another ten percent of something we already don't have, right.
So I wonder, with the way that everyone's talking about
(16:52):
agentic AI, the way that forecasting works, if Vicki Brady's
right and all this is changing incredibly quickly, do we
need a and that to rerun the numbers, you know,
every week or every month so that we're used to it. Maybe,
I mean, we are tweaking the policy settings slowly, you know.
Obviously we spoke about last week about or the week
(17:13):
before about gas as the backup source of power generation.
I mean, that's we're freeing that up a little bit.
But you know, clearly there's more reform needed now, James.
You asked a few people at the summit what advice
they'd give to a teenager about the world of AI.
(17:33):
And it's interesting because you were asking, you know, CEOs,
top investors and the like. Now, what what advice did
they have?
Speaker 1 (17:40):
Well, I think this goes a little bit to Melanie's question, Actually, Anthony,
I mean basically their advice was jump in. I mean
I think Craig Blair, who's the a partner and co
founder at a venture capital firm air Tree, his suggestion was,
kids need to become AI and ninjas. They need to
be completely familiar with all the tools. How do they work?
(18:01):
What are their limitations? Where can when can I use them?
Where can't I use them? Where should I question the
answers that they give. So I think that was the
general gist, like don't sort of hide and pretend it's
not coming and hope you can develop other skills that
don't require AI. This is going to be part of
everyone's life all the time, and so get used to it.
(18:23):
I mean, I think it's good advice, actually, Anthony. For adults.
I mean, everyone should be having a muck around with
this stuff and getting used to it. Because I don't
think it's too long until lots of Australians are going
to be asked to use this stuff in their job.
And I think, just coming back to Melanie's question about
(18:43):
education and policy, I was really impressed by Vicky Brady
from Telstra said our workforce is going to be smaller
because of AI in five years. You know, doesn't know
how much smaller, doesn't know what it's going to look like,
but she does know that in the next five years
she's got to spend a lot more time training her
(19:05):
people on AI. They've got an AI academy, she said,
They've put twenty thousand people through it to get them
some skills. Now, I don't see anything like that from
the government. I mean, perhaps we should also, perhaps we
should even be trying to get this stuff into the
official curriculum of our schools. Like you know, I know
that most teachers have treated AI with sort of fear
(19:27):
and skepticism. You know, is it helping kids cheat and plagiarize.
Maybe we need to flip that and start teaching kids about,
you know, how to use AI, where the best use it,
what it can and can't do. What are the limitations
we could make this part of the official curriculum. I mean,
I take your point about tim Ayre's the New Innovation
(19:47):
and Industry Mini stays two weeks into the job. Okay,
but I just thought the tenor of his address was
totally wrong. There was no sense of urgency, no sense
of you know, I'm going to make this a pro
already well, or not enough of a sense of that
for mine. I just thought that the tone was wrong. Sure,
he couldn't go far on the substance, but I'm just
(20:10):
not feeling the sense of urgency that people like Matt
Common are trying to get across to us. You know,
something needs to change here, and it needs to change
really quickly. Your point is exactly right. We don't want
to wake up in three years and say, jeez, we
missed this, didn't we which I fear is where we're going.
So look, if nothing else, you know, big wake up call.
(20:33):
This stuff is here, it's changing really quickly. Let's get
on with it, all.
Speaker 2 (20:43):
Right, James. For our second topic, the IPO, we've been
talking about for two and a half years, It's finally here.
Virgin Australia broke in the pandemic, is back, leaner, meaner
and promising to be a better machiner. James, I don't
have been capital one of the big private equity firms.
It's floating the business, raising six hundred and eighty five
million dollars by selling thirty percent of the company in
(21:04):
a deal valuing it at two point three billion dollars
or seven times forecast profit. James, what do you make
of it? Oh?
Speaker 1 (21:13):
Look, I mean, how good is it to have a
meaty IPO back? Oh yeah, I mean everyone I talked
to on when this news broke, even the people who
don't want to buy Virgin shares, those fund managers were saying,
how good is it that we get to we get
to look under the hood at this business and make
a decision and see a big company come back to
(21:33):
the ASX. Great for the market, great for austrained business.
Let's let's make no bones about it. This is a
great turnaround story. This thing was in receivership in the
pandemic was totally cooked. Cutos to Baine, Cutos to Jane
Hurdliker for turning it round. I mean, I think they've
had a bit of luck in the last little while.
I don't know if you've noticed, Anthony, but Quantus shares
record highs and so you're when the obvious listed pier
(21:58):
is shooting the lights out. Well, that a hell of
a lot easier to go to investors and say, have
a look at this, my friends. Wouldn't you love a
chance to own the other airline? The oil prices come down,
That's that's really that's really nice. And look, you know,
Liberation Day is just a memory in the minds of
equity investors. So look, it's good to see this one back.
Speaker 2 (22:20):
Good to hear you pumped up. But hang on, James,
do you remember what you said about this six weeks ago?
Speaker 1 (22:27):
I'm not sure I'm with you. If they managed to
get this float away in June under the thread of
tariff wars with US airlines stocks and the toilet with
investors kiddish, then there needs to be a statue bill
on in Martin Place or in Colin Street with the
team of bankers behind this business, and and perhaps bank
(22:51):
Capital's CEO as well, that it'd be a fair effort.
Speaker 2 (22:54):
So, James, who were building a statue the bankers is emergency?
Dave Emerson, ban was Mike Murphy, Scott Morrison? I mean
he didn't bail them out in the pandemic? Is a
Vanessa Hudson, Donald Trump mate Scott be sent who are
we talking, Anthony?
Speaker 1 (23:11):
Thank you, I thought we were friends. Thanks so much
for bringing this up. But you'll be surprised. I've had
a lot of messages about statues this week. I think
the Bain Capital team took took my statue call as
a bit of a personal affront or perhaps a personal challenge. Look,
to be fair, to be fair to me, the world
(23:34):
was in a pretty different place back then. We just
had we just had the Liberation Day announcements. Equity markets
were plunging.
Speaker 2 (23:42):
It.
Speaker 1 (23:44):
I stand by it. It looked like at the time, the
worst time ever. The things have turned around, and well
done to all the bankers here. Look, I think success
has many parents. Bain Capital CEO Mike Murphy, he probably
he probably needs a statue. There's some bankers out there,
from what we're told, Anthony, from the fund managers. The
new Virgin CEO Dave Emerson has done a great job
(24:06):
selling this to investors with his executive team. Jane hurdlerk Look,
she was the one who took the big punt and
steered this, put her reputation name on the line and
steered this out of disaster as well. Very impressive. But
I mean, Anthony, you've written a lot about this IPO
and you followed all the twists of the turn since
the summer of twenty twenty three when it all started
(24:28):
coming together. Why do you think they've been able to
get this over the line now in light of all
that turmoil.
Speaker 2 (24:35):
Well, just firstly, if it's true that you did fire
them up and they won the premiership, James, they should
be building a little stature of you in their office.
I think I think why this got up though, James,
is really simple. It's just price. I mean they've put
this out of a thirty percent discount the Countess. And
when we talk about price, James, we're talking about the
multiple of its earnings. So at the moment, you pay
ten times this financial year's earnings to buy one Contest share,
(25:00):
and you'll pay seven times this financial year is earning
by one Virgin's share, So Virgin is thirty percent cheaper
than Quantus. It's that simple. That's a good discount. That's
why the deal's getting away now. In recent years, James, vendors,
so those people that are listing their businesses, they look
at something like the high flowing Quantus and say, all right,
if Quantius is worth ten times profit, my business is
(25:21):
worth ten times profit. We can compete in the same routes.
We fly, similar planes, have similar margins, We're worth the same. Yeah,
Virgin's own a bay has gone Okay, Quanstius is trading
very healthily. We can use that to our advantage. We
can still get this deal done at seven times, which
is a very respectable multiple in normal markets. Sell a
thirty percent steak, keep forty percent for themselves. See how
(25:43):
it goes, and happy days. And the reason, the real
reason they can do that, James, is because they've made
so much money already. Remember they bought Virgin out of administration.
They got their money back two years later. Then they
made about two times their money. When Qatar came in
and bought a quarter of the company, a deal that's
settled only a couple of months ago. They probably make
(26:04):
another one times their money just by taking money off
the table at the float here, James, and they still
own forty percent of the business. So if you add
all that up, they got their money back and they've
made probably back of the envelope three times their money
already since then, they still owned forty percent of the
business when it lists, so they're doing really well. You know,
they took a lot of risk at the time they
(26:25):
came in. They executed a turnaround. They did an environment
of high wage growth and consumer sentiment being okay but
not brilliant. They've got Virgin on stable footing, you know,
I mean, so it's a win for high finance, it's
a win for big business. It's a win win for
capitalism here, James. But the big question in my mind
(26:47):
is how long is the aviation market going to stay
like it is? Right, You've got three players, They've got
about third of the market. Each, each has got their spot,
each is making good money. Virgin's nicely wedge between the
top of the market Quantas and the bottom of the
market jet Star. Obviously those two brands are both owned
by Quantas. You know, it's found its place in the middle.
(27:08):
It's all very rational, sensible shareholders of all the companies
are pretty happy. No one's upsetting the apple cart. At
some stage, James, does it will get upset, someone will
do something. What happens then, you know, how does Virgin respond?
Does it go out all out attack? You know, does
it get bigger and into the areas it's sworn off
on like international roots, domestic lounges, the expensive stuff that
(27:31):
brought it down last time. Or does it get more
defensive and go to the bottom of the market and
take on jet Star. So, I mean, that's that's the
thing to watch. It's getting away though because of price.
But James was pretty ironic, wasn't it. Like we sit
here all the time and talk about public markets versus
private markets, you know, and how the private markets have
(27:52):
got more momentum at the moment than the ASX. This
still launched on the same day, the exact same day
that ASEK released fifty submissions into its Public and Private
Markets review, and in a lot of those submissions are
pointing out problems with the public markets. Yeah, and yet
here we are we have a business like Virgin coming
(28:12):
to the market wanting to IPO. Now, is there anything
in any of those submissions to this ASCIC review that
caught your eye? Oh?
Speaker 1 (28:21):
Look, I mean I think there was a lot of
self interest. That would be my main point. The people
who are big in private markets, they're quite happy for
ACK to just stay on the sidelines. No more regulation,
please the people who are in public markets. They're worried
about the health of the public markets. And yeah, I
take I think your point's valid. Virgin shows the public
(28:42):
markets are far from dead, but they are very concentrated.
I mean, this week we've seen CBA become a three
hundred billion dollar company, our first one ever, and that
just goes I think to the extraordinary concentration in a
few very large stocks. We're seeing that right around the world. Lord,
we're seeing in Australia. But there's still an opportunity. You're
(29:04):
totally right. This Virgin deal says there's still an opportunity
for good companies to make their pitch to investors at
the right time. So I think maybe this is a
bit of a balm for those concerns about the public markets.
I mean, Anthony, do you think the Virgin IPO, if
it gets away smoothly and trades well, does that open
(29:25):
the door for other companies to hit the public markets?
Do we see more IPOs?
Speaker 2 (29:29):
Oh, that's definitely the question to ask James. There's a
lot of people watching stickly private equity right. There's a
lot of assets in the private equity sitting on they
haven't been able to sell in recent years, there's no
strategic buyer that's chomping their arm off to try and
buy them, so the obvious exit is putting them back
into public markets and selling them to everyday punters. It's funny,
(29:52):
James like this Virgin Deals launched this week. There's other
IPOs that are out there. There's another one called gem
Life which builds thesemmunities for over fifties to move into.
That's been out there this week. James trying to raise
a bit more than Virgin seven hundred and fifty million
dollars or so. So there is signs of life in the
IPO market. Virgin though, because it's got such a big brand,
(30:13):
because we're sitting here talking about it, because everyone's focused
on it. What happens there is going to be seriously
important if it goes well. Get ready for the private
equity on slot, I reckon. There's plenty of businesses, like
I said, sitting in private equity hands that have been
able to move. So think Green Cross, Right Pets, retail,
and also vets things like my Muscle Chef. I'm not
(30:35):
sure if you're across My Muscle Chef, but they do
those healthy sorts of meals high protein in supermarkets. You know,
scan through all the private equi firms portfolios, James, anything
with a decent brand and decent sort of awareness, you know,
like Virgin has that could have broad appeal. I reckon,
you'll see those dusted off. Right. The thing you need
though with the floats, James, like, price is incredibly important.
(30:58):
You need a bit of a hot theme. Right, So
what's what's running at the moment. At the moment on
the AX running pretty hard? Is this invest in Australia
domestic earning sort of thing? Yep, Virgin's got that in spades, right,
is basically a play on the Australian consumer, boomers, travel,
et cetera. So watch people sort of twist their stories
around whatever's running on the AX in the next couple
(31:19):
of months.
Speaker 1 (31:20):
So it's all going to depend, Anthony, on on how
Virgin's shares go on listing day. Right, So they're priced
at two dollars ninety a share. Obviously, I'm very gun
shy about making predictions when it comes to Virgin Now,
first day, first day of trade, do they close higher
or lower?
Speaker 2 (31:37):
Yeah, really hard to say because it could happen, Like
look at Trump and elon and all oil price currency,
et cetera. As it is, though, this demand for this
thing's getting away, should should trade be higher? Yeah?
Speaker 1 (31:48):
I agree, I agree. And one year's time, is it
higher or lower?
Speaker 2 (31:52):
I'll think be higher. James, I'm a believer in the
domestic travel story. I'm a believer that you've got these
three airlines that are acting rationally and doing well and
don't want to blow that up just yet, So I
think it'll head in the right direction.
Speaker 1 (32:07):
What about yourself, Yeah, I think oil prices are probably
a bit of a determinant, but I think a lot
of where Virgin ends up will be about where Quantus
ends up. And why I say that is a lot
of the theory here is that Virgin can stay rational.
You know, it doesn't need to drop its prices and
fight for market share because Quantus needs to stay rational.
(32:30):
It needs to stay rational to keep the cash flowing
so it can pay for these lots of new planes
it's got on order. So I think for a year
at least, I think that rational market behavior can hold,
and perhaps we could see Virgin shares creep higher. But
the fact that Quantus shares are at that record high
that would give me a little bit of pause. That
(32:52):
gap between virgin and Quantus will probably be reflected in
the market pricing going forward well beyond that float. But
it's going to be fascinating to watch, Anthony, and I'll
be spending the weekend melting down bronze to start casting
these statues. So that should be a good long weekend
for me. Well, look, we'll be back after the break.
(33:16):
We've got another big week coming up, has some really
interesting economic data and a big powwow for the investors
in Australia. Back in a second. Welcome back. If you
(33:40):
want to know more about what we're talking about today,
and a whole lot more. AFI subscribers can sign up
to the Chanticlean newsletter at join dot AFI dot com
forward slash chanticlearp. Every Saturday morning, the newsletter pulls together
the best Shounticle columns from the week and delivers them
straight to your inbox. All right, Anthony, Tuesday night, we're
both going to be an Assex symposium on private capital.
(34:04):
So this follows on from that work we just mentioned.
They've put all these submissions out, they're testing the market.
Be interesting to see. I think we're going to have
some investment bankers, some regulators, some academics. Be interesting to
see how the moods shifting on private markets and public
markets after things like the Virgin float. Right absolutely, Wednesday
(34:26):
and Thursday, Morgan Stanley has its big Australia Investment conference.
I think you're getting along anyone. You're particularly looking forward
to seeing.
Speaker 2 (34:34):
Your mate Howard Marks is up from oakcho Se. But
on the agenda, it's all the themes you expect, AI energy,
what we've been speaking about today.
Speaker 1 (34:42):
Actually yeah, good stuff. And then on Thursday we get
the latest reading of unemployment. The last one was four
point one percent. Expecting much movement here. The story really
is the labor market's still pretty tight. It's probably the
one thing I'm not sure the RBA wouldn't want the
labor market to loosen, But in terms of their concerns
(35:07):
about inflation, the tight labor market's still there, isn't it.
Speaker 2 (35:11):
Yeah, I mean it wouldn't mind if it loosened a
little bit, I think, James, is what the economs would say.
Speaker 1 (35:17):
Yeah, absolutely, all right, Anthony. We had a question earlier
from Melanie from Victoria. If you've got a question you
want to send in, you can email us at Chanticleer
at afar dot com. You can also send us a
question in audio form. Just record a voice memo on
your phone and include your name and where you're from.
Email it Tulison. Of course, there's a little widget now
on the Chanticleer articles on afar dot com where you
(35:40):
can submit a question through there where loving seeing all
these questions. We'll get to as many as we can
over the course of the following weeks. But keep them coming,
all right, Anthony, it's another big week coming up. Long weekend,
Enjoy having a Monday off. I won't ask you to
help me with the statues, that's my job, but enjoy
(36:02):
a bit of time with the family.
Speaker 2 (36:03):
You too, James, have a great weekend.
Speaker 1 (36:05):
Thanks everybody, Thanks for listening. We'll see you next week.
If you like the podcast and you want to hear more,
consider sharing or giving the podcast a review, as it
helps other listeners find us, and don't forget to follow
wherever you get your podcasts. At the Financial Review, we
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(36:26):
go to afar dot com. You can subscribe to The
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The head of premium content is Fiona Buffini
Speaker 2 (36:54):
The Australian Financial Review
The Australian Financial Review. Hello, I'm James Thompson, Senior Chanta
Clear columnist of the AFI. Welcome to our weekly news
breakdown of Orkans, business, finance and markets. With me today,
as always, is most chanted for your colleague. He's cleared
(00:26):
for takeoff and ready to saw. It's Anthony McDonald.
Speaker 2 (00:29):
How are you, Anthony, Thanks for letting right up in
front of you today, James.
Speaker 1 (00:33):
Absolutely well. This week we try to explain what's coming
for Australia from the AI Revolution, we reveal the biggest
winners from the float of Virgin Australia, and you'll never
guess Trump and Musk's romance is over. But first, Anthony,
(00:54):
the GDP numbers came out this week and we've got
a fresh look at the health of the Australian economy. Now,
doctor Donald, what's your diagnosis?
Speaker 2 (01:02):
A bit sluggish, James, economy. She's looking a bit off,
a bit of em lacking bit of iron, not a
great color. Economic growth in March quarter was weaker than expected, James.
GDP about zero point two percent for the quarter or
one point three percent for the twelve months to March
thirty one. And GDP that growth actually decelerated in the quarter.
(01:23):
Why James, because government spending backed off, the private steck
still pretty soft. Productivities, poor wages are high. Put all
that together and while it's good inflations back in the
range the economy, it's taken a bit of a beating.
I guess that explains why the RBA cut rates in
February and again in May. And it's a bit of
a quirk, isn't it. That's in this day and age,
we're getting March quarter data two months in, one week
(01:45):
after it happens.
Speaker 1 (01:46):
But good point.
Speaker 2 (01:47):
Think about everything that's happened since the end of March, James,
you know that was that was that was pre liberation day.
So we are we are looking at historical data here.
But I think James at ramps up there rate cut calls.
I mean, the good news is RBO start to the
quarter with the rates of four point one percent. Now
back to three point eight five percent. There's plenty of
rooms cut more if required the next meetings on July
(02:10):
seven and eight, one month's time, and I think we'll
see the odds of rate cuts shortened as we get
closer to it. What do you make of it?
Speaker 1 (02:17):
Dr Thompson well, look, I think your diagnosis is pretty good.
I mean, we're just know, it's the middle of winter.
We all feel a bit run down, and so does
the economy. We're stuck. We're stuck in LOGI. We've been
stuck in LOGI for a while. You know. I was
chatting to the Financial Reviews economics guru Mike Reid, and
(02:37):
he doesn't buy into the per capita recession type thing.
He doesn't think that's the greatest measure of the economy.
But look, I mean we've been sort of just going
for about the best part of eighteen months. I don't
think it's any surprise. I am a bit surprised though,
that the Treasurer, doctor Jim Chalmers, to give everyone there
right as. I mean, he's out there to described open
(03:00):
the Australian economy as world beating. I mean, I guess
that we're not China or America, and that's a good thing.
But I don't see anything world beating here, Anthony. I
see a lot of work for the for the Treasurer
and the Prime Minister to do to try and get
the private sector firing again. Surely that's the that's got
(03:22):
to be the big focus here. I wouldn't be claiming
these numbers as world beating, would you.
Speaker 2 (03:27):
No, absolutely not. The headline numbers are not well beating.
That's that's a fact. And James, late this week, the
most predictable event in the history of business, finance, and markets,
and probably politics and human kind happened. US President Donald
Trump and gazillionaire Elon Musk have fallen out and been
trading barbs on their respective social media platforms. James, at
the heart of it is something called the Big Beautiful Bill. Please,
(03:50):
can you explain what is the Big Beautiful Bill? And
why is Elon Musk the man who pumped millions into
Trump's reelection campaign and then the doge raise a gang.
Why is he hit the roof?
Speaker 1 (04:01):
Well, I think he's hit the roof because he's been
kicked out of the gang by the mean girls in
the White House. Basically, I mean, this has got all
the hallmarks of a schoolyard spat. Elon's a bit nuts,
Trump's a bit nuts. They've fallen out. Trump's given Elon
his marching orders, and I think Elon's spat the dummy
(04:23):
and now all of a sudden, after sort of supporting
every Trump move, that came in the first one hundred
and thirty days of the administration. Now he's decided, as
you say, he doesn't like this big beautiful bill. So
the big beautiful Bill is the centerpiece of his administration. Really.
It delivers tax cuts and then over time it delivers
spending cuts. But what it doesn't do is help rain
(04:46):
in the budget deficit, which is what Trump's promised and
what Elon's Doge Razor Gang, as you say, that's what
it was all about, trying to get the budget deficit down,
get the government spending back into line. So you know, yes,
the one beautiful Bill is spark the argument, but now
it's just spiraling out of control. So on Thursday night
(05:08):
American time, Friday morning, our time, you know, these guys
were hurling insults at each other in real time on
social media. It was great to watch. You know, you
had sort of Trump threatening to cancel all of Musk's
contracts with the government. A Musk comes back and says
that Trump is in the files of the US government
has collected about the convicted pedophile Jeffrey Epstein. Trump comes
(05:32):
back and suggests, you know, Elon's sort of ungrateful, and
they were best buddies and what's happened? And it ends
with Musk sort of, or it ends at this stage
with Musk suggesting that Trump should be impeached and JD
Van should take over. Meanwhile, Anthony, if you're an investor
in Tesla, which let's face it, millions of Australians are
(05:54):
through their superannuation fund, fourteen percent of the company's market
value one hundred and fifty billion US has been wiped
off overnight. I mean this is mask has played with
fire here by backing Trump and shock horror, he's now
getting burnt. I mean, what a This is a mess, isn't.
Speaker 2 (06:12):
It tato mess?
Speaker 1 (06:13):
James?
Speaker 2 (06:13):
I mean the spat itself. I think everyone saw this
coming and now it's playing out publicly, and it's ugly
and predictable, and you know, it's not something that it's
enjoyable to watch it all. But at the heart of it, James,
like this big beautiful bill, like it's hundreds of proposed
changes all wrapped up together. Actually it's actually pretty important,
(06:36):
and the whole thing's playing with like playing with fireworks,
I reckon, James, like, it could be beautiful if it works,
but it could also explode in the US's face big time.
If you cut taxes, do you accelerate the economy and
increase the tax take or do you just make the
deficit problem bigger or both? That's kind of all both. Yeah,
(06:56):
that's kind of the heart at the heart of this
whole thing. So elon, Musk, I mean, he's also got
a financial interest in this fight. Part of the big
beautiful bill is winding back subsidies on electric vehicles. Mask
Tesla obviously makes electric vehicles, so we can see how
this could hit him in the hip pocket as well.
Speaker 1 (07:14):
All right, choose your fighter here, Anthony. This is play
out over the next few weeks. Who do you want
to back the world's richest man or the world's most
powerful man?
Speaker 2 (07:22):
The world's most powerful man?
Speaker 1 (07:24):
Yeah, I agree, I agree, I just don't. I think
Mask has badly overplayed his hand here. It's not going
to end well for him. But let's see, all right, Anthony,
let's move to our first topic. And on Tuesday in Sydney,
the AFI hosted its second annual Artificial Intelligence Summit, which
featured a string of big speakers from the tech sector,
from government, and of course, from the top end of town.
(07:44):
Including Telstra's Vicki Brady and Commonwealth Banks Matt common Now, Anthony,
I've got to say I was blown away by this day.
Totally full room, they were engaged the whole day, and
just so much big picture stuff to think about. And
I've got to say for me to worry about. But Anthony,
before I do my usual thing on the podcast and
(08:04):
bring the move down, what was your big takeaway from
the day.
Speaker 2 (08:08):
Geez, you give me the big picture question, James. That's
dangerous Google. People don't wear dress shoes, even the hard ones.
Good boy, the big picture. There's a lot of money
in a Jeeves, big full room, great sponsors, very good speakers.
A lot of these people are trying to work so
fast to sell this stuff, to really establish themselves as leaders.
It's a booming industry, James. It's unlike any other I
(08:31):
would say, in terms of what we do in our conferences,
in summits and in times like this, the thought leaders.
Also the salespeople, aren't they like we sat there and
we'll listening to you know, it comes like Google Salesforce
telling us all about it, or we sat there listening
to people like Telstra's Vicki Brady CBA's Matt Common, you know,
who are just back from trips to the US hearing
from these big tech giants about how fast it's all
(08:53):
moving and makes you sort of wonder, like who's talking
about it? It isn't making money. And we had the
minister him as at the summit, but you know, he's
two minutes into the job, so I mean, to be
fair to him, he didn't have that much to contribute,
and that's understandable given that he's just taken the portfolio.
But I mean the big takeaway, James, I mean, there's
(09:13):
just so much potentially transformational change going on here, and
I mean it's started. Those that are selling it, those
that have heard the pitch firsthand, they're telling us this
is the fourth Industrial Revolution. You know, even KKRS CEO
who he met this week, was telling us this is
bigger than the Internet, James and generous. If AI really
(09:34):
kicked it off, you know, that's the large language models
that create the content text, pitches, videos, etc. You know,
it's a couple of years ago now now it's a
gentic AI creating agents making decisions, replacing human beings, not
just generating content anymore, but actually doing stuff now. Vicky Brady,
fresh off her trip to the US, she said, you know,
things that she and you know she's in the middle
(09:55):
of the Australia sort of tech industry. She said, things
that she thought were a year or two way are
actually happening now. It's coming, The big change is coming.
We need to get ready for it. That's excited. I'm
excited and I'm not even wearing dress use today James
at Tips through our mates at Google. But I feel like,
I feel like there's something else going on here, James,
(10:19):
and you might go full Doomer on us here, what's
got you worried?
Speaker 1 (10:24):
Well, look, Anthony, I think what's got me worried is
the speed at which this is happening. But you think
about you know, often you hear the argument about AI, like,
don't worry. We've been through periods of technological change before
and they all worked out. You know that, the steam engine,
electrification of the economy, the Internet. You know the world's
(10:45):
a better place after those things, or so that argument goes.
I totally get that, And I think my great hope
is not that we have some great strategy to get
through this, but then we just muddle through it, and
we find a way and we had apt and we
do what humans have done for thousands of years and
done really well, which is just figure it out and
(11:06):
get on with it. That's probably true. But the one
thing that gives me a bit of pause is the
speed at which this is happening. You know, it's not
like the electrification of the global economy that took four
or five decades. It's not like the Internet, it took
two generations really to have a really meaningful effect on
(11:27):
the global economy. This is happening in the space of
It's thirty months, thirty months since chat GPT was released,
and we've gone from oh, isn't it cool that I
can make a picture of you Anthony dressed as a
superhero to agents coming in to take people's jobs thirty months.
(11:47):
Countries and companies are slow moving beasts, and I think
this is one where that lack of speed will hurt us.
You know, as you said, we had lots of people
at the summit selling the idea of AI. I don't
think that's fair enough, because we're all trying to figure
it out and certain people are trying to make money
of it. No problems with that. I liked one of
(12:07):
the speakers I had on my panel, Leal Yardsley. She's
been working with AI for twenty years in one form
or another. Her point was that, you know, we went
from an agrarian economy sort of in the eighteen hundreds
to an industrial economy. You know, we went from farmers
to workers. Now ninety five percent of us work with
our brains, and that's what AI is coming for. So
(12:28):
the size of this, of this disruption is pretty big. Now.
I think we had a lot of different views on
whether this is sort of going to wipe out a
big swathe of jobs, and I think that, you know,
it's totally up in the end, no one's got any
real idea. But I kept coming back to what Matt
Common said. It's okay if you dismissed the predictions from
(12:50):
the CEO of the BAI developer anthropic who says unemployment
might spark to twenty percent within five years. That's okay
if you don't believe that. Totally fair enough. But uestion
we should ask is what if he is right? Anthony.
I mean, this is what I keep coming back to.
What if he's right? Do you think we are ready
(13:10):
in terms of the infrastructure we need, the power we need,
the policity settings we need. I just want to ask
you on the back of that. We had a great
listener question from Melanie and Victoria, who speaks to this topic.
AI's discourse, She says, often focuses on job losses and
automation risk. But how can we reframe the national conversation
to address how AI will change jobs, reshape career pathways,
(13:33):
and elevate the importance of distinctly human capabilities like empathy, storytelling, ethics.
What role should education and policy play in preparing our
workforce for this error? Great question, Melanie, Anthony, do you
see us talking about this? Do you see the move
in the sort of in government policy or the general
(13:55):
community to say, let's be ready for this stuff.
Speaker 2 (13:58):
But we definitely need to talk about it. If you
just just look at the jobs bit that Melanie talks
about there, James, there's no point hiding from it, right,
Like this is designed to take out jobs, there will
be a change in the workforce. If they are right,
If we should be preparing for large scale job losses
market disruption, then definitely all right, start using the AI
tools now. Companies can start training their staff on the
(14:20):
AI tools. Just get your head around what these products
actually look like, what you actually need to be able
to do to understand them to use them better. And
then also it's up to companies to start thinking about
if our staff in certain jobs are going to lose
them to the AI agents, where can we deploy them,
what's the future, where are we going to be hiring
in the future, and start shifting them that way. So
(14:41):
we can't hide from the job losses and the change
in the workforce. And I think it's healthy to be
talking about it. There is no point waking up in
three years time we've got a litany of job losses
and we're like, where did this come from? We may
as well be prepared for it. In terms of the
wider infrastructure that you asked about, James, I mean we're
absolutely not ready. Look at the energy system, like, without
(15:03):
being too alarmist, it is dated, held together by sticky tape.
Let's relying on old and aging and unreliable cold power stations, James.
Some of the biggest which we're supposed to have been
retired a few years ago, but we just can't switch
them off because we want to be able to keep
the lights on twenty four to seven. That is a fact.
You know, the energy transition is happening, James. But it's
(15:23):
such a big job, right, and then there's so much
to do. We don't have enough firm power, we don't
have enough storage. We're great in the middle of the
day when the sun shining, when the wind's blowing, but
we fall short at other times. And so there's investment
that's going into more renewable generation, into storage and in
transmission James. But the job's massive, and we haven't transitioned
(15:45):
the grid at all. So if you start there, if
you look at where we are today, what the AI
crew want us to think is a pretty analog or
digital light world compared to what is coming. Everything to
do with AI requires power, James. It's electric electrification of everything, literally,
electrification of workers who are your agents, not not people.
(16:05):
You know, these agents are going to eat electricity for lunch,
not sandwiches. So then you're adding the actual infrastructure you
need to house the data, the machines, the learning, you know,
the data centers. They're huge power cuckets that run constantly
even when the wind isn't blowing, even when the sun
isn't shining. These things need power exactly now, AMO, which
oversees the Australian energy system, it isn't too alarmed about it.
(16:28):
It says, don't worry too much about the data centers.
They account for only a couple of percent of Australia's
energy usage and that's fine, James. And they say maybe
it gets up to ten percent in the next couple
of decades, which also doesn't sound too scary. But that's
another ten percent of something we already don't have, right.
So I wonder, with the way that everyone's talking about
(16:52):
agentic AI, the way that forecasting works, if Vicki Brady's
right and all this is changing incredibly quickly, do we
need a and that to rerun the numbers, you know,
every week or every month so that we're used to it. Maybe,
I mean, we are tweaking the policy settings slowly, you know.
Obviously we spoke about last week about or the week
(17:13):
before about gas as the backup source of power generation.
I mean, that's we're freeing that up a little bit.
But you know, clearly there's more reform needed now, James.
You asked a few people at the summit what advice
they'd give to a teenager about the world of AI.
(17:33):
And it's interesting because you were asking, you know, CEOs,
top investors and the like. Now, what what advice did
they have?
Speaker 1 (17:40):
Well, I think this goes a little bit to Melanie's question, Actually, Anthony,
I mean basically their advice was jump in. I mean
I think Craig Blair, who's the a partner and co
founder at a venture capital firm air Tree, his suggestion was,
kids need to become AI and ninjas. They need to
be completely familiar with all the tools. How do they work?
(18:01):
What are their limitations? Where can when can I use them?
Where can't I use them? Where should I question the
answers that they give. So I think that was the
general gist, like don't sort of hide and pretend it's
not coming and hope you can develop other skills that
don't require AI. This is going to be part of
everyone's life all the time, and so get used to it.
(18:23):
I mean, I think it's good advice, actually, Anthony. For adults.
I mean, everyone should be having a muck around with
this stuff and getting used to it. Because I don't
think it's too long until lots of Australians are going
to be asked to use this stuff in their job.
And I think, just coming back to Melanie's question about
(18:43):
education and policy, I was really impressed by Vicky Brady
from Telstra said our workforce is going to be smaller
because of AI in five years. You know, doesn't know
how much smaller, doesn't know what it's going to look like,
but she does know that in the next five years
she's got to spend a lot more time training her
(19:05):
people on AI. They've got an AI academy, she said,
They've put twenty thousand people through it to get them
some skills. Now, I don't see anything like that from
the government. I mean, perhaps we should also, perhaps we
should even be trying to get this stuff into the
official curriculum of our schools. Like you know, I know
that most teachers have treated AI with sort of fear
(19:27):
and skepticism. You know, is it helping kids cheat and plagiarize.
Maybe we need to flip that and start teaching kids about,
you know, how to use AI, where the best use it,
what it can and can't do. What are the limitations
we could make this part of the official curriculum. I mean,
I take your point about tim Ayre's the New Innovation
(19:47):
and Industry Mini stays two weeks into the job. Okay,
but I just thought the tenor of his address was
totally wrong. There was no sense of urgency, no sense
of you know, I'm going to make this a pro
already well, or not enough of a sense of that
for mine. I just thought that the tone was wrong. Sure,
he couldn't go far on the substance, but I'm just
(20:10):
not feeling the sense of urgency that people like Matt
Common are trying to get across to us. You know,
something needs to change here, and it needs to change
really quickly. Your point is exactly right. We don't want
to wake up in three years and say, jeez, we
missed this, didn't we which I fear is where we're going.
So look, if nothing else, you know, big wake up call.
(20:33):
This stuff is here, it's changing really quickly. Let's get
on with it, all.
Speaker 2 (20:43):
Right, James. For our second topic, the IPO, we've been
talking about for two and a half years, It's finally here.
Virgin Australia broke in the pandemic, is back, leaner, meaner
and promising to be a better machiner. James, I don't
have been capital one of the big private equity firms.
It's floating the business, raising six hundred and eighty five
million dollars by selling thirty percent of the company in
(21:04):
a deal valuing it at two point three billion dollars
or seven times forecast profit. James, what do you make
of it? Oh?
Speaker 1 (21:13):
Look, I mean, how good is it to have a
meaty IPO back? Oh yeah, I mean everyone I talked
to on when this news broke, even the people who
don't want to buy Virgin shares, those fund managers were saying,
how good is it that we get to we get
to look under the hood at this business and make
a decision and see a big company come back to
(21:33):
the ASX. Great for the market, great for austrained business.
Let's let's make no bones about it. This is a
great turnaround story. This thing was in receivership in the
pandemic was totally cooked. Cutos to Baine, Cutos to Jane
Hurdliker for turning it round. I mean, I think they've
had a bit of luck in the last little while.
I don't know if you've noticed, Anthony, but Quantus shares
record highs and so you're when the obvious listed pier
(21:58):
is shooting the lights out. Well, that a hell of
a lot easier to go to investors and say, have
a look at this, my friends. Wouldn't you love a
chance to own the other airline? The oil prices come down,
That's that's really that's really nice. And look, you know,
Liberation Day is just a memory in the minds of
equity investors. So look, it's good to see this one back.
Speaker 2 (22:20):
Good to hear you pumped up. But hang on, James,
do you remember what you said about this six weeks ago?
Speaker 1 (22:27):
I'm not sure I'm with you. If they managed to
get this float away in June under the thread of
tariff wars with US airlines stocks and the toilet with
investors kiddish, then there needs to be a statue bill
on in Martin Place or in Colin Street with the
team of bankers behind this business, and and perhaps bank
(22:51):
Capital's CEO as well, that it'd be a fair effort.
Speaker 2 (22:54):
So, James, who were building a statue the bankers is emergency?
Dave Emerson, ban was Mike Murphy, Scott Morrison? I mean
he didn't bail them out in the pandemic? Is a
Vanessa Hudson, Donald Trump mate Scott be sent who are
we talking, Anthony?
Speaker 1 (23:11):
Thank you, I thought we were friends. Thanks so much
for bringing this up. But you'll be surprised. I've had
a lot of messages about statues this week. I think
the Bain Capital team took took my statue call as
a bit of a personal affront or perhaps a personal challenge. Look,
to be fair, to be fair to me, the world
(23:34):
was in a pretty different place back then. We just
had we just had the Liberation Day announcements. Equity markets
were plunging.
Speaker 2 (23:42):
It.
Speaker 1 (23:44):
I stand by it. It looked like at the time, the
worst time ever. The things have turned around, and well
done to all the bankers here. Look, I think success
has many parents. Bain Capital CEO Mike Murphy, he probably
he probably needs a statue. There's some bankers out there,
from what we're told, Anthony, from the fund managers. The
new Virgin CEO Dave Emerson has done a great job
(24:06):
selling this to investors with his executive team. Jane hurdlerk Look,
she was the one who took the big punt and
steered this, put her reputation name on the line and
steered this out of disaster as well. Very impressive. But
I mean, Anthony, you've written a lot about this IPO
and you followed all the twists of the turn since
the summer of twenty twenty three when it all started
(24:28):
coming together. Why do you think they've been able to
get this over the line now in light of all
that turmoil.
Speaker 2 (24:35):
Well, just firstly, if it's true that you did fire
them up and they won the premiership, James, they should
be building a little stature of you in their office.
I think I think why this got up though, James,
is really simple. It's just price. I mean they've put
this out of a thirty percent discount the Countess. And
when we talk about price, James, we're talking about the
multiple of its earnings. So at the moment, you pay
ten times this financial year's earnings to buy one Contest share,
(25:00):
and you'll pay seven times this financial year is earning
by one Virgin's share, So Virgin is thirty percent cheaper
than Quantus. It's that simple. That's a good discount. That's
why the deal's getting away now. In recent years, James, vendors,
so those people that are listing their businesses, they look
at something like the high flowing Quantus and say, all right,
if Quantius is worth ten times profit, my business is
(25:21):
worth ten times profit. We can compete in the same routes.
We fly, similar planes, have similar margins, We're worth the same. Yeah,
Virgin's own a bay has gone Okay, Quanstius is trading
very healthily. We can use that to our advantage. We
can still get this deal done at seven times, which
is a very respectable multiple in normal markets. Sell a
thirty percent steak, keep forty percent for themselves. See how
(25:43):
it goes, and happy days. And the reason, the real
reason they can do that, James, is because they've made
so much money already. Remember they bought Virgin out of administration.
They got their money back two years later. Then they
made about two times their money. When Qatar came in
and bought a quarter of the company, a deal that's
settled only a couple of months ago. They probably make
(26:04):
another one times their money just by taking money off
the table at the float here, James, and they still
own forty percent of the business. So if you add
all that up, they got their money back and they've
made probably back of the envelope three times their money
already since then, they still owned forty percent of the
business when it lists, so they're doing really well. You know,
they took a lot of risk at the time they
(26:25):
came in. They executed a turnaround. They did an environment
of high wage growth and consumer sentiment being okay but
not brilliant. They've got Virgin on stable footing, you know,
I mean, so it's a win for high finance, it's
a win for big business. It's a win win for
capitalism here, James. But the big question in my mind
(26:47):
is how long is the aviation market going to stay
like it is? Right, You've got three players, They've got
about third of the market. Each, each has got their spot,
each is making good money. Virgin's nicely wedge between the
top of the market Quantas and the bottom of the
market jet Star. Obviously those two brands are both owned
by Quantas. You know, it's found its place in the middle.
(27:08):
It's all very rational, sensible shareholders of all the companies
are pretty happy. No one's upsetting the apple cart. At
some stage, James, does it will get upset, someone will
do something. What happens then, you know, how does Virgin respond?
Does it go out all out attack? You know, does
it get bigger and into the areas it's sworn off
on like international roots, domestic lounges, the expensive stuff that
(27:31):
brought it down last time. Or does it get more
defensive and go to the bottom of the market and
take on jet Star. So, I mean, that's that's the
thing to watch. It's getting away though because of price.
But James was pretty ironic, wasn't it. Like we sit
here all the time and talk about public markets versus
private markets, you know, and how the private markets have
(27:52):
got more momentum at the moment than the ASX. This
still launched on the same day, the exact same day
that ASEK released fifty submissions into its Public and Private
Markets review, and in a lot of those submissions are
pointing out problems with the public markets. Yeah, and yet
here we are we have a business like Virgin coming
(28:12):
to the market wanting to IPO. Now, is there anything
in any of those submissions to this ASCIC review that
caught your eye? Oh?
Speaker 1 (28:21):
Look, I mean I think there was a lot of
self interest. That would be my main point. The people
who are big in private markets, they're quite happy for
ACK to just stay on the sidelines. No more regulation,
please the people who are in public markets. They're worried
about the health of the public markets. And yeah, I
take I think your point's valid. Virgin shows the public
(28:42):
markets are far from dead, but they are very concentrated.
I mean, this week we've seen CBA become a three
hundred billion dollar company, our first one ever, and that
just goes I think to the extraordinary concentration in a
few very large stocks. We're seeing that right around the world. Lord,
we're seeing in Australia. But there's still an opportunity. You're
(29:04):
totally right. This Virgin deal says there's still an opportunity
for good companies to make their pitch to investors at
the right time. So I think maybe this is a
bit of a balm for those concerns about the public markets.
I mean, Anthony, do you think the Virgin IPO, if
it gets away smoothly and trades well, does that open
(29:25):
the door for other companies to hit the public markets?
Do we see more IPOs?
Speaker 2 (29:29):
Oh, that's definitely the question to ask James. There's a
lot of people watching stickly private equity right. There's a
lot of assets in the private equity sitting on they
haven't been able to sell in recent years, there's no
strategic buyer that's chomping their arm off to try and
buy them, so the obvious exit is putting them back
into public markets and selling them to everyday punters. It's funny,
(29:52):
James like this Virgin Deals launched this week. There's other
IPOs that are out there. There's another one called gem
Life which builds thesemmunities for over fifties to move into.
That's been out there this week. James trying to raise
a bit more than Virgin seven hundred and fifty million
dollars or so. So there is signs of life in the
IPO market. Virgin though, because it's got such a big brand,
(30:13):
because we're sitting here talking about it, because everyone's focused
on it. What happens there is going to be seriously
important if it goes well. Get ready for the private
equity on slot, I reckon. There's plenty of businesses, like
I said, sitting in private equity hands that have been
able to move. So think Green Cross, Right Pets, retail,
and also vets things like my Muscle Chef. I'm not
(30:35):
sure if you're across My Muscle Chef, but they do
those healthy sorts of meals high protein in supermarkets. You know,
scan through all the private equi firms portfolios, James, anything
with a decent brand and decent sort of awareness, you know,
like Virgin has that could have broad appeal. I reckon,
you'll see those dusted off. Right. The thing you need
though with the floats, James, like, price is incredibly important.
(30:58):
You need a bit of a hot theme. Right, So
what's what's running at the moment. At the moment on
the AX running pretty hard? Is this invest in Australia
domestic earning sort of thing? Yep, Virgin's got that in spades, right,
is basically a play on the Australian consumer, boomers, travel,
et cetera. So watch people sort of twist their stories
around whatever's running on the AX in the next couple
(31:19):
of months.
Speaker 1 (31:20):
So it's all going to depend, Anthony, on on how
Virgin's shares go on listing day. Right, So they're priced
at two dollars ninety a share. Obviously, I'm very gun
shy about making predictions when it comes to Virgin Now,
first day, first day of trade, do they close higher
or lower?
Speaker 2 (31:37):
Yeah, really hard to say because it could happen, Like
look at Trump and elon and all oil price currency,
et cetera. As it is, though, this demand for this
thing's getting away, should should trade be higher? Yeah?
Speaker 1 (31:48):
I agree, I agree. And one year's time, is it
higher or lower?
Speaker 2 (31:52):
I'll think be higher. James, I'm a believer in the
domestic travel story. I'm a believer that you've got these
three airlines that are acting rationally and doing well and
don't want to blow that up just yet, So I
think it'll head in the right direction.
Speaker 1 (32:07):
What about yourself, Yeah, I think oil prices are probably
a bit of a determinant, but I think a lot
of where Virgin ends up will be about where Quantus
ends up. And why I say that is a lot
of the theory here is that Virgin can stay rational.
You know, it doesn't need to drop its prices and
fight for market share because Quantus needs to stay rational.
(32:30):
It needs to stay rational to keep the cash flowing
so it can pay for these lots of new planes
it's got on order. So I think for a year
at least, I think that rational market behavior can hold,
and perhaps we could see Virgin shares creep higher. But
the fact that Quantus shares are at that record high
that would give me a little bit of pause. That
(32:52):
gap between virgin and Quantus will probably be reflected in
the market pricing going forward well beyond that float. But
it's going to be fascinating to watch, Anthony, and I'll
be spending the weekend melting down bronze to start casting
these statues. So that should be a good long weekend
for me. Well, look, we'll be back after the break.
(33:16):
We've got another big week coming up, has some really
interesting economic data and a big powwow for the investors
in Australia. Back in a second. Welcome back. If you
(33:40):
want to know more about what we're talking about today,
and a whole lot more. AFI subscribers can sign up
to the Chanticlean newsletter at join dot AFI dot com
forward slash chanticlearp. Every Saturday morning, the newsletter pulls together
the best Shounticle columns from the week and delivers them
straight to your inbox. All right, Anthony, Tuesday night, we're
both going to be an Assex symposium on private capital.
(34:04):
So this follows on from that work we just mentioned.
They've put all these submissions out, they're testing the market.
Be interesting to see. I think we're going to have
some investment bankers, some regulators, some academics. Be interesting to
see how the moods shifting on private markets and public
markets after things like the Virgin float. Right absolutely, Wednesday
(34:26):
and Thursday, Morgan Stanley has its big Australia Investment conference.
I think you're getting along anyone. You're particularly looking forward
to seeing.
Speaker 2 (34:34):
Your mate Howard Marks is up from oakcho Se. But
on the agenda, it's all the themes you expect, AI energy,
what we've been speaking about today.
Speaker 1 (34:42):
Actually yeah, good stuff. And then on Thursday we get
the latest reading of unemployment. The last one was four
point one percent. Expecting much movement here. The story really
is the labor market's still pretty tight. It's probably the
one thing I'm not sure the RBA wouldn't want the
labor market to loosen, But in terms of their concerns
(35:07):
about inflation, the tight labor market's still there, isn't it.
Speaker 2 (35:11):
Yeah, I mean it wouldn't mind if it loosened a
little bit, I think, James, is what the economs would say.
Speaker 1 (35:17):
Yeah, absolutely, all right, Anthony. We had a question earlier
from Melanie from Victoria. If you've got a question you
want to send in, you can email us at Chanticleer
at afar dot com. You can also send us a
question in audio form. Just record a voice memo on
your phone and include your name and where you're from.
Email it Tulison. Of course, there's a little widget now
on the Chanticleer articles on afar dot com where you
(35:40):
can submit a question through there where loving seeing all
these questions. We'll get to as many as we can
over the course of the following weeks. But keep them coming,
all right, Anthony, it's another big week coming up. Long weekend,
Enjoy having a Monday off. I won't ask you to
help me with the statues, that's my job, but enjoy
(36:02):
a bit of time with the family.
Speaker 2 (36:03):
You too, James, have a great weekend.
Speaker 1 (36:05):
Thanks everybody, Thanks for listening. We'll see you next week.
If you like the podcast and you want to hear more,
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(36:26):
go to afar dot com. You can subscribe to The
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The head of premium content is Fiona Buffini
Speaker 2 (36:54):
The Australian Financial Review
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