TRA - Turners Automotive Group [previously TNR - Turners Limited]

[noodles]

So much for IFRS rules making all figures easy to compare :-).

I did add back in the $2.179m in interest costs though ( I needed to add this back to get Earnings before Interest and Tax) , and I also added back in the $1.669m one off charge concerning the wind up of the convertible notes.

So the "Corporate and Other" adjusted segment result worked out to be not 3.879m but:

-$3.879m -(-2.179m - $1.669m ) = -$0.031m, or just $31,000.

I did allocate a fraction of those costs to the finance division. But because it worked out to such a small number in context it made little difference to my calculated result when compared with the alternative of just using the $3.360m for the finance division result alone.

I did not include the one off cost as it is "one off" in nature.

All I did was take the segment result(EBIT)(see page7 of the report) and take off the interest. I applied all the interest to that division as it was only division that requires the capital. On reflection, maybe insurance requires some capital. Not sure how to split that out. In any case, to do a like for like with turners, you must do EBT, not EBIT.

noodles

[percy]

A very good interesting article on Paul Byrnes and Dorchester in this morning's Sunday Star-Times.

[blackcap]

Thanks for posting Percy, would not have read it if you did not inform it was there. Good article in deed.

[Snoopy]

All I did was take the segment result(EBIT)(see page7 of the report) and take off the interest. I applied all the interest to that division as it was only division that requires the capital. On reflection, maybe insurance requires some capital. Not sure how to split that out.

AFAIK there is no 'correct' way to allocate out corporate costs between divisions. Because this is a service based company, I decided to allocate the costs in proportion to the declared 'depreciation and amortization' declared for each division. I judged this to be a measure of how hard each division is working its assets. In effect, the busier the people (judged by depreciation of office fittings and computers and amortisation of software), the more 'head office costs' are allocated to those people (that division).

Putting that into numbers I allocated corporate costs at DPC for FY2014 this way: 32.70% to finance, 30.81% to insurance, 16.94% to collection services

I think an insurance company does indeed require capital behind it to keep running, as does a debt collection service.

In any case, to do a like for like with turners, you must do EBT, not EBIT.

I looked at the TUA segment results 'operating profit' - normally EBIT (AR2013 p31), saw the interest figures sitting below that and assumed, they were yet to be deducted. However a cross comparison of total operating profit with the income statement (AR2013 p16) shows that the interest has already been deducted. You are quite correct Noodles that TUA are declaring their 'segment results' as EBT, not EBIT. I shall make the appropriate correction.

SNOOPY

[Snoopy]

I agree that on a superficial comparative basis DPC looks expensive. So is there something I have missed that could justify the high price? Take a look at the divisional break down of the FY2014 result, and look at the Finance division.

EBIT was $3,360m. Of course this doesn't take into account any 'corporate costs' (total -$3.879m) . I like to allocate these back into any divisional result on a 'fair allocation basis'. But how to do that?

As a first step I would adjust the corporate costs to remove the 'present value of optional convertible notes interest installments'. The convertible notes no longer exist so this item will not appear as a corporate cost in future years. I would also add back $2.179m in interest expense. My definition of 'Operating Profit' = EBIT. So I think it is very unhelpful of DPC to declare an 'operating profit' with interest expense already taken off. Making those two adjustments to 'Corporate Costs' I get a total corporate cost figure of just -$31,000.

DPC has given us a depreciation and amortization charge for each division. I propose this is a measure of how hard they are working their assets in each division in gross terms. So I would allocate 'Corporate Costs' amongst each division in proportion to depreciation and amoritization expense. I calculate a finance division allocation of corporate costs to be $10,140 on this basis.

So the FY2014 EBIT for the finance division is $3.360m - $0.01014m = $3.350m

We also are told the segment assets for the finance division total $37,953m at years end.

So EBIT /Segment Assets = $3.35m / $37,953m = 8.83%

Now compare this with the equivalent TUA finance division result:

TUAF FY2013 ($1.861m-$1.151m) / ($10.684m + $14.916m) = 2.8%

and you can see that Dorchester makes three times as much 'operating profit' as TUA does for doing essentially the same job on a similar sized loan book. Maybe the boys at DPC really do deserve that sharemarket investment premium?

Despite the seemingly time shifted comparison, I am largely covering the same months of the year, because of the different balance dates of TUA (31st December) and DPC (31st March).

Noodles has pointed out that for TUA I used EBT and for DPC I used EBIT, so the above comparison is not fair. To fix this I will add back the interest paid into the TUA result.

So the FY2014 EBIT for the DPC finance division is $3.360m - $0.01014m = $3.350m

We also are told the segment assets for the finance division total $37,953m at years end.

So EBIT /Segment Assets = $3.35m / $37,953m = 8.83%

Now compare this with the equivalent TUA finance division result:

TUAF FY2013 ($1.861m-$1.151m+$1.926m) / ($10.684m + $14.916m) = 10.3%

and you can see that TUA makes an 'operating profit' which is one and a half basis points above the earnings of DPC for doing essentially the same job on a similar sized loan book. I am happy that the result was closer than I thought, because is such similar competitive markets, it would make sense for the two operating margins to be wildly different.

If DPC really do deserve that sharemarket investment premium, I will now argue it is not because of their prowess with the loan book.

SNOOPY

[Snoopy]

Snoopy,

2. You have taken insurance profit from the TUA figure, but not external revenue from the DPC figure. So to compare, you need to take 1310 off the figure

We are left with a profit of 3350 - 2179 -1310= small loss!

I have looked at the past annual report and interim report to get an idea of what the .other income' $1.310m might be. The website just says Dorchester does "personal loans" and "business loans" under the FAQs goes on to say:

"The security will usually be a motor vehicle, boat or a registered mortgage or an ‘agreement to mortgage’, supported by a caveat lodged over the title of your property if you own a house."

The interim report says 70% of new loans are on motor vehicles. The legacy 'Senate Portflio' also motor vehicles has been fully provided for, indicating it is a basket case?

But there is no real clue as to what that other finance income might be.

SNOOPY

[noodles]

I have looked at the past annual report and interim report to get an idea of what the .other income' $1.310m might be. The website just says Dorchester does "personal loans" and "business loans" under the FAQs goes on to say:

"The security will usually be a motor vehicle, boat or a registered mortgage or an ‘agreement to mortgage’, supported by a caveat lodged over the title of your property if you own a house."

The interim report says 70% of new loans are on motor vehicles. The legacy 'Senate Portflio' also motor vehicles has been fully provided for, indicating it is a basket case?

But there is no real clue as to what that other finance income might be.

SNOOPY

Establishment fees,
Late payment Fee,
Admin fee

All possibilities.

[biker]

Interesting to see a single buyer wanting a million shares at 22c. Havent seen that for a while, and not many on offer. Would be interesting to know the motivation of someone wanting to invest $220,000 in DPC today.
IMO 28-30c should be a minimum for that sort of quantity.
I'm wondering why someone would even consider baling out at 22c.

Disc. Hold quite a few so Im biased

[biker]

I do have other things to do, but I see that bid for a Mil. shares is up 1/2 a cent to 22.5. Still dreaming IMO :-)

[hilskin]

TAKEOVER: DPC: Dorchester enters Lock Up Agreement ahead of Takeover Offer
DPC
28/07/2014 09:55
TAKEOVER

REL: 0955 HRS Dorchester Pacific Limited

TAKEOVER: DPC: Dorchester enters Lock Up Agreement ahead of Takeover Offer

28 July 2014
Company Announcement

DORCHESTER ENTERS LOCK UP AGREEMENT AHEAD OF TAKEOVER OFFER FOR TURNERS
AUCTIONS

Dorchester Pacific Limited (NZXPC) today announced it has entered into a
Lock Up Agreement with Bartel Holdings Limited (Bartel), a 20.8% shareholder
in Turners Auctions Limited (Turners). Bartel has agreed to accept, in
respect of its Turners ordinary shares, a takeover offer Dorchester intends
to make for all the ordinary shares in Turners it does not already hold.
Dorchester currently owns 19.85% of the ordinary shares in Turners.
Dorchester and Bartel between them hold 40.65%.

Dorchester advises that it intends to make a full takeover offer for 100% of
Turners' equity securities under Rule 8 of the Takeovers Code, under which
Dorchester will offer Turners' shareholders;

o cash consideration of $3.00 per Turners ordinary share; or
o 2 year 9% p.a. interest bearing Convertible Notes to be issued by
Dorchester with an option to convert to Dorchester ordinary shares; or
o Dorchester ordinary shares (with a guaranteed allocation of up to 60% of
the consideration due to accepting Turners shareholders, pro rata
thereafter); or
o any combination of cash, Convertible Notes or Dorchester ordinary shares,
subject to the limitations on Dorchester ordinary shares referred to above.

In addition, Dorchester will be seeking payment by Turners of a fully-imputed
special dividend of $0.15 per Turners share to existing shareholders, once
acceptances are received from Turners shareholders giving Dorchester an
aggregate holding in Turners in excess of 50%.

Bartel has agreed to accept a combination of 60% Dorchester ordinary shares
and 40% Convertible Notes as consideration for its Turners shares,
conditional on the takeover proceeding.

The takeover offer is not conditional on Dorchester achieving a particular
threshold of acceptances, other than achieving at least 50.1% control as
required by the Takeovers Code.

Dorchester CEO and Executive Director, Paul Byrnes, said funding for the
acquisition will be a combination of a share placement, the issue of
Convertible Notes and some bank funding.

"We anticipate raising between $25 million and $27.5 million at $0.25 per
share through the issue of Dorchester shares to Turners shareholders,
including Bartel, and a placement. We also expect to issue around $15
million of Convertible Notes including to Bartel. Final numbers will of
course depend on the level of acceptances and the combination of shares,
Convertible Notes and cash options taken up by Turners shareholders.

"Our major shareholders have indicated an interest in participating in both
the share placement and the Convertible Notes issue. We are also considering
how we can give all Dorchester shareholders the opportunity to participate in
the placement through a Share Purchase Plan. This may leave $5 million to
$7.5 million to be placed with qualifying investors in a market placement
although we will have bank funding in place to more than cover this in any
event."

It is expected that a formal Takeover Notice will be issued during the month
of August. At that time the date of Dorchester's Annual Meeting of
shareholders will be set. Resolutions in relation to the takeover offer will
be considered at that meeting.

Commenting on the rationale for the acquisition, Mr Byrnes said:

"There is a natural alignment and synergy between Dorchester and Turners
Auctions, which we talked about at the time of our investment in Turners,
last April. Seventy percent of our finance lending is for motor vehicles and
our insurance business has a focus on motor vehicle related insurance
products. We have also signaled our interest in participating in the
origination or 'front end' of an end-to-end financial services business.
And, at board level, we have been very supportive of Turners' multi-channel
strategy.

"With Dorchester's shareholder funds increasing to over $100 million
following the share placement - compared to Turners current shareholders
funds of around $18 million - we believe we can add significant 'horse power'
to grow the business in a much shorter time frame than might currently be
possible. We believe the takeover will be particularly positive for Turners'
existing customers and staff, as it will create many new opportunities.

"With respect to Turners shareholders, we think the effective consideration
of $3.15 per share (including the $0.15 Turners special dividend) is a pretty
good outcome given the market price of around $1.80 per share 15 months ago
when we joined the register. Of course we are hoping that Turners
shareholders will come to the same view as Bartel has, in not only assessing
the takeover price as attractive, but also seeing value in the opportunity to
participate in the growth and profit momentum of the enlarged business."

Last Month Dorchester advised the market of its profit guidance for its
existing businesses of $10 million - $11 million for the current financial
year, with this increasing to around $15 million for the year to 31 March
2016.

"If the takeover proceeds we would expect the Dorchester group profit before
tax in the 2016 year to be in the $20 million to $25 million range, depending
on our ultimate shareholding in Turners", said Mr Byrnes.

Dorchester Chairman, Grant Baker, said that while the takeover offer may
appear to be a bold move for Dorchester, the acquisition of a controlling
stake in Turners is entirely consistent with Dorchester's well signaled M&A
criteria and profit strategy.

"It perfectly fits our strategic plan in that it's an industry we understand
and offers scale and sustainable earnings. We believe additional synergies
will arise from a more significant investment position."

Mr Baker said the acquisition will be earnings per share accretive for
Dorchester and that funding is quite manageable.

"Dorchester's balance sheet will still remain relatively conservative, with
some headroom for pursuing further opportunities."

ENDS

For further information please contact:

Paul Byrnes
CEO/Deputy Chairman
Dorchester Pacific Limited
DDI: (09) 308 4988
Mobile: 021 644 441

Grant Baker
Chairman
Dorchester Pacific Limited
Mobile: 021 729 800

Karyn Arkell
Karyn Arkell & Associates
Mobile 027 475 3511

About Dorchester Pacific (Dorchester)

Dorchester is a financial services company with four operating entities,
Dorchester Finance, Oxford Finance, DPL Insurance and EC Credit. EC Credit
was acquired in November 2012 and Oxford Finance was acquired in April 2014.

Dorchester Finance provides secured lending to consumers (70%) and small and
medium businesses (SME's) (30%). The value of the loan book is approximately
$40 million with 70% of total lending on private and commercial motor
vehicles. The business operates out of Dorchester's offices in the Auckland
CBD with its customer strength in the Auckland, South Auckland and Hamilton
regions.

Oxford Finance provides secured lending mostly to consumers through a mix of
channels including motor vehicle dealers, finance brokers, smaller finance
companies and direct lending. The value of the book is approximately $50
million with 75% of loans being motor vehicle financing. The business is
based in Levin with a strong presence in the Wellington, Wairapapa, Taranaki,
Hawkes Bay, Waikato and Bay of Plenty areas. Oxford Finance was acquired by
Dorchester on 1 April 2014 for a (cash) purchase price of between $11.3
million and $12.3 million depending on earnings of the business for the 12
months to 31 March 2015. A profit contribution of $3 million earnings before
interest and tax is forecast for that period.

DPL Insurance is an underwriter and distributor of insurance products under
'Dorchester Life' and 'Mainstream' brands. Dorchester Life products include
Easylife and Funeral Plan. The major growth focus is on 'Mainstream' motor
vehicle related insurance products including private motor vehicle insurance,
motor vehicle breakdown insurance, loan repayment insurance and GAP
insurance. DPL Insurance has a financial strength rating of B+ from credit
rating agency A.M. Best.

EC Credit provides debt recovery and credit management services in New
Zealand and Australia. Debt recovery clients include banks, institutional
and corporate clients and SME businesses, with collections on a contingency
basis. EC Credit also sells terms of trade, credit reporting and legal
services to SME customers in New Zealand and Australia. The company is
headquartered in Napier with offices in Australian states, and employs
approximately 150 staff and agents.

EC Credit was acquired in November 2012 for a total consideration in cash and
shares of approximately $18 million and contributes an earnings before
interest or tax in excess of $4 million.

Dorchester acquired a stake of just under 20% in NZX listed Turners Auctions
Limited (Turners) in April 2013. Turners is a market leader in the second
hand car, truck and machinery market in New Zealand with three revenue
streams, Fleet (purchase and sale of used vehicles sourced from New Zealand
and Japan), Finance (lending on motor vehicles with insurance product
offerings) and Auctions (sales of vehicles and machinery on behalf of vendors
including lease companies, government, finance companies and motor vehicle
dealers).

The Dorchester Group reported a profit after tax of $8.2 million for the year
to 31 March 2014. In June 2014 the company provided profit guidance of $10
million - $11 million for the financial year to 31 March 2015 with this
increasing to around $15 million for the year to 31 March 2016. These
forecasts include a full contribution from Oxford Finance but no contribution
from further merger and acquisition activity.
End CA:00253161 ForPC Type:TAKEOVER Time:2014-07-28 09:55:33