Maggie [00:00:01] Welcome to the Hearts and Minds podcast. Conversations on Impact and investing. I'm Maggie O'Neill. Thank you for joining us today. Hearts and minds is a unique philanthropic organisation. It consists of an ASX listed investment company, H.M. won, and signed Hearts and Minds, an annual conference that gathers provocative thinkers for a one day event like no other. Together, Hearts and Minds is proud to support leading Australian medical research organisations and since 2016 we have donated over $65 million. In this podcast series, we are bringing you in on meaningful conversations, on impact and investing to discover more about the incredible people in the hearts and minds ecosystem. Today, it is my pleasure to introduce this episode with Ricky Bannon, Portfolio Manager at IFM investors, and a 2023 Stone Hearts and Minds conference fund manager. I hope you enjoy the conversation hosted by Hearts and Minds Chief investment officer Charlie Lanchester.
Charlie [00:00:58] I'm thrilled to introduce today's guest, Ricky Bannon, one of our 2023 conference fund managers with prior experience at KPMG and Macquarie. Ricky is now a portfolio manager in IFM Investors Small Caps Fund. Ricky recently presented at the 2023 Simon Hearts and Minds conference, pitching her top stock pick Alex Pharmaceuticals. It's currently our best performing conference pick up 64% as of this morning, so congratulations Ricky. Today, Ricky joins us to discuss her career as a fund manager, her investment style and approach, the future of consumer tech and health care sectors. And of course, an update on her stock recommendation. Welcome to the podcast, Ricky.
Rikki [00:01:34] Thanks. Good to be here.
Charlie [00:01:35] Before we get into the meaty stuff, maybe let's talk about the Southern Hearts and Minds conference itself. You know, what was it like turning up on the day at the opera House pitching Telex Pharmaceuticals?
Rikki [00:01:45] I mean, it was an incredible experience. Certainly a bit nerve wracking presenting a stock pitch in front of an audience of that size. But honestly, it was a fantastic experience. And yeah, definitely, I think a career highlight. So.
Charlie [00:01:58] Excellent. Well. Well done. Yeah. I don't envy that task. It is a lot of pressure, particularly given who's in the room. Yes, yes, as well, the.
Rikki [00:02:06] Picking of the stock and, and the presentation, I'm not sure which is sort of more nerve wracking, but. Yeah, it was a great experience. Yeah.
Charlie [00:02:13] Well, congratulations. Certainly. So far, that stock's been amazing.
Rikki [00:02:16] Thank you.
Charlie [00:02:17] And obviously at its core, we're trying to raise money for medical research, here in Australia. And you know quite a lot about that. Probably more than most. You know, what does that mean to you?
Rikki [00:02:27] In the Small Caps fund at IBM, one of my areas of responsibility is health care and biotech. And that's a space that we do actively invest in. I mean, I don't have a biotech background myself, so it's a space that I've had to sort of learn about along the way. It's fascinating and in a small way to be able to, you know, give funding to some of these companies that may have the next cure to a disease. You know, there's something really gratifying about that. And discovering, you know, potentially Australia's next biotech success story is, you know, is really exciting. And, you know, I think the other aspect more personally is it is something that's close to my heart, medical research given, you know, I did lose my best friend a number of years ago to to bowel cancer. I've terribly had another very good friend diagnosed very recently with bowel cancer. So investing and donating to medical research I think is something that's incredibly important. So it's fantastic to be involved in. So hearts and minds given given its purpose.
Charlie [00:03:18] Yeah. Look that's absolutely fantastic to have you involved. And you know I'm sure going to be part of it well into the future. So, thank you for being part of it. And we have what is the state of medical research in Australia? How do we write relative to other parts of the world? What is it that makes us, reasonably special here?
Rikki [00:03:35] Yeah. I mean, I think there's there's a lot of activity and there's a lot of opportunity to be involved in medical research in Australia. The big sort of global phase three trials, you generally are going to be running those out of the US, and that's there is a bigger market, sort of a deeper pool of capital and philanthropic activity. But I think Australia definitely, you know, punches above its weight in that regard. And, you know, we do have some fantastic companies and innovations that have come out of Australia, which is, you know, fantastic. I think given the size of the country relative to the US.
Charlie [00:04:03] So yeah. Oh well, we'll come and talk a little bit more about telex later. But before we do that, maybe let's take a step back, and talk about your career as a fund manager in Australia. There's no well-trodden path to to get there. I think it's, you know, sometimes actually quite hard to get into. How did you come to this career?
Rikki [00:04:22] Well, I would have to say it was probably my dad's influence. I'm pretty sure at school I had ambitions to be an international human rights lawyer. So fairly different where ended up. But my dad's been in equity markets, his whole life. And, you know, I joke he must have been reading company research reports to me, his bedtime stories or something, because both me and my sister ended up in an equity market. So coming out of university, I did a pretty broad degree. I did commerce because I wasn't quite sure where I wanted to be. I got an internship and then a grad role at KPMG in audit. So that was amazing sort of grounding, just understanding accounts and, you know, understanding the numbers side of things. I always knew that's not really where I wanted to stay. So I definitely jumped at the chance when I was offered a sales side role at Macquarie. So that was my first foray into markets and I loved that. I loved the company analysis and I just loved markets and you know how dynamic they are. And and then the opportunity came up to, move across to IFM on the fund side. And I've been there for almost nine years now.
Charlie [00:05:20] And tell us a little bit more about IFM. I think, you know, it's a very large global organisation, but probably not particularly well known to some of our listeners. So tell us a bit more about it.
Rikki [00:05:29] Yeah, sure. So IFM investors, we're a global fund manager with about $220 billion of Fum. And that sits across infrastructure debt, private equity and equities. I sit in the equities part of the business listed equities is about $45 billion of that firm majorities in passive strategies. But within active equities we've got a large cap domestic fund and small caps, which is where I sit. So if I'm investors is owned by 17 of the industry super funds. And I think the common misconception is that must be where all the farm comes from, the industry super funds. But in fact, we've actually got a very broad global spread of investors approaching almost 700 now. So yes, it's certainly growing a lot and becoming incredibly, you know, global and diversified fund manager from where it started, you know, headquartered out of Melbourne.
Charlie [00:06:17] Fantastic. And look I understand recently or you've become a portfolio manager with IFM. Can you describe how it felt. You know that first day of actually running a fund and, you know, running a small cap fund in Australia is not for the faint hearted. The volatility, is as high as it's ever been I think so. Well, how is that progress? A transition felt to.
Rikki [00:06:37] Sure. It was sort of a gradual transition from when I first started nine years ago. You know, I was given certain sort of pockets and areas of the market that I was given, I guess, sole responsibility for, but working on a PPM. So I was probably about four years ago now that there was sort of more of a full transition and real solve, sort of pay and responsibility. I do have two other PMS in the team. We sort of divide the market up into sectors in a sort of PMS, of our own sectors, and I guess it's a consensus driven approach to the portfolio. So we debate stocks amongst the three of us, decide what goes in and out and that kind of thing. So, you know, it is it is daunting, obviously, making an investment decision and sort of having that responsibility. But I think being able to bounce ideas off of my co PMS is, is really valuable. And, you know, it's good because they're obviously very experienced in their sectors but have a lot of investment experience themselves and just being able to be challenged on your ideas and your skills, I think is really helpful and makes for a more sort of robust decision.
Charlie [00:07:39] And what's your view on the small cap market in general? As I mentioned, that increased volatility. I mean, it's quite hard to be a listed company in that small cap space at the moment. What's your view on the sort of future. Yeah.
Rikki [00:07:51] Look, I mean it is it's never a dull moment in small caps. The, is being very volatile. I think what's really interesting is been written about quite a bit in the last 12 months or so, is just the underperformance of small caps, first large caps in Australia in the last really two years, and we have started to see that turn. And so I look I think it's a great time to be investing in small caps, and I think particularly active management as well, because, you know, when interest rates were zero, you know, there was sort of this rising tide lifts all boats, you know, returns across asset classes were all correlated. And it's a very different environment that we sit in today that really lends itself to active management and to stock picking. And that's really what is at the core of small cap investing.
Charlie [00:08:32] And you're a specialist in consumer technology and health care stocks. What are your take on the trends in some of those sectors. And, you know, maybe even how they're converging.
Rikki [00:08:40] Consumer I would say it's all very much dominated by the macro at the moment. And inflation cost of living interest rates. So we are on hold you know. Oh you know we're going to cut. Oh no I think you know potentially another hike. It's just you know the market sort of leaping from data point to data point there. And look there's no doubt that the consumer is doing it tough in Australia right now. And I think, you know, we probably are really at a low point, you know, more recently with stage three tax cuts coming, budget initiatives this week already announced, I think, you know, it could potentially take some of the pressure off the consumer. But then on the flip side, you know the budget is a little bit stimulatory. So does that mean that inflation is higher for longer and we're not going to get the right cut. So it's a bit of a tricky balance. But I think look consumer stocks are very much certainly retail stocks are very much driven by consumer sentiment. So I think you know you need to see that sort of bottom in turn for the market to get more constructive on some of those names. But, you know, I think in small caps, there are some great structural growth stories that can continue to grow despite the macro. So but I would say consumer on the whole is definitely dominated by sort of macro at the moment. And then, you know, health care, we've gone from a period coming out of Covid where there was a real hangover there, a lot of these, you know, defensive names or previously thought to be defensive names have really struggled coming out of Covid. And, you know, there's still that hangover there that they're working their way through. So pathology and diagnostic imaging for example. So that that's been a bit of a journey I suppose stepping back and from a more macro perspective, the narrative in healthcare globally in the last 12 months has been dominated by the GLP one drugs. And you know what that means not just for the companies that were making them, but, you know, and not just in health care, the potential implications, but a really broad range of sectors. And here in Australia, you know, we saw ResMed absolutely smashed on expectations that these drugs were going to mean that there was no more sleep apnoea. And actually, you know, that's another conference stock that Chris Cordis pitched at the Stone Hearts and Minds conference last year. And and that's been a great call because, you know, that really probably was the bottom of the hysteria about that. And it staged a great recovery. But look, I think that's going to be an ongoing discussion. Just what it means. Cross health care services and a broader range of sectors. And then I think AI is become quite topical and health care is. Well on a number of fronts. You know, from a biotech perspective how it plays into drug discovery and also sort of efficiency in clinical programs is interesting. From a health care services perspective, how I can be used to improve patient outcomes. So, you know, in diagnostic imaging, using algorithms to more efficiently and effectively detect any abnormalities on scans. You know, from the companies themselves the costs and efficiencies they can get out of using AI and automating workflows, taking labour out of the process. So there's really a whole range of applications when it comes to AI and health care. I think it's pretty interesting, and it's going to play out over a long period of time. And then obviously tech, I mean, AI is the word of the day. I think every company at the the conference I was at last week had a slide on AI, regardless of where they are in tech or not, but everyone had to put in their two sets of AI and how it was going to transform their business. So, yeah, I suppose. Watch this space. It's it's going to be fascinating.
Charlie [00:11:56] Excellent. That's a great summary. And could you then maybe walk us through how you look at stocks, what is your investment style and maybe bring that to life with a couple of examples.
Rikki [00:12:05] I suppose my investment style being in small caps, I guess I do have a bit of a quality growth bias. I mean, obviously valuation is really important. You don't want to be overpaying for something that's just a terrible starting point, overpaying for a stock. But yeah, I would say I have that quality growth bias. And you know, in terms of my investment process, it's as GM, one of my co PMS always says it's just, you know, good old fashioned hard work. You need to understand the business that you're investing in. So that means reading a lot. You need to read annual reports. You need to read industry research. You need to meet with a company, need to meet with other stakeholders, competitors, suppliers to understand, you know, their business, the industry that they're operating in. You know, you need to understand the macro factors that are going to impact the business and the structural growth drivers in the industry. You know, we do all financial modelling ourselves to arrive at a view of valuation. So all of those steps, you know, when I'm looking at any company that all sort of goes into it to form a view of, you know, is this a good investment? What is the current share price implying? What do I think it's worth?
Charlie [00:13:05] Excellent. Well, obviously that that process worked incredibly well for us at one with your investment in Intelex, we're now about halfway through the the 12 month holding period. And it's a very challenging request that we give you to come and pitch a stock not only to that daunting audience, but also a stock that needs to perform in a 12 month window, which I think is actually a very hard thing to do. So congratulations, you did pick one that obviously has had some catalysts because we're already up 64%. Maybe talk us through some of the trends that played out in your thesis and what the future looks like for the next six months.
Rikki [00:13:40] Oh, wow. I mean, there's been a lot happening with helix in the last six months. You know, there's still a lot more to play out, actually. So it's it's a very exciting period for the company. I suppose that the first thing would be M&A, in the radio pharmaceutical space globally, there's been $8 billion spent by Big Pharma in the last six months on acquiring smaller businesses. And these are early stage businesses than helix that have less impressive pipelines. They often have their own manufacturing footprint, which is, I think, interesting. But, you know, there's a lot of interest in this space coming from big Pharma to the likes of Eli Lilly, AstraZeneca, Bristol Famous. And so I think there's got to be more of that to come, which is interesting. And I think it's just shone a spotlight on some of these companies and and the opportunity in this space. The second thing that I think has played out, which is something I talked about at the conference, was the opportunity for T. Alex's prostate cancer diagnostics drug alone seeks to take market share of the market leader. And that has played out. And in fact, the last quarterly result was a real catalyst in that regard and showed that we're really gaining some material market share as well as the pace, my Pet imaging market as a whole growing. So that's been quite pleasing to say. The third thing for helix in the last six months has been some regulatory submissions, which have been some hurdles. They commenced the biologics license application process in December for their renal cancer diagnostics, which is something that I flagged at the conference. This is going to be, we think, their next commercialised product. It's going to be a first in class renal cancer diagnostic. It's a big market opportunity. There's no competing product on the market. There is nothing in the pipeline for at least couple of years. Helix is going to if they get the drug approved, they're going to own this space. You know, upwards of a $500 million market opportunity in the US alone. So that's pretty exciting. So that process is going to conclude by the end of May. It's a rolling submission. And then that gives a hopefully an approval date end of November. So that's key catalyst I think from here they've also got some other regulatory submissions in terms of their iron D for their phase three prostate therapy trial. So that allows them to open up sites and start recruiting patients. That's a pretty important one. And also the glioblastoma diagnostic they've got a regulatory submission there. So it's been yeah it's been a lot of news flow. There's plenty happening with helix and. Definitely more to play out in the next six months with approvals for those two diagnostics. I mentioned potentially European approval for Lasix, and also something I think that's been a real game changer for this stock as well, is I suppose we'd call it L6 2.0, which is like this second generation version of six. They've got a regulatory submission that should occur by the end of June. And if they're successful in getting that approved, it'll allow them to sidestep that. It's called transitional pass through. And without getting into the weeds of what happens in the reimbursement landscape in the US, because it does get quite complex. There's a three year period where you get this favourable pricing environment for these diagnostic drugs and last for three years, and at the end of three years, the pricing for the Medicare segment of the market falls away. So potentially lengthy issues of market lead are the pass through in 1st January. So they're pricing drops till late next year. And the market's basically expecting the price of the drug is going to fall away. If they get approval of this second version, that will give them a second shot at getting it extending pass through for another three. So that's material to the valuation of the company and also from a market share perspective. So it's quite a clever strategy. We'll wait and see if they've got to submit the NDA to the regulator and then get it approved. But watch this space because I think that's a material development that could play out fantastic.
Charlie [00:17:18] Well, it's clearly a stock that you know very well and have done the tender work on it. And once again, congratulations are on the performance so far. Look, thanks for being with us today, Ricky. It was just a wonderful way to catch up and hear a bit more about you and how you do things. And, we'd actually love to invite you back to the conference this year and have you present Dan in Adelaide in November. Another great idea.
Rikki [00:17:42] Thanks, Charlie.
Maggie [00:17:44] And that concludes today's episode. We hope you enjoyed our conversation with Ricky Bannon and got some great insights into her investment approach, the future of the consumer and health care sectors, and of course, her 2023 conference pick, Telix Pharmaceuticals. Don't forget to subscribe to the Hearts and Minds podcast wherever you listen so you never miss an episode. Hudson Mines acknowledges the traditional custodians of the land on which we work and record this podcast, the Gadigal people of the Eora nation. We pay our respects to their elders, past, present and emerging. And finally, a quick reminder the content of this podcast is for informational purposes only and does not constitute financial advice. Please consult a professional advisor before making any investment decisions. Thanks again for joining us today.
