Transcript: How To Invest In An Uncertain World

The floods that have submerged huge swathes of England and Wales are just the latest reminder of how the climate can dramatically affect our lives — as well as our businesses and investments. Owain Bennallack asks Mark Rogers and Nate Weisshaar about the threats and opportunities presented by climate change. There’s also a recap of the ISA rules – the April deadline is fast approaching – and we look at how much richer you’d be to win in strictly monetary terms if you won a gold medal at Sochi over a silver. Plus three shares to put on your Watch List.

The following is an unedited transcript of this podcast

Owain Bennallack: Hello, and welcome to Money Talk, the investing roundtable from The Motley Fool! I’m Owain Bennallack, and with me in the studio today I have two of my most reliable Motley Fool colleagues. I have Mark Rogers, and Nate Weisshaar. Welcome back to the Money Talk studio, chaps.

Mark Rogers: Hey, Owain.

Nate Weisshaar: Always feels good to be here.

Bennallack: Always feels that you’re always here! I will be letting you off and getting in some fresh blood soon, don’t worry, listeners — and, indeed, Nate and Mark!

Now, have you been enjoying the Sochi Olympics?

Rogers: I haven’t seen a single event.

Weisshaar: I saw a few. I saw Jenny Jones take the bronze in some snowboard …

Bennallack: She didn’t “take” it, she won it.

Weisshaar: Well. She took it home, how about that?

Bennallack: It’s not the stealing Olympics!

Weisshaar: Well, it depends who you talk to on that one.

Bennallack: Exactly. I was going to say, I’ve been mainly following all the accusations of corruption — where I think Russia has already got the gold, by all accounts.

It’s quite depressing, really. The Russian people — if you know anything about Russian history, and I know that you’re an expert, Nate, on Russian history — they’ve just had hundreds of years now, of kleptocratic rulers.

Weisshaar: Yes, it’s not a great light that these Olympics are casting on Russia, at this moment.

Bennallack: No, unfortunately not.

Mark, you’re probably not able to watch any events because your girlfriend, I guess, is hogging the TV.

Rogers: Of course, yes.

Bennallack: All the Zumba on ice events.

Rogers: Exactly.

Bennallack: No? She doesn’t? Not interested?

Rogers: Not even remotely, Owain.

Bennallack: Well, you know. I wish I was spending time at the Rogers household, where they dust off their copies of Investors Chronicle, put their feet up …

Rogers: Put the gramophone on …

Bennallack: Exactly, have a couple of cups of Ovaltine.

I strove to find a credible Olympic link for the podcast, and I think I’ve got one. We will see whether you agree, in a minute.

Before that, I want to consider climate change, and what companies might benefit or be threatened by it. Obviously, it seems a topical time to discuss this, with half the country, unfortunately, submerged. We’ll see, in our mercantile fashion, if there’s an investing angle on that.

Then, we’ll do a recap of the ISA rules. Those never cease to confuse people, and with this year’s deadline approaching, it’s important that the fog of confusion part for a couple of weeks, and make sure you’re making the best of your ISA.

Then, finally, the Olympics. The obvious  candidate here was investing in Russia, but all the Olympic shenanigans haven’t exactly made that super appealing at the moment. So, instead, I thought we could follow up a look at gold that we had the other week, with a quick survey of the runner-up: silver. How do you invest in it? Should you invest in it?

Then finally, we’ll run through three countries that we’re interested in at the moment.

We’re under the starter’s whistle. It’s always horses that go under the starter’s whistle.

Rogers: Starter’s whistle?

Bennallack: Well, I originally had, in my notes here, “starter’s gun.” Then I thought … that is what they do, isn’t it?

Rogers: In Russia?

Bennallack: Actually, that’s true. If you hear a gun in Russia …

Weisshaar: Well, I noticed in the speed skating they have a strange laser gun that they use for the starting gun. It’s very interesting.

Bennallack: Was it the ski jumping, where they used to have that klaxon, and then you get all those crazy Swedish people ringing cowbells … Oh, dear. Ski Sunday. How I used to love it. You wouldn’t have enjoyed it, Mark.

Rogers: Probably not.

Bennallack: On to climate change and investing. The dreadful flooding across a lot of the West Country has obviously rightly got our attention, and we hope they sort it out soon. But, to be honest, it does feel to me like every six months, somewhere in the world is either having an unreasonable bit of flooding, or unbelievable snow, or there’s been no water — California’s had a drought for six months or a year, or whatnot. Australia had a long drought.

Nate, we’re not going to resolve the debate about why, or even “whether the weather” is getting any worse. Let’s save that for the scientists, and for people who generally are informed enough to comment on that.

But, I am curious as to how climate affects our outlook, as investors, and the outlook of other investors.

Weisshaar: Well, it’s interesting, because it’s not quite as simple a topic to invest in as, say, the mining boom that we saw over the first decade of this century. You can’t just go out and buy a weatherman. It just doesn’t work that way.

But, you are seeing more and more opportunities that are tied to it, at least in some way. We’ve got companies putting out funds that are tied to revenues from wind power generation, Infinis just had their IPO last year, John Laing is putting out a new fund aimed at owning windmills and getting the revenues from that.

Bennallack: I’ve looked, in the past, at agricultural companies — where they’re making crops that can withstand, maybe more extreme weather — or possibly agricultural infrastructure companies that can cart the water from the places where it’s flooded to the places where there’s a drought.

Weisshaar: Yes. You really have to think a little tangentially on this one, because there is no “Global Warming Company.” It’s not out there, but there are a lot of industries that will be touched by this, and so there are lots of ways that you can invest in people trying to do things more efficiently, with less waste, and in a better way for the future.

Bennallack: Okay, so it’s more something that complicates and feeds into our investing decisions, then. I guess we saw that over Christmas, with U.K. retailers who all blamed the weather.

Snow, in the U.S., has been blamed for the fact that there’s no longer any jobs being made, again, in the U.S. — sort of déjà vu there. Mark, this weather; is it a credible excuse? I used to blame the weather — in fact, I blamed the weather today, when I got into the office late!

Rogers: It actually can be a real, credible issue. Needless to say, investors shouldn’t be basing any kind of investment decision on whether it’s raining outside, but we do need to be aware that bad weather, good weather, it can affect a company’s short-term results.

You don’t want to value an ice cream vendor based on the hottest day of the year, just as an example. At the same time, if a company’s always blaming the weather for its bad results, then there’s maybe something wrong there.

Bennallack: Nate, I said we weren’t going to discuss the causes of climate change, but I think feeding into this discussion; and you mentioned there, there’s no Global Warming Company, but given that scientists now seem pretty convinced that global warming is pretty related to fossil fuels — that seems to be the consensus — if we continue to see this sort of wild weather, do you think it will put pressure on the likes of BP and Shell who, I guess, would be seen in some eyes as the global warming companies?

Weisshaar: I don’t think that’s far-fetched at all. I think we’ve already seen aspects of it, with carbon taxes. Australia upped their tax on mining companies as part of an effort to reduce their environmental impact.

We could definitely see BP and Shell hit. We’re currently seeing the U.K.’s energy producers being hit with the environmental tax, which is knocking onto consumers. I think that’s a big choice you have to make. The EU is actually dealing with this right now; do you want cheap energy, or do you want energy that’s going to keep us alive for a long period of time?

Bennallack: It’s incredible, if you look at a company like BP or Shell; Shell particularly, perhaps — I just say that because BP is a bit more in transition — but these companies have enormous reserves, which is where the bulk of their value is captured and locked away, and you could almost imagine a world where the appetite for allowing people to burn this stuff really got curbed.

Weisshaar: Oh, yes. And this is actually a rising concern with some of the institutional investors, that are calling for BP and Shell to stop exploring, essentially. Stop trying to develop these deep ocean reserves, because the fear is that substitute technologies will come along, alternative energies, and oil prices won’t be sustainable. Therefore, the return on investment will never materialise.

Bennallack: My favourite headline for ironic looks at the present from the future was when you would see headlines saying, “Melting Arctic Ice Cap Enables Land Grab by Resource Companies” — like, as the ice retreats, that all these oil companies were going to go in and grab the oil. That won’t look good in 100 years, will it?

Okay, from one necessarily woolly and difficult subject, to one that really shouldn’t be as complicated as it is: ISAs, or Individual Savings Accounts. Mark, my heart sank, just this very week-end, when my mother asked me to explain ISAs to her. She literally said, “I’ve had a letter from my bank. There’s money I can put into my ISA.”

She has — I happen to know, because I helped her set it up — a stocks and shares ISA, she has a cash ISA. She doesn’t understand that they’re different. She doesn’t understand who sent her this letter. Can you basically explain how ISAs work? Because I couldn’t. I said I had to go out and walk in the rain.

Rogers: Well, Mrs Bennallack, it’s quite straightforward. An ISA basically allows you to add £11,520 a year, of your own money, into what is effectively a tax-free account every year, to buy stocks, shares, and funds for yourself, without the taxman getting his hands on the dividends and the capital gains.

You can use half that allowance to invest, each year, in a cash ISA, which is basically a normal tax-free bank savings account. Now, you can withdraw money any time from these accounts, but what you have to remember is that you can’t put the money back in, once you’ve used your allowance up for the year.

Bennallack: Just to clarify, because you’ve made it seem slightly simpler than it is, you can actually put all your money in the stocks and shares ISA. But as you put money into the cash ISA, that reduces how much you can put into the stocks and shares.

Rogers: That’s right.

Bennallack: Also, you can convert from the cash ISA into stocks and shares, but you can’t convert back.

Rogers: Right.

Bennallack: The amazing thing is, it used to be even worse. They used to have — this is probably before you became interested in our fair land, Nate — they used to have this insurance element as well. Do you remember that, Mark?

Rogers: No. In the PEP?

Bennallack: No, no. It was definitely in the ISA. You had £1,000 allowance to … I can’t remember what they called it. I’m just confusing what’s the one clarification they’ve even put in, so let’s leave that to one side!

Nate, it is a shame, in some ways, that they’ve made it so complicated. Sorry, that’s got to go to Mark. Let’s hope that the Editor’s listening! Long pause …

It is a shame that they’ve set this arbitrary cash limit. Once you get your head around the whole allowance, you can put one thing into the other, it gets complicated again then, because … sorry, I’ll go again.

I think we should just have my “banter,” earlier, and then I’ll just go into “It’s worth getting your head … your shares and choices. Okay.

Well, it is a shame they’ve made it quite so complicated. It obviously puts people off. It also puts people off, I think, thinking about stocks and shares, because they just tend to focus on the cash, but it is worth getting your shares into an ISA, isn’t it?

Rogers: Yes, it really is, even if you’re just starting out with a small amount of money, or even if you don’t use the full £11,000-odd allowance every year. If you’re investing for the long-term, there’s just this tremendous value in shielding your gains from unnecessary taxes.

I’m going to get an Einstein quote in here, because this is really interesting. Albert Einstein once said that “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

Well, if you’ve got an ISA and you’re saving a little bit every year, the compound effect, over time, of not paying that little slice of tax every year on the dividends and on capital gains, really adds up, over time.

Bennallack: I know a man who can tell us how much it adds up, Mark. He’s sitting in the studio today. He isn’t Albert Einstein. He is his natural heir, Nate Weisshaar. Nate, how much could it add up to?

Weisshaar: Well, if you assume that you’ve put in the full allocation of £11,520, and let it sit there for 20 years, assuming a 4% yield when you first started, capital returns of 5.5% per year — which is about the average over the past 100 years — and the dividend growing along the way … the ISA account, after 20 years, would be worth £62,000 and a taxed account would be worth £56,000.

Now, the difference there is the fact that I’m assuming you’ve reinvested your dividends and, in the ISA, you can do that tax-free, whereas in the non-ISA account those dividends get dinged every year, so you have a little bit less to reinvest. But the real difference comes when you try to cash out.

Bennallack: Just give us those first numbers again, what were they at?

Weisshaar: The ISA is at £62,000. The taxed account is at £56,000. Then, if we assume you get your roughly £11,000 capital gains tax allowance, and hit the remainder with 40% tax, you walk away from your non-sheltered account with £38,000. Again, that’s £62,000 in ISA, £38,000 in the non-tax sheltered account.

Rogers: That’s an incredible difference.

Bennallack: It really is. Some people will be listening and saying, “Well, the allowance will go up over the years,” and whatnot. But, the fact is, that’s just one investment. You’re going to accumulate these investments over the years.

Rogers: Especially if you’re adding to that ISA account every year. Presumably, it will be growing from £11,000-odd a year, to more like — at least, in line with inflation every year — if you keep adding to that, that effect is going to be absolutely exacerbated over time, as well.

Bennallack: Another thing to think about, which you’ve already mentioned, but just to really underline it: You can’t go back. If you don’t use your allowance, you can’t say, “I’m going to use my 2006 allowance.” It’s too late.

Rogers: Right.

Bennallack: I think that’s one of those things like, “Don’t go out with fast boys,” if you’re a girl … I was going to say “Don’t go out with fast women,” that my Dad would have said, and then I thought, “Well, that has been fun, now and then.”

But basically, things you learn when you get old. One of the things that I’ve learnt when I got old, apart from not putting my foot in it in a podcast, is use those allowances, because what happens is, you end up in the situation I’m in, where I cannot get all my assets into tax shelters.

I didn’t start that late — it was ten years ago — but as you say, money accumulates. You can’t get it in. It’s not even just that you can’t shelter it. It’s that you have to obviously tell Inland Revenue about all your dividends, you have to start adding everything up, all your overseas … it’s just an absolute pain.

Rogers: I think the value — if you have a son, a grandson, a daughter, a granddaughter — getting people started as early as possible, using these allowances, using every available opportunity you can to start accumulating and compounding as early as possible, I think, is just incredibly valuable.

Bennallack: What the rich listeners out there may be doing already — because it is the trendy thing in Chelsea and Knightsbridge — is starting your kids off with a SIP, which you can actually do. You can put in … I can’t remember how much.

Rogers: It was that the government added an amount to anything that you put into it. I’m not sure if that ended a year ago …

Bennallack: No, that’s a different thing. That’s the old Child Trust.

Rogers: No, it’s in a SIP.

Bennallack: Well, we’d have to research that, because I don’t think that’s necessarily the case. I don’t think they gave …

Rogers: This was up until a couple years ago.

Bennallack: Well, this is a live podcast, listeners, and we’re obviously having a bit of a disagreement here! I can’t see why they would give money to kids in a SIP.

Rogers: No, it was a tax-free gain of … I think they would add like 50% to anything that you added in, up to like £3,000.

Bennallack: I think we’re going to have to cut all that bit.

Rogers: Yeah.

Bennallack: Sorry about this, the Editor! I guess cut from when I mentioned the thing about Knightsbridge and the SIP, because I’m fairly convinced that’s completely wrong, and we don’t want to mislead people!

It might not be wrong, but we obviously don’t want to put it out if it is. So, if we can cut from the bit where I said what people in Knightsbridge are doing. That’s probably going to take quite a bit out of the thing.

Rogers: So, where were we?

Bennallack: Well, we’re into Sochi now.

Rogers: Okay.

Bennallack: You’ve said the thing about doing it from when you’re young. Okay.

Rogers: Right.

Bennallack: Okay, so, moving from the thrilling matters of tax to the even more exciting Sochi Olympics: They are underway and, as Nate has said, he’s already seen an athlete win a bronze. Better, luckier athletes are going to win silvers. The best of the best are going to win gold, of course.

That ranking also reflects the relative attractiveness of those metals, and who knows? Maybe one day the winner will get a bitcoin! Because, up until last week, I think a bitcoin was worth more than an ounce of gold. I think it has actually crashed again now, so who knows where it will be next week?

In the meantime, just how much less of a win is it, in monetary terms, to get a silver medal, versus a gold? Because, obviously, gold is worth more than silver.

Weisshaar: Ah, but here again, the Russians have pulled a fast one on us. The gold medals are actually 99% silver, with a small coating of gold, so the value of a gold medal, if you were to melt it down, would be about US$584. The silver medal is pure silver, and if it was melted down it would be worth about $340.

Bennallack: Even with just the 1% difference?

Weisshaar: Yes, that 0.19 ounces of gold in the gold medal has a big sway when it’s at $1,200-$1,300.

Bennallack: But I suspect that athletes don’t race home and melt their gold medals down!

Weisshaar: Actually, they don’t, because usually their Olympic committees give them a cash bonus for winning the gold medal, which is worth significantly more than the medal itself, so they don’t have to worry about doing that!

Bennallack: We’ve mentioned that, obviously, gold is worth more than silver, but that fluctuates over time, doesn’t it?

Weisshaar: Yes, it does, for a variety of reasons. Right now, we’re looking at the gold/silver ratio, as it’s referred to, sitting between 60 and 65 which, if you look at the chart, is roughly where it’s been for the past 10 or 15 years. But some people like to stretch that chart back to the late 1600s …

Bennallack: People who own silver, I think.

Weisshaar: Yes. People who are very, very old!

They like to assume that the correct ratio is somewhere between 12 and 20. If we look back 100 years, the ratios fluctuated between 20 and 90, with the bulk of that time being somewhere around 50-60.

Bennallack: Okay, so we’re looking — by that ratio — a bit extended.

Weisshaar: A little bit, yes, so we could see gold come down, or silver go up.

Bennallack: The irony of that ratio, of course, is that silver is actually more useful than gold.

Rogers: It actually is. It’s interesting, because this sounds really medieval, but silver is incredibly important in modern medicine — the compounds used for treating burns, controlling infections — but I think more commonly, it’s that the industrial uses, in terms of electronic circuiting, motor switches, superconductors. Another interesting one is in 90% of solar cells as well, it’s still used. So, a very expensive and crucial component in that, as well.

Bennallack: So, say you’ve sold me on silver. Short of coming second to a giant Swedish man in the downhill slalom, how can I get my bit of the silver action?

Rogers: Just to quickly warn, obviously: If you’re a private investor speculating in metals, there are a lot of people who have lost a lot of money doing that, over the years. There are a lot of risks associated in doing that.

But if you insist on looking at the area, there are ETFs that track the price of silver, and also complex instruments — if you’re a more advanced investor — like CFDs, that also allow doing that as well.

Bennallack: There is always the mining option, Nate.

Weisshaar: Yes, if you want to go right to the source, you could just get a pick and shovel, but there are some people who are trained in this. Companies like Fresnillo; they’re the largest silver producer in the world, listed on the London Stock Exchange.

Bennallack: Based in Mexico, aren’t they?

Weisshaar: Yes. If you want less specific exposure to silver, maybe a more diversified play on metals — a bit of an ETF in itself — BHP is also one of the world’s largest silver producers. But then again, that silver is much smaller, in comparison to their iron and copper and coal production, so you have to know what you want when you go buy BHP.

Bennallack: You could go into Russia and get Polimetal.

Weisshaar: Yes. Why not just put it all out there?

Bennallack: What is Polimetal, like the fourth-largest?

Weisshaar: It’s third or fourth. It’s a close race right there, between them and, ironically, Goldcorp.

Bennallack: Okay, well that is a good point, I think, to start talking about shares and companies — but probably not Polimetal!

Mark, besides Sochi — in fact, which you’re ignoring — when you’re not doing your blackout of the Winter Olympics …

Rogers: Well, you know, I’ve not blacked it out completely, and I’ve actually found a share that’s in the spirit of Sochi. You’ll like where I’m going with this, Owain. I’m opting for the Smirnoff vodka maker, Diageo, today. Did you like that, Owain? Is that a good enough pun?

Bennallack: Spirit. Yes, it’s good.

Rogers: Okay. The shares are down like 15% from their peak, and I think now could be the time to at least build a starting position in Diageo shares. It’s roughly fairly priced, I think, for investment now.

Top brands — like Guinness, Bailey’s, Johnny Walker, and, as mentioned, Smirnoff — these are all recognisable around the world, and they’re really what allow Diageo to earn their 30%-plus operating margins. I really like the long-term opportunity these guys have in emerging markets, and I think now could be the right time to start thinking about looking at the shares.

Bennallack: I think you’re right. A few weeks ago, I did buy a few. But I didn’t go crazy, and it was partly because of what Nate said. He said he thinks the price is better; it’s no longer the Ketel One price, but it’s probably still a bit too Smirnoff, and he wants the Morrisons own-brand vodka. It’s not cheap, is it?

Rogers: No, I think that’s a good point. The shares aren’t cheap at the moment, but I think it’s a fair price to buy what is a really superb business, when you think about those brands. It’s really unlike many other companies out there, and if it’s on offer at a fair price, I think it’s worth going for the Smirnoff brand.

Bennallack: Partly that would be because you would see the whole world eventually drinking their brands. Is there a danger that, in the fullness of time, we start to see attitudes towards alcohol consumption change, and thus that value be destroyed?

Rogers: That’s definitely an important risk to consider, longer-term there. But I think, kind of like the tobacco stocks; there’s always been an argument that that’s going to be a declining industry.

But when you look at what a great investment that’s been — and other “sin” category of stocks — but you may also want to think about it from the point of view of, you’re possibly contributing to the decline of society, by investing in some of these companies. I don’t, personally …

Bennallack: I think it has to be a personal decision. I think alcohol has pretty much brought society along, whereas I have always avoided the tobacco stocks.

Rogers: And I think that’s fair. I think that’s something that individuals should at least consider before they look at Diageo shares.

Bennallack: Okay, good stuff.

Nate, what have you brought to the roundtable this week?

Weisshaar: Alright, from premium spirits to premium smartphones, I’m bringing Apple to the table. This may not be the most original.

Bennallack: They’re the largest company in the world. I think I’ve heard of them …

Weisshaar: You may have heard of some of their products.

Rogers: They make the Kindle, right?

Weisshaar: Almost!

The reason they’ve caught my attention recently is because CEO Tim Cook has been, once again, demonstrating very intelligent capital allocation. Apple’s latest results disappointed the market, and shares dropped 8%. He promptly went out and purchased $14 billion worth of shares.

Bennallack: As Apple, not as Tim Cook.

Weisshaar: Oh, yes. Yes, as Apple! He used Apple’s money to buy back the shares. While this is part of a larger share buyback scheme, he accelerated the purchasing in order to take advantage of this drop in prices, and at the same time, tell Carl Icahn to shut his mouth.

Bennallack: He was the guy who was asking Apple to spend all its cash, basically, buying back a big chunk of the shares.

Weisshaar: Yes. Essentially, a short-term investor, just looking for the pop that would result from Apple deciding to spend all of its cash.

Rogers: Nate, for Apple to be a good investment at today’s prices, how reliant are you on Apple finding that next great product, that sells millions and millions around the world?

Weisshaar: I think it’s necessary for Apple to continue as it is. The iPhone is reaching a saturation point, and we need to see them produce the next great Apple product. There have been plenty of hints from Tim Cook this year, that 2014 will be the year of the new product category.

Where you want to take that … Is it going to be wearables? Is it going to be TV? Is it going to be a jetpack for Owain? I don’t know, but I think we’ll see something soon.

Bennallack: It is going to be really fascinating, seeing what they come out with this year, because everyone is absolutely on tenterhooks. Is it going to be the iToothbrush, or is it going to replace television in our living room?

The other thing I would mention about Apple, which you haven’t mentioned: I was looking at the graph of where their revenues come from, and that iTunes/software component is slowly but surely eating up more and more of the share, which is great, isn’t it? That seems the most defensible part of the business.

Weisshaar: Yes. They’ve been criticised because of their walled-garden approach, but that iTunes ecosystem is a very big value driver. It earned Apple $2.4 billion in revenue last quarter, so it’s growing and it’s an important place for the future of the company.

Bennallack: Okay, well you two have both brought very sensible companies to the roundtable, so I thought I would succumb to the inevitable and throw a scary-looking Russian basket case into the mix!

Obviously, I had my pick, but the one I ran my slide rule over was Evraz. Don’t try this one at home, listeners!

It came up, actually, on a filter I was running for what we used to call “pyad” shares on The Motley Fool. But I think my filter possibly is a bit broken, because it’s supposed to screen on P/E, yield, assets, and debt.

The P/E is cheap. It’s about 10, which is less than the market. It has assets. On the price-to-book basis, it’s only priced at a third of its assets, so that’s pretty good. Yield is 6% — good, if it can sustain it. It does have a lot of debt. The net gearing is well over 100% — I think my filter might be broken!

If I remember correctly, Stephen Bland, who came up with that filter, looked for a maximum of 50%. Also, he liked to see rising earnings, and rising earnings are relative when it comes to Evraz, because it’s forecast to lose 12p per share — maybe 13p — and then lose only 8p the year after.

It makes steel. Obviously, people haven’t wanted steel for a little bit, because we have been in a slowdown. I think China’s also knocking out a fair bit of steel, which doesn’t help these guys. But it is incredibly cheap. Superficially, it’s about 20% of where it was two or three years ago, so if you believed that there was going to be some incredible recovery in the global economy …

Rogers: Is it cheap only if there is a resurgent demand for steel in the global economy, relative to the current levels?

Bennallack: Yes. I think, to give you an idea of how it can operate, in 2008 — which was probably kind of on the fumes of the last boom, rather than … because we all remember what happened in 2008 — it was doing about $2.3 billion in normalised, pre-tax profits, whereas last year it did $150 million. So, the gearing effect is incredible, if there is a boom.

You’ve also got, of course, Roman Abramovich, who owns a third of the shares, as well as owning Chelsea.

Rogers: It’s not a bad individual to have on your team there, or on your side, if you’re looking for someone to be in business with.

Bennallack: Yes. Obviously, he’s incredibly rich, but this company is big enough for it to actually even matter for him — it’s over a £1 billion. Nate, I expect you’re going to go out and buy some of these, after the podcast.

Weisshaar: Almost immediately, except I’ve first got to figure out how they’re going to handle that £5 billion debt load.

Bennallack: Yes, it is extraordinary, the debt. I think that they’ve got operations which they can run more efficiently, but it is ridiculous, because obviously the worst time to go and sell your assets is when no one wants them — which pretty much sums up the state of the steel industry at the moment.

But, around in Russia, I could pick these guys. I guess I could have looked at one of the oil companies with a P/E of about three. As you said, Polimetal is under the ringer. Really, that market looks very cheap at the moment.

Rogers: Do you think the baby’s been thrown out with the bathwater there, with some of these companies, just because there’s a lack of trust amongst investors in the region?

Bennallack: I think the problem is that the core lack of trust would affect any company equally. That’s the real problem, so you can’t say … if you were looking at a company in Russia, and you thought “This company is excellent,” you would still struggle, I think, to put a premium on it, because …

Rogers: You don’t trust that maybe you won’t see your money back.

Bennallack: Yes. The problem is that people have been thrown in gaol and had their company seized off them, as far as we can tell from here. So, it’s a risky place to do business. As you say, Roman Abramovich seems to be on the winning side.

But yes, this is definitely not, in any way, shape, or form, a widows and orphans stock. I just thought I’d mention it because we were talking about Russia this week.

Rogers: Yes, it’s an interesting one.

Bennallack: Okay, I think we’ll call it a day there. Mark, you’ve got to get back to the Winter Olympics.

Rogers: Yes, get on Sky+ and re-watch all of the events that Nate was talking about.

Bennallack: Yes, now you’ve been geed-up. And I will be wading home, again today.

Weisshaar: Good luck with that.

Bennallack: All right, thanks guys.

Rogers: All right, thanks.

Weisshaar: Thank you.

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