GFL - Good news for Geneva Finance

[Beagle]

Note that due to past losses, dividends will be unimputed (so the quoted dividend figures paid are gross) for the forseeable future.

Plugging in a representative yield, one that represents the ups and downs of the financing cycle of Geneva Finance, we can now arrive at our 'Capitalised Dividend Model' valuation

(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )

0.7c / 0.085 = 8.2c

A reminder here that NTA was:

$24.7m/ 70.4m = 35cps at balance date (31-03-2017).

This means my fair valuation is at a good discount to asset value. Capitalising the dividend will punish a company when the period examined includes years where no dividend was paid. That was the case here. But it would be wrong to think that under different (less favourable) market conditions, the company couldn't return to a situation where no dividend was paid. It is also true that if the allowance for bad loans was increased to the same percentage that applied in FY2015, a substantial amount of capital would disappear from the balance sheet. So I believe that my 8.2c valuation is fair.

This $0.082 valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this $0.082 valuation is consequently too low given today's circumstances. I wouldn't argue with that. But would the real valuation at the top of the business cycle increase share value by a factor of 7? Ever the bargain hound, I wouldn't look at buying any shares myself until that share price drifts down to that 8.2c level. Consequently I won't be buying at market levels of over 50c, a price that can only be justified but ignoring all history up to the present (although I accept that some will do this).

SNOOPY

Eureka, you've finally got it. The shares are basically worthless as their business model simply doesn't work across the business cycle.

[Major von Tempsky]

Any "worthless" Geneva shares you can offer me Roger, I'd be very happy to buy off you for next to nothing :-)

Both you and Snoopy, well Snoopy anyway, should read the latest news release from Geneva and you will pick all sorts of interesting hints and vibes that Geneva will be continuing stratospheric progress of the last 3 years.
I'll be buying more as money comes to hand :-)

As for Snoopy's rethink about tax on Geneva....it seems to have escaped his attention the wink in the said news release that so heavy were Geneva's losses that they don't forsee paying tax for the forseeable future rendering his rethink rather specious.....

Roger is in the same position as King Canute....no matter what he says and does Geneva will be floating higher. He is congenitally unable to get his head around the fact that since 3 or 4 years ago Geneva is a different animal with a low cost computer based structure of just 2 branches and much fewer employees, new activities,a new strong cornerstone shareholder, new management and new sources of finance. He is like the generals who are now ready to refight the last war....but history has run over him and everything is different....Passchendaele is over, the Maginot line has gone and the World has changed unrecognisably - well to Roger anyway!

[Snoopy]

Snoopy should read the latest news release from Geneva and you will pick all sorts of interesting hints and vibes that Geneva will be continuing stratospheric progress of the last 3 years.
I'll be buying more as money comes to hand :-)

Since 3 or 4 years ago Geneva is a different animal with a low cost computer based structure of just 2 branches and much fewer employees, new activities,a new strong cornerstone shareholder, new management and new sources of finance.

As for Snoopy's rethink about tax on Geneva....it seems to have escaped his attention the wink in the said news release that so heavy were Geneva's losses that they don't forsee paying tax for the forseeable future rendering his rethink rather specious.....

As I said in my capitalised valuation post.
"Capitalising the dividend will punish a company when the period examined includes years where no dividend was paid."

If you believe that the dividend pattern will continue along the lines of the last two announcements over the next five years, then obviously the capitalised value of GFL shares will come out rather higher than 8.2c. But based on past behaviour, that assumption would be a matter of faith in the 'new' Geneva. And whether that faith is justifiable, or not, is up to each individual investor to decide.

The tax position at Geneva is a bit of a mystery to me. It is clear that over FY2016, the $1.150m tax benefit greatly increased GFL's NPAT. Yet if I go the cashflow statement, I can't find anything there that suggests any money has come in or out of the IRD. So I guess that $1.150m is all related to GFL's inglorious past, and is some kind of 'paper adjustment'. But even if that item isn't cash, the fact that a tax benefit is able to be incorporated into the books means that other 'real cash' can be freed up for dividend purposes.

Whether you should include the tax benefit in the Geneva results depends on what you are looking at and for what purpose. If it changes the books to the extent that higher (any) dividends are possible going forwards, then you should. If you are looking to compare Geneva with other finance companies, from an operational perspective, then you shouldn't (IMO).

SNOOPY

[Major von Tempsky]

Placeholder: Don't want the Geneva thread vanishing off the Board as the old Fletcher thread did.

[whatsup]

.60 all time high well done.

[percy]

.60 all time high well done.

Yes well done holders.
Whatsup as you started this thread, would you please put the GFL code in the thread title.
thank you.

[silverblizzard888]

This stock officially has jack all liquidity

[Beagle]

60 cents...well well. Considering the 7:1 share consolidation that's a whopping 8.57 cents of shareholder value for shares issued at the time of the moratorium 9 years ago at what Directors assured shareholders was fair value then 36.49 cps. What a "fantastic" long term investment this company has been. Nine years on with very little in the way of a dividend for nearly a decade original beleaguered investors given a "hobson's choice" of shares or liquidation could now cash in if there was sufficient liquidity and get a "whopping" 23.5 cents in the dollar back on shares they were assured by some of the former directors still in office were issued at fair value in 2008.
What a truly "stellar" investment opportunity this company has proved to be. The "integrity" of the original valuation of those shares in 2008 and the veracity of their business model should be crystal clear for all to see but if you need any help consider this, how much has the NZX50 increased in value since 2008 ?

[silverblizzard888]

60 cents...well well. Considering the 7:1 share consolidation that's a whopping 8.57 cents of shareholder value for shares issued at the time of the moratorium 9 years ago at what Directors assured shareholders was fair value then (35 cps if my memory has served me well. What a "fantastic" long term investment this company has been.

For a finance company that survived the financial crisis, it actually ranks among better returns than a lot of financial companies in NZ during that period as a lot didn't even make, though sadly it wasn't a positive return.

[Beagle]

For a finance company that survived the financial crisis, it actually ranks among better returns than a lot of financial companies in NZ during that period as a lot didn't even make, though sadly it wasn't a positive return.

To be clear, I am referring too two things. 1. The "integrity" of the original valuation used to cajole investors into accepting shares in lieu of part of their debentures.
2. The performance of the company for shareholders since 1 June 2008 relative to other financial institutions which provides clarity regarding the "veracity" of their business model. That there were many more pitiful finance companies which inflicted an more painful outcome to investors is a very sad state of affairs, no question about that. The penalties handed out in regard to offences for those few directors that were prosecuted was without question the most pathetic slap on the hand with a wet bus ticket stuff compared to the six billion dollars of investors money that went south.

All I am saying here is keep in mind the long term of where this company has come from, the damage they have inflicted and see for yourself by their long term performance the veracity of their business model. People with a good credit record borrow from the cheapest source and don't go to third or fourth tier lenders, why do you think their balance sheet has such a phenomenal amount of provisioning, all of which is just best guess and when their guesses vary from one year to another that's when reductions in provisioning can give the "illusion" of a profit....all to be written back if hard times come along.