After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Now, I bet you have heard of the US-listed company Nvidia, with the historic rise in its share price that has made it a U$1.2 trillion dollar chip company.
When I say chip, I mean the ones that go into computers and not the pretend ones that McDonald’s serves.
Nvidia’s chips are used to generate AI content and the demand is such that Nvidia’s shares have gone from US$142 at the start of the year to US$497 – an increase of over 240%.
Its revenue in the last quarter rose 100% to US$13bn, giving it a net income of US$6bn, which is an increase of 853%.
That is not the most impressive bit for me though; that award goes to its profit margin, which came out at 45.8%.
A profit margin of 45% on sales of US$13bn? Now that’s what I call a goldmine.
Now, I bet you have never heard of a Danish listed company, with sales and profit margins so big they have helped Denmark’s GDP grow by 1.7%.
Just through their profits alone. 1.7%. Amazing.
The land that brought us LEGO and a salty version of Greek feta only has 6m people living in it and this influx of income has made them into an innovative powerhouse.
For example, LEGO has now expanded to produce a set of bricks which have braille on them for kids who are blind. You can actually get some for free from Vision Australia.
The listed Danish company which is also changing so many lives is called Novo Nordisk and its sales for the last quarter were US$791m on a profit margin of 35%.
When you compare that with Nvidia, you may not be that impressed with Novo Nordisk. But there is something else to take into consideration.
The company is 100 years old and last year grew its profits by 30%.
30%. Amazing.
Nvidia has only been going for 30 years, so could you imagine them in 70 years time, still growing their profits by 30%? I don’t think so.
Not-so skinny margins
Novo Nordisk, 100 years old, is dedicated to helping people with diabetes to live a better life. In doing so, it discovered an interesting side effect – the medicine also helps in weight loss.
But wait. There’s more.
A very recent study also concluded that not only does it help with diabetes and weight loss but it is also very good for those with a heart disease.
Now, over in the land of fatty fatty boom booms, 40% of the American population are classed as obese and these new brands of drugs, called Ozempic and Wegovy, are being pushed as a solution.
The pressure is building up on the medical insurance companies to allow their clients to claim them on their policies, which they are pushing back on. (40% of 330m people are a lot of pills to pay for.)
This is why Novo Nordisk’s shares recently reached their year’s high, as they already can’t keep up with demand.
Their income from the US is so large, it has created a bit of a vacuum on the price of the Danish Krone.
The Danes are very proud of their currency, so they have never gone down the euro route and now they have been selling all of those USD to buy their Krones and thus grow their own economy back home.
Basically, the loss of America’s fat is translating into the blowing out of the Danish economic waistband and this can be good and bad.
Now that’s good in the short term… but it’s a potential disaster in the long term. It has to be handled properly.
Too much of a good thing
History shows how these types of situations can play out and if you go back to the ’60s, you will find that the Dutch came into the same problem after they discovered vast oil fields offshore.
The Economist coined the phrase ‘Dutch Disease’ in 1977, after observing the decline in the Dutch economy following their new-found wealth.
As all of those US dollars flowed into the Dutch economy, its currency strengthened so much that the goods exported started to cost more and the goods imported got cheaper.
This led to a decline in income from other traditional industries as they became less competitive and couldn’t compete on price anymore, being flooded with cheap imports.
This new-found wealth had actually led to the decline in their economy over the long term and many are getting worried that the same could happen to Denmark.
So, this is going to be an interesting case to study, especially if rival drugs appear on the scene in five years or so, as then their GDP will be hit from falling revenue and rising government spending (free childcare, generous dole payments, useless infrastructure etc).
The nearest history case to study is the way the Finnish GDP collapsed after Apple launched the iPhone. Nokia phones directly contributed to 20% of Finland’s GDP and after Apple’s launch the sale of Nokia’s handsets collapsed.
The Finnish economy became, well, finished, as the fat they had been used to living off became ‘Ozempicfied’, as it melted away.
Will the price of my favourite feta go up? Probably.
Will the price of LEGO go up? Probably.
Will me and Mrs B be going to Denmark for a holiday? Probably not, as it is now too expensive.
Finland, yes. Holland, yes.
Denmark? Maybe in seven years, when their currency has collapsed.
An apple a day may keep you healthy but as this chart shows, if it turns up in your economy, it will completely f..k you and your country!
The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at thesecretbroker@stockhead.com.au.
Feel free to contact him with your best stock tips and ideas.