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

[Snow Leopard]

I agree Percy. It is a continuing pattern of upgrades at DPC. Some more colour is given in the RNZ interview. http://www.radionz.co.nz/national/pr...nings-guidance

But of more interest to me was the details about how the acquisition will be funded. From this I can calculate a normalised pe for FY16 (year ending 31 march 2016)

First some assumptions:
1. DPC get 100% ownership
2. All Convertable notes are converted

Additional Capital raised based on 100% ownership $48mill @25c per share. I included the convertible notes in my eps calculcation. I know this is not technically correct, but they will probably convert at a later date. In any, case, the number of shares on issue should reflect this.

The number of new shares issued = 48Mill/.25c= 192mill shares. Add this to the existing shares and we get 685mill shares

Now the profit. DPC stated here that NPBT for FY16 with 100% ownership is $25mil
https://www.nzx.com/companies/DPC/announcements/253161

While they won't pay full tax that year, I'm going to assume they do to get a true reflection of underlying profit.
So NPAT = 25*(1-.28)= $18mill

This gives me an eps of 2.62c

And a pe of 9.53 (at current share price of .25c)

For me a pe< 10 in a growth company is rare.

DISC: Holding

On the assumption that $25M PBT represents 100% ownership of TUA for the 2015-6 FY then:

there will be 615M shares and $18M of bonds which paid out $1M62 of interest.
That would equate to a tax normalised NPAT of 2.929cps. ($18M/615M)

Convert the $18M of bonds to 72M more shares (is that right?) and you save the $1M62 interest.
That would equate to a tax normalised NPAT of 2.791cps. ($19M17/687M)

Remember that this is based on estimates of future profits and actually results will be different.

Best Wishes
Paper Tiger

[noodles]

On the assumption that $25M PBT represents 100% ownership of TUA for the 2015-6 FY then:

there will be 615M shares and $18M of bonds which paid out $1M62 of interest.
That would equate to a tax normalised NPAT of 2.929cps. ($25M/615M)

Convert the $18M of bonds to 72M more shares (is that right?) and you save the $1M62 interest.
That would equate to a tax normalised NPAT of 2.791cps. ($26M62/687M)

Remember that this is based on estimates of future profits and actually results will be different.

Best Wishes
Paper Tiger

I think you are correct. pe<9 now.

[noodles]

Worth a listen. Grant talks briefly about why they are buying Turners
http://podcast.radionz.co.nz/busines...olders-048.mp3

[noodles]

gee... up 20% to .30. looking good but won't stay there i wouldn't think.

Percy's "Smell the Money" quote certainly gave the stock a boost

[Snoopy]

gee... up 20% to .30. looking good but won't stay there i wouldn't think.

Profit upgrade for FY2015 (from $10m - $11m) to $11.5m, yet profit guidance for FY2016 remains the same ($15m).

However it isn't clear why the profit has been upgraded. Oxford Finance is mentioned (are they doing better than expected?). TUA is mentioned (are DPC forecasting more synergy gains? Or is TUA just expected to do better than expected?) If the latter, why not just stay invested in TUA? The question for TUA shareholders is will Dorchester overall grow faster than TUA alone? I would argue that Turners as they transform to NZs first corporate car dealer, will grow faster on average. This unspecified profit upgrade by Dorchester could be a cynical ploy to make TUA shareholders think they are missing out, when staying put could yet prove the best way.

SNOOPY

[noodles]

Great interview

http://www.radionz.co.nz/national/pr...-future-at-agm

I note that at the AGM, the food was boring and cheap. Just what you want from a company that is focused on profits.

[zigzag]

Great interview

http://www.radionz.co.nz/national/pr...-future-at-agm

I note that at the AGM, the food was boring and cheap. Just what you want from a company that is focused on profits.

Were you expecting a banquet? I was more than happy with club sandwiches, mini- pies and cream and jam on the scones. Perhaps you are too fussy, or were too late to the scrum. If your really looking for fine dining, you should of attended the Snk meeting, with a large assortment of canapés and a band playing in the background.

[noodles]

It was recently suggested to me that what with the latest announcement from DPC I should take a look at them.

Firstly I have to say that I do not currently hold nor have any intention of buying into DPC because the average daily turnover of shares as I measure it (using a 64 day period) is too low. I do not like to get into anything I can not get out of

Having said that over the last three weeks turnover has on average been sufficiently high that if maintained the red flag would be swapped for an orange one and then I could reconsider a minimal holding.
Along with the recent increased volume above there has also been an increase in price which is a good sign.

So anyway a few numbers & assumptions
They have had a fun few years!
Profits = real money.
Shares on issue: 494M

FY2014 profit: $4M331
FY2015 profit: $10M500
FY2016 profit: $14M500
as per forecasts with basically no tax paid as past losses are used up. This is the most optimistic scenario tax wise. (this period is good for acquiring other stuff)

From then on tax paid on profits and 6% pa growth (so start paying a dividend with imputation credits attached)
FY2017 profit: $11M066 and so on.

So:
Value at 31-Mar-2014: $0.225
Value at 31-Mar-2015: $0.237

Obviously my values are less than current market price - I would say that the expected profit boost from having tax losses to use against profits for the next few years as had an effect.

Someone remind me to re-visit this once the FY2014 financial statements are released (in May).

Usual disclaimer: happy for anybody to come up with a different result.

Best Wishes
Paper Tiger

paper tiger,

would you care to revisit after the fy14 financials and including the 25mill fy16 npbt forecast please.

noodles

[Snoopy]

My above analysis of DPC is largely based on the post fund raising balance sheet of DPC as outlined in the pro-forma balance sheet slide presented to shareholders at the AGM on 23rd August 2013. However, to an extent this is a moot observation because the Chairman has clearly signalled that DPC is on the acquisition trail.

From the Chairman's AGM address:
"While there will be a range of views on what gearing or equity ratio is appropriate for a financial services company such as Dorchester, the Boards’ view is that there is some $50m of borrowing capacity to fund merger and acquisition opportunities."

Simple subtraction from the $67.4m of shareholder equity on the pro-forma balance sheet leaves $17.4m. I interpret that to mean that $17.4m is sufficient equity to 'cover' the existing working assets of the company comprising:

Finance Receivables of $31.4m, Reverse annuity mortgages of $17.7m, Financial assets including Funds Under management of $16.8m. These total financial working assets, that are ultimately owned by other parties not DPC add up to $65.9m.

$17.4m/$65.9m = 26.4%

This is in accordance with the >20% 'Tier 1' capital standard imposed by UBS and First NZ Capital on PGGW Finance, before PGGW finance amalgamated with Heartland bank.

Of course if you subtract out the $26.2m of intangible assets on the books then DPC would be in net negative shareholder asset position. I guess that is a strong argument to show that it is not appropriate to strip out intangible assets in this situation?

The 'simplified disclosure prospectus' put out by Dorchester to try and entice some TUA shareholders on board provides some detials on Dorchester's operations that AFAIK have not been published before. Of particular interest, from p23, is the information provided on Dorchester's Reverse Annuity Mortgage business, or RAMS for short.

	FY2013	FY2014
Total Revenue	$0.248m	$0.554m
Expenses	-$0.188m	-$0.379m
Net Profit after Tax	$0.060m	$0.175m
Total assets (A)	$6.628m	$5.430m
Total liabilities (B)	-$6.569m	-$5.196m
Shareholders Equity (A-B)	$0.059m	$0.234m
Borrowings	-$5.252m	-$3.851m

What strikes me as counterintuitive is that total assets being managed are down by 18% between FY2013 and FY2014. Yet net profit has grown by 290% over the same period. Explanation?

Whatever the reason, dividing total liabilities by borrowings gives:

FY2013: $6.569m/$5.242m = 1.25
FY2014: $5.196m/$3.851m= 1.34

So as a proportion of liabilities, as well as absolutely, borrowings are lower moving from FY2013 to FY2014.

What does surprise me is the very low shareholders equity needed to support the assets on the books:

FY2013: $0.059m/$6.628m = 0.89%
FY2014: $0.234m/$5.430m= 4.3%

Anyone offer an explanation as to how they can get away with such thin capitalisation?

SNOOPY

[Snoopy]

paper tiger,

would you care to revisit after the fy14 financials and including the 25mill fy16 npbt forecast please.

Perhaps that would be easier once the TUA takeover offer closes and the state of the DPC balance sheet post takeover is revealed. Too many variables floating around to give a sensible answer before then IMO.

I am firming up on the idea of taking the DPC 9% bonds myself. That will give the head share a chance to settle down and I can decide whether to join the DPC share register in two years time, when the bonds mature.

SNOOPY